~~On September~~ 30 2016, we and the other parties involved in the acquisition of MediaMiser amended the terms on which one of our subsidiaries was required to make a supplemental purchase price payment for MediaMiser. Prior to the amendment, the amount of the supplemental purchase price payment was to be determined by the achievement of certain financial thresholds and was in no event to exceed $3.8 million (C$5 million). The amendment fixed the amount of the supplemental purchase price payment at $1.5 million (C$2 million) payable in two equal installments. The first installment was paid 30% in cash and 70% in shares of Innodata Inc. common stock on March 31, 2017. The second instalment is payable on March 31, 2018 to designated recipients, except that no payments will be made to designated recipients who fail to satisfy specified conditions. We have the option to pay up to 70% of the supplemental amount in shares of Innodata Inc. common stock. We recorded a $1.0 million charge in our statement of operations for the third quarter of 2016 to reflect the amendment.
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Goodwill Impairment
On March 31, 2020, we determined that adverse changes in macroeconomic trends as a consequence of the continuing COVID-19 pandemic constituted a triggering event under the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) No. 350, “Intangibles - Goodwill and Other” and ASC No. 360, “Impairment or Disposal of Long-Lived Assets”). We completed our impairment analysis procedures as of March 31, 2020. We determined that there was no impairment of long-lived assets in any of the reporting units as of March 31, 2020.
On September 30, 2020, we performed our annual goodwill assessment for the Agility segment in accordance with the provisions of the FASB’s Accounting Standards Update (“ASU”) 2017-04, “Intangibles – Goodwill and Other (Topic 350)”, by using a single step approach that evaluates the carrying value of goodwill and comparing it against the reporting unit’s fair value. Our conclusion was consistent with the results of the March 31, 2020 impairment test.
Income Taxes

We recorded a provision for income taxes of approximately ~~$0.3~~$0.4 million and $1.1 million for the years ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~Taxes~~Tax-related charges primarily ~~consist~~consisted of a provision for foreign taxes recorded in accordance with the local tax regulations by our foreign subsidiaries. Effective income tax rates are disproportionate primarily due to the ~~losses incurred by our U.S. entity and our Canadian subsidiaries and a~~ valuation allowance recorded on the deferred taxes on ~~these entities. Some of our foreign subsidiaries are subject to tax holidays or preferential tax rates which reduce our overall effective tax rate when compared to~~ the U.S. ~~statutory tax rate.~~
~~In December 2017, the President signed the U.S. Tax Cuts~~ and Jobs Act (2017 Tax Act), which includes a broad range of provisions, many of which significantly differ from those contained in previous U.S. tax law. Changes in tax law are accounted for in the period of enactment. As such, the 2017 consolidated financial statements reflect the immediate tax effectCanadian entities. See Note 4, “Income Taxes” of the ~~2017 Tax Act, which was enacted on December 22, 2017 (Enactment Date). The 2017 Tax Act contains several key provisions including, among other things:~~
~~A one-time tax on the mandatory deemed repatriation of post-1986 untaxed foreign earnings and profits (E&P), referred~~notes to ~~as the toll charge;~~
~~A reduction in the maximum Corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017;~~
The introduction of a new U.S. tax on certain off-shore earnings referred to as Global Intangible Low-Taxed Income (GILTI) at an effective tax rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) with a partial offset by applicable foreign tax credits; and
~~The introduction of a quasi-territorial tax system for tax years beginning after December 31, 2017 by providing a dividend received deduction under the participation exemption system.~~
~~Pursuant to the 2017 Tax Act, we recorded the following adjustments to income tax expense during the fourth quarter of 2017:~~
A one-time deemed repatriation of E&P amounting to $6.4 million. No toll tax liability was recorded due to the available net operating loss carryforwards This resulted in a reduction of deferred tax assets and a corresponding reduction in the valuation allowance of $2.2 million; and
A reduction of deferred tax assets and a corresponding reduction of the valuation allowance of $4.8 million, primarily for the remeasurement of our deferred tax assets at the enacted tax rate of 21%. An income tax benefit of $0.1 million, primarily for the remeasurement of our deferred tax liabilities at the enacted tax rate of 21%.
~~We continue to evaluate the GILTI provisions of the 2017 Tax Act and its impact, if any, on~~ the consolidated financial statements asfor additional information.
The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for the years ended December 31, ~~2017.~~2020 and 2019 are summarized in the table below:

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2020 2019
Federal income tax expense (benefit) at statutory rate 21.0 % (21.0 )%
Effect of:
Change in valuation allowance 137.7 22.4
Increase in unrecognized tax benefits (ASC 740) 31.5 55.1
Tax effects of foreign operations 57.7 59.7
Foreign operations permanent differences - foreign exchange gains and losses (1.3 ) (12.2 )
Deemed interest (2.1 ) -
State income tax net of federal benefit (4.3 ) 1.3
Foreign rate differential (8.6 ) 0.8
Effect of share based compensation (10.9 ) -
Return to provision true up (10.8 ) (2.6 )
Change in rates (172.7 ) -
Withholding tax 1.5 6.0
Other (0.3 ) (7.3 )
Effective tax rate 38.4 % 102.2 %

~~One of the several provisions of the 2017 Tax Act was a one-time tax on the mandatory deemed repatriation of post-1986 untaxed foreign earnings and profits (E&P), referred to as the toll charge.~~ ~~A significant portion of our operations are conducted outside the United States. The toll charge amounted to $6.4 million. The charge was offset by the available net operating loss carryforwards.~~ Despite ~~the~~ access to ~~the~~ overseas earnings and the resulting toll charge, we intend to indefinitely reinvest ~~the foreign~~ earnings and profits in our foreign subsidiaries on account of the foreign jurisdiction withholding ~~tax~~taxes that we would have to incur on the actual remittances. Unremitted foreign earnings ~~of foreign subsidiaries~~and profits amounted to approximately ~~$24.8~~$47.0 million at December 31, ~~2017.~~2020. If such foreign earnings and profits are repatriated in the future, or are no longer deemed to be indefinitely reinvested, we would have to accrue the applicable amount of foreign jurisdiction withholding taxes associated with such remittances.
In 2017, the U.S. entity deferred $5.2 million in payments due to its Asian operating subsidiaries, which resulted in a deemed dividend that is taxable income for U.S. tax purposes under Section 956 of the Internal Revenue Code. The taxable income was offset against the net operating loss carryforwards of the U.S. entity.

We have a valuation allowance on all of our U.S. deferred tax assets on account of continuing losses incurred by our U.S. entity. In addition, we also have a valuation allowance on the deferred tax assets of our Canadian subsidiaries. Our Canadian subsidiaries also have research and development ~~expenditures~~credits available to reduce taxable income in future years, which may be carried forward indefinitely. The potential benefits from these balances have not been recognized for financial statement purposes.

Pursuant to an income tax audit by the Indian Bureau of Taxation in 2009, our Indian subsidiary received a tax assessment approximating $356,000 including interest, through December 31, 2017 for the fiscal year ended March 31, 2006. We disagree with the basis of this tax assessment, have filed an appeal against the assessment and are contesting it vigorously. In January 2012, our Indian subsidiary received a final tax assessment of approximately $1.0 million, including interest, for the fiscal year ended March 31, 2008, from the Indian Bureau of Taxation. We disagree with the basis of this tax assessment and have filed an appeal against it. Due to this assessment, we recorded a tax provision amounting to $371,000 including interest through December 31, 2017. In April 2015, we received a favorable judgment whereby the Appeal Officer reduced the tax assessment to $0.3 million. Under the Indian Income Tax Act, however, the income tax assessing officer has the right to appeal against the judgment passed by the Appeal Officer. In the third quarter of 2015, the income tax assessing officer exercised this right and filed an appeal. Based on recent experience, we believe that the tax provision of $371,000 including interest is adequate.Assessments

In September 2015, our Indian subsidiary was subject to an inquiry by the Service Tax ~~Bureau~~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), and not under the category of business support services (BS Services) that are exempt from service tax as historically indicated in the subsidiary’s service tax filings. We disagree 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 position. We are vigorously contesting this order in an appeal to the Customs, Excise and Service Tax Appellate Tribunal. In the event the Service Tax ~~Bureau~~Department is ultimately successful in proving that the services fall under the category of OID Services, the revenues earned by our Indian subsidiary for the period July 2012 through November 2016 would be subject to a service tax of ~~approximately 14.5% of the subsidiary’s revenues~~ between 12.36% and 15%, and this ~~would increase our operating costs by an equivalent amount.~~subsidiary may also be liable to pay interest and penalties. The~~revenues~~ revenue of our Indian subsidiary during this period was approximately $64.0 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 our counsel’s assessment, we have not recorded any tax liability for this case.
In a separate action relating to service tax refunds, in October 2016, our Indian subsidiary received notices from the ~~year ended December 31, 2017 were $15.6 million.~~Indian Service Tax Department in India seeking to reverse service tax refunds of approximately $160,000 previously granted to our 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. We disagree with the ~~Service Tax Bureau’s position~~basis of this decision and are ~~vigorously~~ contesting ~~these assertions.~~
~~From time to time~~it vigorously. We expect delays in our Indian subsidiary receiving further service tax refunds until this matter is adjudicated with finality, and currently have service tax credits of approximately $1.0 million recorded as a receivable. Based on our counsel’s assessment, we ~~are subject to various other~~have not recorded any tax ~~proceedings and claims~~liability for our Philippines subsidiaries. We have recorded a tax provision amounting to $184,000 including interest through December 31, 2017, for several ongoing tax proceedings in the Philippines. Although the ultimate outcome cannot be determined at this ~~time, we continue to contest these claims vigorously.~~case.

Net ~~Loss~~Income (Loss)

We ~~incurred~~had a net ~~loss~~income of ~~$5.1~~$0.6 million during the year ended December 31, ~~2017~~2020, compared to a net loss of ~~$5.5~~$2.1 million during the year ended December 31, ~~2016.~~2019. The $2.7 million improvement was attributable to higher revenues of $2.3 million, and a decrease in tax provision of $0.7 million, partially offset by higher operating expenses of $0.3 million.
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Net ~~loss~~income for the DDS segment was ~~$1.7~~$0.3 million for the year ended December 31, ~~2017,~~2020, compared to a net loss of ~~$2.6~~$0.5 million for the year ended December 31, ~~2016, net~~2019. The $0.8 million improvement was attributable to higher revenues of ~~intersegment profits. The decline~~$0.7 million and a decrease in ~~net loss is primarily due to the decline in direct~~tax provisions of $0.4 million, partially offset by higher operating ~~costs and selling and administrative~~ expenses ~~offset in part by the decline in revenues. In 2016, we had a charge to our operations referred to under “Contingent Consideration.”~~of $0.3 million.

Net ~~loss~~income for the ~~IADS~~Synodex segment was ~~$0.6~~$0.5 million for the year ended December 31, ~~2017~~2020, compared to ~~a net~~breakeven for the year ended December 31, 2019. The $0.5 million increase was primarily attributable to the higher revenues of $0.9 million offset in part by higher operating expenses of $0.4 million.
Net loss ~~of $1.7~~for the Agility segment was $0.2 million for the year ended December 31, ~~2016, net of intersegment profits. The decline in~~2020, compared to a net loss ~~is primarily due to the increase in revenues and the decline in direct operating costs and selling and administrative expenses.~~
~~Net loss for the MIS segment was $1.4 million and $1.2 million for the years ended December 31, 2017 and 2016, respectively.The increased net loss is mainly due to the increase in direct operating costs and selling and administrative expenses partially offset by an increase in revenues.~~
~~Adjusted EBITDA~~
~~Adjusted EBITDA for the year ended December 31, 2017 was a loss~~ of ~~$0.7 million compared to income of $0.7~~$1.6 million for the year ended December 31, ~~2016, a decline~~2019. The $1.4 million improvement was the result of ~~$1.4 million. Adjusted EBITDA for the DDS segment was $1.2~~higher revenues of $0.7 million, ~~and $2.8 million for the years ended December 31, 2017 and 2016, respectively, a decrease~~reductions in operating expenses of ~~$1.6 million or approximately 57%. Adjusted EBITDA for the IADS segment was a loss of $0.6~~$0.4 million and a ~~loss of $1.8 million for the years ended December 31, 2017 and 2016, respectively. Adjusted EBITDA for the MIS segment was a loss of $1.3 million compared to a loss~~tax benefit of $0.3 ~~million for the years ended December 31, 2017 and 2016, respectively.~~million.

Liquidity and Capital Resources

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

December 31, December 31,
2017 2016 2020 2019
Cash and cash equivalents $ 11,407 $ 14,172 $ 17,573 $ 10,874
Working capital 9,729 14,407 13,515 8,250

AtOn December 31, ~~2017,~~2020, we had cash and cash equivalents of ~~$11.4~~$17.6 million, of which ~~$5.7~~$10.2 million was held by our foreign subsidiaries, ~~and$5.7~~and $7.4 million was held in the United States. Despite the passage of the new tax law under which ~~the Company~~we may repatriate funds from overseas after paying the toll charge, it is our intent, as of December 31, ~~2017,~~2020, to permanently 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) investments in the ~~MIS Segment;~~Agility segment; (ii) the expansion of our other operations; (iii) technology innovation; (iv) product management and strategic marketing; (v) general corporate purposes, including working capital; and ~~(iv)~~(vi) possible business acquisitions. As of December 31, ~~2017,~~2020, we had working capital of approximately ~~$9.7~~$13.5 million, as compared to working capital of approximately ~~$14.4~~$8.3 million as of December 31, ~~2016.~~2019.
On May 4, 2020, we 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. The loans and accrued interest are forgivable, as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The unforgiven portion of the loan is payable over two years at an interest rate of 1% per year, with a deferral of payments until the date that the Small Business Administration remits the borrower’s loan forgiveness amount to the lender. On January 29, 2021, we filed our loan forgiveness application for 100% of the approved loan under the PPP.
Proceeds from stock option exercises for the year ended December 31, 2020 were $2.6 million.
We did not have any material commitments for capital expenditures as of December 31, 2020.

We believe that our existing cash and cash equivalents and ~~internally generated funds~~cash flows from operations will provide sufficient sources of liquidity to satisfy our financial needs for the next 12 ~~months.~~months from the date of issuance of these financial statements. However, as we have no bank facilities or lines of credit, ~~and continuing material~~ reductions in our cash and cash equivalents from operating losses, capital expenditures, adverse legal decisions, acquisitions or otherwise could materially and adversely affect the Company.

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

Cash provided by our operating activities for the year ended December 31, ~~2017~~2020 was ~~$0.7~~$5.7 million ~~resulting from a~~and was the result of the net ~~loss~~income of ~~$5.4~~$0.6 million, ~~and~~the effect of adjustments for non-cash items of ~~$4.2~~$3.4 million and ~~uses~~sources of working capital of ~~$1.9~~$1.6 million. Adjustments for non-cash items primarily consisted of ~~$3.7~~$2.3 million for depreciation and amortization, ~~and~~ stock-based compensation ~~expense~~ of ~~$0.7 million.~~$0.9 million and $0.2 million for other non-cash items. Working capital activities primarily consisted of sources from a $1.4 million increase in accrued salaries, wages and related benefits, a $0.8 million increase in income and other taxes, offset by a $0.6 million increase in prepaid expenses and other current assets. Refer to the Consolidated Statements of Cash Flows for further details.

Cash ~~used in~~provided by our operating activities for the year ended December 31, ~~2016~~2019 was ~~$2.7~~$4.3 million ~~resulting from a~~and was the result of the net loss of ~~$5.9~~$2.1 million, ~~and~~the effect of adjustments for non-cash items of ~~$5.5~~$3.6 million and ~~uses~~sources of working capital of ~~$2.3~~$2.9 million. Adjustments for non-cash items primarily consisted of ~~$3.2~~$2.7 million for depreciation and amortization, ~~a change in fair value~~stock option expense of ~~contingent consideration of $1.0~~$0.8 million and ~~stock-based compensation expense~~$0.1 million for other non-cash items. Working capital activities primarily consisted of sources from a $1.2 ~~million.~~million decrease in our accounts receivable, a $1.2 million decrease in prepaid and other current assets, and a $0.9 million increase in income and other taxes which was offset in part by a use of $0.5 million due to an increase in other working capital. The reduction in accounts receivable is a result of higher collections during the year ended December 31, 2019. Refer to the Consolidated Statements of Cash Flows for further details.

~~At December 31, 2017, our~~Our days’ sales outstanding were 6162 days ~~as compared to 55~~and 66 days ~~as of~~ December 31, ~~2016.~~2020 and 2019, respectively. We calculate DSO by first dividing the total revenues for the period by average net accounts receivable, which is the sum of net accounts receivable at the beginning of the period and net accounts receivable at the end of the period, to yield an amount we refer to as the “accounts receivable ~~turnover.”~~turnover”. Then we divide the total number of days within the period reported by the accounts receivable turnover to yield DSO expressed in number of days.

Net Cash Used in Investing Activities

~~For the year ended December 31, 2017, cash~~Cash used in our investing activities was ~~$3.4 million.~~$1.4 million and $1.7 million for the years ended December 31, 2020 and 2019, respectively. These capital expenditures were principally for the purchase of technology equipment including servers, network infrastructure and workstations, ~~renovations costs in connection with the relocation of our New Jersey and Canada headquarters,~~ and expenditures for internally developed software. Capital expenditures ~~of $3.4~~for the year ended December 31, 2020 amounting to $1.4 million consisted of ~~$1.8~~$0.6 million for the DDS segment and ~~$1.6~~$0.8 million for the ~~MIS~~Agility segment.

For the year ended December 31, 2016, cash used in our investing activities was $7.0 million. These expenditures consisted of $4.2 million paid to acquire Agility in July 2016 and capital expenditures of $2.7 million principally for the purchase of technology equipment including servers, network infrastructure and workstations. Capital expenditures of $2.7 million consisted of $2.2 million for the DDS segment and $0.5 million for the MIS segment.
~~For the year 2018,~~2020, we anticipate that capital expenditures for ongoing technology, equipment and infrastructure upgrades will approximate ~~$1.0~~$2.0 to ~~$2.0~~$2.3 million, a portion of which we may finance.

Net Cash ~~Provided~~ Used in Financing Activities

~~Payment of long-term obligations approximated $1.1 million and $0.7 million for 2017 and 2016, respectively.~~ Cash ~~from~~provided by financing activities represents the net proceeds from a capital lease transaction we entered into during 2017 amounting to $0.8 million. There were no stock option exercises during the years ended December 31, 2017 and 2016, respectively. Duringfor the year ended December 31, ~~2016, we repurchased 57,000~~2020 was from PPP loan proceeds of $0.6 million and proceeds from stock option exercises of $2.6 million. Payments of long-term obligations were $0.9 million and $0.6 million for December 31, 2020 and 2019, respectively. Cash used in financing activities for 2019 was $1.8 million for the repurchase of 1,503,095 shares of our common stock ~~for approximately $0.1 million.~~at a volume-weighted average price of $1.23 per share.
Inflation, Seasonality and Prevailing Economic Conditions

Although most of our revenues are denominated in U.S. dollars, a significant portion of our revenues is denominated in Canadian dollars, Pound Sterling and Euros. In addition, a significant portion of our expenses, primarily labor expenses in the Philippines, India, Sri Lanka, Germany, Canada and Israel, isare incurred in the local currencies of the countries in which we operate. For financial reporting purposes, we translate all non-U.S. denominated transactions into U.S. dollars in accordance with ~~accounting principles generally accepted in the United States.~~U.S. GAAP. Thus, we are exposed to the risk that fluctuations in the value of these currencies relative to the U.S. dollar could have a direct impact on our revenues and our results of operations.
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The Philippines and India have at times experienced high rates of inflation as well as major fluctuations in the exchange rate between the Philippine peso and the U.S. dollar and the Indian rupee and the U.S. dollar. ~~Although we selectively undertake hedging activities to mitigate certain~~As of ~~these risks,~~December 31, 2020, the aggregate notional amount of our ~~hedging activities may not be effective~~ hedges against the Indian rupee was approximately $2.9 million, and ~~may result in losses.~~$4.0 million for the Philippine peso.

Fluctuations in exchange rates also affect the value of funds held by our foreign subsidiaries. We do not currently intend to hedge these assets.

~~Contractual Obligations~~
The table below summarizes our contractual obligations (in thousands) at December 31, 2017, and the effect that those obligations are expected to have on our liquidity and cash flows in future periods.
Payments Due by Period
Contractual Obligations Total Less than
1 year 1-3 years 4-5 years After 5
years

Capital lease $ 829 $ 436 $ 393 $ - $ -
Vendor obligations 751 395 356 - -
Non cancellable operating leases 3,255 687 964 720 884
Total contractual cash obligations $ 4,835 $ 1,518 $ 1,713 $ 720 $ 884
~~Future expected obligations under our pension benefit plans have not been included in the contractual cash obligations table above.~~
~~Inflation, Seasonality and Prevailing Economic Conditions~~
Our most significant costs are the salaries and related benefits of our employees in Asia. We are exposed to ~~higher~~high inflation in wage rates in the countries in which we operate. We generally perform work for our clients under project-specific contracts, requirements-based contracts or long-term contracts. We must adequately anticipate wage increases, particularly on our fixed-price contracts. There can be no assurance that we will be able to recover cost increases through increases in the prices that we charge for our services to our clients.

