UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

		For the quarterly period ended September 30, ~~2020~~2021

		OR

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

	For the transition period from ________________ to ________________

~~For the transition period from ________________ to ________________~~

Commission file number: 001-35774

INNODATA ~~INC.~~INC.

(Exact name of registrant as specified in its charter)

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

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

~~(201)~~ (201) 371-8000

(Registrant’s telephone number, including area code)

None

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

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

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

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

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

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

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

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

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

~~Yes~~ ¨ No x

The number of outstanding shares of the registrant’s common stock, $0.01 par value per share, as of November ~~4, 2020~~2, 2021 was ~~24,742,692.~~27,153,485.

INNODATA INC. AND SUBSIDIARIES

For the Quarter Ended September 30, ~~2020~~2021

INDEX

		~~Page No.~~
		Part I – Financial Information
				Page No.
Item 1.		Financial Statements
		Condensed Consolidated Financial Statements (Unaudited):
		Condensed Consolidated Balance Sheets as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020	1	2
		Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended September 30, ~~2020~~2021 and ~~2019~~2020	2	3
		Condensed Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	3	4
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	4	5
		Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	5	6
		Notes to Condensed Consolidated Financial Statements	6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	24	22
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	37	30
Item 4.		Controls and Procedures	37	30

		Part II – Other Information

Item 1.		Legal Proceedings	39	31
Item 1A.		Risk Factors	39	31
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	40	31
Item 3.		Defaults Upon Senior Securities	40	31
Item 4.		Mine Safety Disclosures	40	31
Item 5.		Other Information	40	31
Item 6.		Exhibits		32
~~Item 6.~~Signatures	~~Exhibits~~	41

~~Signatures~~		33

Part I. FINANCIAL INFORMATION

Item 1.Financial Statements

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

~~(Unaudited)~~

(In thousands, except share and per share amounts)

September 30,

December 31,

2021

2020
ASSETS




Current assets:




Cash and cash equivalents

$
20,943

$
17,573
Accounts receivable, net of allowance for doubtful accounts of $780 and $670, respectively

9,016

10,048
Prepaid expenses and other current assets

3,853

4,240
Total current assets

33,812

31,861
Property and equipment, net

2,414

1,852
Right-of-use-asset, net

5,876

6,610
Other assets

2,344

2,563
Deferred income taxes, net

1,999

2,187
Intangibles, net

10,245

10,031
Goodwill

2,143

2,150
Total assets

$
58,833

$
57,254
LIABILITIES AND STOCKHOLDERS’ EQUITY




Current liabilities:




Accounts payable

$
1,763

$
1,435
Accrued expenses and other

6,240

3,490
Accrued salaries, wages and related benefits

6,692

5,719
Income and other taxes

3,415

5,000
Long-term obligations - current portion

1,130

1,712
Operating lease liability - current portion

1,056

990
Total current liabilities

20,296

18,346

Deferred income taxes

60

44
Long-term obligations, net of current portion

5,700

6,282
Operating lease liability, net of current portion

5,507

6,332
Total liabilities

31,563

31,004

Commitments and contingencies

Non-controlling interests

(3,453)

(3,390)




STOCKHOLDERS’ EQUITY:




Serial preferred stock; 4,998,000 shares authorized, NaN outstanding

0

0
Common stock, $.01 par value; 75,000,000 shares authorized; 30,337,000 shares issued and 27,153,000 outstanding at September 30, 2021 and 28,984,000 shares issued and 25,800,000 outstanding at December 31, 2020;

303

289
Additional paid-in capital

34,475

31,921
Retained earnings

4,328

4,833
Accumulated other comprehensive loss

(1,918)

(938)

37,188

36,105
Less: treasury stock, 3,184,000 shares at cost

(6,465)

(6,465)
Total stockholders’ equity

30,723

29,640
Total liabilities and stockholders’ equity

$
58,833

$
57,254

September 30,
2020 December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents $ 15,336 $ 10,874
Accounts receivable, net of allowance for doubtful accounts of $500 and $750, respectively 8,843 9,723
Prepaid expenses and other current assets 4,112 3,407
Total current assets 28,291 24,004
Property and equipment, net 6,943 6,887
Right-of-use assets 6,923 7,005
Other assets 2,838 2,110
Deferred income taxes 2,232 1,906
Intangibles, net 4,702 5,477
Goodwill 2,069 2,108
Total assets $ 53,998 $ 49,497
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,765 $ 1,419
Accrued expenses and other 3,612 3,340
Accrued salaries, wages and related benefits 5,995 4,265
Income and other taxes 4,949 4,183
Long-term obligations - current portion 1,958 1,440
Operating lease liability - current portion 967 1,107
Total current liabilities 19,246 15,754
Deferred income taxes 343 363
Long-term obligations, net of current portion 5,421 4,534
Operating lease liability, net of current portion 6,691 6,731
Total liabilities 31,701 27,382

Commitments and contingencies - -

Non-controlling interests (3,392 ) (3,417 )

STOCKHOLDERS’ EQUITY:
Serial preferred stock; 4,998,000 shares authorized, none outstanding - -
Common stock, $.01 par value; 75,000,000 shares authorized; 27,921,000 shares issued and 24,737,000 outstanding at September 30, 2020; 27,643,000 shares issued and 24,459,000 outstanding at December 31, 2019 278 275
Additional paid-in capital 29,438 28,426
Retained earnings 3,648 4,216
Accumulated other comprehensive loss (1,210 ) (920 )
32,154 31,997
Less: treasury stock, 3,184,000 shares at September 30, 2020 and December 31, 2019 at cost (6,465 ) (6,465 )
Total stockholders’ equity 25,689 25,532
Total liabilities and stockholders’ equity $ 53,998 $ 49,497
See notes to Condensed Consolidated Financial Statements.

INNODATA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands, except per share amounts)

Three Months Ended

September 30,


2021

2020
Revenues

$
17,450

$
14,553
Operating costs and expenses:

Direct operating costs

10,703

9,784
Selling and administrative expenses

7,262

4,582
Interest expense, net

4

44

17,969

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

(519)

143
Provision for income taxes

328

(70)
Consolidated net income (loss)

(847)

213
Income (loss) attributable to non-controlling interests

(47)

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

$
(800)

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

Basic

$
(0.03)

$
0.01
Diluted

$
(0.03)

$
0.01
Weighted average shares outstanding:




Basic

26,971

24,470
Diluted

26,971

25,260
Comprehensive income (loss):




Consolidated net income (loss)

$
(847)

$
213
Pension liability adjustment, net of taxes

10

(1)
Foreign currency translation adjustment

(594)

216
Change in fair value of derivatives, net of taxes

(265)

51
Other comprehensive income (loss)

(849)

266
Total comprehensive income (loss)

(1,696)

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

(47)

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

$
(1,649)

$
472

See notes to Condensed Consolidated Financial Statements.

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share amounts)

Three Months Ended
September 30,
2020 2019
Revenues $ 14,553 $ 13,846
Operating costs and expenses:
Direct operating costs 9,784 9,019
Selling and administrative expenses 4,582 4,945
Interest expense, net 44 27
14,410 13,991

Income (loss) before provision for income taxes 143 (145 )

Provision for income taxes (70 ) 421

Consolidated net income (loss) 213 (566 )

Income (loss) attributable to non-controlling interests 7 (3 )

Net income (loss) attributable to Innodata Inc. and Subsidiaries $ 206 $ (563 )

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

Weighted average shares outstanding:
Basic 24,470 25,856
Diluted 25,260 25,856

Comprehensive income (loss):
Consolidated net income (loss) $ 213 $ (566 )
Pension liability adjustment, net of taxes (1 ) (41 )
Change in fair value of derivatives, net of taxes 51 -
Foreign currency translation adjustment, net of taxes 216 (252 )
Other comprehensive income (loss) 266 (293 )
Total comprehensive income (loss) 479 (859 )
Comprehensive income (loss) attributed to non-controlling interests 7 (3 )
Comprehensive income (loss) attributable to Innodata Inc. and Subsidiaries $ 472 $ (856 )

Nine Months Ended

September 30,


2021

2020
Revenues

$
50,466

$
42,946
Operating costs and expenses:




Direct operating costs

31,208

29,209
Selling and administrative expenses

19,767

13,663
Interest expense, net

18

113

50,993

42,985
Loss from operations

(527)

(39)
Gain on loan forgiveness

580

0
Income (loss) before provision for income taxes

53

(39)
Provision for income taxes

621

504
Consolidated net loss

(568)

(543)
Income (loss) attributable to non-controlling interests

(63)

25
Net loss attributable to Innodata Inc. and Subsidiaries

$
(505)

$
(568)
Loss per share attributable to Innodata Inc. and Subsidiaries:




Basic

$
(0.02)

$
(0.02)
Diluted

$
(0.02)

$
(0.02)
Weighted average shares outstanding:




Basic

26,459

24,427
Diluted

26,459

24,427
Comprehensive loss:




Consolidated net loss

$
(568)

$
(543)
Pension liability adjustment, net of taxes

32

24
Foreign currency translation adjustment

(480)

(281)
Change in fair value of derivatives, net of taxes

(532)

(33)
Other comprehensive loss

(980)

(290)
Total comprehensive loss

(1,548)

(833)
Less: Comprehensive income (loss) attributable to non-controlling interests

(63)

25
Comprehensive loss attributable to Innodata Inc. and Subsidiaries

$
(1,485)

$
(858)

See notes to Condensed Consolidated Financial Statements.

INNODATA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS AND COMPREHENSIVE LOSS~~CASH FLOWS
(Unaudited)
~~(Unaudited)~~
(In ~~thousands, except per share amounts)~~thousands)

Nine Months Ended
September 30,
2020 2019
Revenues $ 42,946 $ 41,179
Operating costs and expenses:
Direct operating costs 29,209 28,154
Selling and administrative expenses 13,663 14,154
Interest expense, net 113 97
42,985 42,405

Loss before provision for income taxes (39 ) (1,226 )

Provision for income taxes 504 493

Consolidated net loss (543 ) (1,719 )

Income (loss) attributable to non-controlling interests 25 (10 )

Net loss attributable to Innodata Inc. and Subsidiaries $ (568 ) $ (1,709 )

Loss per share attributable to Innodata Inc. and Subsidiaries:
Basic and diluted $ (0.02 ) $ (0.07 )

Weighted average shares outstanding:
Basic and diluted 24,427 25,870

Comprehensive loss:
Consolidated net loss $ (543 ) $ (1,719 )
Pension liability adjustment, net of taxes 24 (118 )
Change in fair value of derivatives, net of taxes (33 ) -
Foreign currency translation adjustment, net of taxes (281 ) 35
Other comprehensive loss (290 ) (83 )
Total comprehensive loss (833 ) (1,802 )
Comprehensive income (loss) attributed to non-controlling interests 25 (10 )
Comprehensive loss attributable to Innodata Inc. and Subsidiaries $ (858 ) $ (1,792 )

Nine Months Ended

September 30,


2021

2020
Cash flows from operating activities:




Consolidated net loss

$
(568)

$
(543)
Adjustments to reconcile consolidated net loss to net cash

provided by operating activities:

Depreciation and amortization

2,054

1,720
Gain on loan forgiveness

(580)

0
Stock-based compensation

1,117

700
Deferred income taxes

(16)

(412)
Pension cost

308

596
Loss on disposal of property and equipment

0

33
Changes in operating assets and liabilities:

Accounts receivable

431

568
Prepaid expenses and other current assets

342

(297)
Other assets

214

(8)
Accounts payable and accrued expenses

2,895

814
Accrued salaries, wages and related benefits

976

1,729
Income and other taxes

(1,531)

753
Net cash provided by operating activities

5,642

5,653
Cash flows from investing activities:

Capital expenditures

(2,919)

(1,115)
Proceeds from disposal of property and equipment

0

39
Net cash used in investing activities

(2,919)

(1,076)
Cash flows from financing activities:




Proceeds from stock option exercises

2,214

167
Withholding taxes on net settlement of stock-based compensation

(763)

0
Payment of long-term obligations

(666)

(800)
Proceeds from bank loan

0

580
Net cash provided by (used in) financing activities

785

(53)
Effect of exchange rate changes on cash and cash equivalents

(138)

(62)
Net increase in cash and cash equivalents

3,370

4,462
Cash and cash equivalents, beginning of period

17,573

10,874
Cash and cash equivalents, end of period

$
20,943

$
15,336
Supplemental disclosures of cash flow information:

Shares withheld for withholding taxes on net settlement for stock-based compensation

$
763

$
0
Cash paid for income taxes

$
201

$
209
Cash paid for operating leases

$
1,312

$
1,777
Cash paid for interest

$
18

$
113

See notes to Condensed Consolidated Financial Statements.

INNODATA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY
~~(Unaudited)~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
(In thousands)

Nine Months Ended
September 30,
2020 2019
Cash flows from operating activities:
Consolidated net loss $ (543 ) $ (1,719 )
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:
Depreciation and amortization 1,720 2,106
Stock-based compensation 700 624
Deferred income taxes (412 ) (607 )
Pension cost 596 274
Loss on disposal of property and equipment 33 -
Changes in operating assets and liabilities:
Accounts receivable 568 2,509
Prepaid expenses and other current assets (297 ) 904
Other assets (8 ) 367
Accounts payable, accrued expenses and other 814 (208 )
Accrued salaries, wages and related benefits 1,729 (29 )
Income and other taxes 753 669
Net cash provided by operating activities 5,653 4,890

Cash flows from investing activities:
Capital expenditures (1,115 ) (1,314 )
Proceeds from disposal of property and equipment 39 -
Net cash used in investing activities (1,076 ) (1,314 )

Cash flows from financing activities:
Proceeds from bank loan 580 -
Payment of long-term obligations (800 ) (922 )
Proceeds from exercise of stock options 167 -
Purchase of treasury stock - (44 )
Net cash used in financing activities (53 ) (966 )

Effect of exchange rate changes on cash and cash equivalents (62 ) (291 )

Net increase in cash and cash equivalents 4,462 2,319

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

Cash and cash equivalents, end of period $ 15,336 $ 13,188

Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 209 $ 726
Cash paid for operating leases $ 1,412 $ 1,909
Vendor financed software licenses acquired $ 1,079 $ -

Accumulated

Additional

Other

Common Stock

Paid-in

Retained

Comprehensive

Treasury Stock


Shares

Amount

Capital

Earnings

Loss

Shares

Amount

Total
January 1, 2021

28,984

$
289

$
31,921

$
4,833

$
(938)

3,184

$
(6,465)

$
29,640
Net income attributable to Innodata Inc. and subsidiaries

0

0

0

398

0

0

0

398
Stock-based compensation

0

0

278

0

0

0

0

278
Stock option exercises

690

4

605

0

0

0

0

609
Shares withheld for exercise settlement and taxes

(193)

1

(764)

0

0

0

0

(763)
Pension liability adjustments, net of taxes

0

0

0

0

11

0

0

11
Foreign currency translation adjustment

0

0

0

0

(21)

0

0

(21)
March 31, 2021

29,481

$
294

$
32,040

$
5,231

$
(948)

3,184

$
(6,465)

$
30,152
Net loss attributable to Innodata Inc. and subsidiaries

0

0

0

(103)

0

0

0

(103)
Stock-based compensation

0

0

336

0

0

0

0

336
Stock option exercises

556

5

1,136

0

0

0

0

1,141
Pension liability adjustments, net of taxes

0

0

0

0

11

0

0

11
Foreign currency translation adjustment

0

0

0

0

135

0

0

135
Change in fair value of derivatives, net of taxes

0

0

0

0

(267)

0

0

(267)
June 30, 2021

30,037

$
299

$
33,512

$
5,128

$
(1,069)

3,184

$
(6,465)

$
31,405
Net loss attributable to Innodata Inc. and subsidiaries

0

0

0

(800)

0

0

0

(800)
Stock-based compensation

0

0

503

0

0

0

0

503
Stock option exercises

300

4

460

0

0

0

0

464
Pension liability adjustments, net of taxes

0

0

0

0

10

0

0

10
Foreign currency translation adjustment

0

0

0

0

(594)

0

0

(594)
Change in fair value of derivatives, net of taxes

0

0

0

0

(265)

0

0

(265)
September 30, 2021

30,337

$
303

$
34,475

$
4,328

$
(1,918)

3,184

$
(6,465)

$
30,723

January 1, 2020

27,643

$
275

$
28,426

$
4,216

$
(920)

3,184

$
(6,465)

$
25,532
Net loss attributable to Innodata Inc. and Subsidiaries

0

0

0

(365)

0

0

0

(365)
Stock-based compensation

0

0

170

0

0

0

0

170
Pension liability adjustments, net of taxes

0

0

0

0

14

0

0

14
Foreign currency translation adjustment

0

0

0

0

(718)

0

0

(718)
Change in fair value of derivatives, net of taxes

0

0

0

0

(171)

0

0

(171)
March 31, 2020

27,643

275

28,596

3,851

(1,795)

3,184

(6,465)

24,462
Net loss attributable to Innodata Inc. and Subsidiaries

0

0

0

(557)

0

0

0

(557)
Stock-based compensation

0

0

298

0

0

0

0

298
Pension liability adjustments, net of taxes

0

0

0

0

11

0

0

11
Foreign currency translation adjustment

0

0

0

0

221

0

0

221
Change in fair value of derivatives, net of taxes

0

0

0

0

87

0

0

87
June 30, 2020

27,643

275

28,894

3,294

(1,476)

3,184

(6,465)

24,522
Revision adjustments

0

0

0

148

0

0

0

148
Net income attributable to Innodata Inc. and Subsidiaries

0

0

0

206

0

0

0

206
Stock option exercises

278

3

312

0

0

0

0

315
Stock-based compensation

0

0

232

0

0

0

0

232
Pension liability adjustments, net of taxes

0

0

0

0

(1)

0

0

(1)
Foreign currency translation adjustment

0

0

0

0

216

0

0

216
Change in fair value of derivatives, net of taxes

0

0

0

0

51

0

0

51
September 30, 2020

27,921

$
278

$
29,438

$
3,648

$
(1,210)

3,184

$
(6,465)

$
25,689

See notes to Condensed Consolidated Financial Statements.

