Innodata Annual Report 2017

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FY2017 Annual Report · Innodata

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SECURITIES & EXCHANGE COMMISSION EDGAR FILING

INNODATA INC

Form: 10-K

Date Filed: 2018-03-22

Corporate Issuer CIK: 903651

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-K

For the fiscal year ended December 31, 2017

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-22196

INNODATA INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

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

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

13-3475943
(I.R.S. Employer Identification No.)

07660
(Zip Code)

Securities registered under Section 12(b) of the Exchange Act:

Title of Each Class
Common Stock $.01 par value
Preferred Stock Purchase Right

Name of Each Exchange on Which Registered

The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No þ

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted 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 and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-
K. þ

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

Large accelerated filer o
Emerging growth company ❑

Accelerated filer o

Non-accelerated filer o

Smaller reporting company þ

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 o No þ

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (based on the closing price reported on The Nasdaq Stock
Market on June 30, 2017) was $43,073,987.

The number of outstanding shares of the registrant’s common stock, $.01 par value, as of March 9, 2018 was 25,877,454.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement for the 2018 Annual Meeting of Stockholders are incorporated by reference in Items 10,11,12,13 and 14 of
Part III of this Form 10-K.

INNODATA INC
Form 10-K
For the Year Ended December 31, 2017

TABLE OF CONTENTS

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.

Item 9B.

Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Part I

Part II

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Report of Management on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services

Part III

Item 15.

Exhibits, Financial Statement Schedules

Signatures

Part IV

Page

1
10
21
22
22
22

23
24
24
39
40
40
40
40

42
42
42
42
42

PART I

Disclosures in this Form 10-K contain certain forward-looking statements, including without limitation, statements concerning our operations, economic
performance, and financial condition. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The words “project,” “head start,” "believe," "expect," “should,” "anticipate," "indicate," "point to," “forecast,” “likely,” “goals,” “optimistic,”
“foster,” “estimate” and other similar expressions generally identify forward-looking statements, which speak only as of their dates.

These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties, including without
limitation, that contracts may be terminated by clients; projected or committed volumes of work may not materialize; the primarily at-will nature of contracts with
our Digital Data Solutions clients and the ability of these clients to reduce, delay or cancel projects; continuing Digital Data Solutions segment revenue
concentration in a limited number of clients; continuing Digital Data Solutions segment reliance on project-based work; inability to replace projects that are
completed, canceled or reduced; our dependency on content providers in our Media Intelligence Solutions 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; depressed market conditions; changes in external market factors; the ability and willingness of our clients and prospective clients to execute
business plans which give rise to requirements for our services; changes in our business or growth strategy; the emergence of new or growing competitors;
various other competitive and technological factors; and other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange
Commission.

Our actual results could differ materially from the results referred to in the forward-looking statements. In light of these risks and uncertainties, there can

be no assurance that the results referred to in the forward-looking statements contained in this Form 10-K will occur.

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

developments or otherwise.

Item 1. Business.

Business Overview

Innodata (NASDAQ: INOD) is a global digital services and solutions company. Our technology and services power leading information products and
online retail destinations around the world. Our solutions help prestigious enterprises harness the power of digital data to re-imagine how they operate and drive
performance. We serve publishers, media and information companies, digital retailers, banks, insurance companies, government agencies and many other
industries. Founded in 1988, we comprise a team of 5,000 diverse people in eight countries who are dedicated to delivering services and solutions that help the
world embrace digital data as a means of enhancing our lives and transforming our businesses.

The Company operates in three reporting segments: Digital Data Solutions (DDS), Innodata Advanced Data Solutions (IADS) and Media Intelligence

Solutions (MIS).

Digital Data Solutions (DDS) Segment

Our DDS segment provides solutions to digital retailers, information services companies, publishers and enterprises that have one or more of the
following broad business requirements: development of digital content (including e-books); development of new digital information products; and operational
support of existing digital information products and systems.

Many of our clients are driving or are responding to rapid and fundamental changes in the way end users discover, consume and create published
information. For some of our publishing and information services clients, this means transforming information products from print to digital; for others, it means
migrating already-digital products from web-only distribution to multiple-channel distribution that includes mobile and tablet devices and incorporates mobility,
social platform and semantic search; and for others still, it means re-tooling pure search-based information products into workflow-embedded analytical tools that
combine content with software to enable context-aware decision-making; and for a select number of our information services clients, it means embracing the
content-as-a-service model to integrate content with other tools, applications and data. Each of these transformations requires shifts in products, as well as the
technology and the operations that support them.

For our enterprise publishing clients, changes in the way end users discover, consume and create published information often necessitates replacing old
processes and technologies that generated static, whole documents with new processes and technologies that enable content to reside as modular components
which are re-combined dynamically to create up-to-date, product-specific assembly guides, engineering diagrams/schematics, compliance documentation, field
operations guides and clinical documentation destined for simultaneous access on the web, from PCs, tablets and smartphones.

By blending consulting, technology and operations sourcing with deep domain expertise, we provide measurable outcomes for publishing companies,

information services companies and enterprises through business transformation, accelerating innovation and efficient operations.

Information Product Development

We help our clients develop high-value information products. Our clients include four of the ten largest information industry companies in the world,
spanning financial, legal, healthcare and scientific information. Information and publishing is a $1.6 trillion industry consisting of more than 7,000 publishers,
information providers and software service firms worldwide. Many of our clients specialize in the scientific, technical and medical (STM) area (estimated revenues
of $137.4 billion) and the legal and regulatory (L&R) area (estimated revenues of $22.7 billion)1.

1 Outsell Inc. (October 4, 2017). “Information Industry Outlook 2018 – All Data, Nothing But Data.”

Both STM and L&R publishers make some or all of their revenues from the sale of information products created from the primary and secondary data

produced by professionals and researchers (in the case of STM) or courts, legislatures, administrative bodies and rule-making institutions (in the case of L&R).

We enable our clients to rapidly develop new digital products without direct investments in staff, facilities and technology. We embrace agile
development methodologies that provide the benefits of early solution visualization and an iterative development process that spans content, technology and
user interface development. We use a combination of onsite project management, onshore solutions architecture and offshore globally distributed teams of
developers, analysts and subject-matter experts.