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.
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~~Critical Accounting Policies and Estimates~~
~~Basis of Presentation and Use of Estimates~~
Our discussion and analysis of our results of operations, liquidity and capital resources is based on our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these 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 consolidated results of operations and financial position. We believe the following critical accounting policies affect our more significant estimates and judgments in the preparation of our consolidated financial statements.
~~Allowance for Doubtful Accounts~~
We establish credit terms for new clients based upon management’s review of their credit information and project terms, and perform ongoing credit evaluations of our clients, adjusting credit terms when management believes appropriate, based upon payment history and an assessment of the client’s current credit worthiness. We record an allowance for doubtful accounts for estimated losses resulting from the inability of our clients to make required payments. We determine this allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, our estimate of the client’s current ability to pay its obligation to us, and the condition of the general economy and the industry as a whole. We cannot guarantee that credit loss rates in the future will not be greater that those experienced in the past. In addition, we would have credit exposure if the financial condition of one of our major clients were to deteriorate. In the event that the financial condition of our clients was to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be necessary.
~~Foreign Currency Translation~~
The functional currency of our production operations located in the Philippines, India, Sri Lanka and Israel is the U.S. dollar. Transactions denominated in the Philippine pesos, Indian and Sri Lankan rupees or Israeli shekels are translated to U.S. dollars at rates which approximate those in effect on the transaction dates. Monetary assets and liabilities denominated in foreign currencies at December 31, 2017 and 2016 are translated at the exchange rate in effect as of those dates. Nonmonetary assets, liabilities, and stockholders’ equity were translated at the appropriate historical rates. Included in direct operating costs are exchange losses (gains) resulting from such transactions of approximately $466,000 and $486,000 for the years ended December 31, 2017 and 2016, respectively.
The functional currency for our subsidiaries in Germany, United Kingdom and Canada are the Euro, the Pound Sterling and the Canadian dollar, respectively. The financial statements of these subsidiaries are reported in these respective currencies. Financial information is translated from the applicable functional currency to the U.S. dollar (the reporting currency) for inclusion in our consolidated financial statements. Income, expenses and cash flows are translated at weighted average exchange rates prevailing during the fiscal 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 income (loss) in stockholders' equity. Foreign exchange transaction gains or losses are included in direct operating costs in the accompanying consolidated statements of operations and comprehensive loss. The amount of foreign currency translation adjustment was ($687,000) and $1,393,000 for the years ended December 31, 2017 and 2016, respectively.
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~~Revenue Recognition~~
For the DDS segment, revenue is recognized based on the quantity delivered or resources utilized and in the period in which services are performed and delivery has occurred. Revenues for contracts billed on a time-and-materials basis are recognized as services are performed. Revenues under fixed-fee contracts, which are not significant to the overall revenues, are recognized on the percentage of completion method of accounting, as services are performed or milestones are achieved.
For the IADS segment, revenue is recognized primarily based on the quantity delivered and the period in which services are performed and deliverables are made as per contracts. A portion of our IADS segment revenue is derived from licensing our software and providing access to our hosted software platform. Revenue from such services are recognized monthly when access to the service is provided to the end user and there are no significant remaining obligations, persuasive evidence of an arrangement exists, the fees are fixed or determinable and collection is reasonably assured.
The MIS segment derives its revenues primarily from subscription arrangements and provision of enriched media analysis services. Revenue from subscriptions is recognized monthly when access to the service is provided to the end user and there are no significant remaining obligations, persuasive evidence of an arrangement exists, the fees are fixed or determinable and collection is reasonably assured. Revenue from enriched media analysis services is recognized when the services are performed and delivered to the client.
~~Revenues include reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in direct operating costs.~~
~~Long-lived Assets~~
We assess the recoverability of long-lived assets, which consist primarily of fixed assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The following factors, if present, may trigger an impairment review: (i) significant underperformance relative to expected historical or projected future operating results; (ii) significant negative industry or economic trends; (iii) a significant decline in our stock price for a sustained period; and (iv) a change in our market capitalization relative to net book value. If the recoverability of these assets is unlikely because of the existence of one or more of the above-mentioned factors, an impairment analysis is performed, initially using a projected undiscounted cash flow method. We make assumptions regarding estimated future cash flows and other factors to determine the fair value of these respective assets. An impairment loss will be recognized only if the carrying value of a long-lived asset is not recoverable and exceeds its fair value and is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.
~~Income Taxes~~
We determine our deferred taxes 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. We provide a valuation allowance when it is more likely than not that all or some portion of the deferred tax assets will not be realized. While we consider future taxable income in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize the deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made. Similarly, in the event we were to determine that we would not be able to realize the deferred tax assets in the future considering the future taxable income, an adjustment to the 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 our tax provision in the period of change. As of December 31, 2017, we intend to indefinitely reinvest the foreign earnings in our foreign subsidiaries. However, if we change our intent and repatriate such earnings, we will have to accrue the applicable amount of withholding taxes associated with such remittances.
In assessing the realization of deferred tax assets, management considered whether it was more likely than not that all or some of the U.S. deferred tax assets would not be realizable. As of December 31, 2017, we continue to maintain a valuation allowance on all U.S. deferred tax assets.
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As of December 31, 2017, our Canadian subsidiaries have available net operating loss carryforwards and research and development expenditures available to reduce taxable income of future years. The potential benefits from balances have not been recognized for financial statement purposes.
We account for income taxes regarding uncertain tax positions, and recognize interest and penalties related to uncertain tax positions under “Income Tax Expense” in our consolidated statements of operations and comprehensive loss.
~~Goodwill and Other Intangible Assets~~
Goodwill represents the excess purchase price paid over the fair value of net assets acquired. We test our goodwill on an annual basis using a two-step fair value-based test. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit, with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of the impairment loss, if any. If impairment is determined, we will recognize additional charges to operating expenses in the period in which they are identified, which would result in a reduction of operating results and a reduction in the amount of goodwill.
In the annual impairment test conducted by us as of September 30, 2017 and 2016, the estimated fair value of the reporting unit exceeded its carrying amount, including goodwill. As such, no impairment was identified or recorded.
~~Accounting for Stock-Based Compensation~~
~~We are authorized to grant stock options to officers, directors, employees and others who render services to us under the 2013 Stock Plan approved by the stockholders.~~
We measure and recognize stock-based compensation expense for all share-based payment awards made to employees and directors based on estimated fair value at the grant date and recognized over the requisite service period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of stock options and the expected volatility of our stock. The fair value is determined using the Black-Scholes option-pricing model. We recorded stock-based compensation expense of approximately $0.7 million and $1.2 million for the years ended December 31, 2017 and 2016, respectively.
~~Legal Proceedings~~
We are subject to various legal proceedings and claims which arise in the ordinary course of business. Our legal reserves related to these proceedings and claims are based on a determination of whether or not a loss is probable. We review outstanding claims and proceedings with external counsel to assess probability and estimates of loss. The reserves are adjusted if necessary. If circumstances change, we may be required to record adjustments that could be material to our reported financial condition and results of operations.
~~Pensions~~
Most of our non-U.S. subsidiaries provide for government mandated defined pension benefits covering those employees who meet certain eligibility requirements. Pension assumptions are significant inputs to actuarial models that measure pension benefit obligations and related effects on operations. Two critical assumptions – discount rate and rate of increase in compensation levels – are important elements of plan expense and asset/liability measurements. These critical assumptions are evaluated at least annually on a plan and a country-specific basis. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect actual experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors, and in accordance with generally accepted accounting principles, the impact of these differences is accumulated and amortized over future periods.
37
~~Recent Accounting Pronouncements~~
In May 2014, the FASB issued guidance on revenue from contracts with clients. This update is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This accounting guidance is effective prospectively for annual reporting periods, and interim periods within those periods, beginning after December 15, 2017 and early adoption is permitted starting from the first quarter of 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt the new standard when it takes effect. We will adopt the new standard and related updates effective January 1, 2018 using the modified retrospective method of adoption. The new standard further requires new disclosures about contracts with customers, including the significant judgments the company has made when applying the guidance. We have finalized our analysis and the adoption of this guidance will not have a material impact on our consolidated financial statements and internal controls over financial reporting.
In February 2016, the FASB issued guidance related to leases. This new guidance requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months.  The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases.  The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. This new guidance is effective for annual periods beginning after December 15, 2018.  Early application is permitted. We are in the process of evaluating the effect the guidance will have on our existing accounting policies and consolidated financial statements but expect there will be an increase in assets and liabilities on the consolidated balance sheets at adoption due to the recording of right-of-use assets and corresponding lease liabilities, which may be material.
In March 2016, the FASB issued guidance relating to share-based compensation. This new guidance is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  The new guidance is effective for annual periods beginning after December 15, 2016.  We adopted this standard in 2017 and there was no material impact on our consolidated financial statements.
In March 2017, the FASB issued guidance on Compensation - Retirement Benefits relating to improvements in the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Under existing U.S. GAAP, an entity is required to present all components of net periodic pension cost and net periodic postretirement benefit cost aggregated as a net amount in the income statement, and this net amount may be capitalized as part of an asset where appropriate. The amendments in the guidance require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when applicable. The amendments in the guidance will be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The guidance will be effective for the Company for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. We do not anticipate that the adoption of this guidance will have a material impact on our consolidated financial statements.
38
In January 2017, the FASB issued guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2020, with early adoption permitted.
In August 2017, the FASB amended the requirements of the Derivatives and Hedging Topic of the Accounting Standards Codification to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We do not anticipate that the adoption of this guidance will have a material impact on our consolidated financial statements.
~~Item 7A.~~ ~~Quantitative and Qualitative Disclosures About Market Risk.~~
~~Interest rate risk~~Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

~~Our equipment sales leaseback financing and capital lease transactions carry a fixed interest rate. Thus, as of December 31, 2017 we are not exposed~~Not applicable to ~~any market risk due to interest rate fluctuations.~~
~~Foreign currency risk~~
Although most of our revenues are denominated in U.S. dollars, a significant portion of our revenues are denominated in Canadian dollars, Pound Sterling and Euros. In addition, a significant portion of our expenses, primarily labor expenses in the Philippines, India, Sri Lanka, Germany, Canada and Israel, are incurred in the local currencies of the countries in which we operate. For financialsmaller reporting purposes, we translate all non-U.S. denominated transactions into U.S. dollars in accordance with accounting principles generally accepted in the United States. Thus, we are exposed to the risk that fluctuations in the value of these currencies relative to the U.S. dollar could have a direct impact on our revenues and our results of operations.companies.
To mitigate the exposure of fluctuating future cash flows due to changes in foreign exchange rates, we entered into foreign currency forward contracts in 2017. These foreign currency forward contracts were entered into with a maximum term of twelve months and have an aggregate notional amount of approximately $15.9 million as of December 31, 2017. The total unrealized gain on the outstanding hedges were $0.3 million as of December 31, 2017.
The impact of foreign currency fluctuations will continue to present economic challenges to us and could negatively impact our overall results of operations. A 10% appreciation in the U.S. dollar’s value relating to the hedged currencies would decrease the forward contracts’ fair value by approximately $1.4 million as of December 31, 2017. Similarly, a 10% depreciation in the U.S. dollar’s value relative to the hedged currencies would increase the forward contracts’ fair value by approximately $1.8 million as of December 31, 2017. Any increase or decrease in the fair value of our currency exchange rate sensitive forward contracts, if utilized, would be substantially offset by a corresponding decrease or increase in the fair value of the hedged underlying cash flows.
~~We may continue to enter into these, or other such instruments, in the future to reduce foreign currency exposure to appreciation or depreciation in the value of these foreign currencies.~~
39
Other than the forward contracts mentioned above, we have not in 2017 engaged in any hedging activities or entered into off-balance-sheet transactions or arrangements. As of December 31, 2017, our foreign subsidiaries held cash and cash equivalents totaling approximately $5.7 million. These assets are exposed to foreign exchange risk arising from changes in foreign exchange rates. At present, we do not enter into any hedging instruments to mitigate foreign exchange risk on such assets; however, we may do so in the future.
~~Item 8.~~ ~~Financial Statements and Supplementary Data.~~
Item 8. Financial Statements and Supplementary Data.

See Financial Statement Index and Financial Statements ~~and Supplementary Data~~ commencing on page F-1, which are incorporated by reference herein.
~~Item 9.~~ ~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.~~
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.
~~Item 9A.~~ ~~Controls and Procedures.~~
Item 9A. Controls and Procedures.

Evaluation of Disclosure 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 (the “Exchange Act”), that are designed to ~~provide reasonable assurance~~ensure that information required to be disclosed in ~~our~~the reports we file or submit under the Exchange Act ~~reports~~ 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 ~~Chief Executive Officer~~principal executive officer and ~~Principal Financial Officer,~~principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision, and with the participation of our management, including our ~~Chief Executive Officer~~principal executive officer and our ~~Principal Financial Officer,~~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 December 31, 2020. Based on this evaluation, our ~~Chief Executive Officer~~principal executive officer and our ~~Principal Financial Officer~~principal financial officer concluded that, as of December 31, ~~2017,~~2020, our disclosure controls and procedures were effective.
~~Changes in Internal Control over Financial Reporting~~
There have been no changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report ~~of Management~~ on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with ~~accounting principles generally accepted in the United States of America.~~U.S. GAAP. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our ~~transactions;~~transactions and disposition of assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management and director authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

40
~~Management~~Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control – Integrated Framework (2013) - issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, ~~2017.~~2020.
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting, such that there is reasonable possibility that a material misstatement of the Company’s annual or interim financial information will not be prevented or detected on a timely basis.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting
There were 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 three months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. These changes relate to remediation of the material weakness on appropriate review procedures related to evaluation and proper accounting for lease contracts consistent with capital lease accounting under U.S. GAAP. The Company implemented enhancements to its internal controls to prevent and detect errors by instituting additional controls and procedures that entails a comprehensive review of new lease contracts to ensure that all appropriate clauses are thoroughly evaluated and accounted for in accordance with ASC 842 guidance.
~~Item 9B.~~ ~~Other information.~~
Item 9B. Other information.

None.

41
36

PART III
~~Item 10.~~ ~~Directors, Executive Officers and Corporate Governance.~~
Item 10. Directors, Executive Officers and Corporate Governance.

The information called for by ~~Item 10~~Items 401, 405, if required, and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is incorporated by reference from the Company’s definitive proxy statement for the ~~2018~~2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Exchange Act no later than 120 days after the end of the Company’s ~~2017~~2020 fiscal year.

The Company has a code of ethics that applies to all of its employees, officers, and directors, including its principal executive officer, principal financial ~~and accounting~~ officer, and corporate controller. The text of the Company’s code of ethics is posted on its website at www.innodata.com. The Company intends to disclose future amendments to, or waivers from, certain provisions of the code of ethics for executive officers and directors in accordance with applicable Nasdaq and SEC requirements.
~~Item 11.~~ ~~Executive Compensation.~~
Item 11. Executive Compensation.

The information called for by Item 11 is incorporated by reference from the Company’s definitive proxy statement for the ~~2018~~2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Exchange Act no later than 120 days after the end of the Company’s ~~2017~~2020 fiscal year.
~~Item 12.~~ ~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.~~

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item regarding the Company’s equity compensation plans is set forth in Part II, Item 5 of this Annual Report on Form 10-K under the caption “Securities Authorized for Issuance Under Equity Compensation Plans” and is incorporated by reference herein. The information called for under Item 403 of Regulation S-K by Item 12 is incorporated by reference from the Company’s definitive proxy statement for the ~~2018~~2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Exchange Act no later than 120 days after the end of the Company’s ~~2017~~2020 fiscal year.
~~Item 13.~~ ~~Certain Relationships and Related Transactions, and Director Independence.~~
Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information called for by Item 13 is incorporated by reference from the Company’s definitive proxy statement for the ~~2018~~2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Exchange Act no later than 120 days after the end of the Company’s ~~2017~~2020 fiscal year.

~~Item 14.~~ ~~Principal Accounting Fees and Services.~~
Item 14. Principal Accountant’s Fees and Services.

The information called for by Item 14 is incorporated by reference from the Company’s definitive proxy statement for the ~~2018~~2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Exchange Act no later than 120 days after the end of the Company’s ~~2017~~2020 fiscal year.

PART IV
~~Item 15.~~ ~~Exhibits, Financial Statement Schedules.~~
Item 15. Exhibits, Financial Statement Schedules.

~~(a)~~ 1.(a)(1) Financial Statements. ~~See~~The following Report of Independent Registered Public Accounting firm, consolidated financial statements, and accompanying notes are included in Item 8. Index to Financial ~~Statements.~~  Statements:
Reports of Independent Registered Public Accounting Firms.
Consolidated Balance Sheets as of December 31, 2020 and 2019.
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2020 and 2019.
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020 and 2019.
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019.
2.(a)(2) Exhibits – See Exhibit Index attached hereto, ~~and~~which is incorporated by reference herein.

42
37

Item 16. Form 10K Summary.
None.
SIGNATURES

~~In accordance with~~Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INNODATA INC.

By /s/ Jack S. Abuhoff
Jack S. Abuhoff
~~Chairman of the Board,~~
Chief Executive Officer and President
March ~~22, 2018~~12, 2021

~~In accordance with~~Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ Jack ~~Abuhoff~~ ~~Chairman of the Board,~~ ~~March 22, 2018~~
~~Jack~~S. Abuhoff Chief Executive Officer and President March 12, 2021
Jack S. Abuhoff

/s/ ~~Raj Jain~~Mark A. Spelker Chief Financial Officer and Executive Vice President ~~and Principal AccountingOfficer~~ March ~~22, 2018~~12, 2021
~~Raj Jain~~
~~/s/ Haig S. Bagerdjian~~ ~~Director~~ ~~March 22, 2018~~
~~Haig S. Bagerdjian~~Mark A. Spelker

/s/ Louise C. Forlenza Director March ~~22, 2018~~12, 2021
Louise C. Forlenza

/s/ Stewart R. Massey Director March ~~22, 2018~~12, 2021
Stewart R. Massey

/s/ ~~Michael J. Opat~~Nauman (Nick) Toor Director March ~~22, 2018~~12, 2021
~~Michael J. Opat~~
~~/s/ Anthea C. Stratigos~~ ~~Director~~ ~~March 22, 2018~~
~~Anthea C. Stratigos~~
~~/s/ Andargachew S. Zelleke~~ ~~Director~~ ~~March 22, 2018~~
~~Andargachew S. Zelleke~~Nauman (Nick) Toor
43

~~Item 8.~~ ~~Financial Statements.~~

INNODATA INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE

~~Report~~Reports of Independent Registered Public Accounting ~~Firm~~Firms F-2

Consolidated Balance Sheets as of December 31, ~~2017~~2020 and ~~2016~~2019 ~~F-3~~F-6

Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the years ended December 31, ~~2017~~2020 and ~~2016~~2019 ~~F-4~~F-7

Consolidated Statements of Stockholders’ Equity for the years ended ~~ended~~ December 31, ~~2017~~2020 and ~~2016~~2019 ~~F-5~~F-8

Consolidated Statements of Cash Flows for the years ended December 31, ~~2017~~2020 and ~~2016~~2019 ~~F-6~~F-9

Notes to Consolidated Financial Statements ~~F-7~~F-10

~~F-1~~

~~REPORT OFINDEPENDENT~~Report of Independent Registered Public Accounting Firm ~~REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the~~Shareholders and Board of Directors ~~and Stockholders of~~
Innodata Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance ~~sheets~~sheet of Innodata Inc. and ~~Subsidiaries~~subsidiaries (the ~~Company)~~“Company”) as of December 31, ~~2017 and 2016, and~~2020, the related consolidated statements of operations and comprehensive ~~loss,~~income, stockholders’ equity, and cash flows for the ~~years then~~year ended December 31, 2020, and the related notes (collectively referred to as the ~~consolidated~~“consolidated financial ~~statements)~~statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017~~2020 and ~~2016, and its~~the results of its operations and its cash flows for the ~~years~~year then ended in conformity with accounting principles generally accepted in the United States of America.
Revision to 2019 consolidated financial statements.
We have also audited the revision adjustments to 2019 consolidated financial statements to correct the immaterial errors as discussed in Note 1 to the consolidated financial statements. In our opinion, such revision adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2019 consolidated financial statements of the Company other than with respect to the revision adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2019 consolidated financial statements taken as a whole.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our ~~audits.~~audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ~~(PCAOB)~~(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our ~~audits~~audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our ~~audits,~~audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our ~~audits~~audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our ~~audits~~audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our ~~audits provide~~audit provides a reasonable basis for our opinion.

Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
~~/s/ CohnReznick LLP~~
1.
~~We have served as the Company’s auditor since 2008.~~ Intangible Assets Impairment Assessment (Including Goodwill)

~~Roseland,~~Description of Matter:
As described in Note 3 to the consolidated financial statements, the Company’s Intangible assets and goodwill balance was $ 6.8 million as of December 31, 2020. Goodwill is tested for impairment at least annually at the reporting unit level and more frequently when an event occurs, or circumstances change, that indicates the carrying value may not be recoverable. The determination of the fair value of the reporting unit requires management to make significant estimates and assumptions related to forecasts of future revenues and operating margins and discount rates which are complex and subjective. Changes in these assumptions could have a significant impact on the fair value.
We identified the intangible assets, including goodwill, impairment assessment of the Agility Segment Reporting Unit as a critical audit matter considering materiality of the amounts involved together with the inherent subjectivity related to principal assumptions, which are dependent on current and future economic factors including uncertainties arising from corona virus disease 2019 (“COVID-19”) pandemic; hence assessment of carrying values of intangible asset including goodwill for these unit is considered to be complex and determined to be a critical audit matter in our current period audit. Auditing management’s judgments regarding forecasts of future revenue, operating margin, and the discount rate to be applied, involved a high degree of subjectivity.
How the matter was addressed in our audit:
The primary procedures we performed to address this critical audit matter included:
· Obtained understanding of the management process for impairment assessment and analysis workings prepared by management for the reporting unit.
· Evaluated management’s ability to accurately forecast by comparing actual results with historical performance, budgets and whether assumptions considered are consistent with evidence obtained in other areas of the audit. Also evaluated the appropriateness of judgments applied by the management while assessing the possible impact of COVID-19.
· Involved professionals with specialized skill and knowledge to assist in the evaluation of the Company’s discounted cash flow model, growth rates, discount rates and market participant assumptions including testing the underlying source of information, and the mathematical accuracy of the calculations.
· Performed independent sensitivity analysis of key assumptions, including the implied growth rates during explicit period, terminal growth rate and discount rate, to assess the effect of possible variations on the current estimated fair value for the reporting unit.