INNODATA INC. AND SUBSIDIARIES

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(Unaudited)~~

~~(In thousands)~~

Common Stock Additional
Paid-in Retained Accumulated
Other
Comprehensive Treasury Stock
Shares Amount Capital Earnings Loss Shares Amount Total
January 1, 2019 27,558 $ 275 $ 27,579 $ 7,349 $ (15 ) 1,681 $ (4,622 ) $ 30,566
Revision adjustments - - - (237 ) - - - (237 )
Net loss attributable to Innodata Inc. and Subsidiaries - - - (452 ) - - - (452 )
Stock-based compensation 75 - 128 - - - - 128
Pension liability adjustments, net of taxes - - - - (36 ) - - (36 )
Foreign currency translation adjustment - - - - 264 - - 264
March 31, 2019 27,633 275 27,707 6,660 213 1,681 (4,622 ) 30,233
Net loss attributable to Innodata Inc. and Subsidiaries - - - (694 ) - - - (694 )
Stock-based compensation - - 145 - - - - 145
Pension liability adjustments, net of taxes - - - - (41 ) - - (41 )
Foreign currency translation adjustment - - - - 23 - - 23
June 30, 2019 27,633 275 27,852 5,966 195 1,681 (4,622 ) 29,666
Net loss attributable to Innodata Inc. and Subsidiaries - - - (563 ) - - - (563 )
Purchase of treasury stock - - - - - 34 (44 ) (44 )
Stock-based compensation - - 351 - - - - 351
Pension liability adjustments, net of taxes - - - - (41 ) - - (41 )
Foreign currency translation adjustment - - - - (252 ) - - (252 )
September 30, 2019 27,633 $ 275 $ 28,203 $ 5,403 $ (98 ) 1,715 $ (4,666 ) $ 29,117

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

~~INNODATA INC. AND SUBSIDIARIES~~
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2020~~2021 AND ~~2019~~2020
(Unaudited)

1. 1. Summary of Significant Accounting Policies
Basis of Presentation - The condensed consolidated financial statements for the interim periods included herein are unaudited; however, they contain all adjustments (consisting of only normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the consolidated financial position of Innodata Inc. (including its subsidiaries, the “Company”~~, “we”, “our” and “us”~~) as of September 30, 2021 and December 31, 2020, the results of its operations and comprehensive ~~loss~~income (loss) for the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, cash flows for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, and stockholders’ equity for the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. The results of operations for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.
Certain information and note disclosures normally included in or with financial statements prepared in accordance with generally accepted accounting principles in the United States of America ~~(U.S. GAAP)~~(“U.S. GAAP”) have been condensed or omitted from these condensed consolidated financial statements pursuant to the rules and regulations of the ~~SEC~~ Securities and Exchange Commission (the “SEC”)and, accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019, included in the Company’s 2019 Annual Report on Form 10-K.~~2020. Unless otherwise noted, the accounting policies used in preparing these condensed consolidated financial statements are the same as those described in the notes to the consolidated financial statements for the year ended December 31, ~~2019.~~
2020.
Principles of Consolidation - The condensed consolidated financial statements include the accounts of Innodata Inc. and its wholly owned subsidiaries, and the Synodex and docGenix limited liability companies 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 the Financial Accounting Standards ~~Board (FASB)~~Board’s (the “FASB”) non-controlling interest guidance. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates - In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities atas of the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Management believes that the estimates and assumptions used in the preparation of the condensed consolidated financial statements are reasonable, ~~and management has made~~including 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.~~estimates and changes in those estimates are recorded when known. Significant estimates include those related to the allowance for doubtful accounts and billing adjustments, useful life of long-lived assets, useful life of intangible assets, impairment of goodwill, valuation of deferred tax assets, valuation of stock-based compensation, litigation accruals and estimated accruals for various tax exposures.
Capitalized Software Development Costs - the Company incurs development costs related to software it develops for its internal use. Qualifying costs incurred during the application development stage are capitalized. These costs primarily consist of internal labor costs and are amortized using the straight-line method over the software's estimated useful life, which ranges between three and ten years. All other research and maintenance costs are expensed as incurred. Capitalized software development costs in progress as of September 30, 2021 and December 31, 2020 were $0.4 million and $1.4 million, respectively. Completed capitalized software and development costs as of September 30, 2021 and December 31, 2020 were $8.2 million and $5.5 million, respectively.
Deferred Revenue - Deferred revenue represents payments received from clients in advance of providing services and amounts deferred if conditions for revenue recognition have not been met. Included in accrued expenses and other on the accompanying condensed consolidated balance sheets is deferred revenue amounting to $3.1 million and $1.2 million as of September 30, 2021 and December 31, 2020, respectively.
Revenue Recognition -– The Company’s revenue is recognized when services are rendered or goods are delivered to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services or goods as per the agreement with the customer. In cases where there are agreements with multiple performance obligations, the Company identifies each performance obligation and evaluates whether the performance obligations are distinct within the context of the agreement at the agreement’s inception. Performance obligations that are not distinct at agreement inception are combined. For agreements with distinct performance ~~obligation,~~obligations, the Company allocates the transaction price to each distinct performance obligation proportionately based on the estimated standalone selling price for each performance obligation, if any, and then evaluates how the services are performed for the customer to determine the timing of revenue recognition.

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2020~~2021 AND ~~2019~~2020

(Unaudited)

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

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

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

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

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

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

Foreign Currency - The functional currency of the ~~Company’s production operations located~~Company's subsidiaries in the Philippines, India, Sri Lanka, Israel, Hong Kong and ~~Israel~~Canada (other than the Agility subsidiary) is the U.S. dollar. Transactions denominated in Philippine pesos, Indian and Sri Lankan rupees, ~~and~~ Israeli shekels, Hong Kong and Canadian dollars are translated to U.S. dollars at rates ~~using the average rates~~that approximate those in effect on the transaction dates.

All Monetary assets and liabilities denominated in foreign currencies on September 30, 2021 and December 31, 2020 are translated at the exchange rate in effect as of those dates. Non-monetary assets, liabilities and stockholders’ equity are translated at the appropriate historical rates. Included in direct operating costs were foreign exchange gains (losses) resulting from such transactions of approximately $348,000 and $13,000 for the three months ended September 30, 2021 and 2020, respectively, and $503,000 and $(221,000) for the nine months ended September 30, 2021 and 2020, respectively.

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

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2020~~2021 AND ~~2019~~2020

(Unaudited)

ToDerivative Instruments - The Company accounts for derivative transactions in accordance with the ~~extent~~FASB’s Accounting Standards Codification (“ASC”) Topic 825, “Financial Instruments”. For derivative instruments that are designated and qualify as cash flow hedges, the ~~currencies~~entire change in fair value of the ~~Company’s production facilities located~~hedging instrument is recorded in Other comprehensive income (loss). When the ~~Philippines, India, Sri Lanka and Israel fluctuate, the Company is subject~~amounts recorded in Other comprehensive income (loss) are reclassified to ~~risks~~earnings, they are included as part of changing costs of production after pricing is established for certain client projects. In addition, the Company is exposed to the risk of foreign currency fluctuations on the non-U.S. dollar denominated revenues, and on the monetary assets and liabilities held by its foreign subsidiariesDirect operating costs. For derivative instruments that are ~~denominated~~not designated as hedges, any change in ~~local currencies.~~

fair value is recorded directly in earnings as part of Direct operating costs.

Income Taxes ~~- Deferred~~– Estimated deferred taxes are determined based on the difference between the financial statement and tax ~~bases~~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 condensed 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.

In assessing the ~~realizability~~realization of deferred tax assets, management considered whether it is more likely than not that all or some portion of the U.S. and Canadian deferred tax assets will not be realizable. As the expectation of future taxable income resulting from the U.S. and Canadian ~~operations~~entities 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 condensed consolidated statements of operations and comprehensive income (loss).

~~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. Accrued expenses and other on the condensed consolidated balance sheets includes $1.1 million of deferred revenue as of each of September 30, 2020 and December 31, 2019.

~~Unbilled Receivable -~~ (classified along-with Accounts receivable): Work performed, and expenses incurred in advance of invoicing are recorded as unbilled receivables. Accounts receivable on the Condensed Consolidated Balance Sheets includes $0.4 million and $0.5 million of unbilled receivables as of September 30, 2020 and December 31, 2019, respectively.

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~

~~(Unaudited)~~

Recent Accounting Pronouncements

- In December 2019, the FASB issued ~~ASU~~Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” as part of its initiative to reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. ~~Early adoption is permitted.~~ ~~We do not expect that the adoption of the new guidance will have a material impact on our financial statements.~~

In August 2018, the FASB issued Accounting Standards Update (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 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; early adoption is permitted. The Company ~~does not expect ASU 2018-14 to have a~~adopted the standard on January 1, 2021 and it had no material impact on the Company’s condensed consolidated financial statements.

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

~~Correction of Immaterial Errors~~ – During the preparation of the September 30, 2020 condensed consolidated financial statements, certain historical errors were identified relating to the accounting for 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 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 2017 to December 31, 2019 and an overstatement of expenses for the six months ended June 30, 2020.

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2020~~2021 AND ~~2019~~2020

(Unaudited)

The errors were not material, either quantitatively or qualitatively, in any of the reported periods. However, the corrections, if recorded in the three-month period ended September 30, 2020, would be material to such period. Accordingly, the prior period financial statements are being corrected by revising the prior period condensed consolidated financial statements for comparability. For the September 30, 2019 condensed consolidated financial statements and December 31, 2019 condensed consolidated balance sheet included in this Form 10-Q, the corrections are as follows:
· Increase in expenses of $8,000 for the three months ended September 30, 2019 and $49,000 for the nine months ended September 30, 2019. There was no impact on the loss per share for the three and nine month periods ended September 30, 2019.
· ~~An increase in December 31, 2019 liabilities of $528,000.~~
· ~~A decrease in December 31, 2019 retained earnings of $777,000.~~
· ~~A decrease in December 31, 2019 total assets of $249,000.~~
· ~~The impact on cash flows for the nine months ended September 30, 2019 was:~~
· ~~A decrease in cash flows provided by operating activities of $38,000~~
· ~~A decrease in cash flows used in investing activities of $79,000~~
· ~~An increase in cash flows used in financing activities of $41,000~~
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 condensed consolidated financial statements and consolidated financial statements prior periods (March 31, 2020 and June 30, 2020) and year (December 31, 2019) consolidated financial statements will be revised in future Forms 10-Q and Form 10-K to be filed with the Securities and Exchange Commission. The September 2019 condensed consolidated financial statements and December 31, 2019 condensed consolidated balance sheet have been revised in this Form 10-Q.
2. ~~Goodwill and Intangible Assets~~
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”).~~ Intangible Assets
The Company completed its annual impairment analysis procedures ~~as of March 31, 2020 and has updated its impairment analysis~~ on its reporting units as of September 30, ~~2020.~~2021. The Company determined that there was no impairment of long-lived assets, tangible or intangible, in any reporting units as of September 30, ~~2020.~~
2021.
The ~~changes~~change in the carrying amount of goodwill for the nine months ended September 30, ~~2020 and 2019 were~~2021 was as follows (in thousands):

Balance as of January 1, 2019 $ 2,050
Foreign currency translation adjustment 12
Balance as of September 30, 2019 $ 2,062

Balance as of January 1, 2020 $ 2,108
Foreign currency translation adjustment (39 )
Balance as of September 30, 2020 $ 2,069

Balance as of January 1, 2021

$
2,150
Foreign currency translation adjustment

(7)
Balance as of September 30, 2021

$
2,143

The fair value measurement of goodwill 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.~~market and the market multiple approach which utilizes comparable entities to further validate the carrying values. The Company believes it made reasonable estimates and assumptions to calculate the fair value of the reporting unit as of the impairment test measurement date.
Information regarding the Company acquired intangible assets and capitalized developed software was as follows (in thousands):

Company Acquired Intangible Assets

Capitalized Developed Software

Capitalized

Capitalized

Software

Balance as of September 30, 2021

Trademarks

Media

Software

Development

Developed

Customer

and

Contact

Development

Cost - Work in


technology

relationships

tradenames

Patents

Database

Cost

Progress

Total
Gross carrying amounts:












Balance as of January 1, 2021

$
3,175

$
2,228

$
882

$
45

$
3,670

$
5,507

$
1,360

$
16,867
Additions

-

-

-

-

-

376

1,357

1,733
Transfers

-

-

-

-

-

2,323

(2,323)

-
Foreign currency translation

(6)

-

(2)

-

(23)

(54)

24

(61)
Balance as of September 30, 2021

$
3,169

$
2,228

$
880

$
45

$
3,647

$
8,152

$
418

$
18,539

Accumulated amortization:

Balance as of January 1, 2021

$
1,844

$
1,192

$
629

$
29

$
1,650

$
1,492

$
-

$
6,836
Amortization expense

233

138

41

3

261

778

-

1,454
Foreign currency translation

2

1

-

1

2

(2)

-

4
Balance as of September 30, 2021

$
2,079

$
1,331

$
670

$
33

$
1,913

$
2,268

$
-

$
8,294

Net carrying values - September 30, 2021

$
1,090

$
897

$
210

$
12

$
1,734

$
5,884

$
418

$
10,245

The Company reclassified capitalized developed software, net of accumulated amortization, of $6.3 million and $5.4 million as of September 30, 2021 and December 31, 2020, respectively, from Property and equipment to Intangibles.
Amortization expense relating to Company acquired intangible assets was $0.2 million for the three months ended September 30, 2021 and $0.7 million for the nine months ended September 30, 2021.