For example, a leading legal publisher sought to develop a new digital product that would provide lawyers and compliance officers a workflow tool for rule
checking, rapid research and fact checking. The new digital tool needed to be accessible via laptops, smart phones and tablet devices. Moreover, it needed to
be updated daily to maintain pace with rapid regulatory developments (it was destined to replace a printed loose-leaf series that was updated only monthly). Our
technology architects, developers and content analysts designed and implemented the new digital tool within budget and on schedule. Using the new digital tool,
lawyers and compliance officers can now confidently react faster to their clients’ increased regulatory burdens with up-to-date information.

For another leading global publisher, we developed an eReader application designed specifically for complex professional reference material. The
publisher saw an opportunity to increase sales by re-publishing its printed reference works as e-books, but was unable to market them as e-books because
existing eReader applications were built for simple fiction and trade books. We developed an eReader application for the client that changed this – it enabled
advanced search, linking and cross-references to external sources, subscriber annotations, frequent textual updates and a host of other functions the publisher
required in order to distribute its complex reference books as e-books over the iPad® as well as Android ® and Windows-enabled mobile devices.

Operational Support

We help our clients significantly lower the cost of maintaining their high-value information products, applications and systems. Clients for which we
perform such services include five of the top ten leading legal, tax and regulatory information providers, three of the top ten credit and financial information
providers, and four of the top ten scientific, technical and medical information providers. Relative to information products, our focus is on the underlying “content
supply chain” activities that are necessary to maintain the product. These activities often include content aggregation; extraction; encoding; indexing and
abstracting; fabrication; and distribution. We deliver these activities on an outsourced basis.

For example, for an $8 billion leading provider of financial and news information, we aggregate public source documentation from a variety of

government agencies, which we transform, analyze and extract in order to support a real-time, high-value information product.

For a leading wholesale textbook distributor, we provided support and maintenance for its digital book platform, including its customizable bookshelf and

eReader applications and its conversion and fulfillment processes.

Digital Content Supply Chain Strategy

We work with clients at a strategic business and technology level to address business process and technology challenges related to digital content supply
chain optimization and strategy. By aligning operations and technology with business goals, we help businesses accelerate new product development and
introduction; control cost; consolidate and leverage technology investment; and obtain benefits of scale.

For a multinational information services company, we worked in conjunction with the client’s internal teams to design new content architectures and
implement new content technologies that enabled the client to migrate its operations away from process and technologies designed primarily for print output to
new processes and technologies that were designed around the nature of the content itself and supported multiple simultaneous delivery channels.

A global information company had acquired two businesses that each collected, processed and managed some of the same public law content. The
company recognized the opportunity to reduce cost by consolidating the processing of this overlapping content. To accomplish this cost savings, we
implemented a new, consolidated workflow system using Alfresco and jBPM which provided a common framework for content reuse, while enabling content
enrichment processes to be performed by external and internal resources in a fully managed environment.

For a publisher of legal treatises and practice guides and provider of on-demand learning, we created a future-state vision of operational workflows
required to support an increasing array of technologies and online products. This future-state vision included recommendations regarding process improvements
and new technologies.

Innodata Advanced Data Solutions (IADS) Segment

Many enterprises are embracing new digital information technologies and workflow processes within their operations in order to improve internal
decision-support systems. We formed our IADS segment in mid-2011 to design and develop new capabilities to enable clients in the financial services,
insurance, medical and healthcare sectors to improve decision-support through digital technologies. We believe that by creating and commercializing innovative
business strategies and technology solutions we will be able to accelerate our growth and reduce our revenue volatility.

IADS operates through two subsidiaries: Synodex and docGenix. As of December 31, 2017, we owned 91% of Synodex and 94% of docGenix.

The main focus of the Synodex business is the extraction and classification of data from unstructured medical records in an innovative way to provide
improved data service capabilities for insurance underwriting, insurance claims, medical records management and clinical trial support services. Synodex has
developed and deployed its APS.Extract® product for specific use with life insurance underwriting and claims.

At the end of 2017, Synodex had 11 clients, including RGA Reinsurance Company, the principal operating subsidiary of Reinsurance Group of America,
Incorporated (NYSE: RGA), one of the top 10 largest providers of life reinsurance in the world according to A.M. Best, and 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. Synodex is engaged in
business discussions with other reinsurance companies and insurance carriers that have expressed interest in utilizing its services.

The main focus of the docGenix business is the extraction and classification of data from unstructured legal documents in order to improve an

organization’s ability to analyze documentation and feed actionable data to downstream applications.

We offer docGenix services to banks and hedge funds. One of our clients, a large New York-based global investments company party to more than
5,000 derivative contracts, utilizes the docGenix service and software platforms to monitor and react to market changes and counterparty and collateral changes
and to comply with increasing regulatory requirements. Prior to utilizing docGenix, these were slow and resource-intensive activities because contract creation,
storage and retrieval processes were all still paper or image based. Using docGenix’s system, complex derivative contracts are transformed into machine
readable, computer-addressable data that is down-streamed to risk collateral and other mission-critical systems, and users can perform multi-dimensional,
complex queries instantaneously.

Media Intelligence Solutions (MIS) Segment

Our MIS segment operates through our Agility PR Solutions and Bulldog Reporter subsidiaries. In December 2016, we rebranded the MediaMiser and

Agility PR Solutions products under the name Agility PR Solutions.

Agility Illuminate (formerly known as Agility Enterprise) provides media monitoring and analysis solutions and professional services to several Fortune
500 companies and Canadian government institutions, as well as small- and medium-sized businesses. Agility Enterprise enables companies to reduce the time
and effort required to extract, analyze and share valuable business intelligence from traditional and online media sources.

Agility Illuminates’s proprietary technology platform monitors, aggregates, analyzes and distributes summaries of coverage from more than 200,000
content sources including traditional and digital media. The platform includes a powerful sentiment analysis engine that identifies whether opinions expressed in
a particular document are positive, negative or neutral.

Increasingly, organizations seek to quantify the impact of public relations (PR) and communications activities and to understand what is being said about
them across traditional and digital media. Social media has also dramatically changed how organizations manage and respond to crisis. Organizations need to
respond quickly to negative customer feedback or coverage and track ongoing conversations in order to protect their brand and reputation. Agility Illuminate, with
its powerful analytics and human augmented analysis and reporting, is designed to fit these needs.

Agility Connect is a global media contact database and email distribution platform, and Agility Capture provides additional self-service media monitoring
and analytics capabilities. We acquired these two Agility products from PR Newswire in July 2016. Together with Agility Illuminate, these products enable Agility
to offer self and full-service solutions that address the entire communications life cycle – from identifying influencers, amplifying messages, monitoring coverage,
to measuring impact.