2. Measurement of the provision for income tax exposures
Description of Matter
The Company operates in various countries and is subject to income taxes in multiple tax jurisdictions, with complexities of transfer pricing and changing tax laws, and is involved in various tax cases with respective tax authorities. Uncertainties arise primarily from certain ongoing tax litigations and open tax years for its foreign subsidiaries. As described in Note 4 to the consolidated financial statements, the Company has recognized accruals with respect of uncertain tax positions aggregating $ 3.2 million as of December 31, 2020.
We identified measurement of accruals for the aforementioned income tax exposures as a critical audit matter, as the amounts involved are material, and the determination of provision for taxes requires the Company to make judgments on tax issues and develop estimates regarding the Company’s exposure to tax risks. Further, auditing management judgments on whether the tax positions are probable of being sustained in tax assessments involves a high degree of subjectivity.
How the matter was addressed in our audit:
The primary procedures we performed to address this critical audit matter included:
· Obtained an understanding of management’s process of estimating the provision for income taxes including assessment of uncertain tax positions and those related to interpretation of tax laws and its application in the estimation of tax liabilities including uncertain tax positions.
· Involved professionals with specialized skill and knowledge in domestic and international taxes, who assisted in:
o inspection of correspondences and assessment orders with applicable tax authorities
o evaluation of the Company’s interpretation of tax laws and their potential impact on uncertain tax positions
o evaluation of the assumptions used to determine tax provisions.
/s/ BDO INDIA LLP
We have served as the Company's auditor since 2020.
Mumbai, India
March 11, 2021

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Innodata Inc.
Opinion on the Financial Statements
We have audited, before the effects of the adjustments for the correction of the errors described in Note 1 (Correction of Immaterial Errors), the accompanying consolidated balance sheet of Innodata Inc. and Subsidiaries (the Company) as of December 31, 2019, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, except for the errors described in Note 1 (Correction of Immaterial Errors), the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and its results of operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to the adjustments for the correction of the errors described in Note 1(Correction of Immaterial Errors), and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by BDO India LLP. (The 2019 consolidated financial statements before the effects of the adjustments discussed in Note 1 are not presented herein).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Adoption of New Accounting Standard
As discussed in Note 7 to the consolidated financial statements, the Company adopted Accounting Standards Codification ASU 2016-02, beginning January 1, 2019 and applied the practical expedients consistently for all of its leases.
/s/ CohnReznick LLP
Parsippany, New Jersey
March ~~22, 2018~~16, 2020
We have served as the Company's auditor from 2008 to 2020.

~~F-2~~

INNODATA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ~~2017~~2020 AND ~~2016~~2019
(in thousands, except share and per share data)

2017 2016 2020 2019
ASSETS
Current assets:
Cash and cash equivalents $ 11,407 $ 14,172 $ 17,573 $ 10,874
Accounts receivable, net 10,291 9,952
Accounts receivable, net of allowance for doubtful accounts of $670 and $750, respectively 10,048 9,723
Prepaid expenses and other current assets 3,630 3,124 4,240 3,407
Total current assets 25,328 27,248 31,861 24,004
Property and equipment, net 7,189 5,397 7,227 6,887
Right-of-use-asset, net 6,610 7,005
Other assets 3,159 2,377 2,563 2,110
Deferred income taxes 1,757 1,641
Deferred income taxes, net 2,187 1,906
Intangibles, net 7,606 8,191 4,656 5,477
Goodwill 2,832 2,734 2,150 2,108
Total assets $ 47,871 $ 47,588 $ 57,254 $ 49,497
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,258 $ 1,018 $ 1,435 $ 1,419
Accrued expenses 5,571 4,333
Accrued expenses and other 3,490 3,340
Accrued salaries, wages and related benefits 5,539 5,040 5,719 4,265
Income and other taxes 1,098 1,330 5,000 4,183
Current portion of long-term obligations 2,133 1,120
Long-term obligations - current portion 1,712 1,440
Operating lease liability - current portion 990 1,107
Total current liabilities 15,599 12,841 18,346 15,754
Deferred income taxes 614 680
Deferred income taxes, net 44 363
Long-term obligations, net of current portion 4,477 3,917 6,282 4,534
Operating lease liability, net of current portion 6,332 6,731

Total liabilities 31,004 27,382

Commitments and contingencies

Non-controlling interests (3,938 ) (3,634 ) (3,390 ) (3,417 )
Commitments and contingencies - -

STOCKHOLDERS’ EQUITY:
Serial preferred stock; 5,000,000 shares authorized, none outstanding - -
Common stock, $.01 par value; 75,000,000 shares authorized; 27,559,000 shares issued and 25,878,000 outstanding at December 31, 2017 and 27,305,000 shares issued and 25,624,000 outstanding at December 31, 2016 275 273
Serial preferred stock; 4,998,000 shares authorized, none outstanding - -
Common stock, $.01 par value; 75,000,000 shares authorized; 28,984,000 shares issued and 25,800,000 outstanding at December 31, 2020; 27,643,000 shares issued and 24,459,000 outstanding at December 31, 2019 289 275
Additional paid-in capital 27,275 26,057 31,921 28,426
Retained earnings 7,345 12,400 4,833 4,216
Accumulated other comprehensive income (loss) 846 (324 )
Accumulated other comprehensive loss (938 ) (920 )
35,741 38,406 36,105 31,997
Less: treasury stock, 1,681,000 shares at December 31, 2017 and December 31, 2016, at cost (4,622 ) (4,622 )
Less: treasury stock, 3,184,000 shares at December 31, 2020 and 2019, at cost (6,465 ) (6,465 )
Total stockholders’ equity 31,119 33,784 29,640 25,532
Total liabilities and stockholders’ equity $ 47,871 $ 47,588 $ 57,254 $ 49,497
See notes to consolidated financial statements.
F-6
INNODATA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2020 AND 2019
(In thousands, except per share amounts)
2020 2019
Revenues $ 58,240 $ 55,858
Operating costs and expenses:
Direct operating costs 38,398 37,325
Selling and administrative expenses 18,662 19,481
Interest expense, net 135 120
57,195 56,926
Income (loss) before provision for income taxes 1,045 (1,068 )

Provision for income taxes 401 1,091

Consolidated net income (loss) 644 (2,159 )

Income (loss) attributable to non-controlling interests 27 (17 )

Net income (loss) attributable to Innodata Inc. and Subsidiaries $ 617 $ (2,142 )

Income (loss) per share attributable to Innodata Inc. and Subsidiaries:
Basic $ 0.03 $ (0.08 )
Diluted $ 0.02 $ (0.08 )

Weighted average shares outstanding:
Basic 24,607 25,774
Diluted 25,573 25,774

Comprehensive income (loss):
Consolidated net income (loss) $ 644 $ (2,159 )
Pension liability adjustment, net of taxes (391 ) (1,504 )
Change in fair value of derivatives, net of taxes (33 ) 33
Foreign currency translation adjustment, net of taxes 406 566
Other comprehensive loss (18 ) (905 )
Total comprehensive income (loss) 626 (3,064 )
Comprehensive income (loss) attributed to non-controlling interest 27 (17 )
Comprehensive income (loss) attributable to Innodata Inc. and Subsidiaries $ 599 $ (3,047 )
See notes to consolidated financial statements.

INNODATA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2020 AND 2019
(In thousands)
Common Stock Additional Paid-in Retained Accumulated Other Comprehensive Treasury Stock
Shares Amount Capital Earnings Loss Shares Amount Total
January 1, 2019 as reported 27,558 275 27,579 6,595 (15 ) 1,681 (4,622 ) 29,812
Revision adjustments - - - (237 ) - - - (237 )
January 1, 2019 as adjusted 27,558 275 27,579 6,358 (15 ) 1,681 (4,622 ) 29,575
Net loss - - - (1,602 ) - - - (1,602 )
Purchase of treasury stock - - - - - 1,503 (1,843 ) (1,843 )
Stock-based compensation 75 - 836 - - - - 836
Exercise of stock options 10 - 11 - - - - 11
Pension liability adjustments, net of taxes - - - - (1,504 ) - - (1,504 )
Foreign currency translation adjustment, net of taxes - - - - 566 - - 566
Change in fair value of derivatives, net of taxes - - - - 33 - - 33
December 31, 2019 as reported 27,643 275 28,426 4,756 (920 ) 3,184 (6,465 ) 26,072
Revision adjustments - - - (540 ) - - - (540 )
December 31, 2019 as adjusted 27,643 275 28,426 4,216 (920 ) 3,184 (6,465 ) 25,532
Net income - - - 617 - - - 617
Stock-based compensation - - 913 - - - - 913
Exercise of stock options 1,341 14 2,582 - - - - 2,596
Pension liability adjustments, net of taxes - - - - (391 ) - - (391 )
Foreign currency translation adjustment, netof taxes - - - - 406 - - 406
Change in fair value of derivatives, net of taxes - - - - (33 ) - - (33 )
December 31, 2020 28,984 $ 289 $ 31,921 $ 4,833 $ (938 ) 3,184 $ (6,465 ) $ 29,640
See notes to consolidated financial statements.

INNODATA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2020 AND 2019
(In thousands)
2020 2019
Cash flows from operating activities:
Consolidated net income (loss) $ 644 $ (2,159 )
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Depreciation and amortization 2,266 2,697
Stock-based compensation 913 836
Deferred income taxes (618 ) (313 )
Pension cost 791 335
Loss on disposal of property and equipment 48 -
Changes in operating assets and liabilities:
Accounts receivable (481 ) 1,216
Prepaid expenses and other current assets (555 ) 1,248
Other assets 270 332
Accounts payable, accrued expenses and other 155 (589 )
Accrued salaries, wages and related benefits 1,449 �� (249 )
Income and other taxes 778 926
Net cash provided by operating activities 5,660 4,280

Cash flows from investing activities:
Capital expenditures (1,414 ) (1,667 )
Proceeds from disposal of property and equipment 39 -
Net cash used in investing activities (1,375 ) (1,667 )

Cash flows from financing activities:
Proceeds from bank loan 580 -
Proceeds from exercise of stock options 2,596 11
Payment of long-term obligations (864 ) (567 )
Purchase of treasury stock - (1,843 )
Net cash provided by (used in) financing activities 2,312 (2,399 )

Effect of exchange rate changes on cash and cash equivalents 102 (209 )

Net increase in cash and cash equivalents 6,699 5

Cash and cash equivalents, beginning of year 10,874 10,869

Cash and cash equivalents, end of year $ 17,573 $ 10,874

Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 348 $ 962
Cash paid for operating leases $ 2,286 $ 2,110
Cash paid for interest $ 141 $ 130

See notes to consolidated financial statements.

~~F-3~~

INNODATA INC. AND SUBSIDIARIES
~~CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS~~
~~YEARS ENDED DECEMBER 31, 2017 AND 2016~~
~~(In thousands, except per share amounts)~~
2017 2016

Revenues $ 60,929 $ 63,074
Operating costs and expenses:
Direct operating costs 45,826 47,219
Selling and administrative expenses 20,200 19,539
Change in fair value of contingent consideration - 1,038
66,026 67,796

Loss from operations (5,097 ) (4,722 )

Interest expense (income), net (23 ) 63

Loss before provision for income taxes (5,074 ) (4,785 )

Provision for income taxes 285 1,126

Net loss (5,359 ) (5,911 )

Loss attributable to non-controlling interests 304 387

Net loss attributable to Innodata Inc. and Subsidiaries $ (5,055 ) $ (5,524 )

Loss per share attributable to Innodata Inc. and Subsidiaries:
Basic and diluted $ (0.20 ) $ (0.22 )

Weighted average shares outstanding:
Basic and diluted 25,816 25,542

Comprehensive income (loss):
Net loss $ (5,359 ) $ (5,911 )
Pension liability adjustment, net of taxes (196 ) (136 )
Change in fair value of derivatives, net of taxes 660 (153 )
Foreign currency translation adjustment 706 49
Other comprehensive income (loss) 1,170 (240 )
Total comprehensive loss (4,189 ) (6,151 )
Comprehensive loss attributed to non-controlling interest 304 387
Comprehensive loss attributable to Innodata Inc. and Subsidiaries $ (3,885 ) $ (5,764 )
~~See notes to consolidated financial statements.~~
~~F-4~~
~~INNODATA INC. AND SUBSIDIARIES~~
~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~
~~YEARS ENDED DECEMBER 31, 2017 AND 2016~~
~~(In thousands)~~
Common Stock Additional
Paid-in Retained Accumulated
Other
Comprehensive Treasury
Shares Amount Capital Earnings Income (Loss) Stock Total

January 1, 2016 25,445 $ 270 $ 24,590 $ 17,924 $ (84 ) $ (4,488 ) $ 38,212
Net loss - - - (5,524 ) - - (5,524 )
Stock-based compensation - - 1,162 - - - 1,162
Issuance of common stock in connection with MediaMiser acquisition 236 3 566 - - - 569
Acquisition of non-controlling interest - - (261 ) - - - (261 )
Pension liability adjustments, net of taxes - - - - (136 ) - (136 )
Foreign currency translation adjustment - - - - 49 - 49
Change in fair value of derivatives, net of taxes - - - - (153 ) - (153 )
Purchase of treasury stock (57 ) - - - - (134 ) (134 )
December 31, 2016 25,624 273 26,057 12,400 (324 ) (4,622 ) 33,784

Net loss - - - (5,055 ) - - (5,055 )
Stock-based compensation - - 695 - - - 695
Issuance of common stock in connection with MediaMiser acquisition 254 2 523 - - - 525
Pension liability adjustments, net of taxes - - - - (196 ) - (196 )
Foreign currency translation adjustment - - - - 706 - 706
Change in fair value of derivatives, net of taxes - - - - 660 - 660
December 31, 2017 25,878 $ 275 $ 27,275 $ 7,345 $ 846 $ (4,622 ) $ 31,119
~~See notes to consolidated financial statements.~~
~~F-5~~
~~INNODATA INC. AND SUBSIDIARIES~~
~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~
~~YEARS ENDED DECEMBER 31, 2017 AND 2016~~
~~(In thousands)~~
2017 2016

Cash flow from operating activities:
Net loss $ (5,359 ) $ (5,911 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 3,674 3,195
Provision for doubtful accounts (139 ) 136
Stock-based compensation 695 1,162
Deferred income taxes (255 ) (159 )
Pension cost 245 103
Change in fair value of contingent consideration - 1,038
Changes in operating assets and liabilities:
Accounts receivable (40 ) 17
Prepaid expenses and other current assets 284 (133 )
Other assets (188 ) (395 )
Accounts payable and accrued expenses 1,595 (1,749 )
Accrued salaries, wages and related benefits 484 84
Income and other taxes (258 ) (123 )
Net cash provided by (used in) operating activities 738 (2,735 )

Cash flow from investing activities:
Capital expenditures (3,410 ) (2,740 )
Acquisition of business - (4,228 )
Net cash used in investing activities (3,410 ) (6,968 )

Cash flow from financing activities:
Proceeds from equipment financing 793 -
Payment of long-term obligations (1,077 ) (703 )
Purchase of treasury stock - (134 )
Net cash used in financing activities (284 ) (837 )

Effect of exchange rate changes on cash and cash equivalents 191 (196 )

Net decrease in cash and cash equivalents (2,765 ) (10,736 )

Cash and cash equivalents, beginning of year 14,172 24,908

Cash and cash equivalents, end of year $ 11,407 $ 14,172

Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 1,090 $ 1,306
Vendor financed software licenses acquired $ 1,213 $ -
Common stock issued for MediaMiser acquistion $ 525 $ 569
~~See notes to consolidated financial statements.~~
~~F-6~~
~~INNODATA INC. AND SUBSIDIARIES~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of Business and Summary of Significant Accounting Policies

Description of Business - Innodata Inc. ~~and Subsidiaries (the~~(including its subsidiaries, the “Company”, “Innodata”, “we”, “us” or “our”) is a global ~~digital services~~data engineering company. The Company solves complex data challenges using artificial intelligence (AI) and solutions company. Our technology and services power leading information products and online retail destinations around the world. Our solutions help prestigious enterprises harness the power of digital data to re-imagine how they operate and drive performance. We serve publishers, media and information companies, digital retailers, banks, insurance companies, government agencies and many other industries. Founded in 1988, we comprise a team of 4,000 diverse people in eight countries who are dedicated to delivering services and solutions that help the world embrace digital data as a means of enhancing our lives and transforming our businesses.human expertise.

The Company ~~operates~~provides large-scale data annotation services and platforms to companies who require high-quality data for training AI and machine learning (ML) algorithms. The Company also provides AI/ML-based solutions 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, the Company provides AI-augmented software-as-a-service (SaaS) platforms and discrete managed services.

The Company’s platforms and services are powered by Goldengate, its proprietary AI/ML platform, as well as other technologies it has developed. In addition, the Company bring to bear 3,500 + employees spanning nine countries with expertise in ~~three reporting segments: Digital~~ data pertaining to many professional fields. The Company’s hybrid approach of using AI/ML in conjunction with human experts enables the Company to deliver superior data quality with even the most complex and sensitive data.

The Company developed its capabilities and honed its 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 years ago, the Company formed Innodata Labs, a research and development center, to research, develop and apply machine learning and emerging AI to its large-scale, human-intensive data operations. In 2019, the Company began packaging the capabilities that emerged from its 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. The Company anticipates this strategy will enable it to accelerate growth.

Data Annotation

The Company trains 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.

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

F-10

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AI/ML Solutions ~~(DDS)~~

The Company also provides AI/ML solutions 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, the Company often integrates one or more of its pre-trained text processing algorithms as a foundation for an overall solution. The Company’s algorithms are accessible as microservices via application programming interfaces (APIs), ~~Innodata Advanced Data Solutions (IADS)~~enabling easy integration.

In conjunction with AI/ML solutions, the Company often provides a range of data engineering support services, including data transformation, data curation, data hygiene, data consolidation, data compliance, and ~~Media Intelligence Solutions (MIS)~~master data management.

The Company’s 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 the Company’s AI/ML solutions provide.

AI/ML Industry Platforms

The Company’s industry platforms address specific, niche market requirements that the Company believes it can fulfill in large part with its AI/ML technologies. The Company deploys these industry platforms as software-as-a-service (SaaS) and as managed services. To date, the Company has built an industry platform for medical records data extraction and transformation (which the Company brands as “Synodex^®”) and for marketing communications/public relations news distribution and monitoring (which the Company brands as “Agility PR Solutions”).

The Company’s ~~DDS segment provides solutions to~~Synodex industry platform transforms medical records into useable digital ~~retailers, information services companies, publishers~~data organized in accordance with its proprietary data models or client data models. At the end of 2020, the Company had 20 clients utilizing its Synodex platform, including John Hancock Insurance, the insurance operating unit of John Hancock Financial (a division of Manulife) and ~~enterprises that have~~ one ~~or more~~ of the following broad business requirements: development of digital content (including e-books); development of new digital information products; and operational support of existing digital information products and systems.largest life insurers in the United States.

The Company’s ~~IADS segment designs~~Agility industry platform provides marketing communications and ~~develops new capabilities~~public relations professionals with the ability to ~~enable clients in the financial services, insurance~~target and ~~healthcare sectors~~distribute content to ~~improve decision-support through digital technologies. IADS operates through two subsidiaries. Synodex offers a range of services for healthcare~~journalists and ~~insurance companies,~~social media influencers world-wide and ~~docGenix provides services~~ to ~~financial services institutions. As of December 31, 2017, Innodata owned 91% of Synodex~~monitor and ~~94% of docGenix, both limited liability companies.~~analyze global news (print, web, radio and TV) and social media.

~~The Company’s MIS segment operates through our Agility PR Solutions and Bulldog Reporter subsidiaries.~~

Agility PR Solutions offers full and self-service solutions, consisting of Agility Illuminate, Agility Connect and Agility Capture, that address the entire communications life cycle – from identifying influencers, amplifying messages, monitoring coverage, to measuring impact. Agility PR Solutions, through its Agility Illuminate product, provides media monitoring and analysis solutions and professional services to several Fortune 500 companies and Canadian government institutions, as well as small- and medium-sized businesses. Agility Illuminate enables companies to reduce the time and effort required to extract, analyze and share valuable business intelligence from traditional and online media sources. Agility Connect is a global media contact database and email distribution platform and Agility Capture provides additional self-service media monitoring and analytics capabilities. The solution is offered as software-as-a-service (SaaS).

Bulldog Reporter is a news aggregation service for public relations and corporate communications professionals. Bulldog Reporter publishes a well-known daily e-newsletter, the Daily Dog. Bulldog Reporter also manages a PR industry awards program—the Bulldog Awards—which recognizes PR and communications professionals in categories including corporate social responsibility, media relations, digital and social marketing, not-for-profit activity and overall outstanding PR performance.

Principles of Consolidation- The consolidated financial statements include the accounts of Innodata Inc. and its ~~wholly-owned~~wholly owned subsidiaries, ~~Agility PR Solutions, a corporation in which the Company owns substantially all of the economic interest,~~ and the Synodex and docGenix limited liability companies that are majority-owned by the Company. The non-controlling interests in the Synodex and docGenix limited liability companies are accounted for in accordance with Financial Accounting Standards Board (FASB) non-controlling interest guidance. All ~~significant~~ intercompany transactions and balances have been eliminated in consolidation.