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2020~~2021 AND ~~2019~~2020

(Unaudited)

Amortization expense relating to capitalized developed software was $0.3 million for the three months ended September 30, 2021 and $0.8 million for the nine months ended September 30, 2021.
~~Information regarding the Company’s acquisition-related~~As of September 30, 2021, estimated future amortization expense for intangible assets was as follows (in thousands):

Developed
technology Customer
relationships Trademarks
and
tradenames Patents Media
Contact
Database Total
Gross carrying amounts:
Balance as of January 1, 2020 $ 3,108 $ 2,177 $ 871 $ 43 $ 3,606 $ 9,805
Foreign currency translation (74 ) (65 ) (11 ) (1 ) (40 ) (191 )
Balance as of September 30, 2020 $ 3,034 $ 2,112 $ 860 $ 42 $ 3,566 $ 9,614

Year

Amortization
2021

$
532
2022

2,203
2023

2,018
2024

1,590
2025

1,215
Thereafter

2,687

$
10,245
Developed
technology Customer
relationships Trademarks
and
tradenames 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 51 63 4 1 (36 ) 83
Balance as of September 30, 2019 $ 3,050 $ 2,144 $ 859 $ 43 $ 3,510 $ 9,606
Developed
technology Customer
relationships Trademarks
and
tradenames Patents Media
Contact
Database Total
Accumulated amortization:
Balance as of January 1, 2020 $ 1,493 $ 983 $ 567 $ 24 $ 1,261 $ 4,328
Amortization expense 230 134 41 3 271 679
Foreign currency translation (39 ) (32 ) (5 ) - (19 ) (95 )
Balance as of September 30, 2020 $ 1,684 $ 1,085 $ 603 $ 27 $ 1,513 $ 4,912
Developed
technology Customer
relationships Trademarks
and
tradenames Patents Media
Contact
Database Total
Accumulated amortization:
Balance as of January 1, 2019 $ 1,137 $ 766 $ 440 $ 19 $ 886 $ 3,248
Amortization expense 230 133 90 3 269 725
Foreign currency translation 24 24 2 1 (15 ) 36
Balance as of September 30, 2019 $ 1,391 $ 923 $ 532 $ 23 $ 1,140 $ 4,009

Amortization expense relating to acquisition-related intangible assets was $0.2 million for each of the three months ended September 30, 2020 and 2019. Amortization expense relating to acquisition-related intangible assets was $0.7 million for each of the nine months ended September 30, 2020 and 2019.
3.            Income Taxes

~~INNODATA INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~
~~(Unaudited)~~
~~As of the date hereof, estimated amortization expense for intangible assets after September 30, 2020 is as follows (in thousands):~~
Year Amortization
2020 $ 224
2021 895
2022 895
2023 895
2024 797
Thereafter 996
$ 4,702
3. ~~Income Taxes~~
The Company recorded a tax benefit of $0.1 million and a provision for income taxes of $0.4 million for the three months ended September 30, 2020 and 2019, respectively; and a tax provision of $0.5 million for each of the nine months ended September 30, 2020 and 2019. Taxes primarily consist of a provision for foreign taxes recorded by the Company’s foreign subsidiaries in accordance with local tax regulations. Effective income tax rates are disproportionate due to the losses incurred by the Company’s U.S. ~~entities~~ and Canadian subsidiaries and a valuation allowance recorded on deferred taxes of these entities aand tax ~~effect~~effects of foreign operations, including foreign exchange gains and ~~losses and tax impact on uncertain tax position (ASC 740).~~
losses.
The reconciliations of the U.S. statutory rate with the Company’s effective tax rate for ~~each of~~ the nine ~~months~~-month periods ended September 30, ~~2020~~2021 and ~~2019~~2020 are summarized in the table below:

For the Nine Months Ended
September 30,
2020 2019
Federal income tax benefit at statutory rate (21.0 )% (21.0 )%

For the Nine Months Ended September 30,


2021

2020

Federal income tax expense at statutory rate

21.0
%
(21.0)
%
Effect of: -

Change in valuation allowance (660.0 ) (15.1 )

2,468.8

(660.0)

Effect of Section 162 (m)

549.9

-

Foreign operations permanent difference - foreign exchange gains and losses

271.9

90.3

Change in tax rates

225.0

-

Tax effects of foreign operations

79.8

1,610.6

State income tax net of federal benefit

43.2

(120.1)

Return to provision true up

31.6

(14.8)

Foreign rate differential (295.9 ) (1.8 )

(478.8)

(295.9)

Return to provision true up (14.8 ) (0.3 )
Withholding tax - 4.5
State income tax net of federal benefit (120.1 ) 1.8
Foreign operations permanent difference - foreign exchange gains and losses 90.3 (39.3 )
Increase in unrecognized tax benefits (ASC 740) 410.5 30.8
Tax effects of foreign operations 1,610.6 84.8
Effect of share based compensation 263.7 -
Others 29.0 (4.2 )
Increase (decrease) in unrecognized tax benefits (ASC 740)

(490.0)

410.5

Effect of stock-based compensation

(1,573.2)

263.7

Other

22.5

29.0

Effective tax rate 1,292.3 % 40.2 %

1,171.7
%
1,292.3
%

As of September 30, 2020, the Company performed a calculation of the Global Intangible Low-Taxed Income provisions and concluded that it continues to have no impact on account of the net losses of certain foreign subsidiaries.11

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2020~~2021 AND ~~2019~~2020

(Unaudited)

The following table presents a roll-forward of the Company’s unrecognized tax benefits and associated interest for the nine months ended September 30, ~~2020~~2021 (in thousands):

Unrecognized
tax benefits
Balance - January 1, 2020 $ 2,957
Increase for current year tax position 225
Decrease for prior year tax position (161 )
Interest accrual 125
Foreign currency remeasurement (100 )
Balance - September 30, 2020 $ 3,046

Unrecognized

tax benefits
Balance - January 1, 2021

$
3,231
Tax settlement matters �� prior periods

(1,713)
Change in tax position

149
Interest accrual

84
Foreign currency remeasurement

(32)
Balance - September 30, 2021

$
1,719

The Company expects that unrecognized tax benefits as of September 30, ~~2020 and December 31, 2019,~~2021 if recognized, would have a 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 periods for U.S. Federal and state taxes from 2016 through 2019. Various foreign subsidiaries currently have open tax years from 2003 through 2019.
Tax Assessments
In September 2015, the Company’s Indian subsidiary was subject to an inquiry by the Service Tax Department in India regarding the classification of services provided by this subsidiary, asserting that the services provided by this subsidiary fall under the category of online information and database access or retrieval services ~~(OID Services)~~(“OID Services”), and not under the category of business support services ~~(BS Services)~~(“BS Services”) that are exempt from service tax as historically indicated in the subsidiary’s service tax filings. The Company disagrees with the Service Tax Department’s position. In November 2019, the Commissioner of Central Tax, GST & Central Excise issued an order confirming the Service Tax ~~Department’s~~Department's position. The Company is contesting this order in an appeal to the Customs, Excise and Service Tax Appellate Tribunal. In the event the Service Tax Department is ultimately successful in proving that the services fall under the category of OID Services, the revenues earned by the Company’s Indian subsidiary for the period July 2012 through November 2016 would be subject to a service tax of between 12.36% and 15%, and this subsidiary may also be liable for interest and penalties. The revenue of ~~our~~the Company’s Indian subsidiary during this period was approximately ~~$66.0~~$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 Company’s counsel, the Company has not recorded any tax liability for this case.
In a separate action relating to service tax refunds, in October 2016, the Company’s Indian subsidiary received notices from the Indian Service Tax Department in India seeking to reverse service tax refunds of approximately $160,000 previously granted to ~~our~~the Company’s Indian subsidiary for three quarters in 2014, asserting that the services provided by this subsidiary fall under the category of OID Services and not BS Services. The appeal was determined in favor of the Service Tax Department. The Company disagrees with the basis of this decision and is contesting it. The Company expects delays in its Indian subsidiary receiving further service tax refunds until this matter is adjudicated with finality, and currently has service tax credits of approximately $1.0 million recorded as a receivable. Based on the assessment of the Company’s counsel, the Company has not recorded any tax liability or allowancefor this case.

~~INNODATA INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~
~~(Unaudited)~~
Substantial recovery against the Company in the above referenced 2015 Service Tax Department case could have a material adverse impact on the Company, and unfavorable rulings or recoveries in other tax proceedings could have a material adverse impact on the consolidated operating results of the period (and subsequent periods) in which the rulings or recovery occurs.

4. ~~Commitments and Contingencies~~

INNODATA INC. AND SUBSIDIARIES

~~COVID-19 Pandemic~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~- The novel coronavirus disease 2019 (“COVID-19”), which the World Health Organization declared as a pandemic on March 11,~~

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 ~~continues to spread throughout the world. COVID-19 has created significant global economic downturn, disrupted global trade~~

(Unaudited)

4. Commitments and supply chains, adversely impacted many industries, caused federal and regional governments to impose substantial restrictions on the operations of non-essential businesses and contributed to significant declines and volatility in financial markets. The rapid development and fluidity of this situation precludes any prediction as to the ultimate impact of COVID-19 on the Company’s performance and financial results.Contingencies

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

With the current level of demand for our services, the Company believes it has existing cash and cash equivalents that provide sufficient sources of liquidity to satisfy the Company’s financial needs for the next 12 months from the filing date of this Quarterly Report on Form 10-Q. In the event the Company experiences a significant or prolonged reduction in revenues, the likelihood of which is uncertain, it would seek to manage its liquidity by reducing capital expenditures, deferring investment activities and reducing operating costs, as it would likely have no other source of liquidity to support ongoing operations in a manner that is not significantly detrimental to the business.

Litigation – - In 2008, a judgment was rendered in the Philippines against a Philippine subsidiary of the Company that is no longer active and purportedly also against Innodata Inc., in favor of certain former employees of the Philippine subsidiary. The potential payment amount aggregates to approximately ~~$6.4~~$6.8 million, plus legal interest that accrued at 12% per annum from August 13, 2008 to June 30, 2013, and thereafter accrued and continues to accrue at 6% per annum. The potential payment amount as expressed in U.S. dollars varies with the Philippine peso to U.S. dollar exchange rate. In December 2017, a group of 97 of the former employees of the Philippine subsidiary indicated that they proposed to record the judgment as to themselves in New Jersey. In January 2018, in response to an action initiated by Innodata Inc., the United States District Court for the District of New Jersey ~~(USDC)~~(“USDC”) entered a preliminary injunction that enjoins these former employees from pursuing or seeking recognition or enforcement of the judgment against Innodata Inc. in the United States during the pendency of the action and until further order of the USDC. In June 2018, the USDC entered a consent order administratively closing the action subject to return of the action to the active docket upon the written request of Innodata Inc. or the former employees, with the USDC retaining jurisdiction over the matter and the preliminary injunction remaining in full force and effect.

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

~~INNODATA INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~

~~(Unaudited)~~

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 ~~and~~or overall trends in consolidated results of operations, litigation is subject to inherent uncertainties. Substantial recovery against the Company in the above-referenced Philippine action could have a material adverse impact on the Company, and unfavorable rulings or recoveries in the other proceedings could have a material adverse impact on the ~~financial position and~~consolidated operating results ofin the ~~Company.~~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 ~~and~~or overall consolidated results of operations for the above referenced legal proceedings could change in the future.

The Company’s legal accruals related to legal proceedings and claims are based on the Company’s determination of whether or not a loss is probable. The Company reviews outstanding proceedings and claims with external counsel to assess probability and estimates of loss. The accruals are adjusted if necessary. While the Company intends to ~~vigorously~~ defend ~~against~~ these matters vigorously, adverse outcomes that it estimates could reach approximately ~~$300,000~~$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.

5.	~~Stock Options~~

5.            Stock Options and Restricted Shares
A summary of stock option activity under the Innodata Inc. 2013 Stock Plan, as amended and restated effective June 7, 2016 ~~(Plan)~~(the “Plan”), as of September 30, ~~2020,~~2021, and changes during the nine months then ended, are presented below:

Number of
Options Weighted -
Average Exercise
Price Weighted-Average
Remaining Contractual
Term (years) Aggregate
Intrinsic Value
Outstanding at January 1, 2020 6,833,303 $ 1.86
Granted 1,080,000 1.37
Exercised (278,333 ) 1.13
Forfeited/Expired (644,303 ) 3.06
Outstanding at September 30, 2020 6,990,667 $ 1.70 7.07 $ 9,704,426

Exercisable at September 30, 2020 4,651,624 $ 1.93 6.15 $ 5,420,040

Vested and Expected to Vest at September 30, 2020 6,990,667 $ 1.70 7.07 $ 9,704,426

Weighted -

Weighted-Average

Number of

Average Exercise

Remaining Contractual

Aggregate


Options

Price

Term (years)

Intrinsic Value
Outstanding at January 1, 2021

5,906,884

$
1.61




Granted

750,000

6.76




Exercised

(1,546,288)

2.01




Forfeited/Expired

(20,000)

1.38




Outstanding at September 30, 2021

5,090,596

$
2.05

7.49

$
37,037,015

Exercisable at September 30, 2021

3,468,912

$
1.73

7.03

$
27,069,483

Vested and Expected to Vest at September 30, 2021

5,090,596

$
2.05

7.49

$
37,037,015

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

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

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

For the Nine Months Ended September 30,


2021

2020

Weighted average fair value of options granted

$
3.56

$
0.61

Risk-free interest rate

0.22% - 0.82
%

0.29% - 0.56
%
Expected term (years)

3-6

5-6

Expected volatility factor

58% - 68
%

47% - 50
%
Expected dividends

NaN

NaN

~~INNODATA INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~
~~(Unaudited)~~
For the Nine Months Ended September 30,
2020 2019
Weighted average fair value of options granted $ 0.61 $ 0.56

Risk-free interest rate 0.29%-0.56% 1.7% - 2.6%
Expected term (years) 5-6 5-6
Expected volatility factor 47% - 50% 45% - 46%
Expected dividends None None

A summary of outstanding restricted shares issued under the Plan as of September 30, ~~2020~~2021 are presented below:

Weighted-Average Grant


Number of Shares

Date Fair Value
Unvested at December 31, 2020

50,000

0
Granted

0

0
Vested

(25,000)

0
Forfeited/Expired

0

0
Unvested at September 30, 2021

25,000

$
1.38
Number of Shares Weighted-Average
Grant Date Fair Value
Granted 75,000 $ 1.38
Vested (25,000 )
Forfeited/Expired -
Unvested at September 30, 2020 50,000

The compensation cost related to non-vested stock options and restricted stock awards not yet recognized as of September 30, ~~2020~~2021 totaled approximately ~~$1.3~~$2.7 million. The weighted-average period over which these costs will be recognized is ~~twenty-four~~twenty-six months.
The stock-based compensation expense related to the Company’s various stock awards was allocated as follows (in thousands):

For the Three Months Ended
September 30, For the Nine Months Ended
September 30,
2020 2019 2020 2019

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020
Direct operating costs $ 40 $ 34 $ 119 $ 72

$
21

$
40

$
96

$
119
Selling and administrative expenses 192 317 581 552

482

192

1,021

581
Total stock-based compensation $ 232 $ 351 $ 700 $ 624

$
503

$
232

$
1,117

$
700

6.

6.            Operating Leases
The Company has various ~~operating~~ 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 ~~have remaining lease~~are for terms ranging from two to ~~ten~~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 into the contract.

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2020~~2021 AND ~~2019~~2020

(Unaudited)

~~The Company adopted ASU No. 2016-02, “Leases (Topic 842)~~”, ~~beginning January 1, 2019 and applied the practical expedients consistently for all of its leases.~~

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

For the Three Months Ended
September 30, For the Nine Months Ended
September 30,
2020 2019 2020 2019

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020
Rent expense for long-term operating leases $ 402 $ 453 $ 1,266 $ 1,360

$
393

$
402

$
1,169

$
1,266
Rent expense for short-term leases 122 143 511 473

59

122

143

511
Total rent expense $ 524 $ 596 $ 1,777 $ 1,833

$
452

$
524

$
1,312

$
1,777

The following table presents the maturity profile of the Company’s operating lease liabilities based on the contractual undiscounted payments with a reconciliation of these amounts to the remaining net present value of the operating lease liability reported in the condensed consolidated balance ~~sheets~~sheet as of September 30, ~~2020~~2021 (in thousands):

Year Amount

Amount
2020 $ 396
2021 1,603

$
389
2022 1,569

1,511
2023 1,289

1,255
2024 1,060

1,028
2025 and thereafter 4,612
2025

1,043
2026 and thereafter

3,490
Total lease payments 10,529

8,716
Less: Interest (2,871 )

2,153
Net present value of lease liabilities $ 7,658

$
6,563

Current portion $ 967

$
1,056
Long-term portion 6,691

5,507
Total $ 7,658

$
6,563

The ~~weighted-average~~weighted average remaining lease terms and discount rates for all of ~~our~~the Company’s operating leases as of September 30, ~~2020~~2021 were as follows:

Weighted-average lease term remaining
75
56 months

Weighted-average discount rate
8.68
~~8.92%~~
%

7.            Long-term obligations
Total long-term obligations as of September 30, 2021 and December 31, 2020 consisted of the following (in thousands):


September 30,

December 31,

2021

2020
Pension obligations - accrued pension liability

$
6,124

$
5,940
Settlement agreement

326

518
Capital lease obligations

0

209
Microsoft licenses

380

747
Bank loans payable

0

580

6,830

7,994
Less: Current portion of long-term obligations

1,130

1,712
Totals

$
5,700

$
6,282

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2020~~2021 AND ~~2019~~2020

(Unaudited)

7.	~~Long-term Obligations~~

~~Total long-term obligations of the Company as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):~~

September 30, December 31,
2020 2019
Pension obligations - accrued pension liability $ 5,224 $ 4,611
Settlement agreement ⁽¹⁾ 572 708
Capital lease obligations 269 655
Microsoft licenses ⁽²⁾ 734 -
Bank loans payable ⁽³⁾ 580 -
7,379 5,974
Less: Current portion of long-term obligations 1,958 1,440
Totals $ 5,421 $ 4,534
⁽¹⁾ Represents payment to be made pursuant to a settlement agreement entered into in December 2018 between a subsidiary of the Company and 19 former employees of such subsidiary. The balance is payable in monthly installments through March 2023.
⁽²⁾ In 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 2023. Pursuant to this agreement, the Company is obligated to pay approximately $0.4 million annually over the term of the agreement.
⁽³⁾ On May 4, 2020, we received loan proceeds of $579,700 under the Paycheck Protection Program 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, if any, 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~~.