Bulldog Reporter is a news aggregation service for the PR and corporate communications professionals. Bulldog Reporter publishes a well-known daily
e-newsletter, the Daily Dog. In addition, it offers a paid subscription service focused specifically on the health industry, a daily e-newsletter—Inside Health Media
—that provides a health-related media list and media intelligence services by leveraging the data from Agility platform. Bulldog Reporter also manages a PR
industry awards program—the Bulldog Awards—which recognizes PR and communications professionals in categories including corporate social responsibility,
media relations, digital and social marketing, not-for-profit activity and overall outstanding PR performance.

With considerable consolidation and slowing growth in the overall media intelligence market, Agility PR Solutions is carving out a niche with a focus on
influencer targeting, advanced media analytics and editorially enriched full-service options that provide context and clarity that automated solutions alone cannot
provide. This focus on technology as well as customer service differentiates Agility PR Solutions from the clippings-origin and self-service monitoring competitors
in the market.

Our Global Operations

We provide our services using a globally distributed workforce utilizing advanced technologies that automate portions of our process and help ensure

that our work product is highly accurate and consistent.

Our delivery centers in Asia are ISO 27001 certified. In addition, we comply with the requirements of the United States Health Insurance Portability and
Accountability Act of 1996 as amended (HIPAA) (including by the Health Information Technology for Economic and Clinical Health Data (HITECH)) and the
United Kingdom’s Data Protection Act 1998 (DPA), as applicable. Innodata is certified to the EU-U.S. Privacy Shield framework, which certification includes
Synodex, docGenix, Agility PR Solutions and Bulldog Reporter as covered entities. We encrypt all individual protected health information, both at rest and in
motion, to the AES 256 or similar standard, and we employ a range of security features including monitored firewalls and intrusion detection devices.

For our data extraction services, we maintain staff in a wide spectrum of disciplines, including medicine, law, engineering, management, finance, science

and the humanities.

Our services are organized and managed around three vectors: a vertical industry focus, a horizontal service/process focus, and a supportive operations

focus.

The vertically-aligned groups understand our clients’ businesses and strategic initiatives. The vertical group for each particular industry includes experts

hired from that industry.

Our service/process-aligned groups include engineering personnel and delivery personnel. Our engineering teams are responsible for creating secure
and efficient custom workflows and integrating proprietary and third-party technologies to automate manual processes and improve the consistency and quality of
our work product. These tools include categorization engines that utilize pattern recognition algorithms based on comprehensive rule sets and related heuristics,
data extraction tools that automatically retrieve specific types of information from large data sources, and workflow systems that enable various tasks and
activities to be performed across our multiple facilities.

Our globally distributed delivery personnel are responsible for executing our client engagements in accordance with service-level agreements. We

deliver services from facilities in the United States, the Philippines, India, Sri Lanka, Israel, United Kingdom, Germany and Canada.

Other support groups are responsible for managing diverse enabling functions including human resources, organizational development, network and

communications technology infrastructure support and physical infrastructure and facilities management.

Our sales staff, program managers and consultants operate primarily from our North American and European locations, as well as from client sites.

Our Opportunity

Rapid changes in digital content technologies have created the need for all sorts of companies to refashion their product offerings and their operations.
Media, publishing and information services companies contend with new monetization models, delivery platforms, and channels. They seek to develop new
digital products as print product revenue wanes; to broaden their markets by distributing content over the iPad®, iPhone®, Android and other portable devices;
and to monetize existing content in new, highly targeted custom products through flexible reuse and repurposing.

Meanwhile, for enterprises that rely on content to support operations, this shift to digital technology offers opportunities to improve internal decision
support and risk mitigation in complex data operations by harnessing the power of machine-readable, digital data to drive improved decision support. For
enterprises that rely on content to support products, this shift to digital technology offers opportunities to create and manage content more efficiently, while at the
same time distributing content through an increased number of channels.

As a result, media, publishing and information services companies, and content-intensive enterprises, are increasingly relying on service providers, such
as Innodata, to provide digital content-related services. These services increasingly involve using advanced technologies such as machine learning and artificial
intelligence (AI) to extract meaningful data from unstructured data in cost efficient ways.

Clients

Two clients in our DDS segment each generated more than 10% of our total revenues in the 2017 and 2016 fiscal years. In 2017, revenues from
Wolters Kluwer affiliated companies (the “WK Clients”) were approximately $11.5 million or 19% of total revenues, and revenues from Reed Elsevier affiliated
companies (the “RE Clients”) were approximately $6.7 million, or 11% of total revenues. No other client generated more than 10% of our total revenues in 2017.
These two clients together generated approximately 31% of our total revenues in each of the fiscal years ended December 31, 2017 and 2016. Revenues from
clients located in foreign countries (principally in Europe) accounted for 51% of our total revenues for the year ended December 31, 2017 and 49% of our total
revenues for the year ended December 31, 2016.

We have long-standing relationships with many of our clients, and we have provided services to the two clients mentioned in the preceding paragraph for
over ten years. Our track record of delivering high-quality services helps us to solidify client relationships. Many of our clients are recurring clients, meaning that
they have continued to provide additional projects to us after our initial engagement with them.

Our contractual arrangements with the RE Clients during 2017 consisted of three master services agreements (“MSAs”) and separately agreed to
statements of work (“SOWs”) for specific services. Two of the MSAs have indefinite terms and the third MSA has a term that ends on October 31, 2019. RE
Clients may terminate the MSAs on notice periods ranging from zero to six months, and they may terminate certain individual SOWs on notice periods of up to
90 days. They may also terminate certain of the MSAs and SOWs on notice periods of three months or less for “cause” and for insolvency related events, and on
changes of control, force majeure and the imposition of certain price increases by the Company that are not acceptable to them. We may terminate two of the
MSAs on notice periods of 180 days, and we may also terminate certain MSAs and SOWs for “cause”, insolvency related events affecting the RE Clients, and
other defined events. The MSAs contain confidentiality, limitation of liability, indemnification and other standard provisions.