~~F-7~~

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates- In preparing 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 atas of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Management believes that the estimates used in the preparation of the consolidated financial statements are reasonable, and management has made assumptions about the possible effects of the novel coronavirus (“COVID-19”) pandemic on critical and significant accounting estimates. Actual results could differ from those estimates. Significant estimates include those related to ~~revenue recognition,~~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 ~~securities underlying~~ stock-based compensation, litigation accruals ~~pension benefits, purchase price allocation of the net assets acquired in the acquisition of Agility, valuation of derivative instruments~~ and estimated accruals for various tax exposures.

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 obligation, 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.

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

For the ~~IADS~~Synodex segment, revenue is recognized primarily based on the quantity delivered ~~and~~in the period in which services are performed and ~~deliverables~~performance conditions are ~~made~~satisfied as per ~~contracts.~~the agreement. A portion of ~~our IADS~~the Synodex segment revenue is derived from licensing our functional software and providing access to ~~our~~the Company’s hosted software platform. Revenue from such services ~~are~~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 there are no significant remaining obligations, persuasive evidence of an arrangement exists, the fees are fixed or determinable~~user; and collection is ~~reasonably assured.~~probable.

The ~~MIS~~Agility segment derives its ~~revenues~~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 and there~~user; all parties to the agreement have agreed to the agreement; each party’s rights are ~~no significant remaining obligations, persuasive evidence of an arrangement exists,~~identifiable; the ~~fees~~payment terms are ~~fixed or determinable~~identifiable; the agreement has commercial substance; and collection is ~~reasonably assured.~~probable. Revenue from enriched media analysis services is recognized when the services are performed, and ~~delivered~~performance conditions are satisfied. Revenues from the reseller agreements are recognized at the gross amount received for the goods in accordance with our functioning as a principal due to our meeting the ~~client.~~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.

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

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. Revenues are 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 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 our ~~production operations located~~locations in the Philippines, India, Sri Lanka, Israel and ~~Israel~~Hong Kong is the U.S. dollar. Transactions denominated in ~~the~~ Philippine pesos, Indian and Sri Lankan rupees, or Israeli shekels and Hong Kong dollars are translated to U.S. dollars at rates which approximate those in effect on the transaction dates. Monetary assets and liabilities denominated in foreign currencies at December 31, ~~2017~~2020 and ~~2016 were~~2019 are translated at the exchange rate in effect as of those dates. Nonmonetary assets, liabilities, and stockholders’ equity ~~were~~are translated at the appropriate historical rates. Included in direct operating costs ~~are~~were exchange losses ~~(gains)~~ resulting from such transactions of approximately ~~$466,000~~$108,000 and ~~$486,000~~$158,000 for the years ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

The functional currency for ~~our~~the Company’s subsidiaries in Germany, the United Kingdom and Canada are the Euro, the Pound Sterling and the Canadian dollar, respectively. The financial statements of these subsidiaries are ~~reported~~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 ~~our~~the Company’s consolidated financial statements. Income, expenses and cash flows are translated at weighted average exchange rates prevailing during the fiscal 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 ~~income (loss)~~loss in stockholders' equity. Foreign exchange transaction gains or losses are included in direct operating costs in the accompanying consolidated statements of operations and comprehensive ~~loss.~~income (loss). The amount of foreign currency translation adjustment was ~~($687,000)~~$406,000 and ~~$1,393,000 as of~~$566,000 for the years ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

~~F-8~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Derivative Instruments -The Company ~~has designated its derivatives (foreign currency forward contracts) as a cash flow hedge. Accordingly,~~accounts for derivative transactions in accordance with ASC 825, “Financial Instruments,” with the ~~effective portion of the derivative’s~~corresponding unrealized gain or loss ~~is initially reported~~recognized outright as ~~a component~~part of ~~accumulated other comprehensive income or loss, and is subsequently reclassified to earnings when the hedge exposure affects earnings.~~operating income. The ~~Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging activities.~~total notional value of outstanding foreign currency forward contracts at December 31, 2020 was $6.9 million.

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

Property and Equipment -Property and equipment are stated at cost and are depreciated on the straight-line method over the estimated useful lives of the related assets, which is generally two to ~~five~~ten years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the ~~lives~~terms of the leases. Certain assets under capital leases are amortized over the lives of the respective leases or the estimated useful lives of the assets, whichever is shorter.

Capitalized Software Development Costs - the Company incurs development costs related to its internal use software. Qualifying costs incurred during the application development stage are 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 software, which is generally ranges between three and nine years. All other research and maintenance costs are expensed as incurred. Capitalized software and development costs – in progress as of December 31, 2020 and 2019 were $1.4 million and $2.5 million respectively. Completed capitalized software and development cost as of December 31, 2020 and 2019 were $10.7 million and $8.1 million respectively.

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-lived Assets- Management assesses the recoverability of its long-lived ~~assets, which consist primarily of fixed~~ assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The following factors, if present, may trigger an impairment review: (i) significant underperformance relative to expected historical or projected future operating results; (ii) significant negative industry or economic trends; (iii) significant decline in the Company’s stock price for a sustained period; and (iv) a change in the Company’s market capitalization relative to net book value. If the recoverability of these assets is unlikely because of the existence of one or more of the above-mentioned factors, an impairment analysis is performed, ~~initially~~ using ~~a projected~~ undiscounted cash flow ~~method.~~projections. Management makes assumptions regarding estimated future cash flows and other factors to determine the fair value of these respective assets. An impairment loss will be recognized only if the carrying value of a long-lived asset is not recoverable and exceeds its fair value, and is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

Goodwill and Other Intangible Assets -– The Company performs a valuation of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and allocates the purchase price of each acquired business to its respective net tangible and intangible assets and liabilities. Acquired intangible assets principally consist of technology, client relationships, backlog and trademarks. Liabilities related to intangibles principally consist of unfavorable vendor contracts. The Company determines the appropriate useful life by performing an analysis of expected cash flows based on projected financial information of the acquired businesses. Intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the majority of the economic benefits are expected to be consumed. Intangible assets are amortized into direct operating costs ratably over their expected related revenue streams over their useful lives.

Goodwill represents the excess ~~purchase price paid~~of the cost of an acquired entity over the fair value of the acquired net ~~assets acquired.~~assets. The Company ~~tests~~does not amortize goodwill but evaluates it for impairment at the reporting unit level annually during the third quarter of each fiscal year (as of September 30 of that year) or when an event occurs, or circumstances change, that indicates the carrying value may not be recoverable.

The Company performed its annual goodwill ~~on an annual basis~~assessment for the Agility segment as of September 30, 2020. In performing the assessment, the Company adhered to the provisions of ASU 2017-04 by using a ~~two-step fair~~single step approach that determines the carrying value ~~based test. The first step~~of goodwill and comparing it against the excess of the reporting unit’s fair value. Based on the Company’s assessment, the Company reached the conclusion that there was no goodwill impairment ~~test, used to identify potential impairment, compares~~because the fair value of ~~a reporting unit, with its carrying amount, including goodwill. If~~ the ~~carrying amount of the reporting unit exceeds its fair value, the second step of the~~Agility segment’s goodwill impairment test must be performed to measure the amount of the impairment loss, if any. If impairment is determined, the Company will recognize additional charges to operating expenses in the period in which they are identified, which would result in a reduction of operating results and a reduction in the amount of goodwill.

~~In the annual impairment test conducted by the Company as of September 30, 2017 and 2016, the estimated fair value of the reporting unit~~ exceeded its carrying ~~amount, including goodwill. As such, no impairment was identified or recorded.~~value.

Income Taxes- ~~Deferred~~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 ~~determines~~anticipates that it ~~would~~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 ~~determines~~anticipates that it ~~would~~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. Unremitted earnings of foreign subsidiaries have been included in the consolidated financial statements without giving effect to the United States taxes that may be payable on distribution to the United States, becauseIf such earnings are ~~not anticipated~~repatriated in the future, or are no longer deemed to be ~~remitted~~indefinitely reinvested, the Company would have to accrue as a liability the ~~United States.~~applicable amount of foreign jurisdiction withholding taxes associated with such remittances.

~~F-9~~

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 Synodex and Agility segments cannot be predicted with certainty, 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 tax expense in the consolidated statements of operations and comprehensive loss.

Accounting for Leases - In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” as modified (“ASU 2016-02”), which replaced existing leasing rules with a comprehensive lease measurement and recognition standard and expanded disclosure requirements. ASU 2016-02 requires lessees to recognize most leases on their balance sheets as liabilities, with corresponding “right-of-use” assets and is effective for annual reporting periods beginning after December 15, 2018, subject to early adoption. The Company adopted ASU 2016-02 effective January 1, 2019. Upon adoption, the Company recognized a right-of-use asset and corresponding lease liability. See Note 6, Operating Leases.

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies:

	a.	there is a change in contractual terms, other than a renewal or extension of the arrangement;

	b.	a renewal option is exercised, or extension granted, unless the term of the renewal or extension was initially included in the lease term;

	c.	there is a change in the determination of whether fulfillment is dependent on a specified asset; or

	d.	there is a substantial change to the asset.

Whenever a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).

Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. As of December 31, 2020, all of the Company’s leases are classified under operating leases. Operating lease payments are recognized as an operating expense on a straight-line basis over the lease term.

Accounting for Stock-Based Compensation - The Company measures and recognizes stock-based compensation expense for all share-based payment awards made to employees and directors based on the estimated fair value at the grant date. The stock-based compensation expense is recognized over the requisite service period. The fair value is determined using the Black-Scholes option-pricing model.

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	Year Ended December 31,
	2017		2016		Year Ended December 31,
					2020		2019
Direct operating costs	$	260	$	330	$	158	$	113
Selling and adminstrative expenses		435		832		755		723

Total stock-based compensation	$	695	$	1,162	$	913	$	836

Fair Value of Financial Instruments- The carrying amounts of financial instruments ~~including cash and cash equivalents, accounts receivable and accounts payable~~ approximated their fair value as of December 31, ~~2017~~2020 and ~~2016,~~2019, because of the relative short maturity of these instruments. See Note 14, Financial Instruments.

Fair value measurements and disclosures define fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The accounting standard establishes a fair value hierarchy that prioritizes the inputs used to measure fair value into three levels. The three levels are defined as follows:

Level 1: Unadjusted quoted price in active market for identical assets and liabilities.

Level 2: ~~Observable inputs~~Inputs other than those included in Level 1.1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

The Company’s forward contracts are at level 2 in the fair value hierarchy.

Accounts Receivable- The Company establishes credit terms for new clients based upon management’s review of their credit information and project terms, and performs ongoing credit evaluations of its clients, adjusting credit terms when management believes appropriate based upon payment history and an assessment of the client’s current creditworthiness. The Company records an allowance for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due (accounts outstanding longer than the payment terms are considered past due), the Company’s previous loss history, the client’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. This cannot guarantee that credit loss rates in the future will not be greater ~~that~~than those experienced in the past. In addition, there is credit exposure if the financial condition of one of the Company’s major clients were to deteriorate. In the event that the financial condition of one of the Company’s clients were to deteriorate resulting in an impairment of their ability to make payments, additional allowances may be necessary.

~~F-10~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ The allowance for doubtful accounts as of December 31, 2020 and 2019 was approximately $0.7 million and $0.8 million, respectively. Total amounts written off against the existing allowance for doubtful accounts for the year ended December 31, 2020 was $0.3 million.

Concentration of Credit Risk- The Company maintains its cash with highly rated financial institutions, located in the United States and in foreign locations where the Company has its operations. At December 31, ~~2017,~~2020, the Company had cash and cash equivalents of ~~$11.4~~$17.6 million, of which ~~$5.7~~$10.2 million was held by its foreign subsidiaries with local banks located mainly in Asia and ~~$5.7~~$7.4 million was held in the United States. To the extent that such cash exceeds the maximum insurance levels, the Company ~~would be~~is uninsured. The Company has not experienced any losses in such accounts.

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Loss~~Income (Loss) per Share~~- Loss~~– Income (loss) per share is computed using the weighted-average number of common shares outstanding during the year. Diluted ~~loss~~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” method of computing ~~loss~~income (loss) per share is used.

Pension -The Company records annual pension costs based on calculations, which include various actuarial assumptions including discount rates, compensation increases and other assumptions involving demographic factors. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends. The Company believes that the assumptions used in recording its pension obligations are reasonable based on its experience, market conditions and inputs from its actuaries.

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 on the accompanying consolidated balance sheets ~~as of December 31, 2017 and 2016~~ is deferred revenue amounting to ~~$1.9~~$1.2 million and ~~$2.0~~$1.1 million as of December 31, 2020 and 2019, respectively.

Recent Accounting Pronouncements-– In ~~May 2014,~~December 2019, the FASB issued ~~guidance on revenue from contracts with clients. This update is a comprehensive new revenue~~ASU 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 ~~model that requires a company to recognize revenue to depict~~of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the ~~transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange~~accounting for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This accounting guidanceincome taxes. The standard is effective ~~prospectively~~ for ~~annual reporting periods,~~fiscal years, and interim periods within those ~~periods,~~fiscal years, beginning after December 15, ~~2017 and early~~2020. Early adoption is permitted starting from the first quarter of 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt the new standard when it takes effect. The Company will adopt the new standard and related updates effective January 1, 2018 using the modified retrospective method of adoption. The new standard further requires new disclosures about contracts with customers, including the significant judgments the Company has made when applying the guidance. The Company has finalized its analysis andpermitted. We do not expect that the adoption of ~~this~~the new guidance will ~~not~~ have a significant impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”), which makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. The guidance eliminates requirements for certain disclosures that are no longer considered cost beneficial and adds new disclosure requirements that the FASB considers pertinent. ASU 2018-14 is effective for fiscal years ending after December 15, 2020 for public entities. The Company adopted the standard and it had no material impact on ~~its~~the Company’s consolidated financial ~~statements and internal controls over financial reporting.~~statements.

In ~~February~~June 2016, the FASB issued ~~guidance related~~ASU No. 2016-13, “Financial 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 ~~leases. This new guidance requires lessees~~be presented at the net amount expected to ~~recognize~~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 ~~balance sheet a right-of-use asset, representing its right~~financial asset. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to ~~use~~Topic 326, Financial Instruments-Credit Losses,” which clarifies codification and corrects unintended application of the ~~underlying asset for~~guidance, and in November 2019, the ~~lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed~~FASB issued ASU No. 2019-11, “Codification Improvements to ~~assess~~Topic 326, Financial Instruments-Credit Losses,” which clarifies or addresses specific issues about certain aspects of ASU 2016-13. In March 2020, the ~~amount, timing, and uncertainty~~FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments,” which modifies the measurement of ~~cash flows arising from leases. The standard requires the use~~expected credit losses of ~~a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. This new guidance~~certain financial instruments. ASU 2016-13 is effective for ~~annual periods~~certain Smaller Reporting Companies for financial statements issued for fiscal years beginning after December 15, ~~2018. Early application is permitted. The Company is in the process of evaluating the effect the guidance will have on its existing accounting policies~~2022 and ~~consolidated financial statements but expects there~~interim periods within those fiscal years, which will be ~~an increase in assets and liabilities on the consolidated balance sheets at~~fiscal 2023 for us if we continue to be classified as a Smaller Reporting Company, with early adoption ~~due to the recording of right-of-use assets and corresponding lease liabilities, which may be material.~~permitted.

~~F-11~~

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 2016, the FASB issued guidance relating to share-based compensation. This new guidance is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance is effective for annual periods beginning after December 15, 2016. The Company adopted this standard in 2017 and there was no material impact on its consolidated financial statements.

In March 2017, the FASB issued guidance on Compensation - Retirement Benefits relating to improvements in the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Under existing U.S. GAAP, an entity is required to present all components of net periodic pension cost and net periodic postretirement benefit cost aggregated as a net amount in the income statement, and this net amount may be capitalized as part of an asset where appropriate. The amendments in the guidance require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when applicable. The amendments in the guidance will be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The guidance will be effective for the Company for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The Company doesWe do not ~~anticipate~~expect that the adoption of ~~this~~the new guidance will have a material impact on ~~its~~our consolidated financial statements.

~~In January 2017,~~Correction of Immaterial Errors – During the ~~FASB issued guidance simplifying~~preparation of the September 30, 2020 condensed consolidated financial statements, certain historical errors were identified relating to the accounting for ~~goodwill impairment by removing Step 2~~capital leases under ASC Topics 840 and 842. The lease obligations under certain leases were not recorded at their present values at the inception of the ~~goodwill impairment test. Under current guidance, Step 2~~leases; in addition, the asset buyout prices were not reassessed in December 2019 by the Company, both of which resulted in an understatement of expenses from December 31, 2017 to December 31, 2019 and an overstatement of expenses for the nine months ended September 30, 2020.

The errors were not material, either quantitatively or qualitatively, in any of the ~~goodwill impairment test requires entities to calculate~~reported periods. However, the ~~implied fair value of goodwill~~corrections, if recorded in the ~~same manner~~three-month period ended September 30, 2020 would have been material to such period. Accordingly, the prior period financial statements were corrected by revising such consolidated financial statements for comparability. For the December 31, 2019 consolidated financial statements included in this Form 10-K, the corrections are as follows:

	·	An increase in net loss of $540,000 for the year ended December 31, 2019.
	·	An increase in expenses of $540,000 for the year ended December 31, 2019.
	·	An increase in the loss per share of $0.02 for the year ended December 31, 2019.
	·	An increase in liabilities of $528,000 as of December 31, 2019.
	·	A decrease in retained earnings of $777,000 and $237,000 as of December 31, 2019 and 2018, respectively.
	·	A decrease in total assets of $249,000 as of December 31, 2019.
	·	The impact on cash flows for the year ended December 31, 2019 was:

	·	A decrease in net cash flows provided by operating activities of $573,000.
	·	A decrease in net cash flows used in investing activities of $102,000.
	·	A decrease in net cash flows used in financing activities of $471,000.

The Company evaluated each year’s/period’s errors under Staff Accounting Bulletins 99 and 108 and concluded that a restatement of year’s/prior periods’ consolidated financial statements is not required. Accordingly, the ~~amount of goodwill recognized~~consolidated financial statements for prior periods (March 31, 2020 and June 30, 2020) will be revised in ~~a business combination by assigning~~future Forms 10-Q to be filed with the ~~fair value of a reporting unit to all of the assets~~Securities and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2020, with early adoption permitted.Exchange Commission.

~~In August 2017,~~Reclassifications – Certain information presented in the ~~FASB amended~~2019 supplemental disclosures of cash flow information has been revised to conform to the requirements of the Derivatives and Hedging Topic of the Accounting Standards Codification to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.2020 presentation.

Property and equipment

Property and equipment, which include amounts recorded under capital leases, are stated at cost less accumulated depreciation and amortization (in thousands), and consist of the following:

~~F-12~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

December 31,
2017 2016
Equipment $ 13,574 $ 14,558
Software 7,291 5,685
Furniture and equipment 2,276 2,119
Leasehold improvements 5,342 4,929
Total 28,483 27,291
Less: accumulated depreciation and amortization (21,294 ) (21,894 )
$ 7,189 $ 5,397

~~Depreciation and amortization expense of property and equipment was approximately $2.5 million and $2.1 million for the years ended December 31, 2017 and 2016, respectively.~~

~~Total assets financed under capital leases for 2017 were $0.8 million. There were no acquisitions financed under capital leases in 2016.~~

~~Acquisitions~~

~~On July 14, 2016, Innodata’s MediaMiser subsidiary completed the acquisition of the Agility business from PR Newswire under an asset purchase agreement for cash consideration of $4.2 million.~~

The Agility business that was acquired consists of two products – Agility Connect, a global media contact database and email distribution platform and Agility Capture that provides additional self-service media monitoring and analytics capabilities. The acquisition helped the Company’s MIS segment foster growth in North America and Europe by bolstering its media intelligence solutions and media databases, improving its media outreach capabilities, and delivering stronger, more data-powered media intelligence to clients. With this acquisition, Agility PR Solutions can now offer self and full-service solutions that address the entire communications life cycle – from identifying influencers, amplifying messages, monitoring coverage, to measuring impact.

The transaction has been accounted for using the acquisition method of accounting. This method requires that assets acquired, and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The excess of the purchase price over the net assets acquired was recorded as goodwill.

~~The Company has obtained third party valuations of certain intangible assets. The following table summarizes (in thousands) the final purchase price allocation for the acquisition:~~

	December 31,
	2020			2019
Equipment	$	11,199		$	12,826
Capitalized software development costs		10,693			8,074
Capitalized software development cost - work in progress		1,360			2,536
Furniture and equipment		1,437			2,119
Leasehold improvements		3,267			4,492
Total		27,956			30,047
Less: accumulated depreciation and amortization		(20,729	)		(23,160	)
	$	7,227		$	6,887

~~F-13~~

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amount
Accounts receivable $ 771
Media contact database 3,610
Developed technology 994
Tradenames and trademarks 310
Total identifiable assets acquired 5,685

Accrued salaries, wages and related benefits 63
Deferred revenues 2,560
Income and other taxes 97
Total liabilities assumed 2,720
Net identifiable assets acquired 2,965
Goodwill 1,263
Net assets acquired $ 4,228

The estimated fair value of the media contacts database and tradenames and trademarks intangible assets was determined using the “relief from royalty method” under the income approach, which is a valuation technique that provides an estimate of the fair value of an asset based on the cost savings that are available through ownership of the asset by the avoidance of paying royalties to license the use of the asset from another owner. The estimated fair value of the developed technology was determined based on the cost approach, which measures the value by the cost to reconstruct or replace the platform with another of like utility. Some of the more significant assumptions inherentIncluded in the property and equipment was capitalized software development ~~of these asset valuations include the projected revenue associated with the asset, the appropriate discount rate to select~~cost - in ~~order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, as well as other factors.~~progress. The ~~discount rate used to arrive at the present value of the media contact database and tradenames and trademarks at the acquisition date, was 13.5%. The remaining~~estimated useful lives of the ~~media contact database, developed technology,~~property and ~~tradenames~~equipment ranges between two years and ~~trademarks~~ten years. Depreciation and amortization expense of property and equipment excluding capitalized software development cost - in progress were ~~based on historical product development cycles,~~approximately $1.4 million and $1.7 million for the ~~projected rate of technology migration, a market participant’s use of these intangible assets~~years ended December 31, 2020 and ~~the pattern of projected economic benefit of these intangible assets.~~2019, respectively.