~~INNODATA INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~
~~(Unaudited)~~
8. ~~Comprehensive Loss~~
8.           Comprehensive loss
Accumulated other comprehensive loss, as reflected in the condensed consolidated balance sheets, consists of pension liability adjustments, net of taxes, foreign currency translation ~~adjustments, net of taxes,~~adjustment and changes in fair value of derivatives, net of taxes. The components of Accumulated other comprehensive loss as of September 30, 2021 and 2020, and reclassifications ~~out of~~from Accumulated other comprehensive loss to earnings for the three and nine months then ended, ~~September 30, 2020 and 2019, were as follows (net of tax)~~are presented below (in thousands):

Pension Liability Adjustment Fair Value of Derivatives Foreign Currency Translation Adjustment Accumulated Other Comprehensive Income (Loss)
Balance at July 1, 2020 $ (28 ) $ (51 ) $ (1,397 ) $ (1,476 )
Other comprehensive income before reclassifications, net of taxes - 12 216 228
Total other comprehensive loss before reclassifications, net of taxes (28 ) (39 ) (1,181 ) (1,248 )
Net amount reclassified to earnings (1 ) 39 - 38
Balance at September 30, 2020 $ (29 ) $ - $ (1,181 ) $ (1,210 )






Foreign Currency


Pension Liability

Fair Value of

Translation

Accumulated Other

Adjustment

Derivatives

Adjustment

Comprehensive Loss
Balance at July 1, 2021

$
(422)

$
(267)

$
(380)

$
(1,069)
Other comprehensive loss before reclassifications, net of taxes

-

(302)

(594)

(896)
Total other comprehensive loss before reclassifications, net of taxes

(422)

(569)

(974)

(1,965)
Net amount reclassified to earnings

10

37

-

47
Balance at September 30, 2021

$
(412)

$
(532)

$
(974)

$
(1,918)
Pension Liability Adjustment Fair Value of Derivatives Foreign Currency Translation Adjustment Accumulated Other Comprehensive Loss
Balance at July 1, 2019 $ 1,374 $ - $ (1,179 ) $ 195
Other comprehensive loss before reclassifications, net of taxes -                - (252 ) (252 )
Total other comprehensive income (loss) before reclassifications, net of taxes 1,374 - (1,431 ) (57 )
Net amount reclassified to earnings (41 ) - - (41 )
Balance at September 30, 2019 $ 1,333 $ - $ (1,431 ) $ (98 )
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 loss before reclassifications, net of taxes               - (154 ) (281 ) (435 )
Total other comprehensive income (loss) before reclassifications, net of taxes (53 ) (121 ) (1,181 ) (1,355 )
Net amount reclassified to earnings 24 121 - 145
Balance at September 30, 2020 $ (29 ) $ - $ (1,181 ) $ (1,210 )
Pension Liability Adjustment Fair Value of Derivatives Foreign Currency Translation Adjustment Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2019 $ 1,451 $              - $ (1,466 ) $ (15 )
Other comprehensive income before reclassifications, net of taxes - - 35 35
Total other comprehensive income (loss) before reclassifications, net of taxes 1,451 - (1,431 ) 20
Net amount reclassified to earnings (118 ) - - (118 )
Balance at September 30, 2019 $ 1,333 $ - $ (1,431 ) $ (98 )

Foreign Currency

Pension Liability

Fair Value of

Translation

Accumulated Other


Adjustment

Derivatives

Adjustment

Comprehensive Loss
Balance at January 1, 2021

$
(444)

$
-

$
(494)

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

-

(536)

(480)

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

(444)

(536)

(974)

(1,954)
Net amount reclassified to earnings

32

4

-

36
Balance at September 30, 2021

$
(412)

$
(532)

$
(974)

$
(1,918)

Foreign Currency


Pension Liability

Fair Value of

Translation

Accumulated Other

Adjustment

Derivatives

Adjustment

Comprehensive Loss
Balance at July 1, 2020

$
(28)

$
(51)

$
(1,397)

$
(1,476)
Other comprehensive income before reclassifications, net of taxes

-

12

216

228
Total other comprehensive loss before reclassifications, net of taxes

(28)

(39)

(1,181)

(1,248)
Net amount reclassified to earnings

(1)

39

-

38
Balance at September 30, 2020

$
(29)

$
-

$
(1,181)

$
(1,210)

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

Foreign Currency


Pension Liability

Fair Value of

Translation

Accumulated Other

Adjustment

Derivatives

Adjustment

Comprehensive Loss
Balance at January 1, 2020

$
(53)

$
33

$
(900)

$
(920)
Other comprehensive loss before reclassifications, net of taxes

-

(154)

(281)

(435)
Total other comprehensive loss before reclassifications, net of taxes

(53)

(121)

(1,181)

(1,355)
Net amount reclassified to earnings

24

121

-

145
Balance at September 30, 2020

$
(29)

$
-

$
(1,181)

$
(1,210)

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

~~INNODATA INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~
~~(Unaudited)~~
9. 9.           Segment Reporting and Concentrations
The Company’s operations are classified in ~~three~~3 reporting segments: ~~Digital Data Solutions (DDS),~~DDS, Synodex and Agility.
The DDS segment provides a range of solutions and platforms for solving complex data challenges that companies face when they seek to obtain the benefits of artificial intelligence ~~(AI)~~(“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 industry that relate to content operations and product development.
The Synodex segment provides an intelligent data platform that transforms medical records into useable digital data organized in accordance with ~~our~~the Company’s proprietary data models or client data models.
The Agility segment provides an intelligent data platform that provides marketing communications and public relations professionals with the ability to target and distribute content to journalists and social media influencers world-wide and to monitor and analyze global news channels (print, web, radio and TV) and social media channels.
A significant portion of the ~~Company’s revenues~~services are generated from its ~~facilities~~operations in the Philippines, India, Sri Lanka, Canada, Germany, the United Kingdom and Israel.

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

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

For the Three Months Ended September 30,

For the Nine Months Ended September 30,


2021

2020

2021

2020
Revenues:








DDS

$
13,237

$
10,526

$
37,997

$
30,793
Synodex

983

1,197

2,888

3,680
Agility

3,230

2,830

9,581

8,473
Total Consolidated

$
17,450

$
14,553

$
50,466

$
42,946




Income (loss) before provision for income taxes⁽¹⁾:




DDS

$
1,608

$
4

$
3,988

$
226
Synodex

(657)

79

(878)

356
Agility

(1,470)

60

(3,057)

(621)
Total Consolidated

$
(519)

$
143

$
53

$
(39)




Income (loss) before provision for income taxes⁽²⁾:




DDS

$
1,509

$
(64)

$
3,740

$
27
Synodex

(584)

124

(711)

487
Agility

(1,444)

83

(2,976)

(553)
Total Consolidated

$
(519)

$
143

$
53

$
(39)

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2020 2019 2020 2019
Revenues:


September 30, 2021

December 31, 2020
Total assets:




DDS $ 10,526 $ 10,124 $ 30,793 $ 30,353

$
29,640

$
27,767
Synodex 1,197 977 3,680 2,916

714

457
Agility 2,830 2,745 8,473 7,910

28,479

29,030
Total Consolidated $ 14,553 $ 13,846 $ 42,946 $ 41,179

$
58,833

$
57,254

Income (loss) before provision for income taxes⁽¹⁾:
DDS $ 4 $ 371 $ 226 $ 579
Synodex 79 (70 ) 356 (81 )
Agility 60 (446 ) (621 ) (1,724 )
Total Consolidated $ 143 $ (145 ) $ (39 ) $ (1,226 )

Income (loss) before provision for income taxes⁽²⁾:
DDS $ (64 ) $ 304 $ 27 $ 391
Synodex 124 (26 ) 487 42
Agility 83 (423 ) (553 ) (1,659 )
Total Consolidated $ 143 $ (145 ) $ (39 ) $ (1,226 )

September 30, 2020 December 31, 2019
Total assets:
DDS $ 27,433 $ 23,115
Synodex 564 675
Agility 26,001 25,707
Total Consolidated $ 53,998 $ 49,497


September 30, 2021

December 31, 2020
Goodwill:




Agility

$
2,143

$
2,150
Total Consolidated

$
2,143

$
2,150
(1) Before elimination of any inter-segment profits
(2) After elimination of any inter-segment profits

September 30, 2020 December 31, 2019
Goodwill:
Agility $ 2,069 $ 2,108
Total Consolidated $ 2,069 $ 2,108

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

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

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2020~~2021 AND ~~2019~~2020

(Unaudited)

The following table summarizes revenues by geographic region (determined and based upon ~~customers’~~customer’s domicile) ~~for the periods presented~~ (in thousands):

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2020 2019 2020 2019

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020

United States $ 6,613 $ 5,967 $ 19,561 $ 18,507

$
9,467

$
6,613

$
26,761

$
19,561
United Kingdom 2,832 2,394 8,284 7,120

2,912

2,832

8,709

8,284
The Netherlands 1,704 1,730 5,003 5,146

1,750

1,704

5,012

5,003
Canada 1,434 1,634 4,304 4,594

1,469

1,434

4,556

4,304
Others - principally Europe 1,970 2,121 5,794 5,812

1,852

1,970

5,428

5,794
Totals $ 14,553 $ 13,846 $ 42,946 $ 41,179

$
17,450

$
14,553

$
50,466

$
42,946

Long-lived assets ~~of the Company~~ as of September 30, ~~2020~~2021 and December 31, ~~2019, respectively,~~2020 by geographic region were comprised of ~~the following~~ (in thousands):

September 30, December 31,
2020 2019


September 30,

December 31,

2021

2020
United States $ 4,162 $ 4,521

$
4,367

$
4,045




Foreign countries:




Canada 8,532 8,708

9,238

9,044
Philippines

4,162

4,545
United Kingdom 1,699 1,907

1,577

1,759
Philippines 4,688 5,135
India 1,025 508

1,140

930
Sri Lanka 529 678

194

319
Israel 1 19

-

1
Germany 1 1
Total foreign 16,475 16,956

16,311

16,598
Totals $ 20,637 $ 21,477

$
20,678

$
20,643

Long-lived assets include the unamortized balance of right-of-use assets amounting to ~~$6.9~~$5.9 million and ~~$7.0~~$6.6 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.
~~Two clients~~NaN client in the DDS segment generated approximately ~~23%~~10% and ~~25%~~13% of the Company’s total revenues for the three months ended September 30, 2021 and 2020, ~~and September 30, 2019,~~ respectively. No NaN other client accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. clients accounted for 46% and 55% ~~and 57%~~ of the Company’s total revenues for the three months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively.
~~One~~ NaN client in the DDS segment generated approximately ~~14%~~11% and ~~16%~~14% of the ~~Company’s~~Company's total revenues for the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively. ~~Another client in the DDS segment generated 10% of the Company’s total revenues for the nine months ended September 30, 2019. No~~NaN other client accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. clients accounted for 47% and 54% of the Company’s total revenues for ~~each of~~ the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively.

~~INNODATA INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~
~~(Unaudited)~~
As of September 30, ~~2020,~~2021, approximately ~~57%~~44% of the Company’s accounts receivable was from foreign (principally European) clients and ~~24%~~34% of the Company’s accounts receivable was due from ~~two~~3 clients. As of December 31, ~~2019,~~2020, approximately ~~60%~~55% of the Company’s accounts receivable was from foreign (principally European) clients and ~~44%~~36% of the Company’s accounts receivable was due from ~~three~~3 clients.

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

(In thousands)
For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2020 2019 2020 2019
Net income (loss) attributable to Innodata Inc. and Subsidiaries $ 206 $ (563 ) $ (568 ) $ (1,709 )

Weighted average common shares outstanding 24,470 25,856 24,427 25,870
Dilutive effect of outstanding options 790 - - -
Adjusted for dilutive computation 25,260 25,856 24,427 25,870

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

10.          Income (Loss) Per Share

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020

(in thousands)

(in thousands)

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

$
(800)

$
206

$
(505)

$
(568)
Weighted average common shares outstanding

26,971

24,470

26,459

24,427
Dilutive effect of outstanding options

0

790

0

0
Adjusted for dilutive computation

26,971

25,260

26,459

24,427

Basic income (loss) per share is computed using the weighted-average number of common shares outstanding during the year. Diluted income ~~(loss)~~ per share is computed by considering the impact of the potential issuance of common shares, using the treasury stock method, on the ~~weighted average~~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 5.1 million shares of common stock for the three months ended September 30, 2021 were outstanding but not included in the computation of diluted loss per share because the effect would have been anti-dilutive. Options to purchase 2.3 million shares of common stock for the three months ended September 30, 2020 were outstanding but not included in the computation of diluted income ~~(loss)~~ per share because the exercise price of the options ~~were~~was greater than the average market price of the common ~~shares and therefore have not been considered as potential equity~~ shares. ~~Diluted loss per share and Basic loss per share are the same due to the reported loss for three months ended September 30, 2019.~~
Options to purchase ~~6.9~~5.1 million and 7.0 million shares of common stock ~~were anti-dilutive for three months ended September 30, 2019.~~
~~Diluted loss per share and Basic loss per share are the same due to the reported loss~~ for the nine months ended September 30, 2021 and 2020, ~~and September 30, 2019. Options to purchase 7.0 million shares and 6.9 million shares~~respectively, were outstanding but not included in the computation of ~~common stock were anti-dilutive for nine months ended September 30, 2020 and September 30, 2019, respectively.~~diluted loss per share because the effect would have been anti-dilutive.

~~11.~~

11.          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.

~~INNODATA INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~
~~(Unaudited)~~
~~To manage its~~The Company's policy is to enter derivative instrument contracts with terms that coincide with the underlying exposure being hedged for a period up to ~~fluctuations~~12 months. As such, the Company's derivative instruments are expected to be highly effective. For derivative instruments that are designated and qualify as cash flow hedges, the entire change in ~~foreign currency exchange rates,~~fair value of the ~~Company enters into foreign currency forward~~hedging instrument is recorded to Other comprehensive income (loss). Upon settlement of these contracts, ~~authorized under Company policies. The Company utilizes non-deliverable forward contracts expiring within six months~~the change in the fair value recorded in Other comprehensive income (loss) are reclassified to ~~reduce its foreign currency risk.~~
earnings and included as part of Direct operating costs. For derivative instruments that are not designated as hedges, any change in fair value is recorded directly in earnings as part of Direct operating costs.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management ~~objectives~~objective and strategy for undertaking ~~hedging~~hedge transactions. The Company does not hold or issue derivatives for trading purposes. All derivatives are recognized at their fair value and classified based on the instrument’s maturity date. ~~There were no~~The total notional ~~amounts~~amount for outstanding derivatives designated as hedges was $21.5 million as of September 30, 2021. There were 0 outstanding derivatives not designated as hedges as of September 30, 2021. The total notional amount for outstanding derivatives not designated as hedges was $7.0 million as of December 31, 2020.

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

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

Balance Sheet Location

Fair Value




2021

2020
Derivatives designated as hedging instruments:







Foreign currency forward contracts

Accrued expenses

$
532

$
-

Derivatives not designated as hedging instruments:







Foreign currency forward contracts

Prepaid expenses and other current assets

$
-

$
48

The ~~effects~~effect of foreign currency forward contracts designated as cash flow hedges on the ~~Company’s~~ condensed consolidated statements of operations ~~and comprehensive loss~~ for thethree and nine months ended September 30, ~~2020~~2021 and ~~2019, respectively,~~2020 were as follows (in thousands):

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020
Net loss recognized in OCI⁽¹⁾

$
(302)

$
12

$
(536)

$
(154)
Net loss reclassified from accumulated OCI into income⁽²⁾

$
37

$
39

$
4

$
121
Net gain 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.