Our contractual arrangements with the WK Clients during calendar year 2017 consisted of four MSAs and separately agreed to SOWs for specific
services. Two MSAs have indefinite terms, one MSA continues in effect until the completion of all services performed under the MSA, and the fourth MSA has a
term that ends on the later of March 2, 2019 or the expiration date of all SOWs issued under the MSA. WK Clients may terminate certain MSAs on notice periods
of 30 days, and they may terminate certain individual SOWs on notice periods ranging from 10 days to six months. WK Clients may also terminate certain of the
MSAs and SOWs on notice periods of 60 days or less for “cause” and for insolvency related events, and on changes of control, force majeure and the imposition
of certain price increases by the Company that are not acceptable to them. We may terminate certain of the MSAs on notice periods of 30 days, and we may
also terminate certain MSAs and SOWs for “cause”, insolvency related events affecting the WK Clients, and other defined events. The MSAs contain
confidentiality, limitation of liability, indemnification and other standard provisions.

Our agreements with our other clients are in many cases terminable on 30 to 90 days' notice. A substantial portion of the services we provide to our

clients is subject to their requirements.

Competitive Strengths

Our expertise in digital data. We are primarily focused on helping clients across multiple vertical industries by supplying enriched digital data at a lower
cost which is either incorporated in clients’ information products or used for enhancing decision-support systems. We also help clients build new information or
data products.

Our focus on quality. We have achieved a reputation with our clients for consistent high-quality. We maintain independent quality assurance
capabilities in all geographies where we have delivery centers. Our quality assurance teams in Asia are compliant and certified to the ISO 9001:2008 quality
management system standards.

Our global delivery model. We have operations in eight countries in North America, Europe and Asia. We provide services to our clients through a

comprehensive global delivery model that integrates both local and global resources to obtain the best economic results.

Our proven track record and reputation. By consistently providing high-quality services, we have achieved a track record of client successes. This track
record is reflected in our reputation as a leading service provider within the media, publishing and information services sector. Our reputation and brand connote
an assurance of expertise, quality execution and risk mitigation.

Our focus on technology and engineering innovation. Our engineering and IT teams integrate proprietary and best-in-class third party tools into our
workflows to drive as much automation as possible. In addition, our engineering and IT teams provide services directly to our clients, helping them achieve
improved efficiencies within their own operations.

Our long-term relationships with clients. We have long-term relationships with many of our clients, who frequently retain us for additional projects after a
successful initial engagement. We believe there are significant opportunities for additional growth with our existing clients, and we seek to expand these
relationships by increasing the depth and breadth of the services we provide. This strategy allows us to use our in-depth client-specific knowledge to provide
more fully integrated services and develop closer relationships with those clients.

Our ability to scale. We have demonstrated the ability to expand our teams and facilities to meet the needs of our clients. By virtue of the significant
numbers of professional staff working on projects, we are able to build teams for new engagements quickly. We have also demonstrated the ability to hire and
train staff quickly in order to service diverse and often large-scale needs of our clients.

Our internal infrastructure. We own and operate some of the most advanced content delivery centers in the world, which are linked by multi-redundant
data connections. Our Wide Area Network – along with our Local Area Networks, Storage Area Networks and data centers – is configured with industry standard
redundancy, often with more than one backup to help ensure 24x7 availability. Our infrastructure is built to accommodate advanced tools, processes and
technologies that support our content and technical experts. We encrypt all individual protected health information, both at rest and in motion, to the AES 256 or
similar standard, and we employ a range of security features including managed firewalls and intrusion services.

Sales and Marketing

For our DDS and IADS segments we market and sell our services directly through our professional staff, senior management and direct sales personnel
operating primarily from various locations in the U.S., and for our MIS segment we market and sell our services primarily from our offices in Canada and the
United Kingdom and through our personnel in the U.S. Our corporate headquarters is located at Ridgefield Park, New Jersey, just outside New York City. During
2017, we had four executive-level business development and marketing professionals and approximately 45 sales and marketing personnel. We also deploy
solutions architects, technical support experts and consultants who support the development of new clients and new client engagements. These resources work
within teams (both permanent and ad hoc) that provide support to clients.

Our marketing department and sales professionals work together to generate leads. Our sales professionals identify and qualify prospects, securing
direct personal access to decision makers at existing and prospective clients. They facilitate interactions between client personnel and our service teams to
define ways in which we can assist clients with their goals. For each prospective client engagement, we assemble a team of our senior employees drawn from
various disciplines within our Company. The team members assume assigned roles in a formalized process, using their combined knowledge and experience to
understand the client’s goals and collaborate with the client on a solution.

Our marketing organization is responsible for developing and increasing the visibility and awareness of our brand and our service offerings, defining and

communicating our value proposition, generating qualified, early-stage leads and furnishing effective sales support tools

As part of our marketing strategy we partner with media organizations to build awareness, establish a reputation as an industry thought leader, and
generate leads. Media partners include trade associations and publications, trade show producers and consulting organizations. These partnerships are
particularly valuable in enterprise industries as we build our presence among digital content leaders and decision makers.

Primary marketing outreach activities include content marketing, event marketing (including exhibiting at trade shows, conferences and seminars), direct
and database marketing, public and media relations (including speaking engagements), and web marketing (including integrated marketing campaigns, search
engine optimization, search engine marketing and the maintenance and continued development of external websites).

Sales activities include lead generation, nurturing leads, engaging in discussions with prospective customers to understand their needs, demonstrating

our products, designing solutions, responding to requests for proposals, and managing account and client relationships and activities.

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

Research and Development

We incurred $0.5 million and $0.1 million in research and development costs in our DDS segment for the years ended December 31, 2017 and 2016,
respectively. We did not incur any research and development costs for our IADS segment in either of the years ended December 31, 2017 and 2016. Our MIS
segment incurred research and development costs of $0.6 million and $0.9 million for the years ended December 31, 2017 and 2016, respectively.

Competition

Our Digital Data Solutions segment operates in a highly competitive, fragmented and intense market. Major competitors include Apex CoVantage,

Aptara, Cenveo, Infosys, HCL Technologies, Macmillan India, SPI Technologies, JSI S.A.S. Groupe Jouve and Thomson Digital.

We compete in this market by offering high-quality services and competitive pricing that leverage our technical skills, IT infrastructure, offshore model and
economies of scale. Our competitive advantages are especially attractive to clients for undertakings that are technically challenging, are sizable in scope or scale,
are continuing, or that require a highly fail-safe environment with technology redundancy.