~~The amounts assigned to the media contact database, developed technology, tradenames and trademarks are amortized over the estimated useful life of 10 years.~~

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2016 (amounts in thousands, except per share amounts). The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition been consummated as of that time or that may result in the future.

~~F-14~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

December 31,
2016
Revenues:
As reported $ 63,074
Proforma $ 66,574

Net loss attributable to Innodata Inc. and Subsidiaries:
As reported $ (5,524 )
Proforma $ (5,188 )

Basic and diluted net loss per share:
As reported $ (0.22 )
Proforma $ (0.20 )

4.3.

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill ~~as of~~for the years ended December 31, ~~2017~~2020 and ~~2016~~2019 were as follows (in thousands):

Balance as of January 1, 2016 $ 1,476
Goodwill recorded in connection with an acquisition 1,263
Foreign currency translation adjustment (5 )
Balance as of December 31, 2016 2,734
Foreign currency translation adjustment 98
Balance as of December 31, 2017 $ 2,832

Balance as of January 1, 2019	$	2,050
Foreign currency translation		58
Balance as of December 31, 2019		2,108
Foreign currency translation		42
Balance as of December 31, 2020	$	2,150

The Company determined that adverse changes in macroeconomic trends as a consequence of the continuing COVID-19 pandemic constituted a triggering event under U.S. GAAP (Accounting Standards Codification (ASC) No. 350, “Intangibles - Goodwill and Other” and ASC No. 360, “Impairment or Disposal of Long-Lived Assets”). The Company completed its impairment analysis procedures as of March 31, 2020. The Company determined that there was no impairment of long-lived assets in any of the reporting units as of March 31, 2020.

On September 30, 2020, The Company performed its annual goodwill ~~recorded~~assessment for the Agility segment in ~~connection~~accordance with the ~~acquisition is not deductible~~provisions of ASU 2017-04, by using a single-step approach that determines the carrying value of goodwill and compares it against the reporting unit’s fair value. The Company’s conclusion was consistent with the results of the March 31, 2020 impairment test.

The fair value measurement of goodwill for ~~tax purposes.~~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 using 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. The carrying value of Goodwill was $2,150,000 and $2,108,000 as of December 31, 2020 and 2019, respectively.

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information regarding our acquisition-related intangible assets is as follows for the dates indicated (in thousands):

Developed
technology Customer
relationships Trademarks
and
tradenames Patents Media
Contact
Database Total
Gross carrying amounts:
Balance as of January 1, 2016 $ 1,978 $ 2,036 $ 555 $ 41 $ - $ 4,610
Additions 994 - 310 - 3,610 4,914
Foreign currency translation 47 76 - 2 (100 ) 25
Balance as of December 31, 2016 3,019 2,112 865 43 3,510 9,549
Foreign currency translation 185 152 19 3 137 496
Balance as of December 31, 2017 $ 3,204 $ 2,264 $ 884 $ 46 $ 3,647 $ 10,045

	Developed technology		Customer relationships		Trademarks and trade names		Patents		Media Contact Database		Total
Gross carrying amounts:
Balance as of January 1, 2019	$	2,999	$	2,081	$	855	$	42	$	3,546	$	9,523
Foreign currency translation		109		96		16		1		60		282
Balance as of December 31, 2019		3,108		2,177		871		43		3,606		9,805
Foreign currency translation		67		51		11		2		64		195
Balance as of December 31, 2020	$	3,175	$	2,228	$	882	$	45	$	3,670	$	10,000

~~F-15~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

	Developed technology		Customer relationships		Trademarks and tradenames		Patents		Media Contact Database			Total		Developed technology		Customer relationships		Trademarks and trade names		Patents		Media Contact Database		Total
Accumulated amortization:
Balance as of January 1, 2016	$	280	$	240	$	98	$	5	$	-		$	623
Balance as of January 1, 2019														$	1,137	$	766	$	440	$	19	$	886	$	3,248
Amortization expense		257		178		105		4		181			725		305		178		120		4		357		964
Foreign currency translation		8		7		-		1		(6	)		10		51		39		7		1		18		116
Balance as of December 31, 2016		545		425		203		10		175			1,358
Balance as of December 31, 2019															1,493		983		567		24		1,261		4,328
Amortization expense		312		182		121		4		361			980		308		179		55		4		361		907
Foreign currency translation		45		38		6		1		11			101		43		30		7		1		28		109
Balance as of December 31, 2017	$	902	$	645	$	330	$	15	$	547		$	2,439
Balance as of December 31, 2020														$	1,844	$	1,192	$	629	$	29	$	1,650	$	5,344

Net carrying values - December 31, 2020														$	1,331	$	1,036	$	253	$	16	$	2,020	$	4,656
Net carrying values - December 31, 2019														$	1,615	$	1,194	$	304	$	19	$	2,345	$	5,477

Amortization expense relating to acquisition-related intangible assets was ~~$1.0~~approximately $0.9 million and ~~$0.7~~$1.0 million for the years ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

Estimated annual amortization expense for intangible assets subsequent to December 31, ~~2017~~2020 is as follows (in thousands):

Year Amortization
2018 $ 1,000
2019 1,000
2020 935
2021 935
2022 935
Thereafter 2,801
$ 7,606

~~Taxes~~

In December 2017, the President signed the U.S. Tax Cuts and Jobs Act (2017 Tax Act), which includes a broad range of provisions, many of which significantly differ from those contained in previous U.S. tax law. Changes in tax law are accounted for in the period of enactment. As such, the 2017 consolidated financial statements reflect the immediate tax effect of the 2017 Tax Act, which was enacted on December 22, 2017 (Enactment Date). The 2017 Tax Act contains several key provisions including, among other things:

Year	Amortization
2021	$	931
2022		931
2023		931
2024		829
2025		684
Thereafter		350
	$	4,656

~~A one-time tax on the mandatory deemed repatriation of post-1986 untaxed foreign earnings and profits (E&P), referred to as the toll charge;~~

~~A reduction in the maximum Corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017;~~

An introduction of a new U.S. tax on certain off-shore earnings referred to as Global Intangible Low-Taxed Income (GILTI) at an effective tax rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) with a partial offset by applicable foreign tax credits; and

~~F-16~~

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~A introduction of a quasi-territorial tax system for tax years beginning after December 31, 2017 by providing dividends received deduction under the participation exemption system.~~

The Company continues to evaluate the impacts of the 2017 Tax Act. The Company is evaluating the GILTI provisions of the 2017 Tax Act and its impact, if any, on the consolidated financial statements as of December 31, 2017. The FASB allows companies to adopt an accounting policy to either recognize deferred taxes for GILTI or treat such as a tax cost in the year incurred. The Company has not yet determined the accounting policy and as such did not record a deferred income tax expense or benefit related to the GILTI provisions in the consolidated statement of operations for the year ended December 31, 2017 and will finalize this during the measurement period.

~~Pursuant to the 2017 Tax Act, the Company recorded the following adjustments to income tax expense during the fourth quarter of 2017:~~

A one-time deemed repatriation of E&P amounting to $6.4 million. No toll tax liability was recorded due to the available net operating loss carryforwards. This resulted in a reduction of deferred tax assets and a corresponding reduction in the valuation allowance of $2.2 million; and

A reduction of deferred tax assets and a corresponding reduction of the valuation allowance of $4.8 million, primarily for the remeasurement of our deferred tax assets at the enacted tax rate of 21%. An income tax benefit of $0.1 million, primarily for the remeasurement of our deferred tax liabilities at the enacted tax rate of 21%.

Due to the complexities involved in accounting for the enactment of the 2017 Tax Act, SEC Staff Accounting Bulletin 118 (SAB 118) allows companies to record provisional estimates of the impacts of the 2017 Tax Act during a measurement period which is similar to the measurement period of up to one year from the enactment which is similar to the measurement period used when accounting for business combinations. The Company will continue to assess the impact of the recently enacted tax law on its consolidated financial statements.

Income Taxes

The significant components of the provision for income taxes for ~~each of~~ the ~~two~~ years ~~in the period~~ ended December 31, ~~2017 are~~2020 and 2019 were as follows (in thousands):

2017 2016
Current income tax expense:
Foreign $ 594 $ 1,301
Federal 176 -
State and local 5 1
775 1,302

Deferred income tax expense (benefit):
Foreign (97 ) (176 )
Federal (393 ) -
(490 ) (176 )

Provision for income taxes $ 285 $ 1,126

~~F-17~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

	2020			2019
Current income tax expense (benefit):
Foreign	$	1,065		$	1,333
Federal		15			71
State and local		(61	)		-
		1,019			1,404

Deferred income tax expense (benefit):
Foreign		(628	)		(323	)
Federal		10			10
State and local		-			-
		(618	)		(313	)

Provision for income taxes	$	401		$	1,091

The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for ~~each of~~ the ~~two~~ years ~~in the period~~ ended December 31, ~~2017~~2020 and 2019 is summarized as follows:

2017 2016

Federal statutory rate (34.0 )% (34.0 )%
Effect of:
State income taxes (net of federal tax benefit) (0.5 ) (2.7 )
Taxes on foreign income at rates that differ from U.S. statutory rate 28.0 17.3
Change in valuation allowance on deferred tax assets (90.1 ) (34.5 )
2017 Tax Act 136.9 -
Deemed dividend under Section 956 of the Internal Revenue Code (35.4 ) 75.9
Increase (decrease) in unrecognized tax benefits 0.7 1.6
Other - 0.1
Effective tax rate 5.6 % 23.7 %

	2020			2019
Federal income tax expense (benefit) at statutory rate		21.0	%		(21.0	)%
Effect of:
Change in valuation allowance		137.7			22.4
Increase in unrecognized tax benefits (ASC 740)		31.5			55.1
Tax effects of foreign operations		57.7			59.7
Foreign operations permanent differences - foreign exchange gains and losses		(1.3	)		(12.2	)
Deemed interest		(2.1	)		-
State income tax net of federal benefit		(4.3	)		1.3
Foreign rate differential		(8.6	)		0.8
Effect of share based compensation		(10.9	)		-
Return to provision true up		(10.8	)		(2.6	)
Change in rates		(172.7	)		-
Withholding tax		1.5			6.0
Other		(0.3	)		(7.3	)
Effective tax rate		38.4	%		102.2	%

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred tax assets and liabilities are classified as non-current. Significant components of the Company’s deferred tax assets and liabilities as of December 31, ~~2017~~2020 and ~~2016 are~~2019 were as follows (in thousands):

December 31,
2017 2016

Deferred income tax assets:
Allowances not currently deductible $ 226 $ 546
Depreciation and amortization 1,222 1,654
Equity compensation not currently deductible 853 1,836
Net operating loss carryforwards 4,542 6,718
Expenses not deductible until paid 1,142 1,079
Tax credit carryforwards - 176
Other 297 188
Total gross deferred income tax assets before valuation allowance 8,282 12,197
Valuation allowance (6,525 ) (10,556 )
Deferred income tax assets, net 1,757 1,641

Deferred income tax liabilities:
Acquisition of MediaMiser (446 ) (471 )
Other (168 ) (209 )
Total deferred income tax liabilities (614 ) (680 )

Net deferred income tax assets $ 1,143 $ 961

	December 31,
	2020			2019
Deferred income tax assets:
Allowances not currently deductible	$	192		$	223
Depreciation and amortization		334			297
Equity compensation not currently deductible		778			966
Net operating loss carryforwards		6,751			5,317
Expenses not deductible until paid		1,691			1,245
Other		358			379
Total gross deferred income tax assets before valuation allowance		10,104			8,427
Valuation allowance		(7,917	)		(6,521	)
Deferred income tax assets, net		2,187			1,906

Deferred income tax liabilities:
Intangibles from acquisition of MediaMiser		-			(316	)
Other		(44	)		(47	)
Total deferred income tax liabilities		(44	)		(363	)

Net deferred income tax assets	$	2,143		$	1,543


Net deferred income tax assets	$	2,187		$	1,906
Net deferred income tax liability		(44	)		(363	)

Net deferred income tax assets	$	2,143		$	1,543

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realizable. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are available. As of December 31, ~~2017,~~2020, the Company continues to maintain a valuation allowance on all U.S. and Canadian net deferred tax assets.

~~F-18~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~The Company maintained a valuation allowance of approximately $7.9 million and $6.5 million as of December 31, 2020 and 2019, respectively. The valuation allowance relates to U.S. and the Company’s Canadian subsidiaries deferred tax assets. The net change in the total valuation allowance was an increase of $1.4 million and $1.8 million for the years ended December 31, 2020 and December 31, 2019, respectively.

A significant portion of the Company’s operations are conducted outside the United States. As a result of the 2017 Tax Act, the toll charge amounted to $6.4 million. The charge was offset by the available net operating loss carryforwards. Despite the access to the overseas earnings and the resulting toll charge, ~~the Company intends~~we intend to indefinitely reinvest the foreign earnings in ~~its~~our foreign subsidiaries on account of the foreign jurisdiction withholding tax that the Company ~~would have~~has to incur on the actual remittances. Unremitted earnings of foreign subsidiaries amounted to approximately ~~$24.8~~$47.0 million at December 31, ~~2017.~~2020. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company would have to accrue the applicable amount of foreign jurisdiction withholding taxes associated with such remittances.

The 2017 Tax Act imposes a mandatory transition tax on accumulated foreign earnings and eliminates U.S. taxes on foreign subsidiary distribution. Due to the one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subjected to U.S. federal income tax. As a result, earnings in foreign jurisdictions are available for distribution to the U.S. without incremental U.S. taxes. To the extent the Company repatriates these earnings to the United States, it estimates that it will not incur significant additional taxes related to such amounts, however the estimates are provisional and subject to further analysis.

In 2017 the U.S. entity deferred $5.2 million in payments due to its Asian operating subsidiaries, which resulted in a deemed dividend that is taxable income for U.S. tax purposes under Section 956 of the Internal Revenue Code. The taxable income was offset against the net operating loss carryforwards of the U.S. entity.INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2017 2016

United States $ (2,243 ) $ (5,401 )
Foreign (2,831 ) 616
Total $ (5,074 ) $ (4,785 )

Certain of the Company’s foreign subsidiaries are subject to preferential tax rates. In addition, one of the foreign subsidiaries enjoys a tax holiday. Due to the tax holiday and the preferential tax rates, the income tax rate for the Company was substantially reduced, the tax benefit from which was approximately $0.2 million for both 2017 and 2016.

The Company’s Canadian subsidiaries claims deductions of eligible research and development expenses within the Scientific Research and Experimental Development (SR&ED) Program, a federal tax incentive program, administered by the Canada Revenue Agency. Amounts recorded for the federal and provincial research and development tax credits aggregated $0.1 million and $0.2 million for the years ended December 31, 2017 and 2016, respectively. Such amounts have been recorded as a reduction in selling and administrative expenses.

	2020		2019
United States	$	930	$	(537	)
Foreign		115		(531	)
Totals	$	1,045	$	(1,068	)

At December 31, ~~2017,~~2020, the Company ~~has~~had available U.S. federal ~~and New Jersey state~~ net operating loss carryforwards of approximately $15.5 ~~million and $16.9 million, respectively.~~million. These net operating loss carryforwards expire at various times through the year 2035. Stock option exercises resulted in tax deductions in excess of previously recorded benefits based on the option value at the time of grant (a “windfall”). The Company adopted the provisions of ASU 2016-9 whereby these benefits were reflected in the net operating losses and resulting deferred tax assets in 2016. Windfalls included in net operating losses were approximately $5.2 million.

~~F-19~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~On March 27, 2020, the CARES Act was signed into law in response to the economic challenges facing US businesses. Under the CARES Act, the Internal Revenue Code was amended to allow for federal NOL carrybacks for five years to offset previous years income or can be carryforward indefinitely to offset 100% of taxable income for the tax year 2020 and 80% of taxable income for tax years 2021 and thereafter. As of the date the financial statements were available to be issued, the state NOL carryforwards, if not utilized, will expire beginning in 2022.

At December 31, ~~2017,~~2020, the Company’s Canadian subsidiaries ~~have~~had available net operating loss carryforwards of approximately ~~$8.2~~$16.1 million in Canada which begin to expire in 2028. In addition, these subsidiaries also have research and development expenditures of approximately $1.8 million available to reduce taxable income in future years which may be carried forward indefinitely. The potential benefits from these balances have not been recognized for financial statement purposes.

The Company had unrecognized tax benefits of ~~$0.9~~$3.2 million and ~~$1.2~~$3.0 million as of December 31, ~~2017~~2020 and ~~2016. The portion of unrecognized tax benefits relating to interest and penalties was $0.4 million and $0.5 million as of December 31, 2017 and 2016,~~2019, respectively. The Company expects that unrecognized tax benefits as of December 31, ~~2017~~2020 and ~~2016,~~December 31, 2019, if recognized, would have ana material impact on the Company’s effective tax rate.

The Company is subject to Federal income tax, as well as income tax in various states and foreign jurisdictions. The Company has open tax years for U.S. Federal and state taxes from 2016 through 2020. Various foreign subsidiaries have open tax years from 2003 through 2019, some of which are under audit by local tax authorities. The Company believes that its accruals for uncertain tax positions as of December 31, 2020 under ASC 740, Income Taxes are adequate to cover the Company’s income tax exposures.

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table represents a roll forward of the Company’s unrecognized tax benefits and associated interest for the years ended (amounts in thousands):

	December 31,						December 31,
	2017			2016			2020			2019
Balance at January 1	$	1,184		$	1,207		$	2,957		$	2,424
Increase for tax position		-			40
Decrease for tax position on account of settlement		(402	)		(108	)
Increase for current year tax position								308			355
Decrease for prior year tax position								(161	)		-
Interest accrual		44			51			199			234
Foreign currency revaluation		85			(6	)		(72	)		(56	)
Balance at December 31	$	911		$	1,184		$	3,231		$	2,957

The Company is subject to Federal income tax, as well as income tax in various states and foreign jurisdictions. The Company is no longer subject to examination by Federal tax authorities for years prior to 2006 and by New Jersey tax authorities for years prior to 2012. Various foreign subsidiaries currently have open tax years from 2003 through 2017.

Pursuant to an income tax audit by the Indian Bureau of Taxation in 2009, the Company’s Indian subsidiary received a tax assessment approximating $356,000 including interest, through December 31, 2017 for the fiscal year ended March 31, 2006. Management disagrees with the basis of this tax assessment, has filed an appeal against the assessment and is contesting it vigorously. In January 2012, the Indian subsidiary received a final tax assessment of approximately $1.0 million, including interest, for the fiscal year ended March 31, 2008, from the Indian Bureau of Taxation. Management disagrees with the basis of this tax assessment and has filed an appeal against it. Due to this assessment, the Company recorded a tax provision amounting to $371,000 including interest through December 31, 2017. In April 2015, the Company received a favorable judgment whereby the Appeal Officer reduced the tax assessment to $0.3 million. Under the Indian Income Tax Act, however, the income tax assessing officer has the right to appeal against the judgment passed by the Appeal Officer. In the third quarter of 2015, the income tax assessing officer exercised this right and filed an appeal. Based on recent experience, management believes that the tax provision of $371,000 including interest is adequate.Assessments

In September 2015, the Company’s Indian subsidiary was subject to an inquiry by the Service Tax ~~Bureau~~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), and not under the category of business support 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 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 ~~Bureau~~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 our Indian subsidiary during this period was approximately ~~14.5%~~$64.0 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 assessment of the ~~subsidiary’s revenues and this would increase the operating costs of~~Company’s counsel, the Company ~~by an equivalent amount. Therevenues of~~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 our Indian subsidiary for three quarters in 2014, asserting that the ~~year ended December 31, 2017 were $15.6 million.~~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 ~~Service Tax Bureau’s position~~basis of this decision and is ~~vigorously~~ contesting ~~these assertions.~~

~~F-20~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~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 assessment of the Company’s counsel, the Company has not recorded any tax liability for this case.

~~The~~Substantial recovery against the Company established a valuation allowance of approximately $6.5 million and $10.6 million at December 31, 2017 and 2016, respectively. The valuation allowance relates to U.S. deferred tax assets and the Company’s Canadian subsidiaries. The net change in the ~~total valuation allowance was~~above referenced 2015 Service Tax Department case could have a ~~decrease of $4.1 million for~~material adverse impact on the ~~years ended December 31, 2017 compared to an increase of $0.7 million~~Company, and unfavorable rulings or recoveries in December 31, 2016. The decrease in the valuation allowance in 2017 is primarily the result of the 2017 Tax Act. The adoption of the provisions of ASU 2016-9 resulted in a $1.8 million increase in the valuation allowance in 2016.

~~The Company from time to time is also subject to various~~ other tax proceedings ~~and claims for its Philippines subsidiaries. The Company has recorded~~could have a ~~tax provision amounting to $184,000 including interest through December 31, 2017, for several ongoing tax proceedings~~material adverse impact on the consolidated operating results of the period (and subsequent periods) in which the ~~Philippines. Although the ultimate outcome cannot be determined at this time, the Company continues to contest these claims vigorously.~~rulings or recovery occurs.

6.5.