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2020 2019 2020 2019
Net gain (loss) recognized in OCI⁽¹⁾ $ 12 $ - $ (154 ) $ -
Net (gain) loss reclassified from accumulated OCI into income⁽²⁾ $ 39 $ - $ 121 $ -
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 periods presented.~~

Item 2.
~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
Disclosures in this Quarterly Report on Form 10-Q (this ~~Report)~~“Report”) contain certain forward-looking statements within the meaning of Section 21E of the Securities ~~and~~ Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements include, without limitation, statements concerning our operations, economic performance, and financial condition. Words such as “project,” “believe,” “expect,” “can,” “continue,” “could,” “intend,” “may,” “should,” “will,” “anticipate,” “indicate,” “predict,” “likely,” “estimate,” “plan,” “potential,” or the negatives thereof, and other similar expressions generally identify forward-looking statements.
These forward-looking statements are based on management’s current expectations, assumptions and estimates and are subject to a number of risks and uncertainties, including, without limitation, the expected or potential effects of the novel coronavirus ~~(COVID-19)~~(“COVID-19”) pandemic and the responses of governments, the general global population, our customers, and the Company thereto; that contracts may be terminated by clients; projected or committed volumes of work may not materialize; continuing reliance on project-based work in the ~~DDS~~Digital Data Solutions (“DDS”) segment and the primarily at-will nature of such contracts and the ability of these clients to reduce, delay or cancel projects; the likelihood of continued development of the markets, particularly new and emerging markets, that our services support; continuing DDS segment revenue concentration in a limited number of clients; potential inability to replace projects that are completed, canceled or reduced; our dependency on content providers in our Agility segment; difficulty in integrating and deriving synergies from acquisitions, joint venture and strategic investments; potential undiscovered liabilities of companies and businesses that we may acquire; potential impairment of the carrying value of goodwill and other acquired intangible assets of companies and businesses that we acquire; changes in our business or growth ~~strategy;~~strategy, such as our re-design of our solutions and product portfolio in 2019; a continued downturn in or depressed market conditions, whether as a result of the COVID-19 pandemic or otherwise; changes in external market factors; the ability and willingness of our clients and prospective clients to execute business plans that give rise to requirements for our services; changes in our business or growth strategy; the emergence of new, or growth in existing competitors; various other competitive and technological factors; the Company’s use of and reliance on information technology systems, including potential security breaches, cyber-attacks, privacy breaches or data breaches that result in the unauthorized disclosure of consumer, client, employee or Company information, or service interruptions; and other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange ~~Commission.~~Commission
.
Our actual results could differ materially from the results referred to in forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, uncertainty around the COVID-19 pandemic and the effects of the global response thereto and the risks discussed in Part I, Item 1A. “Risk ~~Factors” included~~Factors,” in ~~this Report,” and in Part I, Item 1A. “Risk Factors,”~~ “Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other parts of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March ~~16, 2020,~~15, 2021, and in other filings that we may make with the Securities and Exchange Commission. In light of these risks and uncertainties, there can be no assurance that the results referred to in the forward-looking statements will occur, and you should not place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date hereof.
We undertake no obligation to update or review any guidance or other forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by the federal securities laws.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~(MD&A)~~(“MD&A”) is intended to help the reader understand the results of operations and financial condition of Innodata Inc. and its ~~subsidiaries. The current MD&A is provided as a supplement to,~~subsidiaries and should be read in conjunction with ~~the MD&A and the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 and~~ our unaudited condensed consolidated financial statements and the accompanying notes to condensed consolidated financial statements contained in Part I, Item 1 of this Report.
~~Correction of Immaterial Errors~~ – During the preparation of the September 30, 2020 condensed consolidated financial statements, certain historical errors were identified relating to the accounting for 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 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 2017 to December 31, 2019 and an overstatement of expenses for the six months ended June 30, 2020.
The errors were not material, either quantitatively or qualitatively, in any of the reported periods. However, the corrections, if recorded in the three-month period ended September 30, 2020, would be material to such period. Accordingly, the prior period financial statements are being corrected by revising the prior period condensed consolidated financial statements for comparability. For the September 30, 2019 condensed consolidated financial statements and December 31, 2019 condensed consolidated balance sheet included in this Form 10-Q, the corrections are as follows:
· Increase in expenses of $8,000 for the three months ended September 30, 2019 and $49,000 for the nine months ended September 30, 2019. There was no impact on the loss per share for the three and nine month periods ended September 30, 2019.
· ~~An increase in December 31, 2019 liabilities of $528,000.~~
· ~~A decrease in December 31, 2019 retained earnings of $777,000.~~
· ~~A decrease in December 31, 2019 total assets of $249,000.~~
· ~~The impact on cash flows for the nine months ended September 30, 2019 was:~~
· ~~A decrease in cash flows provided by operating activities of $38,000~~
· ~~A decrease in cash flows used in investing activities of $79,000~~
· ~~An increase in cash flows used in financing activities of $41,000~~
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 condensed consolidated financial statements and consolidated financial statements prior periods (March 31, 2020 and June 30, 2020) and year (December 31, 2019) consolidated financial statements will be revised in future Forms 10-Q and Form 10-K to be filed with the Securities and Exchange Commission. The September 2019 condensed consolidated financial statements and December 31, 2019 condensed consolidated balance sheet have been revised in this Form 10-Q.
Business Overview
Innodata Inc. ~~(NASDAQ: INOD)~~ (including its subsidiaries, the “Company”, “Innodata”, “we”, “us” or “our”) is a global data engineering company. We solve complex data challenges ~~that companies face when they build and maintain~~using artificial intelligence ~~(AI) systems~~(“AI”) and ~~analytics platforms.~~human expertise.
~~To deliver our~~We provide large-scale data annotation services and platforms to companies who require high-quality data for training AI and machine learning (“ML”) algorithms. We also provide 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, we ~~use a combination of human~~provide AI-augmented software-as-a-service (“SaaS”) platforms and discrete managed services.

Our platforms and services are powered by Goldengate, our proprietary AI/ML platform, as well as other technologies we have developed. In addition, we bring to bear 4,000+ employees spanning nine countries with expertise ~~and technology. Our 3,600+ employees span 10 countries and are experts~~ in data pertaining to many professional fields. Our ~~core technology harnesses machine learning and deep learning (branches of AI) to augment human expertise. Our~~ hybrid approach of using AIAI/ML in conjunction with human experts enables us to deliver superior data quality with even the most complex and sensitive data.

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

Data Annotation

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

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

AI/ML Solutions

We also provide ~~AI-augmented software-as-a-service (SaaS) platforms for customers who wish~~AI/ML solutions to ~~perform their own~~companies that intensively process textual data ~~engineering tasks~~ and ~~for niche, industry-specific data-intensive use cases.~~

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

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

~~(i)~~

~~Data Annotation~~

~~We help our clients train AI models by annotating~~master data at scale and at industry-leading levels of quality such as 99.995% accuracy with an error rate that does not exceed 50 per million. The quality of training data is critical for a client’s AI models to perform well. We annotate text, images, audio and video data for the most complex AI models, including computer vision, sentiment analysis, entity linking, text categorization, and syntactic parsing/tagging.

management.

Our ~~image~~customers span a diverse range of industries and video annotation services and platforms may be used to annotate, or label, objects, or people in images/video for facial recognition systems and automated object identification systems and in aerial/satellite imagery for autonomous driving/flying applications.

~~Our text annotation services and platforms may be used to convert raw text data into richly tagged, AI training data. We accommodate~~ a wide range of ~~input formats~~AI use cases, benefiting from the short time-to-value and taxonomies, and we perform a wide variety of complex tasks including entity annotation, relationship annotation, co-reference annotation, event annotation, multi-label annotation, and document labelling.high economic returns our AI/ML solutions provide.

We provide image/video data annotation and text annotation as full solutions, in which we provide all required technology, infrastructure and expert resources. We will also provide image/video data annotation platforms and text annotation platforms for our clients to license for internal use.

~~We provide data annotation for a variety of complex requirements in healthcare, compliance, scientific, financial and legal markets.~~

~~(ii)~~

~~Data Transformation~~

We provide AI-based data transformation solutions for high-accuracy data identification, aggregation, cleansing, augmentation and extraction. Our solutions utilize highly trained AI models and experts who custom train the models for our clients’ most complex and unique requirements.

AI/ML Industry Platforms

Our data transformation platform enables data to be extracted from websites, as well as internal data stores; converted from disparate formats including PDF; enriched with the necessary semantics, metadata and linking; and classified in accordance with an ontology or knowledge graph.

Our data transformation solutions may be consumed via API, so that they can be utilized as infrastructure by clients with ongoing needs for such services. We also provide a platform for clients to license for performing analytics on extracted data points.

~~(iii)~~

~~Data Curation~~

For clients that need to maintain mission-critical databases of structured data, or fuse separately-created databases into a single, unified, high-quality source of data that can be relied upon for a variety of corporate functions and products (often referred to as a “golden source” of data), we provide AI-based data curation solutions that include data collection across external and internal data sources, data hygiene, data consolidation, and data compliance.

~~(iv)~~

~~Intelligent Automation~~

Enterprises are increasingly looking to re-invent business processes to take advantage of advancements in AI and machine learning, computing, and storage. Many seek easier ways to train, deploy, and leverage these advanced capabilities. For clients with critical business processes that involve documents, images, text, emails and other unstructured data, we deploy a range of technologies, including AI and robotic process automation (RPA), to eliminate repetitive tasks, automate where possible, speed up operations, and shift internal talent to creative and analytical work.

We provide intelligent automation for an increasing diversity of complex functions. At present, these include IP rights management, contract management, client relationship management, regulatory change management, underwriting, and content operations management.

~~(v)~~

~~Intelligent Data Platforms~~

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

Our Synodex ~~intelligent data~~industry platform transforms medical records into useable digital data organized in accordance with our proprietary data models or client data models. At the end of ~~2019,~~2020, we had 20 clients utilizing our Synodex platform, including John Hancock Insurance, the insurance operating unit of John Hancock Financial (a division of Manulife) and one of the largest life insurers in the United States.

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

~~(vi)~~

~~Other Services for Information Industry Clients~~

~~In addition, we provide a variety of services for clients in the information industry that relate to content operations and product development.~~

~~The Company’s~~Our operations are presently classified and reported in three reporting segments: DDS, Synodex and Agility.

~~Inflation, Seasonality and~~ 

Prevailing Economic Conditions and Seasonality

Prevailing Economic Conditions

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

Prior to the pandemic being declared, we prepared a Business Continuity Plan (BCP) for our 12 global delivery centers and offices. When COVID-19 was declared to be a pandemic, we triggered our BCP, enabling us to continue operations while safeguarding the health and welfare of our employees.

While the pandemic presented, and may in the future present, new risks to our business and there have been logistical and other challenges, there was no material adverse impact on our results of operations for the ~~quarter and~~three or nine months ended September 30, ~~2020.~~

2021.

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

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

We 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 No. 350, “Intangibles-Goodwill and Other” and Accounting Standards Codification No. 360, “Impairment or Disposal of Long-Lived Assets”). We completed our impairment analysis procedures as of March 31, 2020 and have updated our impairment analysis on our reporting units as of September 30, 2020. We have determined that there was no impairment of long-lived assets, tangible nor intangible, in any reporting units as of September 30, 2020.

~~Inflation~~

Our most significant costs are the salaries and related benefits of our employees in Asia. We are exposed to 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.

Seasonality

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

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

For further information refer to the risk factor titled “Quarterly fluctuations in our revenues and results of operations could make financial forecasting difficult and could negatively affect our stock price.” in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Results of Operations

Amounts in the MD&A below have been rounded. All percentages have been calculated using rounded amounts.

Three Months Ended September 30, ~~2020~~2021 and ~~2019~~

2020

Revenues

Total revenues were $17.5 million for the three months ended September 30, 2021, compared to $14.6 million for the three months ended September 30, 2020, ~~compared~~an increase of approximately $2.9 million or 20%. The increase was primarily attributable to ~~$13.8~~new clients and higher volume in the DDS and Agility segments, offset in part by a decrease in volume in the Synodex segment.

Revenues from the DDS segment were $13.3 million for the three months ended September 30, ~~2019, an increase of approximately $0.8 million or 6%. The increase was primarily attributable~~2021, compared to ~~increased volumes in all segments.~~

~~Revenues from the DDS segment were~~ $10.6 million for the three months ended September 30, 2020, ~~compared~~an increase of approximately $2.7 million or 25%. The increase was primarily attributable to ~~$10.1~~two new clients.

Revenues from the Synodex segment were $1.0 million for the three months ended September 30, ~~2019, an increase of approximately $0.5 million or 5%. The increase was primarily attributable~~2021, compared to ~~revenues generated from new clients.~~

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

Revenues from the Agility segment were $3.2 million for the three months ended September 30, ~~2019, an increase of approximately $0.2 million or 20%. The increase was primarily attributed~~2021, compared to ~~higher volumes from one existing client.~~

~~Revenues from the Agility segment were~~ $2.8 million for the three months ended September 30, 2020, ~~compared to $2.7 million for the three months ended September 30, 2019,~~ an increase of ~~$0.1~~approximately $0.4 million or ~~approximately 4%~~14%. The increase was principally attributable to ~~an increase in the number of~~higher volumes from subscriptions to our Agility ~~intelligent data~~AI-enabled industry platform and newswire ~~products.~~product.

~~Two clients~~One client in the DDS segment generated approximately ~~23%~~10% and ~~25%~~13% of the Company’s total revenues for the three months ended September 30, ~~2020~~2021 and ~~September 30, 2019,~~2020, respectively. No other client accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. clients accounted for ~~55%~~46% and ~~57%~~55% of the Company’s total revenues for the three months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively.

Direct Operating Costs

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

Direct operating costs were ~~$9.8~~$10.7 million and ~~$9.0~~$9.8 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, an increase of ~~$0.8~~$0.9 million. ~~This~~The increase was primarily due to ~~increases in~~higher direct and indirect labor ~~related~~ costs of ~~$0.9~~$1.2 million, ~~and technology related expenditures in connection with our BCP in response to the COVID-19 pandemic of $0.3 million. The increase was~~ offset in part by ~~reductions in occupancy and related costs of~~ $0.3 million ~~and other operating costs~~ of ~~$0.1 million due to COVID-19. Direct~~foreign exchange gains. Direct operating costs as a percentage of total revenues were ~~67%~~61% and ~~65%~~67% for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~increase~~decrease in ~~Direct~~direct operating costs as a percentage of total revenues was primarily attributable to increased ~~Direct~~revenues in the DDS and Agility segments, offset in part by decreased revenues in the Synodex segment and increased direct operating costs in ~~the DDS segment.~~

all segments.

Direct operating costs for the DDS segment were approximately ~~$7.4~~$7.7 million and ~~$6.5~~$7.4 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, an increase of $0.9 million. This increase was primarily due to an increase in labor related costs of $0.8 million, an unfavorable foreign exchange remeasurement effect of $0.1 million, and technology related expenditures in connection with our BCP in response to the COVID-19 pandemic of $0.3 million. The increase was primarily due to higher direct and indirect labor costs of $0.6 million, offset in part by ~~reductions in occupancy and related costs~~$0.3 million of ~~$0.3 million.~~foreign exchange gains. Direct operating costs as percentage of DDS segment revenues were ~~70%~~58% and ~~64%~~70% for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~increase~~decrease in ~~Direct~~direct operating costs as a percentage of segment revenues was primarily attributable to ~~the higher Direct~~increased revenues, offset in part by an increase in direct operating costs.

Direct operating costs for the Synodex segment ~~were $0.9~~was $1.2 million and ~~$0.8~~$0.9 million for the three months ended September 30, 2021 and 2020, ~~and 2019, respectively.~~respectively, an increase of $0.3 million. The increase was primarily due to an increase in direct labor costs in anticipation of increased revenues in the coming quarters. Direct operating costs for the Synodex segment as a percentage of Synodex segment revenues were ~~75%~~120% and ~~80%~~75% for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in ~~Direct~~direct operating costs as a percentage of segment revenues was ~~primarily~~ due to ~~higher~~an increase in direct operating costs and a decrease in revenues.