The Synodex subsidiary of our IADS segment competes in the insurance data analysis industry with an initial focus on applying innovative technology to
speed accurate decision making and to improve productivity in the processing of medical files for the life insurance industry. Major competitors are Risk Righter,
EMSI, Parameds, and other BPO companies all of whom are large firms with established client bases. We also compete with in-house personnel at existing or
prospective clients who may attempt to duplicate our services in-house or use alternative approaches to fulfill their needs.

For our MIS segment, our primary competitors are companies such as Meltwater, Cision, Kantar, Infomart, Nasdaq, Intelligent I.Q., Trendkite and
Custom Scoop, several of which are large firms with established customer bases, as well as PR firms that provide media monitoring and analysis services and
journalist and influencer databases. Our competitors also include social media listening companies and start-ups offering platforms to amplify messages by
targeting social media influencers.

Locations

We are headquartered in Ridgefield Park, New Jersey, just outside New York City. Our MIS business is headquartered in Ottawa, Canada and we have
an additional location in London, United Kingdom. We have ten delivery centers in the Philippines, India, Sri Lanka, Canada, Germany, United Kingdom and
Israel.

Employees

As of December 31, 2017, we employed approximately 144 persons in the United States, Canada and United Kingdom, and over 3,800 persons in ten
global delivery centers in the Philippines, India, Sri Lanka, Canada, Germany, United Kingdom and Israel. As of December 31, 2017, approximately 234 of our
employees were dedicated to the IADS segment, and approximately 236 of our employees were dedicated to the MIS segment. Most of our employees have
graduated from at least a two-year college program. Many of our employees hold advanced degrees in law, business, technology, medicine and social sciences.
No employees are currently represented by a labor union, and we believe that our relations with our employees are satisfactory.

Corporate Information

Our principal executive offices are located at 55 Challenger Road, Ridgefield Park, New Jersey 07660, and our telephone number is (201) 371-8000.
Our website is www.innodata.com; information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on
Form 10-K. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments to those reports, as soon as reasonably practicable after we electronically file that material with, or furnish it to, the Securities and Exchange
Commission (SEC). Our SEC reports can be obtained through the Investor Relations section of our website or from the Securities and Exchange Commission at
www.sec.gov.

Item 1A. Risk Factors.

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

We have historically relied on a very limited number of clients that have accounted for a significant portion of our revenues. Two clients in our DDS
segment generated approximately 31% of our total revenues in each of the fiscal years ended December 31, 2017 and 2016, respectively. No other client
accounted for 10% or more of total revenues during these periods. Further, in the years ended December 31, 2017 and 2016, revenues from non-US clients
accounted for 51% and 49%, respectively, of our revenues. We may lose any of these clients, or our other major clients, as a result of our failure to meet or
satisfy our client’s requirements, the completion or termination of a project or engagement, or the client’s selection of another service provider.

In addition, the volume of work performed for our major clients may vary from year to year, and services they require from us may change from year to
year. They may also request that we modify certain key terms of our agreements with them as a condition of continuing to do business with us. If the volume of
work performed for our major clients varies, if the services they require from us change, or if they require price concessions, our revenues and results of
operations could be adversely affected, and we may incur a loss from operations. If certain key terms of our agreements with our major clients are modified, our
revenues and results of operations may be adversely affected. Our services are typically subject to client requirements, and in many cases are terminable upon
30 to 90 days’ notice.

Our liquidity could be affected if our losses continue.

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 the next 12 months. However, we have no bank facilities or lines of credit, and continuing material reductions in our cash and cash equivalents from
operating losses, capital expenditures, adverse legal decisions, acquisitions or otherwise could materially and adversely affect the Company. See “Management
Discussion and Analysis – Liquidity and Capital Resources” for information on (i) our cash and cash equivalents that declined to $11.4 million at December 31,
2017 from $14.2 million at December 31, 2016, (ii) the portion of our cash and cash equivalents that at December 31, 2017 was held by our foreign subsidiaries
and that can be repatriated to the United States and is subject to applicable withholding taxes in the foreign jurisdictions where we operate, (iii) the cash used in
our operating activities as a result of our net loss in 2017, (iv) the cash used in 2017 in our investing activities for the acquisition and integration of Agility and
capital expenditures and (v) our current plans for the use of our cash and cash equivalents.

Our common stock may become subject to delisting from The Nasdaq Stock Market.

Nasdaq may under Nasdaq Listing Rule 5810 delist the Company’s common stock if the closing bid price for its common stock is less than $1.00 per

share for 30 consecutive business days and the Company does not thereafter cure all listing deficiencies during Nasdaq-designated compliance periods.

A portion of our services is provided on a non-recurring basis for specific projects, and our inability to replace large projects when they are
completed or otherwise terminated has adversely affected, and could in the future adversely affect, our revenues and results of operations.

We provide a portion of our services for specific projects that generate revenues that terminate on completion of a defined task. While we seek, wherever
possible, on completion or termination of large projects, to counterbalance periodic declines in revenues with new arrangements to provide services to the same
client or others, our inability to obtain sufficient new projects to counterbalance any decreases in such work may adversely affect our future revenues and results
of operations.

A portion of our revenue is generated from projects which we characterize as recurring in nature. Projects that we characterize as recurring are
nevertheless subject to termination.

Our operating performance is materially dependent on the continuation of these projects. However, we are exposed to risks where these projects could
be terminated by our clients and we may not be able to replace these terminated projects with new recurring projects with similar profitability or clients may ask
for a price reduction which could adversely affect our revenue and results of operations.

Our solutions for the MIS segment are sold pursuant to subscription agreements, and if subscription clients elect either not to renew these
agreements, or to renew these agreements for less expensive services, our revenues and results of operations will be adversely affected.

Our MIS segment derives its revenues primarily from subscription arrangements. Our clients may choose not to renew subscription agreements when
they expire or may renew them at lower prices or for a significantly narrower scope of work. If large numbers of existing subscription clients do not renew these
agreements or renew these agreements on terms less favorable to us, and if we cannot replace or supplement those non-renewals with new subscription
agreements generating the same or greater level of revenue, our revenues and results of operations will be adversely affected.

The Synodex and docGenix subsidiaries in our IADS segment have incurred significant losses since their inception in 2011 .