Long-term obligations

Total long-term obligations as of December 31, ~~2017~~2020 and ~~2016 consist~~2019 consisted of the following (in thousands):

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31,
2017 2016

Capital lease obligations $ 829 $ 224
Deferred lease payments⁽¹⁾ 731 705
Microsoft licenses⁽²⁾ 751 -
Acquisition related liability⁽³⁾ 800 1,492
Lease incentive liability⁽⁴⁾ 664 -
Pension obligations - accrued pension liability 2,835 2,616
6,610 5,037
Less: Current portion of long-term obligations 2,133 1,120
Totals $ 4,477 $ 3,917

	December 31,
	2020		2019
Pension obligations - accrued pension liability	$	5,940	$	4,611
Settlement agreement ⁽¹⁾		518		708
Capital lease obligations		209		655
Microsoft licenses ⁽²⁾		747		-
Bank loans payable ⁽³⁾		580		-
		7,994		5,974
Less: Current portion of long-term obligations		1,712		1,440
Totals	$	6,282	$	4,534

⁽¹⁾ ~~Deferred lease payments represent~~Represents payment to be made pursuant to a settlement agreement entered into in December 2018 between a subsidiary of the ~~effect~~Company and 19 former employees of ~~straight-lining operating lease payments over the respective lease terms.~~such subsidiary. The balance is payable in monthly installments through March 2023.

⁽²⁾ ~~In March 2017,~~On April 2020, the Company renewed a vendor agreement to acquire certain additional software licenses and to receive support and subsequent software upgrades on these and other currently owned software licenses through February ~~2020.~~2023. Pursuant to this agreement, the Company iswas obligated to pay approximately $0.4 million annually over the term of the agreement. ~~The total cost, net of deferred interest (in thousands), was allocated to the following asset accounts in 2017:~~

Prepaid expenses and other current assets $ 404
Other assets 809
$ 1,213

⁽³⁾ On ~~September 30, 2016~~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. The loans and accrued interest are forgivable, as long as the ~~other parties to~~borrower uses the ~~transaction in which~~loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. On January 29, 2021, the Company ~~acquired MediaMiser amended~~ filed its loan forgiveness application for 100% of the ~~terms on which a subsidiary of~~approved loan under the Company is required to make a supplemental purchase price payment for MediaMiser. Prior to the amendment, the amount of the supplemental purchase price payment was to be determined by the achievement of certain financial thresholds and was in no event to exceed $3.8 million (C$5 million)PPP. The amendment fixed the amount of the supplemental purchase price payment at $1.5 million (C$2 million) payable in two equal installments on March 31, 2017 and 2018 to designated recipients, except that no payments will be made to designated recipients who fail to satisfy specified conditions. The Company has the option to pay up to 70% of the supplemental amount in shares of Innodata Inc. stock. In March 2017, the Company paid 70% of the first installment by issuing 253,622 shares of Innodata Inc.’s common stock and paid 30% of the first installment in cash in April 2017.

~~F-21~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

⁽⁴⁾ In the second quarter of 2017, the Company moved both its U.S. and Canadian headquarters to new premises. As an incentive for the Company to lease in their respective office spaces, the lessors for each of the properties offered to partially defray the construction cost by offering a tenant improvement allowance. Under the terms of the lease contracts the Company is liable to refund any unamortized portion of this allowance should it decide to terminate the lease before the expiry of the specified lock-in period. This amount will be amortized based on the contractual liability and recognized as a reduction in rent expense for the period covered.

7.6.

Commitments and contingencies

~~Leases~~-The Company is obligated under various operating lease agreements for office and production space. Certain agreements contain escalation clauses and requirements that the Company pay taxes, insurance and maintenance costs. Company leases that include escalated lease payments are expensed on a straight-line basis over the lease period.

Lease agreements for production space in most overseas facilities, which expire through 2030, contain provisions pursuant to which the Company may cancel the leases subject to a notice period, and generally subject to forfeiture of the security deposit. Rent expense, principally for office and production space totaled approximately $2.7 million for each of the years ended December 31, 2017 and 2016.

~~Future minimum lease payments under non-cancelable leases, by year and in the aggregate, as of December 31, 2017 (in thousands) are as follows:~~

Years Ending December 31,
2018 $ 687
2019 500
2020 464
2021 478
2022 242
Thereafter 884
Total minimum lease payments $ 3,255

Litigation –In 2008, a judgment was rendered in the Philippines against a ~~Philippines~~Philippine subsidiary of the Company that is no longer active and purportedly also against Innodata Inc., in favor of certain former employees of the ~~Philippines~~Philippine subsidiary. The potential payment amount ~~as recalculated in November 2017 by the Philippines Department of Labor and Employment National Labor Relations Commission~~ aggregates to approximately ~~$6.2~~$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 ~~them~~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 ~~Court.~~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 ~~which arise~~that have arisen in the ordinary course of business.

~~F-22~~

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 ~~Philippines~~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 of 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.

The Company’s legal ~~reserves~~accruals related to legal proceedings and claims are based on athe 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 ~~reserves~~accruals are adjusted if necessary. While the Company intends to defend these matters vigorously, adverse outcomes that it estimates could reach approximately ~~$100,000~~$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.

Foreign Currency- To the extent that the currencies of the Company’s production facilities located in the Philippines, India, Sri Lanka and Israel fluctuate, the Company is subject to risks of changing costs of production after pricing is established for certain client projects. In addition, the Company is exposed to the risk onof foreign currency fluctuation on the non-U.S. dollar denominated revenues, and on the monetary assets and liabilities held by its foreign subsidiaries that are denominated in local currency.

Indemnifications- The Company is obligated under certain circumstances to indemnify directors, certain officers and employees against costs and liabilities incurred in actions or threatened actions brought against such individuals because such individuals acted in the capacity of director, ~~and/or~~ officer or fiduciary of the Company. In addition, the Company has contracts with certain clients pursuant to ~~whom~~which the Company has agreed to indemnify the client for certain specified and limited claims. These indemnification obligations occur in the ordinary course of business and, in many cases, do not include a limit on potential maximum future payments. As of December 31, ~~2017,~~2020, the Company has not recorded a liability for any obligations arising as a result of these ~~indemnifications.~~indemnification obligations.

7.	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.

The Company adopted ASU 2016-02, effective January 1, 2019, and applied the practical expedients consistently for all of its leases. Accordingly, the Company:

	1.	Did not reassess whether any expired or existing contracts are or contain leases.
	2.	Did not reassess the lease classification for any expired or existing leases.
	3.	Did not reassess initial direct costs for any existing leases.

In addition, the Company elected to retrospectively determine the lease term and assess impairment of the right-of-use asset.

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under the standard, the Company recognizes an operating lease liability and right-of-use asset. The amount of right-of use asset is equal to the present value of the remaining lease payments discounted using the incremental borrowing rate of each respective country. Modifications, if any are recalculated and corresponding adjustments are made to the carrying values of both the lease liability and right-of-use assets.

A right-of-use asset is measured as the amount of the lease liability adjusted for the amount of deferred straight-line rent, prepaid rent and lease incentive allowances previously recognized.

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

	Year Ended
	December 31, 2020		December 31, 2019
Rent expense for long-term operating leases	$	1,667	$	1,813
Rent expense for short-term leases		619		297
Total rent expense	$	2,286	$	2,110

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 consolidated balance sheet as of December 31, 2020 (in thousands):

Year	Amount
2021	$	1,565
2022		1,531
2023		1,261
2024		1,027
2025		1,043
2026 and thereafter		3,490
Total lease payments		9,917
Less: Interest		(2,595	)
Net present value of lease liabilities	$	7,322

Current portion	$	990
Long-term portion		6,332
Total	$	7,322

The weighted average remaining lease terms and discount rates for all of our operating leases as of December 31, 2020 were as follows:

Weighted-average lease term remaining			65 months
Weighted-average discount rate			8.68%

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.	Pension ~~benefits~~Benefits

U.S. Defined Contribution Pension Plan -The Company has a defined contribution plan qualified under Section 401(k) of the Internal Revenue Code, pursuant to which substantially all of its U.S. employees are eligible to participate after completing six months of service. Participants may elect to contribute a portion of their compensation to the plan. Under the plan, the Company has the discretion to match a portion of participants’ contributions. ~~The Company intends to match approximately $0.1 million to~~For the ~~plan for the year~~years ended December 31, ~~2017. For the year ended December 31, 2017,~~2020 and 2019, the Company did not make any matching contributions.

Non-U.S. Pension ~~benefits~~Benefits -The accounting standard for pensions requires an employer to recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive loss to report the funded status of defined benefit pension and other post-retirement benefit plans.

Most of the non-U.S. subsidiaries provide for government-mandated defined pension benefits. For certain of these subsidiaries, vested eligible employees are provided a lump sum payment upon retiring from the Company at a defined age. The lump sum amount is based on the salary and tenure as of retirement date. Other non-U.S. subsidiaries provide for a lump sum payment to vested employees on retirement, death, incapacitation or termination of employment, based upon the salary and tenure as of the date employment ceases. The liability for such defined benefit obligations is determined and provided on the basis of actuarial valuations. As of December 31, ~~2017,~~2020, these plans ~~are~~were unfunded. Pension expense for foreign subsidiaries totaled approximately ~~$0.2~~$0.8 million and $0.3 million for the years ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

~~F-23~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following ~~table summarizes the amounts recognized in accumulated other comprehensive income (loss), net of taxes (in thousands):~~

Years Ended December 31,
2017 2016

Amortization of transition obligation $ 38 $ 43
Actuarial loss (226 ) (179 )
Totals $ (188 ) $ (136 )

Amounts in accumulated other comprehensive loss not yet reflected in net periodic pension cost, net of taxes:

Actuarial gain $ 1,331 $ 1,557
Transition obligation (132 ) (170 )
Totals $ 1,199 $ 1,387

Amounts in accumulated other comprehensive loss expected to be amortized in 2018 net periodic pension cost, net of taxes:

Actuarial gain $ (157 )
Transition obligation 38
Totals $ (119 )

~~The following table sets~~tables set out the status of the non-U.S. pension benefits and the amounts (in thousands) recognized in the Company’s consolidated financial statements and the components of pension costs as of and for each of the two years in the period ended December 31, ~~2017:~~2020:

Benefit Obligations:

2017 2016

Projected benefit obligation at beginning of the year $ 2,896 $ 2,840
Service cost 333 368
Interest cost 187 170
Curtailment (69 ) -
Actuarial gain (107 ) (197 )
Foreign currency exchange rates changes 51 (142 )
Benefits paid (170 ) (143 )
Projected benefit obligation at end of the year $ 3,121 $ 2,896

~~F-24~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

	2020			2019
Projected benefit obligation at beginning of the year	$	4,611		$	2,591
Service cost		492			289
Interest cost		249			194
Actuarial loss (gain)		505			1,720
Foreign currency exchange rates changes		168			52
Benefits paid		(85	)		(235	)
Projected benefit obligation at end of the year	$	5,940		$	4,611

Components of Net Periodic Pension Cost:

	2017			2016
							2020		2019
Service cost	$	333		$	368		$	492	$	289
Interest cost		187			170			249		194
Curtailment		(69	)		-
Actuarial gain recognized		(249	)		(315	)
Actuarial gain (loss) recognized								50		(148	)
Net periodic pension cost	$	202		$	223		$	791	$	335

The accumulated benefit obligation, which represents benefits earned to date, was approximately ~~$2.0~~$3.7 million and ~~$1.5~~$2.9 million as of December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts recognized in the consolidated balance sheets for the years ended December 31, 2020 and 2019 consisted of the following (in thousands):

	2020		2019
Current accrued benefit cost	$	332	$	570
Non-current accrued benefit cost		5,608		4,041
Total amount recognized	$	5,940	$	4,611

Current accrued benefit cost for pension benefits was included in the current portion of long-term obligations in the consolidated balance sheets. Non-current accrued benefit cost for pension benefits was included in long-term obligations, net of current portion, in the consolidated balance sheets.

Actuarial assumptions for all non-U.S. plans are described below. The discount rates are used to measure the year end benefit obligations and the earnings effects for the subsequent year. The assumptions for each of the two years in the period ended December 31, ~~2017 are~~2020 were as follows:

	2017	2016	2020	2019
Discount rate	5.78%-10.6%	5.4%-12.5%	3.57%-8.06%	4.85%-10.42%
Rate of increase in compensation level	5%-7%	5%-8.5%	5%-7%	5%-7%

Estimated Future Benefit Payments:

~~The~~As of December 31, 2020, the following benefit payments, which reflect expected future service, as appropriate, ~~are~~were expected to be paid (in thousands):

Years Ending December 31,

2018 $ 360
2019 221
2020 577
2021 142
2022 151
2023 to 2027 1,749
$ 3,200

Years Ending December 31,	Amount
2021	$	629
2022		234
2023		157
2024		206
2025		413
2026 to 2030		3,251
	$	4,890

Capital Stock

Common Stock -The Company is authorized to issue 75,000,000 shares of common stock. Each share of common stock has one vote. Subject to preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors. No common stock dividends have been declared to date.

Preferred Stock -The Company is authorized to issue ~~5,000,000~~4,998,000 shares of preferred stock. The Board of Directors is authorized to fix the terms, rights, preferences and limitations of the preferred stock and to issue the preferred stock in series ~~which~~that differ as to their relative terms, rights, preferences and limitations.

~~F-25~~

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders Rights Agreement -On ~~January 14, 2016,~~February 1, 2019, the Board of Directors declared a dividend of one preferred share purchase right (each, a “Right,” and collectively, the “Rights”) for each outstanding share of the Company’s common stock on February ~~1, 2016.~~15, 2019. The description and terms of the Rights are set forth in a Rights Agreement between the Company and American Stock Transfer & Trust Co., as rights agent, dated as of ~~January 14, 2016~~February 1, 2019 (the “Rights Agreement”). Each Right entitles its holder to purchase, under certain conditions, one one-thousandth of a share of Series C Participating Preferred Stock (“Preferred Stock”). Each one one-thousandth of a share of Preferred Stock has substantially the same rights as one share of the Company’s common stock. Subject to the terms and conditions of the Rights Agreement, Rights become exercisable ten days after the public announcement that a “Person” has become an “Acquiring Person” (as each such term is defined in the Rights Agreement) by obtaining beneficial ownership of 20% or more of the Company’s outstanding common stock, or, if earlier, ten business days (or a later date determined by the Board of Directors before any Person becomes an Acquiring Person) after a Person begins a tender or exchange offer which, if completed, would result in that Person becoming an Acquiring Person. Any Rights held by an Acquiring Person are void and may not be exercised.

If a Person becomes an Acquiring Person, all holders of Rights, except the Acquiring Person, may purchase at the Right’s then-current exercise price, the Company’s common stock having a market value equal to twice the exercise price. Moreover, at any time after a Person becomes an Acquiring Person (unless such Person acquires 50 percent or more of the common stock of the Company then outstanding, as more fully described in the Rights Agreement), the Board of Directors may exchange one share of the Company’s common stock for each outstanding Right (other than rights owned by such Person, which would have become void). In addition, if the Company is acquired in a merger or other business combination transaction after a Person becomes an Acquiring Person, all holders of Rights, except the Acquiring Person, may purchase at the Right’s then-current exercise price, a number of the acquiring ~~Company’s~~company’s common stock having a market value of twice the exercise price. If the Company receives a “qualifying offer” (which includes certain all-cash fully financed tender offers or exchange offers for all of the Company’s outstanding common stock), under certain circumstances, holders of 10 percent of the Company’s outstanding common stock (excluding stock held by the offeror and its affiliates and associates) may direct the Board of Directors to call a special meeting of stockholders to consider a resolution exempting such “qualifying offer” from the Rights Agreement. The Rights themselves have no voting power. The Board of Directors may redeem the Rights at an initial redemption price of $0.001 per Right under certain circumstances set forth in the Rights Agreement.

The Rights Agreement was approved by the Company’s stockholders at the ~~2016~~2019 annual meeting. The Rights will expire on January ~~13, 2019~~31, 2022 unless earlier redeemed or exchanged.

Common Stock Reserved -As of December 31, ~~2017,~~2020, the Company had ~~reserved~~available for future issuance ~~approximately 6,143,000~~2,925,638 shares of common stock pursuant to the Company’s stock option plans.

Treasury Stock - In ~~September 2011,~~July 2019, the Company’s Board of Directors authorized the repurchase of up to $2.0 million of its common stock in open market or private transactions. There is no expiration date associated with the program. ~~There were no share repurchases in 2017. As~~The total value of common stock acquired under the plan was $1.5 million as of December 31, ~~2017, the Company repurchased 137,000 shares of its common stock under the September 2011 authorization.~~2020.

F-30

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.

Stock Options

On June 7, 2016, stockholders of the Company approved amendments to the Innodata Inc. 2013 Stock ~~Plan. The Innodata Inc. 2013 Stock~~ Plan as(as amended, ~~and restated effective June 7, 2016 is referred to herein as~~ the ~~“Plan.”~~“Plan”). The number of shares of common stock of Innodata Inc. ~~(“Stock”)~~ that may be delivered, purchased or used for reference purposes (with respect to stock appreciation rights or stock units) for awards granted under the Plan after June 7, 2016 is 5,858,892 (the ~~“Share Reserve”)~~Share Reserve). Shares subject to an option or stock appreciation right granted under the Plan after June 7, 2016 ~~shall~~ count against the Share Reserve as one share for every share granted, and shares subject to any other type of award granted under the Plan after June 7, 2016 ~~shall~~ count against the Share Reserve as two shares for every share granted. Any award, or portion of an award, under the Plan or under the Company’s 2009 Stock Plan (as amended and restated (the ~~“Prior Plan”)~~Prior Plan)) that expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares without delivery of shares or other consideration ~~shall~~will be added back to the Share Reserve as one share for each such share that was subject to an option or stock appreciation right granted under the Plan or the Prior Plan, and two shares for each such share that was subject to an award other than an option or stock appreciation right granted under the Plan or the Prior Plan. If any shares are withheld, tendered or exchanged by a participant in the Plan as full or partial payment to Innodata of the exercise price under an option under the Plan or the Prior Plan or in satisfaction of a participant’s tax withholding obligations with respect to any award under the Plan or the Prior Plan, there ~~shall~~will be added back to the Share Reserve one share for each such share that was withheld, tendered or exchanged in respect of an option or stock appreciation right granted under the Plan or the Prior Plan, and two shares for each such share that was withheld, tendered or exchanged in respect of an award other than an option or stock appreciation right granted under the Plan or the Prior Plan.

~~F-26~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

	For the Years Ended December 31,						For the Years Ended December 31,
	2017			2016			2020		2019
Weighted average fair value of options granted	$	0.73		$	1.11		$	0.61	$	0.56

Risk-free interest rate		1.91	%		1.26%-1.93	%		0.29%-0.56%		1.68% - 2.55%
Expected life (years)		6			5-6			5-6		5-6
Expected volatility factor		49.62	%		47%-49	%		46.75%-50.09%		45.03%-46.38%
Expected dividends		None			None			None		None

The Company estimates the risk-free interest rate using the U.S. Treasury yield curve for periods equal to the expected term of the options in effect at the time of grant. The expected term of options granted is based on a combination of vesting schedules, term of the options and historical experience. Expected volatility is based on historical volatility of the Company’s common stock. The Company uses an expected dividend yield of zero since it has never declared or paid any dividends on its capital stock.

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of option activity under the Plans as of December 31, ~~2017,~~2020, and changes during the ~~year then~~years ended December 31, 2020 and 2019, is presented below:

Number of
Options Weighted -
Average Exercise
Price Weighted-Average
Remaining
Contractual Term
(years) Aggregate
Intrinsic Value
Outstanding at January 1, 2017 5,169,169 $ 2.88
Granted 40,000 1.50
Exercised - -
Forfeited/Expired (967,370 ) 3.08
Outstanding at December 31, 2017 4,241,799 $ 2.82 4.80 $ -

Exercisable at December 31, 2017 3,567,136 $ 2.89 4.08 $ -

Vested and Expected to Vest at December 31, 2017 4,241,799 $ 2.82 4.80 $ -

	Number of Options			Weighted - Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2019		4,982,040		$	2.14
Granted		2,112,500			1.25
Exercised		(10,000	)		1.11
Forfeited/Expired		(256,237	)		2.42
Outstanding at December 31, 2019		6,828,303		$	1.86		6.86	$	89,405
Granted		1,080,000			1.37
Exercised		(1,357,116	)		1.97
Forfeited/Expired		(644,303	)		3.06
Outstanding at December 31, 2020		5,906,884		$	1.61		7.34	$	21,769,727

Exercisable at December 31, 2020		3,923,564		$	1.79		6.66	$	13,769,733

Vested and Expected to Vest at December 31, 2020		5,906,884		$	1.61		7.34	$	21,769,727

The total compensation cost related to non-vested stock options not yet recognized as of December 31, ~~2017 totaled~~2020 totals approximately ~~$0.8~~$1.1 million. The weighted-average period over which these costs will be recognized is ~~eighteen~~21 months.

~~F-27~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~A summary of restricted shares under the Company’s Plan are presented below:

~~There were no option exercises during the years ended December 31, 2017 and 2016.~~

	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding January 1, 2019		-
Granted		75,000		$	1.38
Vested		-
Unvested at December 31, 2019		75,000
Granted		-
Vested		(25,000	)
Forfeited/Expired		-
Unvested at December 31, 2020		50,000		$	1.38

11.