Direct operating costs for the Agility segment were ~~$1.5~~$1.8 million and ~~$1.7~~$1.5 million for the three months ended September 30, 2021 and 2020, ~~and 2019, respectively.~~ respectively, an increase of $0.3 million. The increase was primarily due to higher software amortization costs during the quarter. Direct operating costs for the Agility segment as a percentage of Agility segment revenues were ~~54%~~56% and ~~63%~~54% for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in ~~Direct~~direct operating costs as a percentage of segment revenues was primarily due to ~~higher~~increase in direct operating costs offset in part by increased revenues from subscriptions to our Agility intelligent data platform and newswire products.

Selling and Administrative Expenses

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

Selling and administrative expenses were ~~$4.6~~$7.3 million and ~~$5.0~~$4.6 million for the three months ended September 30, 2021 and 2020, respectively, an increase of $2.7 million. The increase was primarily due to higher payroll and ~~2019, respectively, a decrease~~payroll related costs for new hires, stock-based compensation, commissions, incentives, bonuses, and recruitment and professional fees to support the revenue growth plan across all business segments of $2.2 million, higher marketing related activities of $0.4 ~~million. This decrease was attributable to lower labor related costs of $0.2 million, lower operating costs of $0.1~~ million, and a ~~lower provision for doubtful accounts of~~ $0.1 ~~million.~~million increase in other selling and administrative costs. Selling and administrative expenses as a percentage of total revenues were ~~32%~~42% and ~~36%~~32% for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in ~~Selling~~selling and administrative expenses as a percentage of total revenues was primarily attributable to higher expenditures in all segments, and decreased revenues in the Synodex segment, offset in part by increased revenues in ~~all~~the DDS and Agility segments.

Selling and administrative expenses for the DDS segment were $4.1 million and $3.3 million ~~for each of the three months ended September 30, 2020 and 2019. As a percentage of DDS revenues, DDS selling and administrative expenses were 31% and 33%~~ for the three months ended September 30, 2021 and 2020, respectively, an increase of $0.8 million. This increase was primarily due to higher payroll and ~~2019, respectively.~~

payroll related costs of $0.8 million for new hires, commission, and bonuses. Selling, and administrative expenses as a percentage of DDS revenues were 31% for each of the three-month periods ended September 30, 2021 and 2020.

Selling and administrative expenses for the Synodex segment were $0.3 million and $0.2 million for ~~each of~~ the ~~three-month periods~~three months ended September 30, 2021 and 2020, ~~and 2019.~~respectively, an increase of $0.1 million. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were ~~17%~~30% and ~~20%~~17% for the three months ended September 30, 2021 and 2020, respectively. The increase in selling and ~~2019, respectively.~~administrative expenses as a percentage of segment revenues was primarily attributable to higher expenditures and lower revenues.

Selling and administrative expenses for the Agility segment were ~~$1.1~~$2.9 million and ~~$1.5~~$1.1 million for the three months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively, ~~a decrease~~an increase of ~~$0.4~~$1.8 million. This ~~decrease~~increase was primarily due to ~~a reduction in labor~~higher payroll and payroll related costs of ~~$0.1 million; a provision~~$1.2 million for ~~doubtful accounts~~ new hires, stock-based compensation, commissions, incentives, marketing related activity costs of $0.4 million, recruitment fees of $0.1 million and ~~net decreases in~~ other selling and administrative ~~expenses~~activities of ~~$0.2~~$0.1 million. Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were ~~39%~~91% and ~~56%~~39% for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in ~~Selling~~selling and administrative expenses as a percentage of segment revenues was primarily due to higher ~~revenue from subscriptions to our Agility intelligent data platform and newswire products.~~

expenditures, offset in part by an increase in revenues.

Income Taxes

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

Taxes primarily consist of a provision for foreign taxes recorded in accordance with the local tax regulations by our foreign subsidiaries. Effective income tax rates are disproportionate due to the losses incurred by our U.S. entity and our Canadian subsidiaries, and a valuation allowance recorded on deferred taxes on these entities and tax effects of foreign operations, including foreign exchange gains and ~~losses and tax impact on uncertain tax position (ASC 740).~~losses.

Net Loss
We ~~recorded~~incurred a ~~tax benefit~~net loss of $0.8 million during the three months ended September 30, 2021, compared to a net income of $0.2 million during the three months ended September 30, 2020. The $1.0 million change was a result of higher operating costs in all segments in the current quarter, offset in part by higher revenues in the DDS and Agility segments.
Net income for the DDS segment was $1.2 million for the three months ended September 30, 2021, compared to a net loss of $0.1 million for the three months ended September 30, ~~2020 and a provision~~2020. The improvement of $1.3 million was primarily attributable due to higher revenues, partially offset by an increase in operating costs in the current quarter.
Net loss for ~~income taxes of $0.4~~the Synodex segment was $0.5 million for the three months ended September 30, ~~2019. The decrease is primarily due to a lower tax provision for our foreign subsidiaries in the three months ended September 30, 2020.~~
~~Net Income (Loss)~~
~~Net income was $0.2 million during the three months ended September 30, 2020,~~2021, compared to a net ~~loss~~income of ~~$0.6 million during the three months ended September 30, 2019. The improvement of $0.8 million was a result of $0.3 million pre-tax income and $0.5 million tax benefit in the current quarter.~~
Net loss for the DDS segment was $0.1 million for each of the three months ended September 30, 2020 and September 30, 2019. The pre-tax net loss of $0.5 million was offset by a $0.5 million tax benefit in the current quarter.
~~Net income for the Synodex segment was~~ $0.1 million for the three months ended September 30, ~~2020 compared~~2020. The $0.6 million change was due to ~~breakeven~~higher operating expenses and lower revenues in the current quarter.
Net loss for the Agility segment was $1.5 million for the three months ended September 30, ~~2019, an increase~~2021, compared to net income of ~~$0.1 million. The increase was primarily attributable to the higher revenues in the current quarter.~~
~~Net income for the Agility segment was~~ $0.2 million for the three months ended September 30, ~~2020, compared~~2020. The $1.7 million change was due to ~~a net loss of $0.5~~higher operating costs, offset in part by higher revenues in the current quarter.
Nine months Ended September 30, 2021 and 2020
Revenues
Total revenues were $50.5 million for the ~~three~~nine months ended September 30, ~~2019. The improvement of $0.6 million was due~~2021, compared to ~~higher revenues and lower operating costs in the current quarter.~~
~~Nine Months Ended September 30, 2020 and 2019~~
~~Revenues~~
~~Total revenues were~~ $42.9 million for the nine months ended September 30, 2020, ~~compared~~an increase of $7.6 million or 18%. The increase was primarily attributable to ~~$41.2~~new clients and higher volume in the DDS and Agility segments, offset in part by a decrease in volume in the Synodex segment.
Revenues from the DDS segment were $38.0 million and $30.7 million for the nine months ended September 30, ~~2019, an increase of $1.7 million or 4%. The increase was attributable to increased revenues across all segments.~~

~~Revenues from the DDS segment were $30.7 million~~2021 and ~~$30.4 million for the nine months ended September 30,~~ 2020, ~~and 2019,~~ respectively, an increase of approximately ~~$0.3~~$7.3 million or 1%24%. The increase in revenues was primarily attributable to ~~revenue generated~~higher volume from two existing clients and two new clients.

Revenues from the Synodex segment were ~~$3.7~~$2.9 million and ~~$2.9~~$3.7 million for the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively, ~~an increase~~a decrease of $0.8 million or ~~28%~~22%. The ~~increase~~decrease was primarily attributable to ~~higher~~lower volumes from ~~one~~three existing ~~client.~~

clients.

Revenues from the Agility segment were ~~$8.5~~$9.6 million and ~~$7.9~~$8.5 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, an increase of ~~$0.6~~$1.1 million or 8%13%. The increase was attributable to ~~an increase in the number of~~higher volumes from subscriptions to our Agility ~~database.~~

AI-enabled industry platform and newswire product.

One client in the DDS segment generated approximately ~~14%~~11% and ~~16%~~14% of the Company’s total revenues for the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively. ~~Another client in the DDS segment generated 10% of the Company’s total revenues for the nine months ended September 30, 2019.~~ No other client accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. clients accounted for 47% and 54% of the Company’s total revenues for ~~each of~~ the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively.

Direct Operating Costs

Direct operating costs were ~~$29.2~~$31.2 million and ~~$28.2~~$29.2 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, an increase of ~~$1.0~~$2.0 million. This increase was primarily due to direct and indirect labor costs of $3.2 million, offset in part by a $0.8 million foreign exchange gain and a $0.4 million decrease in other direct operating expenditures. Direct operating costs as a percentage of total revenues were 62% and 68% for the nine months ended September 30, 2021 and 2020, respectively. The decrease in direct operating costs as a percentage of total revenues was primarily attributable to increased revenues in the DDS and Agility segments, offset in part by decreased revenues in the Synodex segment and increased direct operating costs in all segments.

Direct operating costs for the DDS segment were approximately $23.1 million and $21.7 million for the nine months ended September 30, 2021 and 2020, respectively, an increase of $1.4 million. This increase was primarily due to an increase in direct and indirect labor ~~related~~ costs of ~~$1.6~~$2.8 million, ~~unfavorable~~offset by a $0.8 million foreign exchange ~~remeasurement effect of $0.1~~gain and a $0.6 million and technology-related expenditures in connection with our BCP in response to the COVID-19 pandemic of $0.8 million. The increase was offset in part by reductions in occupancy and related costs of $0.8 million, content acquisition costs of $0.2 million, and other operating costs of $0.1 million, and by a one-time charge of $0.4 million in the second quarter of 2019 for an assessment of retroactive foreign social security contributions as a result of a decision by the Supreme Court of India that affected companies generally. Direct operating costs as a percentage of total revenues were 68% for each of the nine months ended September 30, 2020 and 2019.

Direct operating costs for the DDS segment were approximately $21.7 million and $20.8 million for the nine months ended September 30, 2020 and 2019, respectively, an increase of $0.9 million. This increase was primarily due to an increase in payroll-related costs of $1.4 million, unfavorable foreign exchange remeasurement of $0.1 million, and technology-related expenditures in connection with our BCP in response to the COVID-19 pandemic of $0.8 million. The increase was offset in part by reductions in occupancy and related costs of $0.8 million and decreasesreduction in other direct operating costs of $0.1 million due to COVID-19 and by a one-time charge of $0.4 million in the second quarter of 2019 for an assessment of retroactive foreign social security contributions as a result of a decision by the Supreme Court of India that affected companies generally.expenditures. Direct operating costs for the DDS segment as a percentage of DDS segment revenues were ~~71%~~61% and ~~68%~~71% for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~increase~~decrease in ~~Direct~~direct operating costs as a percentage of segment revenues was primarily attributable to ~~the~~ higher ~~Direct~~revenues, offset in part by an increase in direct operating costs.

Direct operating costs for the Synodex segment were ~~$2.6~~$2.7 million and ~~$2.4~~$2.6 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, an increase of ~~$0.2~~$0.1 million. The increase was ~~principally~~primarily due to an increase in technology and direct labor costs ~~associated with~~in anticipation of increased revenues in the ~~increase in revenues.~~ coming quarters. Direct operating costs for the Synodex segment as a percentage of Synodex segment revenues were ~~70%~~93% and ~~83%~~70% for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in ~~Direct~~direct operating costs as a percentage of segment revenues during the quarter was primarily due to ~~higher revenue.~~

lower revenues and an increase in direct operating costs.

Direct operating costs for the Agility segment were ~~$4.9~~$5.4 million and ~~$5.0~~$4.9 million for the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively, ~~a decrease~~an increase of ~~$0.1~~$0.5 million. ~~This decrease~~The increase was ~~primarily~~ due to ~~reduction in content acquisition costs.~~higher software amortization costs and new hires during the current period. Direct operating costs for the Agility segment as a percentage of Agility segment revenues were ~~58%~~56% and ~~63%~~58% for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The decrease in ~~Direct~~direct operating costs as a percentage of segment revenues during the quarter was primarily due to higher revenue from subscriptions to our Agility ~~intelligent data~~AI-enabled platform and newswire ~~products.~~

products, offset in part by an increase in direct operating costs.

Selling and Administrative Expenses

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

Selling and administrative expenses were $19.8 million and $13.8 million for the nine months ended September 30, 2021 and 2020, ~~compared to $14.2 million for the nine months ended September 30, 2019, a decrease~~respectively, an increase of ~~$0.4~~$6.0 million. This ~~decrease~~increase was primarily due to ~~lower labor~~higher payroll and payroll related costs ~~during the period.~~of $4.9 million for new hires, commissions, stock-based compensation, incentives, and bonuses, and higher marketing related costs of $1.1 million. Selling and administrative expenses as a percentage of total revenues were ~~32%~~39% and ~~34%~~32% for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in ~~Selling~~selling and administrative expenses as a percentage of total revenues was primarily attributable

to higher expenditures in all segments and decreased revenues in the Synodex segment, offset in part by increased revenues ~~and lower Selling and administrative expenses~~ in the ~~current quarter.~~

DDS and Agility segments.

Selling and administrative expenses for the DDS segment were ~~$9.3~~$11.8 million ~~for nine months ended September 30, 2020~~ and ~~$9.2~~$9.3 million for the nine months ended September 30, ~~2019. The~~2021 and 2020 respectively, an increase of ~~$0.1 million~~$2.5 million. This increase was primarily due to higher ~~labor~~payroll and payroll related ~~costs. As a percentage~~costs of ~~DDS revenues,~~$2.2 million for new hires, commissions, stock-based compensation, and incentives, and an increase in marketing related costs of $0.3 million. DDS selling and administrative expenses as percentage of DDS revenues were 31% and 30% for ~~the each of~~ the nine months ended September 30, 2021 and 2020, respectively. The increase in selling and ~~2019, respectively.~~

administrative expenses as a percentage of DDS revenues was primarily attributable to higher expenditures, offset in part by increased revenues.

Selling and administrative expenses for the Synodex segment were $0.9 million and $0.6 million ~~and $0.5 million~~for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, an increase of ~~$0.1~~$0.3 million. The increase iswas primarily due to ~~labor related costs.~~new hires. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were ~~16%~~31% and ~~17%~~16% for the nine months ended September 30, 2021 and 2020, respectively. The increase in selling and ~~2019, respectively.~~

administrative expenses as a percentage of total revenues was attributable to higher expenditures and lower revenues.

Selling and administrative expenses for the Agility segment were ~~$3.9~~$7.1 million and ~~$4.5~~$3.9 million for the nine months ended September 30, 2021 and 2020, ~~and 2019, respectively. The decrease~~respectively, an increase of ~~$0.6 million~~$3.2 million. This increase was primarily due to ~~lower labor~~higher payroll and payroll-related costs of $2.5 million for new hires, commissions, stock-based compensation, and incentives, higher marketing related ~~costs.~~costs of $0.5 million, and an increase in professional and recruitment fees of $0.2 million. Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were ~~46%~~74% and ~~57%~~46% for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~decrease~~increase in ~~Selling~~selling and administrative expenses as a percentage of ~~segment~~total revenues was primarily attributable to higher expenditures, offset in part by higher revenues.

Gain on PPP Loan Forgiveness

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

Income Taxes

We recorded a provision for income taxes of $0.6 million and $0.5 million for the nine months ended September 30, 2021 and 2020, respectively. The $0.1 million increase is primarily due to a ~~combination of~~ higher ~~revenues and lower Selling and administrative expenses~~tax provision for our foreign subsidiaries in the ~~current nine-month period.~~

~~Income Taxes~~

nine months ended September 30, 2021.

Taxes primarily consist of a provision for foreign taxes recorded in accordance with the local tax regulations by our foreign subsidiaries. Effective income tax rates are disproportionate due to the losses incurred by our U.S. entity and our US and Canadian subsidiaries, and a valuation allowance recorded on deferred taxes on these entities and tax effects of foreign operations, including foreign exchange gains and ~~losses and tax impact on uncertain tax position (ASC 740).~~losses.

~~We recorded a provision for income taxes of $0.5 million for each of the nine months ended September 30, 2020 and 2019.~~

Net Loss

~~We incurred a net loss of $0.6 million during the nine months ended September 30, 2020, compared to a net loss of $1.7 million during the nine months ended September 30, 2019. The improvement in net~~Net loss was ~~primarily a result of higher revenue that outpaced operating costs in the Synodex and Agility segments in the current nine-month period.~~

~~Net loss for the DDS segment was $0.8~~$0.6 million for the nine months ended September 30, ~~2020,~~2021, compared to a net loss of $0.1 million for the nine months ended September 30, 2019. The higher net loss of $0.7 million was primarily attributable to higher operating costs of $1.0 million offset in part by an increase in revenues of $0.3 million in the current nine-month period.