We have invested significant amounts in the Synodex and docGenix subsidiaries of our IADS segment. Our cumulative investment net of revenues in
these subsidiaries as of December 31, 2017 was $33.6 million, consisting of $26.6 million in operating expenses and $7.0 million in capital expenditures. In the
third quarter of 2013 we wrote off all the fixed assets of IADS, and we have expensed all investments in IADS since that date. During 2017, these subsidiaries
generated approximately $4.8 million in revenues and incurred a net loss of $0.6 million net of inter-segment profits. Our operations and financial condition will
be adversely affected if IADS fails to generate meaningful revenues and margins.

New acquisitions, joint ventures or strategic investments or partnerships could harm our operating results.

In July 2016, we acquired the Agility business from PR Newswire, comprised of what we now refer to as the Agility Connect and Agility Capture
products, pursuant to an asset purchase agreement. Agility is a global media contact database and email distribution platform and Agility Plus provides additional
self-service media monitoring and analytics capabilities. In July 2014, we acquired MediaMiser Ltd., a Canada-based provider of automated, real-time traditional
and social media monitoring services, and in December 2014, we acquired intellectual property and related assets of Bulldog Reporter from Sirius Information,
Inc.

We may pursue additional acquisitions, joint ventures or engage in strategic investments or partnerships to grow and enhance our capabilities. We
cannot assure that we will successfully consummate any acquisitions or joint ventures, or profit by strategic investments, or achieve desired financial and
operating results. Further, such activities involve a number of risks and challenges, including proper evaluation, diversion of management’s attention and proper
integration with our current business. Accordingly, we might fail to realize the expected benefits or strategic objectives of any such venture we undertake. If we
are unable to complete the kind of acquisitions for which we plan, we may not be able to achieve our planned rates of growth, profitability or competitive position
in specific markets or services.

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

Several significant clients account for a large percentage of our accounts receivable. If any of these clients were unable, or refused, for any reason, to
pay our accounts receivable, our financial condition and results of operations would be adversely affected. As of December 31, 2017, 51% or $5.2 million, of our
accounts receivable was due from three clients. See “Liquidity and Capital Resources.”

In addition, we evaluate the financial condition of our clients and usually bill and collect on relatively short cycles. We maintain specific allowances
against doubtful receivables. Actual losses on client balances could differ from those that we currently anticipate and, as a result, we might need to adjust our
allowances. There is no guarantee that we will accurately assess the creditworthiness of our clients. Macroeconomic conditions could also result in financial
difficulties, including limited access to the credit markets, insolvency or bankruptcy, for our clients, and, as a result, could cause clients to delay payments to us,
request modifications to their payment arrangements that could increase our receivables balance, or default on their payment obligations to us. If we are unable
to collect timely from our clients, our cash flows could be adversely affected.

Quarterly fluctuations in our revenues and results of operations could make financial forecasting difficult and could negatively affect our stock price.

We have experienced, and expect to continue to experience, significant fluctuations in our quarterly revenues and results of operations. During the past
eight quarters, our net income ranged from a profit of approximately $3,000 in the first quarter of 2016 to a loss of approximately $2.8 million in the third quarter
of 2016.

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 or on terms that are as attractive to us as the project that is being replaced. These and other factors may contribute to
fluctuations in our results of operations from quarter to quarter.

A high percentage of our operating expenses, particularly personnel and rent, are relatively fixed in advance of any particular quarter. As a result,
unanticipated variations in the number and timing of our projects, or in employee wage levels and utilization rates, may cause us to significantly underutilize our
production capacity and employees, resulting in significant variations in our operating results in any particular quarter, and have resulted in losses.

The economic environment and pricing pressures could negatively impact our revenues and operating results.

Due to the intense competition involved in outsourcing and information technology services, we generally face pricing pressures from our clients. Our
ability to maintain or increase pricing is restricted as clients generally expect to receive volume discounts or special pricing incentives as we do more business
with them; moreover, our large clients may exercise pressure for discounts outside of agreed terms.

Our profitability could suffer if we are not able to maintain pricing on our existing projects and win new projects at appropriate margins.

Our profit margin, and therefore our profitability, is dependent on the rates we are able to recover for our services. If we are not able to maintain pricing
on our existing services and win new projects at profitable margins, or if we underestimate the costs or complexities of new projects and incur losses, our
profitability could suffer. The rates we are able to recover for our services are affected by a number of factors, including competition, volume fluctuations,
productivity of employees and processes, the value our client derives from our services and general economic and political conditions.

If our pricing structures do not accurately anticipate the cost and complexity of performing our work, then our contracts could be unprofitable.

We provide services either on a time-and-materials basis or on a fixed-price basis. Our pricing is highly dependent on our internal forecasts and
predictions about our projects, which might be based on limited data and could turn out to be inaccurate. If we do not accurately estimate the costs and timing for
completing projects, our contracts could prove unprofitable for us or yield lower profit margins than anticipated.

We may not be able to obtain price increases that are necessary to offset the effect of wage inflation and other government mandated cost increases.

We have experienced wage inflation and other government mandated cost increases in the Asian countries where we have the majority of our
operations. In addition, we may experience adverse fluctuations in foreign currency exchange rates. These global events have put pressure on our profitability
and our margins. Although we have tried to partially offset wage increases, foreign currency fluctuations and other such increases through price increases and
improving our efficiency, we cannot ensure that we will be able to continue to do so in the future, which would negatively impact our results of operations.

If our clients are not satisfied with our services, they may terminate our contracts with them or our services, which could have an adverse impact on
our business.

Our business model depends in large part on our ability to attract additional work from our base of existing clients. Our business model also depends on
relationships our account teams develop with our clients so that we can understand our clients’ needs and deliver solutions and services that are tailored to those
needs. If a client is not satisfied with the quality of work performed by us, or with the type of services or solutions delivered, then we could incur additional costs
to address the situation, the profitability of that work might be impaired, and the client’s dissatisfaction with our services could damage our ability to obtain
additional work from that client. In particular, clients that are not satisfied might seek to terminate existing contracts, which would mean that we could incur costs
for the services performed with no associated revenue upon termination of a contract. This could also direct future business to our competitors. In addition,
negative publicity related to our client services or relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete
for new contracts with current and prospective clients.

Our new clients may sunset their products because of lack of sufficient revenues or declining revenues, and this may result in termination of our
work for these clients.

As we obtain new opportunities and win new business, our clients may not generate the level of revenues that we initially anticipated at the time of
signing a contract with them, or our clients may experience declining revenues with their existing products. This could be due to various reasons beyond our
control, and it could lead to termination of projects or contracts. As we normally invest in people or technology and incur other costs in anticipation of revenues,
any such deviation from our expected plan would impact our margins and earnings.