Comprehensive ~~income (loss)~~loss

Accumulated other comprehensive ~~income (loss),~~loss, as reflected in the 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 other comprehensive ~~income (loss)~~loss as of December 31, ~~2017~~2020 and ~~2016,~~2019, and reclassifications out of accumulated other comprehensive ~~income (loss)~~loss for the years then ended, are presented below (in thousands):

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pension Liability
Adjustment Fair Value of
Derivatives Foreign Currency
Translation
Adjustment Accumulated Other
Comprehensive
Income (Loss)
Balance at January 1, 2017 $ 1,387 $ (318 ) $ (1,393 ) $ (324 )
Other comprehensive income before reclassifications, net of taxes - 574 706 1,280
Total other comprehensive income (loss) before reclassifications, net of taxes 1,387 256 (687 ) 956
Net amount reclassified to earnings (196 ) 86 - (110 )
Balance at December 31, 2017 $ 1,191 $ 342 $ (687 ) $ 846

	Pension Liability Adjustment			Fair Value of Derivatives			Foreign Currency Translation Adjustment			Accumulated Other Comprehensive Loss
Balance at January 1, 2020	$	(53	)	$	33		$	(900	)	$	(920	)
Other comprehensive income (loss) before reclassifications, net of taxes		-			(106	)		406			300
Total other comprehensive loss before reclassifications, net of taxes		(53	)		(73	)		(494	)		(620	)
Net amount reclassified to earnings		(391	)		73			-			(318	)
Balance at December 31, 2020	$	(444	)	$	-		$	(494	)	$	(938	)

Pension Liability
Adjustment Fair Value of
Derivatives Foreign Currency
Translation
Adjustment Accumulated Other
Comprehensive
Income (Loss)
Balance at January 1, 2016 $ 1,523 $ (165 ) $ (1,442 ) $ (84 )
Other comprehensive income (loss) before reclassifications, net of taxes - (90 ) 49 (41 )
Total other comprehensive income (loss) before reclassifications, net of taxes 1,523 (255 ) (1,393 ) (125 )
Net amount reclassified to earnings (136 ) (63 ) - (199 )
Balance at December 31, 2016 $ 1,387 $ (318 ) $ (1,393 ) $ (324 )

	Pension Liability Adjustment			Fair Value of Derivatives			Foreign Currency Translation Adjustment			Accumulated Other Comprehensive Loss
Balance at January 1, 2019	$	1,451		$	-		$	(1,466	)	$	(15	)
Other comprehensive income before reclassifications, net of taxes		-			46			566			612
Total other comprehensive income (loss) before reclassifications, net of taxes		1,451			46			(900	)		597
Net amount reclassified to earnings		(1,504	)		(13	)		-			(1,517	)
Balance at December 31, 2019	$	(53	)	$	33		$	(900	)	$	(920	)

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

12.

Segment reporting and concentrations

The Company’s operations are classified ~~into~~in three ~~reportable~~reporting segments: Digital Data Solutions (DDS), ~~Innodata Advanced Data Solutions (IADS)~~Synodex and ~~Media Intelligence Solutions (MIS).~~Agility.

The DDS segment provides a range of solutions and platforms for solving complex data challenges that companies face when they seek to ~~digital retailers,~~obtain the benefits of AI systems and analytics platforms. These include data annotation, data transformation, data curation and intelligent automation. The DDS segment also provides a variety of services for clients in the information ~~services companies, publishers~~industry that relate to content operations and enterprises that have one or more of the following broad business requirements: development of digital content (including e-books); development of new digital information products; and operational support of existing digital information products and systems.product development.

The ~~IADS~~Synodex segment ~~performs advanced~~provides an intelligent data ~~analysis. IADS operates through two subsidiaries: Synodex and docGenix. Synodex offers a range of~~platform that transforms medical records into useable digital data ~~analysis services~~organized in ~~the healthcare, medical and insurance areas. docGenix provides services to financial services institutions.~~accordance with our proprietary data models or client data models.

The ~~Company’s MIS~~Agility segment ~~operates through its Agility PR Solutions~~provides an intelligent data platform that provides marketing communications and ~~Bulldog Reporter subsidiaries. Agility PR Solutions offers self~~public relations professionals with the ability to target and ~~full-service solutions that address the entire communications life cycle – from identifying~~distribute content to journalists and social media influencers ~~amplifying messages, monitoring coverage,~~world-wide and to ~~measuring impact.~~

~~F-28~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~monitor and analyze global news channels (print, web, radio and TV) and social media channels.

A significant portion of the Company’s revenues is generated from its ~~production facilities~~locations in the Philippines, India, Sri Lanka, Canada, Germany, the United Kingdom and Israel.

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For the Years Ended December 31,
2017 2016
Revenues:
DDS $ 46,753 $ 50,639
IADS 4,751 4,347
MIS 9,425 8,088
Total Consolidated $ 60,929 $ 63,074

Income (loss) before provision for income taxes ⁽¹⁾:
DDS $ 1,327 $ 1,137
IADS (3,588 ) (4,664 )
MIS (2,813 ) (1,258 )
Total Consolidated $ (5,074 ) $ (4,785 )

Loss before provision for income taxes ⁽²⁾:
DDS $ (1,729 ) $ (1,776 )
IADS (596 ) (1,778 )
MIS (2,749 ) (1,231 )
Total Consolidated $ (5,074 ) $ (4,785 )

December 31, 2017 December 31, 2016
Total assets:
DDS $ 25,520 $ 24,432
IADS 1,331 1,282
MIS 21,020 21,874
Total Consolidated $ 47,871 $ 47,588

December 31, 2017 December 31, 2016
Goodwill:
DDS $ 675 $ 675
MIS 2,157 2,059
Total Consolidated $ 2,832 $ 2,734

	For the Years Ended December 31,
	2020			2019
Revenues:
DDS	$	41,983		$	41,172
Synodex		4,828			3,942
Agility		11,429			10,744
Total Consolidated	$	58,240		$	55,858

Income (loss) before provision for income taxes⁽¹⁾:
DDS	$	1,260		$	944
Synodex		357			(129	)
Agility		(572	)		(1,883	)
Total Consolidated	$	1,045		$	(1,068	)

Income (loss) before provision for income taxes⁽²⁾:
DDS	$	980		$	683
Synodex		536			40
Agility		(471	)		(1,791	)
Total Consolidated	$	1,045		$	(1,068	)

	December 31, 2020		December 31, 2019
Total assets:
DDS	$	27,767	$	23,115
Synodex		457		675
Agility		29,030		25,707
Total Consolidated	$	57,254	$	49,497

	December 31, 2020		December 31, 2019
Goodwill:
Agility	$	2,150	$	2,108
Total	$	2,150	$	2,108

⁽¹⁾ ~~Before elimination of any inter-segment profits~~

⁽²⁾ ~~After elimination of any inter-segment profits~~

⁽¹⁾

Before elimination of any inter-segment profits

⁽²⁾

After elimination of any inter-segment profits

~~F-29~~

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-lived assets as of December 31, ~~2017~~2020 and ~~2016~~2019 by geographic region ~~are~~were comprised ~~of:~~of (in thousands):

	2017		2016
	(in thousands)
					2020		2019
United States	$	5,321	$	4,669	$	4,045	$	4,521

Foreign countries:
Canada		6,888		5,085		9,044		8,708
United Kingdom		2,388		2,376		1,759		1,907
Philippines		1,446		1,940		4,545		5,135
India		1,042		1,520		930		508
Sri Lanka		504		683		319		678
Israel		36		47		1		19
Germany		2		2		-		1
Total foreign		12,306		11,653		16,598		16,956
Total	$	17,627	$	16,322
Totals					$	20,643	$	21,477

~~Two clients~~One client in the DDS segment generated approximately ~~30%~~14% and ~~31%~~16% of the Company’s total revenues in the fiscal years ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively. Another client in the DDS segment generated 10% of the Company’s total revenues for the fiscal year ended December 31, 2019. No other client accounted for 10% or more of total revenues during these periods. Further, in the years ended December 31, ~~2017~~2020 and ~~2016,~~2019, revenues from non-US clients accounted for ~~51%~~54% and ~~49%~~55%, respectively, of the Company's revenues.

Revenues for each of the two years in the period ended December 31, ~~2017~~2020 and 2019 by geographic region (determined based upon client’s domicile), ~~are~~were as ~~follows:~~follows (in thousands):

	2017		2016
	(in thousands)
					2020		2019
United States	$	30,135	$	32,070	$	26,764	$	25,015
United Kingdom		10,514		8,271		11,184		9,577
Others - principally Europe		7,773		7,555
The Netherlands		6,871		9,216		6,695		6,982
Canada		5,636		5,962		5,791		6,192
Total	$	60,929	$	63,074
Others - principally Europe						7,806		8,092
Totals					$	58,240	$	55,858

As of December 31, ~~2017,~~2020, approximately ~~61%~~55% of the Company's accounts receivable was due from foreign (principally European) clients and ~~51%~~36% of accounts receivable was due from three clients. As of December 31, ~~2016,~~2019, approximately ~~73%~~60% of the Company's accounts receivable was due from foreign (principally European) clients and ~~52%~~44% of accounts receivable was due from three clients. No other client ~~accounts~~accounted for 10% or more of the ~~receivables~~accounts receivable as of December 31, ~~2017.~~2020.

~~F-30~~

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.

~~Loss~~Income (Loss) per Share

	For the Years Ended December 31,						For the Years Ended December 31,
	2017			2016			2020		2019
	(in thousands)

Net loss attributable to Innodata Inc. and Subsidiaries	$	(5,055	)	$	(5,524	)
Net income (loss) attributable to Innodata Inc. and Subsidiaries							$	617	$	(2,142	)

Weighted average common shares outstanding		25,816			25,542			24,607		25,774
Dilutive effect of outstanding options		-			-			966		-
Adjusted for dilutive computation		25,816			25,542			25,573		25,774

Basic ~~loss~~income (loss) per share is computed using the weighted-average number of common shares outstanding during the year. Diluted ~~loss~~income 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 method of computing ~~income (loss)~~loss per share is used.

Options to purchase ~~4.2 million and 5.2~~1.6 million shares of common stock for the year ended December 31, 2020, were outstanding but not included in ~~2017~~the computation of diluted income (loss) per share because the exercise price of the options were greater than the average market price of the common shares and ~~2016, respectively,~~therefore have not been considered as potential equity shares. Options to purchase 6.8 million shares of common stock for the year ended December 31, 2019 were outstanding but not included in the computation of diluted loss per share because the ~~options’ exercise price was greater than the average market price of the common shares and therefore, the~~ effect would have been ~~antidilutive.~~anti-dilutive.

14.

Derivatives

The Company conducts a large portion of its operations in international markets ~~that~~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 ~~revenues are~~revenue is denominated in U.S. dollars, a significant portion of ~~the~~ total revenues is denominated in Canadian dollars, Pound Sterling and Euros.

To manage its exposure to fluctuations in foreign currency exchange rates, the Company entered into foreign currency forward contracts, authorized under Company policies, with counterparties that were highly rated financial institutions. The Company ~~utilized non-deliverable forward contracts expiring within twelve months to reduce its foreign currency risk.~~

~~The Company~~was previously following hedge accounting guidelines and formally ~~documents~~documented all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. However, commencing November 2020, the Company discontinued this practice. 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 was $6.9 million and $4.3 million as of December 31, ~~2017~~2020 and ~~2016 was $15.9 million and $19.3 million, respectively, which is comprised of cash flow hedges denominated in U.S. dollars.~~2019, respectively.

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the fair value of derivative instruments included within the consolidated balance sheets as of December 31, ~~2017~~2020 and ~~2016~~2019 (in thousands):

~~F-31~~

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

	Balance Sheet Location	Fair Value					Fair Value
		2017		2016		Balance Sheet Location	2020		2019
Derivatives designated as hedging instruments:

Derivatives:
Foreign currency forward contracts	Prepaid expenses and other current assets	$	342	$	-	Prepaid expenses and other current assets	$	48	$	33

Foreign currency forward contracts	Accrued expenses	$	-	$	318

The effect of foreign currency forward contracts designated as cash flow hedges on the consolidated statements of operations for the years ended December 31, ~~2017~~2020 and ~~2016~~2019 were as follows (in thousands):

2017 2016

Net gain (loss) recognized in OCI⁽¹⁾ $ 574 $ (90 )
Net gain (loss) reclassified from accumulated OCI into income⁽²⁾ $ (86 ) $ 63
Net gain recognized in income⁽³⁾ $ -

	2020			2019
Net loss recognized in OCI⁽¹⁾	$	(106	)	$	46
Net loss reclassified from accumulated OCI into income⁽²⁾	$	(73	)	$	13
Net gain recognized in income⁽³⁾	$	-		$	-

⁽¹⁾

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

⁽²⁾

~~Effective portion classified within direct operating costs~~

⁽³⁾

~~There were no ineffective portions for the period presented.~~

~~15.~~

~~Financial Instruments~~

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximated their fair value as of December 31, 2017 and 2016, because of the relative short maturity of these instruments.

“~~Fair Value Measurements and Disclosures~~” defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

~~The accounting standard establishes a fair value hierarchy that prioritizes the inputs used to measure fair value into three levels. The three levels are defined as follows:~~

~~Level 1~~~~: Unadjusted quoted price in active market for identical assets and liabilities.~~

~~Level 2:~~ ~~Observable inputs other than those included in Level 1.~~

~~Level 3:~~ ~~Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.~~

The following table sets forth the assets and liabilities as of December 31, 2017 and 2016 that the Company measured at fair value, on a recurring basis by level, within the fair value hierarchy (in thousands). As required by the standard, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

December 31, 2017 Level 1 Level 2 Level 3

Assets
Derivatives $ - $ 342 $ -

December 31, 2016 Level 1 Level 2 Level 3

Liabilities
Derivatives $ - $ 318 $ -

~~The Level 2 liabilities contain foreign currency forward contracts. Fair value is determined based on the observable market transactions of spot and forward rates. The~~ fair value of ~~these contracts as of December 31, 2017 and 2016 are included in accrued expenses in~~ the ~~accompanying consolidated balance sheets.~~effective portion classified into other comprehensive income ("OCI")

⁽²⁾Effective portion classified within direct operating costs

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

~~F-32~~

Exhibit Index

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

Exhibit	Description	Filed as Exhibit

~~2.1 (a)~~	~~Share Purchase Agreement, dated as of July 28, 2014 among Innodata Inc., Media Miser Ltd. and certain other parties~~	~~Filed as Exhibit 2.1 to our Form 8-K dated July 28, 2014~~
~~2.1 (b)~~	~~Amendment No. 1 to Share Purchase Agreement dated as of September 30, 2016~~	~~Filed as Exhibit 2.1 to our Form 8-K dated September 30, 2016~~
~~2.2 (a)~~	~~Asset Purchase Agreement dated as of May 11, 2016 among Innodata Inc., MediaMiser LLC, MediaMiser Ltd. and PWW Acquisition LLC~~	~~Filed as Exhibit 2.1 to our Form 8-K dated May 11, 2016~~
~~2.2 (b)~~	~~Amendment No. 1 to Asset Purchase Agreement dated as of July 14, 2016 among PWW Acquisition LLC, MediaMiser LLC and MediaMiser Ltd~~	~~Filed as Exhibit 2.1 to our Form 8-K dated July 14, 2016~~
3.1 (a)	Restated Certificate of Incorporation ~~filed on~~dated April ~~29,~~27, 1993	December 31, 2003 Filed as Exhibit 3.1(a) to our Form 10-K for the year ended ~~December 31, 2003~~

3.1 (b)	Certificate of Amendment of Certificate of Incorporation of Innodata Corporation ~~filed on March 1,~~dated February 28, 2001	Filed as Exhibit 3.1(b) to our Form 10-K for the year ended December 31, 2003

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

3.1 (d)	Certificate of Amendment of Certificate of Incorporation of Innodata Isogen, Inc. dated June 5, 2012	Filed as Exhibit 3.1 to our Form 10-Q for the quarter ended June 30, 2012

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

3.3	Form of Certificate of Designation of Series C Participating Preferred Stock	Filed as Exhibit A to Exhibit 4.1 to Form 8-K dated December 16, 2002
~~4.2~~
4.1	Specimen of Common Stock certificate	~~Exhibit 4.2 to Form SB-2 Registration Statement No. 33-62012~~
~~4.3~~	~~Form of Rights Agreement, dated~~Filed as ~~of December 16, 2002 between Innodata Corporation and American Stock Transfer and Trust Co., as Rights Agent~~	Exhibit 4.1 to Form ~~8-K~~10-Q dated ~~December 16, 2002~~August 7, 2015

~~4.4~~4.2	Form of Rights Agreement, as of ~~December 27, 2012~~February 1, 2019 between Innodata Inc. and American Stock Transfer and Trust Co., as Rights Agent	Filed as Exhibit 4.1 to Form 8-K dated ~~December 27, 2012~~February 4, 2019

~~4.5~~4.3	~~Form~~Description of ~~Rights Agreement, as~~the Registrant’s Securities Registered Pursuant to Section 12 of ~~January 14, 2016 between Innodata Inc. and American Stock Transfer and Trust Co., as Rights agent~~the Securities Exchange Act of 1934	Filed as Exhibit ~~4.1~~4.3 to Form ~~8-K dated January 14, 2016~~10-K for the year ended December 31, 2019
~~4.6~~	~~Specimen of Common Stock certificate~~	~~Exhibit 4.1 to Form 10-Q dated August 7, 2015~~
~~10.1~~	~~1994 Stock Option Plan~~	~~Exhibit A to Definitive Proxy dated August 9, 1994~~
~~10.2~~	~~1993 Stock Option Plan~~	~~Exhibit 10.4 to Form SB-2 Registration Statement No. 33-62012~~
~~10.3~~10.1	Form of Indemnification Agreement between us and our ~~directors~~Directors and one of our Officers	Filed as Exhibit 10.3 to Form 10-K for the year ended December 31, 2002

~~10.4~~	~~1994 Disinterested Directors Stock Option Plan~~	~~Exhibit B to Definitive Proxy dated August 9, 1994~~
~~10.5~~	~~1995 Stock Option Plan~~	~~Exhibit A to Definitive Proxy dated August 10, 1995~~
~~10.6~~	~~1996 Stock Option Plan~~	~~Exhibit A to Definitive Proxy dated November 7, 1996~~
~~10.7~~	~~1998 Stock Option Plan~~	~~Exhibit A to Definitive Proxy dated November 5, 1998~~
~~10.8~~	~~2001 Stock Option Plan~~	~~Exhibit A to Definitive Proxy dated June 29, 2001~~
~~10.9~~	~~2002 Stock Option Plan~~	~~Exhibit A to Definitive Proxy dated September 3, 2002~~
~~10.10~~	~~Employment Agreement dated as of January 1, 2004 with George Kondrach~~	~~Filed as Exhibit 10.10 to our Form 10-K for the year ended December 31, 2003~~
~~10.11~~	~~Letter Agreement dated as of August 9, 2004, by and between us and The Bank of New York~~	~~Filed as Exhibit~~ 10.2 ~~to Form S-3 Registration statement No. 333-121844~~
~~10.12~~	~~Employment Agreement dated as of December 22, 2005, by and between us and Steven L. Ford~~	~~Exhibit 10.1 to Form 8-K dated December 28, 2005~~
~~10.13~~	~~Form of 2001 Stock Option Plan Grant Letter, dated December 22, 2005~~	~~Exhibit 10.2 to Form 8-K dated December 28, 2005~~
~~10.14~~	~~Form of 1995 Stock Option Agreement~~	~~Exhibit 10.4 to Form 8-K dated December 15, 2005~~
~~10.15~~	~~Form of 1998 Stock Option Agreement for Directors~~	~~Exhibit 10.5 to Form 8-K dated December 15, 2005~~
~~10.16~~	~~Form of 1998 Stock Option Agreement for Officers~~	~~Exhibit 10.6 to Form 8-K dated December 15, 2005~~
~~10.17~~	~~Form of 2001 Stock Option Agreement~~	~~Exhibit 10.7 to Form 8-K dated December 15, 2005~~
~~10.18~~	~~Form of new vesting and lock-up agreement for each of Haig Bagerdjian, Louise Forlenza, John Marozsan and Todd Solomon~~	~~Exhibit 10.8 to Form 8-K dated December 15, 2005~~
~~10.19~~	~~Form of new vesting and lock-up agreement for Jack Abuhoff~~	~~Exhibit 10.9 to Form 8-K dated December 15, 2005~~
~~10.20~~	~~Form of new vesting and lock-up agreement for George Kondrach~~	~~Exhibit 10.10 to Form 8-K dated December 15, 2005~~
~~10.21~~	~~Form of new vesting and lock-up agreement for Stephen Agress~~	~~Exhibit 10.11 to Form 8-K dated December 15, 2005~~
~~10.22~~	~~Form of 2001 Stock Option Plan Grant Letter, dated December 31, 2005, for Messrs. Abuhoff, Agress and Kondrach~~	~~Exhibit 10.2 to Form 8-K dated January 5, 2006~~
~~10.23~~	~~Form of 2001 Stock Option Plan Grant Letter, dated December 31, 2005, for Messrs. Bagerdjian and Marozsan and Ms. Forlenza~~	~~Exhibit 10.3 to Form 8-K dated January 5, 2006~~
~~10.24~~	~~Transition Agreement Dated as of September 29, 2006 with Stephen Agress~~	~~Exhibit 10.1 to Form 8-K dated October 3, 2006~~
~~10.25~~	~~Form of Stock Option Modification Agreement with Stephen Agress~~	~~Exhibit 10.2 to Form 8-K dated October 3, 2006~~
~~10.26~~	~~Employment Agreement dated as of February 1, 2006 with Jack Abuhoff~~	~~Exhibit 10.1 to Form 8-K dated April 27, 2006~~
~~10.27~~	Employment Agreement dated as of January 1, 2007 with Ashok ~~Mishra~~Mishra*	Filed as Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2007