~~Net income for the Synodex segment was~~ $0.5 million for the nine months ended September 30, ~~2020, compared to breakeven~~2020.

Net income for the DDS segment was $3.0 million for the nine months ended September 30, ~~2019, an increase~~2021, compared to a net loss of $0.7 million for the nine months ended September 30, 2020. The improvement of $3.7 million was primarily attributable to a higher operating income of $3.2 million and a gain from the PPP loan forgiveness of $0.6 million, offset in part by a higher tax provision of $0.1 million in the current nine month period.

Net loss for the Synodex segment was $0.7 million for the nine months ended September 30, 2021, compared to a net income of $0.5 ~~million.~~million for the nine months ended September 30, 2020. The ~~improvement in net income~~$1.2 million change was due to lower revenues and higher ~~revenues~~expenses in the current ~~nine-month~~nine month period.

Net loss for the Agility segment was $2.9 million for the nine months ended September 30, 2021, compared to a net loss of $0.3 million for the nine months ended September 30, ~~2020, compared to $1.6~~2020. The $2.6 million ~~for the nine months ended September 30, 2019. The improvement~~increase in net loss was due to higher ~~revenues and lower~~ operating costs partially offset by higher revenues in the current ~~nine-month~~nine month period.

Liquidity and Capital Resources

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

	September 30, 2020		December 31, 2019

					September 30,		December 31,
					2021		2020
Cash and cash equivalents	$	15,336	$	10,874	$	20,943	$	17,573
Working capital		9,045		8,250		13,516		13,515

OnAt September 30, ~~2020,~~2021, we had cash and cash equivalents of ~~$15.3~~$20.9 million, of which ~~$7.5~~$13.5 million was held by our foreign subsidiaries, and ~~$7.8~~$7.4 million was held in the United States. Despite our ability under existing tax law to repatriate funds from overseas after paying the toll charge, it is our intent as of September 30, ~~2020,~~2021, to ~~permanently~~indefinitely reinvest the overseas funds in our foreign subsidiaries on account of the withholding tax that we would have to incur on the actual ~~remittances and the working capital need of foreign subsidiaries.~~

remittances.

We have used, and plan to use, our cash and cash equivalents for (i) ~~investments in the Agility segment;~~hiring of sales personnel; (ii) the expansion of our other operations; (iii) technology innovation; (iv) product management and strategic marketing; (v) general corporate purposes, including working capital; and (vi) possible business acquisitions. ~~As of September 30, 2020, we~~We had working capital of approximately ~~$ 9.0 million, as compared to working capital of approximately $8.3~~$13.5 million as of September 30, 2021 and December 31, ~~2019.~~2020.

We believe that our existing cash and cash equivalents and internally generated funds will provide sufficient sources of liquidity to satisfy our financial needs for at least the next 12 months from the date of ~~issuance of these financial statements.~~this Report. However, we have no bank facilities or lines of credit. 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.

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~~.

Cash Flows

Net Cash Provided by Operating Activities

Cash provided by our operating activities for the nine months ended September 30, 2021 was $5.6 million primarily on account of the following factors: our net loss for the period of $0.6 million; a source of $2.9 million from non-cash expenses consisting of depreciation and amortization of $2.1 million, stock-based compensation of $1.1 million and pension cost of $0.3 million, offset in part by a gain on loan forgiveness of $0.6 million. Net changes from working capital accounts further contributed an additional source of $3.3 million. Refer to the condensed consolidated statements of cash flows for further details.

Cash provided by our operating activities for the nine months ended September 30, 2020 was $5.7 million primarily on account of the following factors: our net loss for the period of $0.5 million; a source of $2.6 million from non-cash expenses consisting of depreciation and amortization of $1.7 million, stock-based compensation of $0.7 million and pension cost of $0.6 million, ~~which factors were~~ offset in part by an increase in deferred tax provisions of $0.4 million; net changes from working capital accounts that contributed an additional source of $3.6 million brought about by an increase in accrued salaries, wages and other related benefits of $1.7 million, an increase in accounts payable, accrued expenses and other of $0.8 million, a $0.6 million decrease in accounts receivable, and a net increase of $0.5 million in other working capital items.million. Refer to the condensed consolidated statements of cash flows for further details.

Cash provided by our operating activities for the nine months ended September 30, 2019 was $4.9 million primarily on account of the $2.5 million decrease in our accounts receivable, a $0.9 million decrease in prepaid and other current assets, a $0.7 million increase in income and other taxes and a $0.1 million increase in other working capital items. This favorable result was reduced by our net loss of $1.7 million in the period. The reduction in accounts receivable was a result of improvements in our collections during the period. Refer to the condensed consolidated statements of cash flows for further details.

Our days’ sales outstanding (DSO) were 59 days for the nine months ended September 30, 2020 and 66 days for the year ended December 31, 2019. We calculate DSO for a reported period by first dividing the total revenues for the period by the average net accounts receivable for the period (which is the sum of the net accounts receivable at the beginning of the period and the net accounts receivable at the end of the period, divided by two), to yield an amount we refer to as the “accounts receivable turnover”. Then we divide the total number of days within the reported period by the accounts receivable turnover to yield DSO expressed in number of days.

Net Cash Used in Investing Activities

For the nine months ended September 30, 2021 and 2020, cash used in our investing activities was $2.9 million and $1.1 ~~million. These expenditures principally consisted of purchases to augment our network infrastructure in relation to our BCP initiatives in response to the ongoing COVID-19 pandemic.~~

~~For the nine months ended September 30, 2019, cash used in our investing activities was $1.3 million.~~million, respectively. These expenditures principally consisted of purchases of technology equipment including servers, network infrastructure and workstations.

During the next 12 months, we anticipate that capital expenditures for ongoing technology, equipment and infrastructure upgrades will approximate ~~$2.0~~$3.5 million to ~~$2.3 million, respectively.~~

$4 million.

The source of funds for the anticipated capital expenditures ~~will~~is expected to be cash generated from our operations.

Net Cash Provided by ~~and Used in~~ (Used in)Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2021 was from ~~the proceeds of the PPP Loan received amounting to $0.6 million and~~ proceeds from stock option exercises of ~~$0.2~~$2.2 million. Cash ~~used in financing activities~~paid for withholding taxes on net settlement exercises for the nine months ended September 30, 2021 was ~~for payments~~$0.8 million. Payments of long-term obligations ~~of $0.8~~were $0.7 million and ~~$0.9~~$0.8 million for the nine months ended September 30, 2021 and 2020, ~~and September 30, 2019,~~ respectively.

Critical Accounting Policies and Estimates

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

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

The significant accounting policies used in preparing these condensed consolidated financial statements are the same as those described in the Company’s Annual Report on Form 10-K, unless otherwise noted.

~~Recent Accounting Pronouncements~~

In December 2019, the FASB issued 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 of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. ~~We do not~~ ~~expect that the adoption of the new guidance will have a significant impact on our 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; early adoption is permitted. The Company does not expect ASU 2018-14 to have a material impact on the Company’s condensed consolidated financial statements.

In June 2016, the FASB issued 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 be presented at the net amount expected to be collected. The allowance for credit losses is a valuation amount that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” which clarifies codification and corrects unintended application of the guidance, and in November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” which clarifies or addresses specific issues about certain aspects of ASU 2016-13. In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments,” which modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 is effective for certain Smaller Reporting Companies for financial statements issued for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, which will be fiscal 2023 for us if we continue to be classified as a Smaller Reporting Company, with early adoption permitted. We do not expect that the adoption of the new guidance will have a material impact on our financial statements.

Off-Balance Sheet Arrangements

None.

~~None.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable for smaller reporting companies.

Item 4. Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision, and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e), as of September 30, ~~2020.~~2021. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of September 30, ~~2020,~~2021, our disclosure controls and procedures were ~~not~~ effective. ~~This was due to the lack of appropriate review procedures related to evaluation and proper accounting for lease contracts consistent with capital lease accounting under U.S. GAAP.~~

The Company determined that it did not maintain effective controls to ensure that leasing transactions were properly accounted for in accordance with U.S. GAAP, which constitutes a material weakness in internal control over financial reporting. 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.
To address these deficiencies, we will remediate our control procedures to reduce the likelihood of these errors recurring. We will implement additional quarterly control procedures to review any changes in events affecting our leasing transactions to ensure proper accounting under U.S. GAAP.
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the ~~three~~nine months ended September 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.OTHER INFORMATION
Item 1.  Legal Proceedings
~~Reference is made~~See Note 4, Commitments and Contingencies of the Notes to the ~~disclosure under Part I, Item 3. “Legal Proceedings”~~Condensed Consolidated Financial Statements included in ~~our Annual~~this Quarterly Report on Form ~~10-K for the year ended December 31, 2019.~~10-Q, which is incorporated by reference herein.

Item 1A. Risk Factors
~~For information regarding Risk Factors, please refer to~~There were no material changes from the risk factors previously disclosed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~, as supplemented by the following additional risk factor, and the information regarding forward-looking statements included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Report.2020.

~~The effects of the COVID-19 pandemic could materially adversely affect our results of operations and financial condition~~
The novel coronavirus disease 2019 (“COVID-19”), which the World Health Organization declared a pandemic on March 11, 2020, continues to spread throughout the world. COVID-19 has created significant global economic downturn, disrupted global trade and supply chains, adversely impacted many industries, and contributed to significant declines and volatility in financial markets. In response to COVID-19, countries and local governments have imposed restrictions on the operations of non-essential businesses and services, imposed travel restrictions and implemented societal lockdowns. Additionally, companies are taking precautions, such as requiring employees to work remotely and temporarily closing businesses. All of these factors have had, and are likely to continue to have, a severe adverse effect on global economic conditions, underemployment and unemployment, consumer spending and reductions in non-essential spending by governments and private companies, as well as uncertainty in financial markets. We have experienced limited operational disruptions and declines in customer demand for services to date; however, depending upon the extent and duration of the COVID-19 pandemic, we may experience a material adverse effect on our results of operations and financial condition as a result of the effects of COVID-19.
In response to the declaration of the COVID-19 pandemic we triggered our Business Continuity Plan for our 12 global delivery centers and offices, enabling us to continue operations while safeguarding the health and welfare of our employees. While the pandemic presented, and may in the future present, new risks to our business and there have been logistical and other challenges, there was no material adverse impact on our financial condition or results of operations for the quarter ended September 30, 2020. In addition, the COVID-19 pandemic could have a material adverse effect on our results of operations and financial condition by, among others, customers with at-will contracts, particularly in our DDS segment, reducing, delaying or cancelling orders; reduced spending by customers on third-party service providers as part of cost-rationalization efforts or otherwise; or customers determining to bring services in-house and/or customers delaying or postponing data engineering needs. Additionally, the effects of COVID-19 could exacerbate any other risks or uncertainties to which we are subject. Lastly, should we experience material adverse effects on our results of operations or financial condition, we may not be able to access additional sources of liquidity at rates that are acceptable to us, if at all.

The situation surrounding COVID-19 crisis remains fluid and the extent and duration of its impact to the economy remains unclear. For this reason, we cannot reasonably estimate with any degree of certainty the future impact to our results of operations and financial condition. The potential for a material impact on our results of operations and financial condition increases the longer the virus affects the level of economic activity in the United States and globally. In the event we experience a significant or prolonged reduction in revenues, the likelihood of which is uncertain, we would seek to manage our liquidity by reducing capital expenditures, deferring investment activities, and reducing operating costs as we would likely have no other source of liquidity to support ongoing operations in a manner that is not significantly detrimental to the business.
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities or repurchases of equity securities during the ~~three~~nine months ended September 30, ~~2020.~~2021.

Item 3.  Defaults Upon Senior Securities
None.

Item 4.  Mine Safety Disclosures
None.

Item 5.  Other Information
None.
40
31

Item 6.Exhibits

Exhibit No.
Description

10.1*
31.1*
Offer of Employment, effective October 2, 2020, between Innodata Inc. and Mr. Mark Spelker (incorporated herein by reference to Exhibit 10.1 to Innodata’s Current Report on Form 8-K, filed with the SEC on October 8, 2020).

10.2*
Separation Agreement and General Release between Innodata Inc. and Mr. Robert O’Connor (incorporated herein by reference to Exhibit 10.2 to Innodata’s Current Report on Form 8-K, filed with the SEC on October 8, 2020).
31.1** Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2**

31.2*

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

32.1***

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

32.2***

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

*

~~Exhibit represents a management contract or compensatory plan, contract or arrangement required to be filed as Exhibits to this~~

101

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

104

Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.
*
**
Filed herewith.
**
~~***~~
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

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

Date:
November ~~12, 2020~~4, 2021
~~/s/~~
/s/ Jack S. Abuhoff

Jack S. Abuhoff
~~Jack Abuhoff~~

Chief Executive Officer and President

Date:
November ~~12, 2020~~4, 2021
~~/s/~~
/s/ Mark A. Spelker

Mark A. Spelker

Chief Financial Officer and Principal Accounting Officer

	September 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	15,336		$	10,874
Accounts receivable, net of allowance for doubtful accounts of $500 and $750, respectively		8,843			9,723
Prepaid expenses and other current assets		4,112			3,407
Total current assets		28,291			24,004
Property and equipment, net		6,943			6,887
Right-of-use assets		6,923			7,005
Other assets		2,838			2,110
Deferred income taxes		2,232			1,906
Intangibles, net		4,702			5,477
Goodwill		2,069			2,108
Total assets	$	53,998		$	49,497
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,765		$	1,419
Accrued expenses and other		3,612			3,340
Accrued salaries, wages and related benefits		5,995			4,265
Income and other taxes		4,949			4,183
Long-term obligations - current portion		1,958			1,440
Operating lease liability - current portion		967			1,107
Total current liabilities		19,246			15,754
Deferred income taxes		343			363
Long-term obligations, net of current portion		5,421			4,534
Operating lease liability, net of current portion		6,691			6,731
Total liabilities		31,701			27,382

Commitments and contingencies		-			-

Non-controlling interests		(3,392	)		(3,417	)

STOCKHOLDERS’ EQUITY:
Serial preferred stock; 4,998,000 shares authorized, none outstanding		-			-
Common stock, $.01 par value; 75,000,000 shares authorized; 27,921,000 shares issued and 24,737,000 outstanding at September 30, 2020; 27,643,000 shares issued and 24,459,000 outstanding at December 31, 2019		278			275
Additional paid-in capital		29,438			28,426
Retained earnings		3,648			4,216
Accumulated other comprehensive loss		(1,210	)		(920	)
		32,154			31,997
Less: treasury stock, 3,184,000 shares at September 30, 2020 and December 31, 2019 at cost		(6,465	)		(6,465	)
Total stockholders’ equity		25,689			25,532
Total liabilities and stockholders’ equity	$	53,998		$	49,497


	Three Months Ended
	September 30,
	2021		2020
Revenues	$	17,450	$	14,553
Operating costs and expenses:
Direct operating costs		10,703		9,784
Selling and administrative expenses		7,262		4,582
Interest expense, net		4		44
		17,969		14,410
Income (loss) before provision for income taxes		(519)		143
Provision for income taxes		328		(70)
Consolidated net income (loss)		(847)		213
Income (loss) attributable to non-controlling interests		(47)		7
Net income (loss) attributable to Innodata Inc. and Subsidiaries	$	(800)	$	206
Income (loss) per share attributable to Innodata Inc. and Subsidiaries:
Basic	$	(0.03)	$	0.01
Diluted	$	(0.03)	$	0.01
Weighted average shares outstanding:
Basic		26,971		24,470
Diluted		26,971		25,260
Comprehensive income (loss):
Consolidated net income (loss)	$	(847)	$	213
Pension liability adjustment, net of taxes		10		(1)
Foreign currency translation adjustment		(594)		216
Change in fair value of derivatives, net of taxes		(265)		51
Other comprehensive income (loss)		(849)		266
Total comprehensive income (loss)		(1,696)		479
Less: Comprehensive income (loss) attributable to non-controlling interests		(47)		7
Comprehensive income (loss) attributable to Innodata Inc. and Subsidiaries	$	(1,649)	$	472