Our business will suffer if we fail to develop new services and enhance our existing services in order to keep pace with the rapidly evolving
technological environment or provide new service offerings, which may not succeed.

The information technology and consulting services industries are characterized by rapid technological change, evolving industry standards, changing
client preferences, new product and service introductions and the emergence of new vendors with lean cost and flexible cost models. Our future success will
depend on our ability to develop solutions that keep pace with changes in the markets in which we provide services. We cannot guarantee that we will be
successful in developing new services, addressing evolving technologies on a timely or cost-effective basis or, if these services are developed, that we will be
successful in the marketplace. We also cannot guarantee that we will be able to compete effectively with new vendors offering lean cost and flexible cost
models, or that products, services or technologies developed by others will not render our services non-competitive or obsolete. Our failure to address these
developments could have a material adverse effect on our business, results of operations and financial condition.

We invest in developing and pursuing new service offerings from time to time. Our profitability could be reduced if these services do not yield the
profit margins we expect, or if the new service offerings do not generate the planned revenues.

We have made and continue to make significant investments towards building-out new capabilities to pursue growth. These investments increase our
costs, and if these services do not yield the revenues or profit margins we expect, and we are unable to grow our business and revenue proportionately, our
profitability may be reduced, or we may incur losses.

We depend on third-party technology in the provision of our services.

We rely upon certain software that we license from third parties, including software integrated with our internally developed software used in the
provision of our services. These third-party software licenses may not continue to be available to us on commercially reasonable or competitive terms, if at all.
The loss of, or inability to maintain or obtain any of these software licenses, could result in delays in the provision of our services until we develop, identify,
license and integrate equivalent software. Any delay in the provision of our services could damage our business and adversely affect our results of operations. In
addition, for our Synodex and docGenix subsidiaries of our IADS segment, we utilize third party data centers to serve our clients and generate revenue. Any
disruption in provision of services from these data centers could result in loss of revenue, client dissatisfaction and loss of clients.

Our MIS segment relies on third parties to provide certain content and data for our solutions, and if those third-parties discontinue providing their
content, our revenue and results of operations could be adversely affected.

Our MIS segment relies on third parties to provide or make available certain data for our information databases and our news and social media
monitoring service. These third parties may not renew agreements to provide content to us or may increase the price they charge for their content. Additionally,
the quality of the content provided to us may not be acceptable to us and we may need to enter into agreements with additional third parties. In the event we are
unable to use such third-party content or are unable to enter into agreements with new third parties, current clients may discontinue their relationship with us,
and it may be difficult to acquire new clients.

Our businesses are reliant on key employees, and we may face high attrition in our talent. We may not be able to replace displaced talent with new
talent on a timely basis or with equivalent skill sets.

We are reliant to a considerable degree on the continuing leadership of our Chief Executive Officer and would be materially and adversely affected
should he unexpectedly not be employed by us. In addition, our businesses are subject to fierce competition for talent which could result in high attrition of our
employees, or we may not be able to find the requisite talent to operate our businesses. A significant increase in the attrition rate among employees with
specialized skills could decrease our operating efficiency and productivity. Our failure to attract, train and retain personnel with the qualifications necessary to
fulfill the needs of our existing and future clients or to assimilate new employees successfully could have a material adverse effect on our business, results of
operations, financial condition and cash flows. In addition, fluctuations in our business may require that we lay off employees with possible negative effects on
employee morale. We try to minimize these risks by actively promoting employee relationships and offering competitive salaries, but if we cannot mitigate these
risks, our business and our operating performance could be adversely affected.

We compete in highly competitive markets.

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

There are relatively few barriers preventing companies from competing. As a result, new market entrants also pose a threat to our business. We also
compete with in-house personnel at current and prospective clients, who may attempt to duplicate our services using their own personnel. If we are not able to
compete effectively, our revenues and results of operations could be adversely affected.

We operate from multiple locations and our employees are very diverse so we have significant coordination risks.

We are headquartered in Ridgefield Park, New Jersey, just outside New York City, and our Media Intelligence Solutions business is headquartered in
Ottawa, Canada and has an additional location in London, United Kingdom. We have ten delivery centers in the Philippines, India, Sri Lanka, Canada, Germany,
United Kingdom and Israel. Our employees are geographically dispersed as well as culturally diverse. Our personnel need to work together to successfully
execute our business plans and we invest in various measures to improve coordination and teamwork. Should we fail in these efforts our ability to execute our
business plans may be adversely affected.

Our intellectual property rights are valuable, and if we are unable to protect them or are subject to intellectual property rights claims, our business
may be harmed.

Our intellectual property rights include certain trademarks, trade secrets, domain name registrations, a patent and patent applications. Although we take
precautions to protect our intellectual property rights, these efforts may not be sufficient or effective. In addition, various events outside of our control pose a
threat to our intellectual property rights as well as to our business. If we are unable to protect our intellectual property, we may experience difficulties in
achieving and maintaining brand recognition.

Disruptions in telecommunications, system failures, data corruption or virus attacks could harm our ability to execute our global resource model,
which could result in client dissatisfaction and a reduction of our revenues.

We use a distributed global resource model. Our onshore workforce provides services from our United States and Canada offices, as well as from client
sites; and our offshore workforce provides services from our nine offshore delivery centers in the Philippines, India, Sri Lanka, Germany, United Kingdom and
Israel. Our global facilities are linked with a telecommunications network that uses multiple service providers. We may not be able to maintain active voice and
data communications between our various facilities and our clients' sites at all times due to disruptions in these networks, system failures, data corruption or virus
attacks. Any significant failure in our ability to communicate, or the availability of our platforms, could result in a disruption in our business, which could hinder
our performance, or our ability to complete client projects on time, or provide services to our clients. This, in turn, could lead to client dissatisfaction and an
adverse effect on our business, results of operations and financial condition.

A material breach in security relating to our information systems could adversely affect us.

Even though we have implemented network security measures, our servers may be vulnerable to computer viruses, cyber-attacks, break-ins and similar
disruptions from unauthorized tampering. The occurrence of any of the events described above could result in interruptions, delays, the loss or corruption of
data, cessations in the availability of systems or liability under privacy laws or contracts, each of which could have a material adverse effect on our financial
position and results of operations.