~~10.28~~	~~Innodata Incentive Compensation Plan~~	~~Exhibit 10.1 to Form 8-K dated February 13, 2008~~
~~10.29~~	~~Form of 2002 Stock Option Plan Grant Letter, dated August 13, 2008, for Messrs. Bagerdjian, Marozsan and Woodward, and Ms. Forlenza~~	~~Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2008~~
~~10.30~~	~~Amended and Restated Employment Agreement dated as of December 24, 2008 with Jack S. Abuhoff~~	~~Exhibit 10.1 to Form 8-K dated December 30, 2008~~
~~10.31~~10.3	Employment Agreement dated as of March 25, 2009 with Jack ~~Abuhoff~~S. Abuhoff*	Filed as Exhibit 10.1 to Form 8-K dated March 25, 2009
~~10.32~~	~~Separation Agreement and General Release dated as of April 27, 2009 with Steven Ford~~	~~Exhibit 10.1 to Form 8-K dated April 27, 2009~~
~~10.33~~	~~2009 Stock Plan~~	~~Annex A to Definitive Proxy dated April 28, 2009~~
~~10.34~~	~~Employment Agreement dated as of November 9, 2009 with O’Neil Nalavadi~~	~~Exhibit 10.1 to Form 8-K dated October 11, 2009~~
~~10.35~~	~~Form of 2009 Stock Option Plan Grant Letter, dated April 2, 2010 for O’Neil Nalavadi~~	~~Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2010~~
~~10.36~~	~~Form of 2009 Stock Option Plan Grant Letter, dated March 16, 2010 for O’Neil Nalavadi~~	~~Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2010~~
~~10.37~~	~~Form of 2009 Stock Option Plan Grant Letter, dated March 16, 2010 for O’Neil Nalavadi~~	~~Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2010~~
~~10.38~~	~~Amended and Restated 2009 Stock Plan~~	~~Annex A to Definitive Proxy dated April 22, 2011~~
~~10.39~~10.4	Amendment ~~dated as of July 11, 2011~~ to Employment Agreement with Jack S. Abuhoff dated as of July 11, 2011*	Filed as Exhibit 10.1 to Form 8-K dated July 12, 2011
~~10.40~~	~~Amended dated as of July 11, 2011 to Employment Agreement with O’Neil Nalavadi~~	~~Exhibit 10.2 to Form 8-K dated July 12, 2011~~
~~10.41~~	~~Amendment dated as of November 9, 2012 to Employment Agreement with O’Neil Nalavadi~~	~~Exhibit 10.3 to Form 8-K dated November 8, 2012~~
~~10.42~~10.5	Form of Director Stock Option Grant Letter dated March 8, ~~2013~~2013*	Filed as Exhibit 10.42 to Form 10-K dated March 15, 2013

~~10.43~~10.6	Form of Stock Option Grant Letter dated March 8, 2013 for Messrs. Abuhoff, Mishra and ~~Nalavadi~~Nalavadi*	Filed as Exhibit 10.43 to Form 10-K dated March 15, 2013

~~10.44~~10.7	Form of Stock Option Grant Letter dated March 8, 2013 for Jack ~~Abuhoff~~Abuhoff*	Filed as Exhibit 10.44 to Form 10-K dated March 15, 2013
~~10.45~~	~~Form of Rights Agreement as of December 27, 2012 between Innodata Inc. and American Stock Transfer Agent and Trust Co., as Rights Agent~~	~~Annexure A to Definitive Proxy dated April 8, 2013~~
~~10.46~~	~~Innodata Inc. 2013 Stock Plan~~	~~Annexure B to Definitive Proxy dated April 8, 2013~~
~~10.47~~	~~Advised Line of Credit Note dated June 25, 2012 in favor of Chase~~	~~Exhibit 99.1 to Form 8-K dated February 7, 2014~~
~~10.48~~	~~Note Modification Agreement dated June 27, 2013 between Innodata and Chase~~	~~Exhibit 99.2 to Form 8-K dated February 7, 2014~~

~~10.49~~	~~Continuing Security Agreement dated May 22, 2008 between Innodata and Chase~~	~~Exhibit 99.3 to Form 8-K dated February 7, 2014~~
~~10.50~~	~~Letter dated June 27, 2013 from Chase to Innodata~~	~~Exhibit 99.4 to Form 8-K dated February 7, 2014~~
~~10.51~~	~~Letter dated February 7, 2014 from Chase to Innodata~~	~~Exhibit 99.5 to Form 8-K dated February 7, 2014~~
~~10.52~~	~~Innodata Inc. 2013 Stock Plan (as Amended and Restated effective June 3, 2014)~~	~~Annexure A to Definitive Proxy dated April 23, 2014~~
~~10.53~~10.8	Form of Stock Option Grant Letter for December 31, 2015 Grant, for ~~Directors~~Directors*	Filed as Exhibit 10.53 to Form 10-K dated March 14, 2016

~~10.54~~10.9	Form of Stock Option Grant Letter for December 31, 2015 Grant, for Messrs. Abuhoff, Mishra and ~~Nalavadi~~Nalavadi*	Filed as Exhibit ~~10.54~~10.53 to Form 10-K dated March 14, 2016

~~10.55~~10.10	Innodata Inc. 2013 Stock Plan (as Amended and Restated effective June 7, 2016)	Filed as Annex B to Definitive Proxy dated April 18, 2016

~~10.56~~10.11	Form of Stock Option Grant Letter for December 31, 2016 Grant, for ~~Directors~~Directors*	Filed as Exhibit 10.56 to Form 10-K dated March 15, 2017

~~10.57~~10.12	Form of Stock Option Grant Letter ~~for~~For December 31, 2016 Grant, for Messrs. Abuhoff, Mishra and ~~Nalavadi~~Nalavadi*	Filed as Exhibit 10.57 to Form 10-K dated March 15, 2017

1610.13	Amendment Number 1 dated August 24, 2018 to Agreement dated January 1, 2007 between the Company and Mr. Mishra*	Filed as Exhibit 10.1 to Form 8-K dated August 28, 2018

10.14	Form of Stock Option Grant Letter for July 13, 2018 Grant, for Directors*	Filed as Exhibit 10.59 to Form 10-K dated March 26, 2019

10.15	Form of Stock Option Grant Letter for July 13, 2018 Grant, for Messrs. Abuhoff and Mishra*	Filed as Exhibit 10.60 to Form 10-K dated March 26, 2019

10.16	Offer of Employment effective April 17, 2019 between the Company and Mr. O’ Connor*	Filed as Exhibit 10.1 to Form 8-K dated April 18, 2019

10.17	Offer of Employment, effective October 2, 2020, between Innodata Inc. and Mr. Mark Spelker*	Filed as Exhibit 10.1 to Form 8-K dated October 8, 2020

10.18	Separation Agreement and General Release dated October 2, 2020 between Innodata Inc. and Robert O’Connor*	Filed as Exhibit 10.2 to Form 8-K dated October 8, 2020

16.1	Letter ~~of Grant Thornton regarding change in certifying accountant~~from CohnReznick LLP to Innodata Inc. Dated August 24., 2020	Filed as Exhibit ~~4.01 to~~16.1 Form 8-K dated ~~September 12, 2008~~August 25, 2020

21	Significant subsidiaries of the registrant	Filed herewith

2323.1	Consent of BDO India LLP	Filed herewith

23.2	Consent of CohnReznick LLP	Filed herewith

31.1	~~Certificate~~Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

31.2	~~Certificate~~Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith

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

32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	~~Filed~~Furnished herewith
~~101~~
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.	Filed herewith

* Exhibit represents a management contract or compensatory plan, contract or arrangement required to be filed as Exhibits to this Annual Report on Form 10-K.

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

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

(201) 371-8000
~~(Registrant's~~ (Registrant's telephone number)

Title of ~~Each Class~~each class	Trading Symbol(s)	Name of ~~Each Exchange~~each exchange on ~~Which Registered~~which registered
Common Stock ~~$.01 par value~~	INOD	The ~~Nasdaq~~NASDAQ Stock Market LLC
Preferred Stock Purchase Right	N/A	~~The Nasdaq Stock Market LLC~~N/A

		Page
	Part I
Item 1.	Business	14
Item 1A.	Risk Factors	1013
Item 1B.	Unresolved Staff Comments	2126
Item 2.	Properties	2226
Item 3.	Legal Proceedings	2226
Item 4.	Mine Safety Disclosures	2226

	Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2327
Item 6.	Selected Financial Data	2427
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2427
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	3935
Item 8.	Financial Statements and Supplementary Data	4035
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	4035
Item 9A.	Controls and Procedures	4035
	Management’s Annual Report ~~of Management~~ on Internal Control over Financial Reporting	4036
	~~Report of Independent Registered Public Accounting Firm~~
Item 9B.	Other Information	4136

	Part III
Item 10.	Directors, Executive Officers and Corporate Governance	4237
Item 11.	Executive Compensation	4237
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	4237
Item 13.	Certain Relationships and Related Transactions, and Director Independence	4237
Item 14.	Principal ~~Accounting~~Accountant’s Fees and Services	4237

	Part IV
Item 15.	Exhibits, Financial Statement Schedules	4237
Item 16.	Form 10-K Summary	38

Signatures		4338

	Common Stock
	Sale Prices

2016	High		Low

First Quarter	$	2.83	$	2.21

Second Quarter		2.50		2.16

Third Quarter		2.80		2.15

Fourth Quarter		2.59		1.90

2017	High		Low

First Quarter	$	2.45	$	1.90

Second Quarter		2.25		1.35

Third Quarter		1.85		1.30

Fourth Quarter		1.50		0.88

	Number of
	Securities to be Issued		Weighted-Average		Number of Securities
	Upon Exercise of		Exercise Price of		Remaining Available for
	Outstanding Options,		Outstanding Options,		Future Issuance Under		Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Plan Category	Warrants and Rights		Warrants and Rights		Equity Compensation Plans		(a)		(b)		(c)
	(a)		(b)		(c)

Equity compensation plansapproved by security holders⁽¹⁾		4,241,799	$	2.82		6,143,206		5,906,884	$	1.61		2,925,638

not approved by security holders Equity compensation plans		-		-		-
Equity compensation plans not approved by security holders								-		-		-

Total		4,241,799	$	2.82		6,143,206		5,906,884	$	1.61		2,925,638

	(Dollars in millions)
	Years Ended December 31,
	2020		% of revenue			2019			% of revenue
Revenues	$	58.2		100.0	%	$	55.9			100.0	%
Direct operating costs		38.4		66.0	%		37.3			66.7	%
Selling and administrative expenses		18.7		32.0	%		19.5			34.9	%
Income (loss) from operations		1.1		2.0	%		(0.9	)		(1.6	)%
Other expense		0.1					0.1
Income (loss) before provision for income taxes		1.0					(1.0	)
Provision for income taxes		0.4					1.1
Net income (loss)		0.6					(2.1	)

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years

Capital lease	$	829	$	436	$	393	$	-	$	-
Vendor obligations		751		395		356		-		-
Non cancellable operating leases		3,255		687		964		720		884
Total contractual cash obligations	$	4,835	$	1,518	$	1,713	$	720	$	884


	By	/s/ Jack S. Abuhoff
		Jack S. Abuhoff
		~~Chairman of the Board,~~
		Chief Executive Officer and President
		March ~~22, 2018~~12, 2021

Signature	Title	Date

/s/ Jack ~~Abuhoff~~	~~Chairman of the Board,~~	~~March 22, 2018~~
~~Jack~~S. Abuhoff	Chief Executive Officer and President	March 12, 2021
Jack S. Abuhoff

/s/ ~~Raj Jain~~Mark A. Spelker	Chief Financial Officer and Executive Vice President ~~and Principal AccountingOfficer~~	March ~~22, 2018~~12, 2021
~~Raj Jain~~

~~/s/ Haig S. Bagerdjian~~	~~Director~~	~~March 22, 2018~~
~~Haig S. Bagerdjian~~Mark A. Spelker

/s/ Louise C. Forlenza	Director	March ~~22, 2018~~12, 2021
Louise C. Forlenza

/s/ Stewart R. Massey	Director	March ~~22, 2018~~12, 2021
Stewart R. Massey

/s/ ~~Michael J. Opat~~Nauman (Nick) Toor	Director	March ~~22, 2018~~12, 2021
~~Michael J. Opat~~

~~/s/ Anthea C. Stratigos~~	~~Director~~	~~March 22, 2018~~
~~Anthea C. Stratigos~~

~~/s/ Andargachew S. Zelleke~~	~~Director~~	~~March 22, 2018~~
~~Andargachew S. Zelleke~~Nauman (Nick) Toor

	PAGE

~~Report~~Reports of Independent Registered Public Accounting ~~Firm~~Firms	F-2

Consolidated Balance Sheets as of December 31, ~~2017~~2020 and ~~2016~~2019	~~F-3~~F-6

Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the years ended December 31, ~~2017~~2020 and ~~2016~~2019	~~F-4~~F-7

Consolidated Statements of Stockholders’ Equity for the years ended ~~ended~~ December 31, ~~2017~~2020 and ~~2016~~2019	~~F-5~~F-8

Consolidated Statements of Cash Flows for the years ended December 31, ~~2017~~2020 and ~~2016~~2019	~~F-6~~F-9

Notes to Consolidated Financial Statements	~~F-7~~F-10

~~/s/ CohnReznick LLP~~
1.
~~We have served as the Company’s auditor since 2008.~~	Intangible Assets Impairment Assessment (Including Goodwill)

	Common Stock				Additional Paid-in		Retained			Accumulated Other Comprehensive			Treasury Stock
	Shares		Amount		Capital		Earnings			Loss			Shares		Amount			Total
January 1, 2019 as reported		27,558		275		27,579		6,595			(15	)		1,681		(4,622	)		29,812
Revision adjustments		-		-		-		(237	)		-			-		-			(237	)
January 1, 2019 as adjusted		27,558		275		27,579		6,358			(15	)		1,681		(4,622	)		29,575
Net loss		-		-		-		(1,602	)		-			-		-			(1,602	)
Purchase of treasury stock		-		-		-		-			-			1,503		(1,843	)		(1,843	)
Stock-based compensation		75		-		836		-			-			-		-			836
Exercise of stock options		10		-		11		-			-			-		-			11
Pension liability adjustments, net of taxes		-		-		-		-			(1,504	)		-		-			(1,504	)
Foreign currency translation adjustment, net of taxes		-		-		-		-			566			-		-			566
Change in fair value of derivatives, net of taxes		-		-		-		-			33			-		-			33
December 31, 2019 as reported		27,643		275		28,426		4,756			(920	)		3,184		(6,465	)		26,072
Revision adjustments		-		-		-		(540	)		-			-		-			(540	)
December 31, 2019 as adjusted		27,643		275		28,426		4,216			(920	)		3,184		(6,465	)		25,532
Net income		-		-		-		617			-			-		-			617
Stock-based compensation		-		-		913		-			-			-		-			913
Exercise of stock options		1,341		14		2,582		-			-			-		-			2,596
Pension liability adjustments, net of taxes		-		-		-		-			(391	)		-		-			(391	)
Foreign currency translation adjustment, netof taxes		-		-		-		-			406			-		-			406
Change in fair value of derivatives, net of taxes		-		-		-		-			(33	)		-		-			(33	)
December 31, 2020		28,984	$	289	$	31,921	$	4,833		$	(938	)		3,184	$	(6,465	)	$	29,640

	2020			2019
Cash flows from operating activities:
Consolidated net income (loss)	$	644		$	(2,159	)
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,266			2,697
Stock-based compensation		913			836
Deferred income taxes		(618	)		(313	)
Pension cost		791			335
Loss on disposal of property and equipment		48			-
Changes in operating assets and liabilities:
Accounts receivable		(481	)		1,216
Prepaid expenses and other current assets		(555	)		1,248
Other assets		270			332
Accounts payable, accrued expenses and other		155			(589	)
Accrued salaries, wages and related benefits		1,449		��	(249	)
Income and other taxes		778			926
Net cash provided by operating activities		5,660			4,280

Cash flows from investing activities:
Capital expenditures		(1,414	)		(1,667	)
Proceeds from disposal of property and equipment		39			-
Net cash used in investing activities		(1,375	)		(1,667	)

Cash flows from financing activities:
Proceeds from bank loan		580			-
Proceeds from exercise of stock options		2,596			11
Payment of long-term obligations		(864	)		(567	)
Purchase of treasury stock		-			(1,843	)
Net cash provided by (used in) financing activities		2,312			(2,399	)

Effect of exchange rate changes on cash and cash equivalents		102			(209	)

Net increase in cash and cash equivalents		6,699			5

Cash and cash equivalents, beginning of year		10,874			10,869

Cash and cash equivalents, end of year	$	17,573		$	10,874

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	348		$	962
Cash paid for operating leases	$	2,286		$	2,110
Cash paid for interest	$	141		$	130

	Common Stock					Additional Paid-in			Retained			Accumulated Other Comprehensive			Treasury
	Shares			Amount		Capital			Earnings			Income (Loss)			Stock			Total

January 1, 2016		25,445		$	270	$	24,590		$	17,924		$	(84	)	$	(4,488	)	$	38,212
Net loss		-			-		-			(5,524	)		-			-			(5,524	)
Stock-based compensation		-			-		1,162			-			-			-			1,162
Issuance of common stock in connection with MediaMiser acquisition		236			3		566			-			-			-			569
Acquisition of non-controlling interest		-			-		(261	)		-			-			-			(261	)
Pension liability adjustments, net of taxes		-			-		-			-			(136	)		-			(136	)
Foreign currency translation adjustment		-			-		-			-			49			-			49
Change in fair value of derivatives, net of taxes		-			-		-			-			(153	)		-			(153	)
Purchase of treasury stock		(57	)		-		-			-			-			(134	)		(134	)
December 31, 2016		25,624			273		26,057			12,400			(324	)		(4,622	)		33,784

Net loss		-			-		-			(5,055	)		-			-			(5,055	)
Stock-based compensation		-			-		695			-			-			-			695
Issuance of common stock in connection with MediaMiser acquisition		254			2		523			-			-			-			525
Pension liability adjustments, net of taxes		-			-		-			-			(196	)		-			(196	)
Foreign currency translation adjustment		-			-		-			-			706			-			706
Change in fair value of derivatives, net of taxes		-			-		-			-			660			-			660
December 31, 2017		25,878		$	275	$	27,275		$	7,345		$	846		$	(4,622	)	$	31,119

	2017			2016

Cash flow from operating activities:
Net loss	$	(5,359	)	$	(5,911	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		3,674			3,195
Provision for doubtful accounts		(139	)		136
Stock-based compensation		695			1,162
Deferred income taxes		(255	)		(159	)
Pension cost		245			103
Change in fair value of contingent consideration		-			1,038
Changes in operating assets and liabilities:
Accounts receivable		(40	)		17
Prepaid expenses and other current assets		284			(133	)
Other assets		(188	)		(395	)
Accounts payable and accrued expenses		1,595			(1,749	)
Accrued salaries, wages and related benefits		484			84
Income and other taxes		(258	)		(123	)
Net cash provided by (used in) operating activities		738			(2,735	)

Cash flow from investing activities:
Capital expenditures		(3,410	)		(2,740	)
Acquisition of business		-			(4,228	)
Net cash used in investing activities		(3,410	)		(6,968	)

Cash flow from financing activities:
Proceeds from equipment financing		793			-
Payment of long-term obligations		(1,077	)		(703	)
Purchase of treasury stock		-			(134	)
Net cash used in financing activities		(284	)		(837	)

Effect of exchange rate changes on cash and cash equivalents		191			(196	)

Net decrease in cash and cash equivalents		(2,765	)		(10,736	)

Cash and cash equivalents, beginning of year		14,172			24,908

Cash and cash equivalents, end of year	$	11,407		$	14,172

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	1,090		$	1,306
Vendor financed software licenses acquired	$	1,213		$	-
Common stock issued for MediaMiser acquistion	$	525		$	569

	Amount
Accounts receivable	$	771
Media contact database		3,610
Developed technology		994
Tradenames and trademarks		310
Total identifiable assets acquired		5,685

Accrued salaries, wages and related benefits		63
Deferred revenues		2,560
Income and other taxes		97
Total liabilities assumed		2,720
Net identifiable assets acquired		2,965
Goodwill		1,263
Net assets acquired	$	4,228

Balance as of January 1, 2016	$	1,476
Goodwill recorded in connection with an acquisition		1,263
Foreign currency translation adjustment		(5	)
Balance as of December 31, 2016		2,734
Foreign currency translation adjustment		98
Balance as of December 31, 2017	$	2,832

Year	Amortization
2018	$	1,000
2019		1,000
2020		935
2021		935
2022		935
Thereafter		2,801
	$	7,606

	2017			2016
Current income tax expense:
Foreign	$	594		$	1,301
Federal		176			-
State and local		5			1
		775			1,302

Deferred income tax expense (benefit):
Foreign		(97	)		(176	)
Federal		(393	)		-
		(490	)		(176	)

Provision for income taxes	$	285		$	1,126

	2017			2016

Federal statutory rate		(34.0	)%		(34.0	)%
Effect of:
State income taxes (net of federal tax benefit)		(0.5	)		(2.7	)
Taxes on foreign income at rates that differ from U.S. statutory rate		28.0			17.3
Change in valuation allowance on deferred tax assets		(90.1	)		(34.5	)
2017 Tax Act		136.9			-
Deemed dividend under Section 956 of the Internal Revenue Code		(35.4	)		75.9
Increase (decrease) in unrecognized tax benefits		0.7			1.6
Other		-			0.1
Effective tax rate		5.6	%		23.7	%

	Pension Liability Adjustment			Fair Value of Derivatives			Foreign Currency Translation Adjustment			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2017	$	1,387		$	(318	)	$	(1,393	)	$	(324	)
Other comprehensive income before reclassifications, net of taxes		-			574			706			1,280
Total other comprehensive income (loss) before reclassifications, net of taxes		1,387			256			(687	)		956
Net amount reclassified to earnings		(196	)		86			-			(110	)
Balance at December 31, 2017	$	1,191		$	342		$	(687	)	$	846

	2017			2016

Net gain (loss) recognized in OCI⁽¹⁾	$	574		$	(90	)
Net gain (loss) reclassified from accumulated OCI into income⁽²⁾	$	(86	)	$	63
Net gain recognized in income⁽³⁾				$	-

December 31, 2017	Level 1		Level 2		Level 3

Assets
Derivatives	$	-	$	342	$	-