	Three Months Ended
	September 30,
	2020			2019
Revenues	$	14,553		$	13,846
Operating costs and expenses:
Direct operating costs		9,784			9,019
Selling and administrative expenses		4,582			4,945
Interest expense, net		44			27
		14,410			13,991

Income (loss) before provision for income taxes		143			(145	)

Provision for income taxes		(70	)		421

Consolidated net income (loss)		213			(566	)

Income (loss) attributable to non-controlling interests		7			(3	)

Net income (loss) attributable to Innodata Inc. and Subsidiaries	$	206		$	(563	)

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

Weighted average shares outstanding:
Basic		24,470			25,856
Diluted		25,260			25,856

Comprehensive income (loss):
Consolidated net income (loss)	$	213		$	(566	)
Pension liability adjustment, net of taxes		(1	)		(41	)
Change in fair value of derivatives, net of taxes		51			-
Foreign currency translation adjustment, net of taxes		216			(252	)
Other comprehensive income (loss)		266			(293	)
Total comprehensive income (loss)		479			(859	)
Comprehensive income (loss) attributed to non-controlling interests		7			(3	)
Comprehensive income (loss) attributable to Innodata Inc. and Subsidiaries	$	472		$	(856	)


	Nine Months Ended
	September 30,
	2021		2020
Revenues	$	50,466	$	42,946
Operating costs and expenses:
Direct operating costs		31,208		29,209
Selling and administrative expenses		19,767		13,663
Interest expense, net		18		113
		50,993		42,985
Loss from operations		(527)		(39)
Gain on loan forgiveness		580		0
Income (loss) before provision for income taxes		53		(39)
Provision for income taxes		621		504
Consolidated net loss		(568)		(543)
Income (loss) attributable to non-controlling interests		(63)		25
Net loss attributable to Innodata Inc. and Subsidiaries	$	(505)	$	(568)
Loss per share attributable to Innodata Inc. and Subsidiaries:
Basic	$	(0.02)	$	(0.02)
Diluted	$	(0.02)	$	(0.02)
Weighted average shares outstanding:
Basic		26,459		24,427
Diluted		26,459		24,427
Comprehensive loss:
Consolidated net loss	$	(568)	$	(543)
Pension liability adjustment, net of taxes		32		24
Foreign currency translation adjustment		(480)		(281)
Change in fair value of derivatives, net of taxes		(532)		(33)
Other comprehensive loss		(980)		(290)
Total comprehensive loss		(1,548)		(833)
Less: Comprehensive income (loss) attributable to non-controlling interests		(63)		25
Comprehensive loss attributable to Innodata Inc. and Subsidiaries	$	(1,485)	$	(858)

	Nine Months Ended
	September 30,
	2020			2019
Revenues	$	42,946		$	41,179
Operating costs and expenses:
Direct operating costs		29,209			28,154
Selling and administrative expenses		13,663			14,154
Interest expense, net		113			97
		42,985			42,405

Loss before provision for income taxes		(39	)		(1,226	)

Provision for income taxes		504			493

Consolidated net loss		(543	)		(1,719	)

Income (loss) attributable to non-controlling interests		25			(10	)

Net loss attributable to Innodata Inc. and Subsidiaries	$	(568	)	$	(1,709	)

Loss per share attributable to Innodata Inc. and Subsidiaries:
Basic and diluted	$	(0.02	)	$	(0.07	)

Weighted average shares outstanding:
Basic and diluted		24,427			25,870

Comprehensive loss:
Consolidated net loss	$	(543	)	$	(1,719	)
Pension liability adjustment, net of taxes		24			(118	)
Change in fair value of derivatives, net of taxes		(33	)		-
Foreign currency translation adjustment, net of taxes		(281	)		35
Other comprehensive loss		(290	)		(83	)
Total comprehensive loss		(833	)		(1,802	)
Comprehensive income (loss) attributed to non-controlling interests		25			(10	)
Comprehensive loss attributable to Innodata Inc. and Subsidiaries	$	(858	)	$	(1,792	)


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

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

	Common Stock				Additional Paid-in		Retained			Accumulated Other Comprehensive			Treasury Stock
	Shares		Amount		Capital		Earnings			Loss			Shares		Amount			Total
January 1, 2019		27,558	$	275	$	27,579	$	7,349		$	(15	)		1,681	$	(4,622	)	$	30,566
Revision adjustments		-		-		-		(237	)		-			-		-			(237	)
Net loss attributable to Innodata Inc. and Subsidiaries		-		-		-		(452	)		-			-		-			(452	)
Stock-based compensation		75		-		128		-			-			-		-			128
Pension liability adjustments, net of taxes		-		-		-		-			(36	)		-		-			(36	)
Foreign currency translation adjustment		-		-		-		-			264			-		-			264
March 31, 2019		27,633		275		27,707		6,660			213			1,681		(4,622	)		30,233
Net loss attributable to Innodata Inc. and Subsidiaries		-		-		-		(694	)		-			-		-			(694	)
Stock-based compensation		-		-		145		-			-			-		-			145
Pension liability adjustments, net of taxes		-		-		-		-			(41	)		-		-			(41	)
Foreign currency translation adjustment		-		-		-		-			23			-		-			23
June 30, 2019		27,633		275		27,852		5,966			195			1,681		(4,622	)		29,666
Net loss attributable to Innodata Inc. and Subsidiaries		-		-		-		(563	)		-			-		-			(563	)
Purchase of treasury stock		-		-		-		-			-			34		(44	)		(44	)
Stock-based compensation		-		-		351		-			-			-		-			351
Pension liability adjustments, net of taxes		-		-		-		-			(41	)		-		-			(41	)
Foreign currency translation adjustment		-		-		-		-			(252	)		-		-			(252	)
September 30, 2019		27,633	$	275	$	28,203	$	5,403		$	(98	)		1,715	$	(4,666	)	$	29,117

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

Balance as of January 1, 2019	$	2,050
Foreign currency translation adjustment		12
Balance as of September 30, 2019	$	2,062

Balance as of January 1, 2020	$	2,108
Foreign currency translation adjustment		(39	)
Balance as of September 30, 2020	$	2,069


Balance as of January 1, 2021	$	2,150
Foreign currency translation adjustment		(7)
Balance as of September 30, 2021	$	2,143


	Company Acquired Intangible Assets										Capitalized Developed Software
													Capitalized
											Capitalized		Software
Balance as of September 30, 2021					Trademarks				Media		Software		Development
	Developed		Customer		and				Contact		Development		Cost - Work in
	technology		relationships		tradenames		Patents		Database		Cost		Progress		Total
Gross carrying amounts:
Balance as of January 1, 2021	$	3,175	$	2,228	$	882	$	45	$	3,670	$	5,507	$	1,360	$	16,867
Additions		-		-		-		-		-		376		1,357		1,733
Transfers		-		-		-		-		-		2,323		(2,323)		-
Foreign currency translation		(6)		-		(2)		-		(23)		(54)		24		(61)
Balance as of September 30, 2021	$	3,169	$	2,228	$	880	$	45	$	3,647	$	8,152	$	418	$	18,539

Accumulated amortization:
Balance as of January 1, 2021	$	1,844	$	1,192	$	629	$	29	$	1,650	$	1,492	$	-	$	6,836
Amortization expense		233		138		41		3		261		778		-		1,454
Foreign currency translation		2		1		-		1		2		(2)		-		4
Balance as of September 30, 2021	$	2,079	$	1,331	$	670	$	33	$	1,913	$	2,268	$	-	$	8,294

Net carrying values - September 30, 2021	$	1,090	$	897	$	210	$	12	$	1,734	$	5,884	$	418	$	10,245

	Developed technology			Customer relationships			Trademarks and tradenames			Patents			Media Contact Database			Total
Gross carrying amounts:
Balance as of January 1, 2020	$	3,108		$	2,177		$	871		$	43		$	3,606		$	9,805
Foreign currency translation		(74	)		(65	)		(11	)		(1	)		(40	)		(191	)
Balance as of September 30, 2020	$	3,034		$	2,112		$	860		$	42		$	3,566		$	9,614


Year	Amortization
2021	$	532
2022		2,203
2023		2,018
2024		1,590
2025		1,215
Thereafter		2,687
	$	10,245

Year	Amortization
2020	$	224
2021		895
2022		895
2023		895
2024		797
Thereafter		996
	$	4,702

	For the Nine Months Ended September 30,
	2020			2019
Federal income tax benefit at statutory rate		(21.0	)%		(21.0	)%

							For the Nine Months Ended September 30,
							2021		2020
Federal income tax expense at statutory rate							21.0	%	(21.0)	%
Effect of:					-
Change in valuation allowance		(660.0	)		(15.1	)	2,468.8		(660.0)
Effect of Section 162 (m)							549.9		-
Foreign operations permanent difference - foreign exchange gains and losses							271.9		90.3
Change in tax rates							225.0		-
Tax effects of foreign operations							79.8		1,610.6
State income tax net of federal benefit							43.2		(120.1)
Return to provision true up							31.6		(14.8)
Foreign rate differential		(295.9	)		(1.8	)	(478.8)		(295.9)
Return to provision true up		(14.8	)		(0.3	)
Withholding tax		-			4.5
State income tax net of federal benefit		(120.1	)		1.8
Foreign operations permanent difference - foreign exchange gains and losses		90.3			(39.3	)
Increase in unrecognized tax benefits (ASC 740)		410.5			30.8
Tax effects of foreign operations		1,610.6			84.8
Effect of share based compensation		263.7			-
Others		29.0			(4.2	)
Increase (decrease) in unrecognized tax benefits (ASC 740)							(490.0)		410.5
Effect of stock-based compensation							(1,573.2)		263.7
Other							22.5		29.0
Effective tax rate		1,292.3	%		40.2	%	1,171.7	%	1,292.3	%

	Unrecognized tax benefits
Balance - January 1, 2020	$	2,957
Increase for current year tax position		225
Decrease for prior year tax position		(161	)
Interest accrual		125
Foreign currency remeasurement		(100	)
Balance - September 30, 2020	$	3,046


	Unrecognized
	tax benefits
Balance - January 1, 2021	$	3,231
Tax settlement matters �� prior periods		(1,713)
Change in tax position		149
Interest accrual		84
Foreign currency remeasurement		(32)
Balance - September 30, 2021	$	1,719

	Number of Options			Weighted - Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2020		6,833,303		$	1.86
Granted		1,080,000			1.37
Exercised		(278,333	)		1.13
Forfeited/Expired		(644,303	)		3.06
Outstanding at September 30, 2020		6,990,667		$	1.70		7.07	$	9,704,426

Exercisable at September 30, 2020		4,651,624		$	1.93		6.15	$	5,420,040

Vested and Expected to Vest at September 30, 2020		6,990,667		$	1.70		7.07	$	9,704,426


		Weighted -		Weighted-Average
	Number of	Average Exercise		Remaining Contractual	Aggregate
	Options	Price		Term (years)	Intrinsic Value
Outstanding at January 1, 2021	5,906,884	$	1.61
Granted	750,000		6.76
Exercised	(1,546,288)		2.01
Forfeited/Expired	(20,000)		1.38
Outstanding at September 30, 2021	5,090,596	$	2.05	7.49	$	37,037,015

Exercisable at September 30, 2021	3,468,912	$	1.73	7.03	$	27,069,483

Vested and Expected to Vest at September 30, 2021	5,090,596	$	2.05	7.49	$	37,037,015

	For the Nine Months Ended September 30,
	2020		2019
Weighted average fair value of options granted	$	0.61	$	0.56

Risk-free interest rate		0.29%-0.56%		1.7% - 2.6%
Expected term (years)		5-6		5-6
Expected volatility factor		47% - 50%		45% - 46%
Expected dividends		None		None


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

	Number of Shares			Weighted-Average Grant Date Fair Value
Granted		75,000		$	1.38
Vested		(25,000	)
Forfeited/Expired		-
Unvested at September 30, 2020		50,000

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019

									For the Three Months Ended				For the Nine Months Ended
									September 30,				September 30,
									2021		2020		2021		2020
Direct operating costs	$	40	$	34	$	119	$	72	$	21	$	40	$	96	$	119
Selling and administrative expenses		192		317		581		552		482		192		1,021		581
Total stock-based compensation	$	232	$	351	$	700	$	624	$	503	$	232	$	1,117	$	700


Weighted-average lease term remaining	75 56 months
Weighted-average discount rate	8.68	~~8.92%~~ %

	September 30,		December 31,
	2020		2019
Pension obligations - accrued pension liability	$	5,224	$	4,611
Settlement agreement ⁽¹⁾		572		708
Capital lease obligations		269		655
Microsoft licenses ⁽²⁾		734		-
Bank loans payable ⁽³⁾		580		-
		7,379		5,974
Less: Current portion of long-term obligations		1,958		1,440
Totals	$	5,421	$	4,534

	Pension Liability Adjustment			Fair Value of Derivatives			Foreign Currency Translation Adjustment			Accumulated Other Comprehensive Income (Loss)
Balance at July 1, 2020	$	(28	)	$	(51	)	$	(1,397	)	$	(1,476	)
Other comprehensive income before reclassifications, net of taxes		-			12			216			228
Total other comprehensive loss before reclassifications, net of taxes		(28	)		(39	)		(1,181	)		(1,248	)
Net amount reclassified to earnings		(1	)		39			-			38
Balance at September 30, 2020	$	(29	)	$	-		$	(1,181	)	$	(1,210	)


					Foreign Currency
	Pension Liability		Fair Value of		Translation		Accumulated Other
	Adjustment		Derivatives		Adjustment		Comprehensive Loss
Balance at July 1, 2021	$	(422)	$	(267)	$	(380)	$	(1,069)
Other comprehensive loss before reclassifications, net of taxes		-		(302)		(594)		(896)
Total other comprehensive loss before reclassifications, net of taxes		(422)		(569)		(974)		(1,965)
Net amount reclassified to earnings		10		37		-		47
Balance at September 30, 2021	$	(412)	$	(532)	$	(974)	$	(1,918)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
DDS	$	13,237	$	10,526	$	37,997	$	30,793
Synodex		983		1,197		2,888		3,680
Agility		3,230		2,830		9,581		8,473
Total Consolidated	$	17,450	$	14,553	$	50,466	$	42,946

Income (loss) before provision for income taxes⁽¹⁾:
DDS	$	1,608	$	4	$	3,988	$	226
Synodex		(657)		79		(878)		356
Agility		(1,470)		60		(3,057)		(621)
Total Consolidated	$	(519)	$	143	$	53	$	(39)

Income (loss) before provision for income taxes⁽²⁾:
DDS	$	1,509	$	(64)	$	3,740	$	27
Synodex		(584)		124		(711)		487
Agility		(1,444)		83		(2,976)		(553)
Total Consolidated	$	(519)	$	143	$	53	$	(39)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues:

													September 30, 2021		December 31, 2020
Total assets:
DDS	$	10,526		$	10,124		$	30,793		$	30,353		$	29,640	$	27,767
Synodex		1,197			977			3,680			2,916			714		457
Agility		2,830			2,745			8,473			7,910			28,479		29,030
Total Consolidated	$	14,553		$	13,846		$	42,946		$	41,179		$	58,833	$	57,254

Income (loss) before provision for income taxes⁽¹⁾:
DDS	$	4		$	371		$	226		$	579
Synodex		79			(70	)		356			(81	)
Agility		60			(446	)		(621	)		(1,724	)
Total Consolidated	$	143		$	(145	)	$	(39	)	$	(1,226	)

Income (loss) before provision for income taxes⁽²⁾:
DDS	$	(64	)	$	304		$	27		$	391
Synodex		124			(26	)		487			42
Agility		83			(423	)		(553	)		(1,659	)
Total Consolidated	$	143		$	(145	)	$	(39	)	$	(1,226	)


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

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2020		2019		2020		2019

									For the Three Months Ended				For the Nine Months Ended
									September 30,				September 30,
									2021		2020		2021		2020

United States	$	6,613	$	5,967	$	19,561	$	18,507	$	9,467	$	6,613	$	26,761	$	19,561
United Kingdom		2,832		2,394		8,284		7,120		2,912		2,832		8,709		8,284
The Netherlands		1,704		1,730		5,003		5,146		1,750		1,704		5,012		5,003
Canada		1,434		1,634		4,304		4,594		1,469		1,434		4,556		4,304
Others - principally Europe		1,970		2,121		5,794		5,812		1,852		1,970		5,428		5,794
Totals	$	14,553	$	13,846	$	42,946	$	41,179	$	17,450	$	14,553	$	50,466	$	42,946