Governmental and client focus on data security could increase our costs of operations. In addition, any incident in which we fail to protect our
client’s information against security breaches may result in monetary damages against us, and termination of our engagement by our client, and
may adversely impact our results of operations.

Certain laws and regulations regarding data privacy and security affecting our clients impose requirements regarding the privacy and security of
information maintained by these clients, as well as notification to persons whose personal information is accessed by an unauthorized third party. As a result of
any continuing legislative initiatives and client demands, we may have to modify our operations with the goal of further improving data security. The cost of
compliance with these laws and regulations is high and is likely to increase in the future. Any such modifications may result in increased expenses and operating
complexity, and we may be unable to increase the rates we charge for our services sufficiently to offset these increases. In addition, as part of the service we
perform, we have access to confidential client data, including sensitive personal data. As a result, we are subject to numerous laws and regulations designed to
protect this information. We may also be bound by certain client agreements to use and disclose the confidential client information in a manner consistent with
the privacy standards under regulations applicable to such client. Any failure on our part to comply with these laws and regulations can result in negative
publicity and diversion of management time and effort and may subject us to significant liabilities and other penalties.

If client confidential information is inappropriately disclosed due to a breach of our computer systems, system failures or otherwise, or if any person,
including any of our employees, negligently disregards or intentionally breaches controls or procedures with which we are responsible for complying with respect
to such data or otherwise mismanages or misappropriates that data, we may have substantial liabilities to our clients. Any incidents with respect to the handling
of such information could subject us to litigation or indemnification claims with our clients and other parties. In addition, any breach or alleged breach of our
confidentiality agreements with our clients may result in termination of their engagements, resulting in associated loss of revenue and increased costs.

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

The major part of our operations is carried on in the Philippines, India, Sri Lanka, Israel, United Kingdom, Canada and Germany, while our headquarters
are in the United States, and our clients are primarily located in North America and Europe. While we do not depend on significant revenues from sources
internal to the Asian countries in which we operate, we are nevertheless subject to certain adverse economic factors relating to overseas economies generally,
including inflation, external debt, a negative balance of trade and underemployment. In certain of the countries in which we operate tax authorities may exercise
significant discretionary and arbitrary powers to make tax demands or decline to refund payments that may be due to us as per tax returns. Other risks associated
with our international business activities include:

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

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

• imposition of public sector controls;

• trade and tariff restrictions;

• price or exchange controls;

• currency control regulations;

• foreign tax consequences;

• data privacy laws and regulation;

• labor disputes and related litigation and liability;

• intellectual property laws and enforcement practices;

• limitations on repatriation of earnings; and

• changing laws and regulations, occasionally with retroactive effect.

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

Our international business is subject to applicable laws and regulations relating to foreign corrupt practices, the violation of which could adversely
affect our operations.

We must comply with all applicable anti-bribery laws and regulations of the U.S. and other jurisdictions where we operate. For example, we are subject
to the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act relating to corrupt and illegal payments to government officials and others . Although we have
policies and controls in place that are designed to ensure compliance with these laws and regulations, it is possible that an employee or an agent acting on our
behalf could fail to comply with applicable laws and regulations, and due to the complex nature of the risks, it may not always be possible for us to ascertain
compliance with such laws and regulations. In such event, we could be exposed to civil penalties, criminal penalties and other sanctions, including fines or other
unintended punitive actions, and we could incur substantial legal fees and related expenses. In addition, such violations could damage our business and/or our
reputation. All of the foregoing could have a material adverse effect on our financial condition and operating results.

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

Although most of our revenues are denominated in U.S. dollars, a significant portion of our revenues is denominated in Canadian dollars, Pound Sterling
and Euros. In addition, a significant portion of our expenses, primarily labor expenses in the Philippines, India, Sri Lanka, Germany, Canada, United Kingdom
and Israel, is incurred in the local currencies of the countries in which we operate. For financial reporting purposes, we translate all non-U.S. denominated
transactions into U.S. dollars in accordance with accounting principles generally accepted in the United States. Thus, we are exposed to the risk that fluctuations
in the value of these currencies relative to the U.S. dollar could have a direct impact on our revenues and our results of operations.

Similarly, the Philippines and India have at times experienced high rates of inflation as well as major fluctuations in the exchange rate between the
Philippine peso and the U.S. dollar and the Indian rupee and the U.S. dollar. Although we selectively undertake hedging activities to mitigate certain of these
risks, our hedging activities may not be effective and may result in losses.

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

In the event that the government of India, the Philippines or the government of another country changes its tax policies, rules and regulations, our
tax expense may increase and affect our effective tax rates.

We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. We are subject to the continual examination by tax authorities in
India and in the Philippines, and the Company assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision
for income taxes. Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from what is reflected in
historical income tax and indirect tax provisions and accruals, and could result in a material effect on the Company’s income tax provision, indirect tax expenses,
net income or cash flows in the period or periods for which that determination is made. If additional taxes are assessed, it could have an adverse impact on our
financial results.

In addition, changes in the tax rates, tax laws or the interpretation of tax laws in the jurisdiction where we operate, could affect our future results of

operations.

In 2015, our Indian subsidiary was subject to an inquiry by the Service Tax Bureau in India regarding the classification of services provided by this
subsidiary, asserting that the services provided by this subsidiary fall under the category of online information and database access or retrieval services (OID
Services), and not under the category of business support services (BS Services) that are exempt from service tax as historically indicated in our service tax
filings. In the event the Service Tax Bureau is successful in proving that our services fall under the category of OID Services, the revenue earned by our Indian
subsidiary would be subject to a service tax of approximately 14.5% and this would increase our operating costs. The revenues of our Indian subsidiary in 2017
were $15.6 million. We disagree with the Service Tax Bureau’s position and contest these assertions vigorously.

In 2016, our Indian subsidiary received notices of appeal from the Commissioner, Service Tax, seeking to reverse service tax refunds previously granted
to us for certain quarters in 2014, asserting that the services provided by this subsidiary fall under the category of OID Services and not BS Services. We
disagree with the basis of these appeals and are contesting them vigorously. We expect delays in receiving service tax refunds until the appeals are adjudicated
with finality.

Our operating results may be adversely affected by our use of derivative financial instruments.

We have entered into a series of foreign currency forward contracts that are designated as cash flow hedges. These contracts are intended to partially
offset the impact of the movement of the exchange rates on future operating costs of our Asian subsidiaries. The hedging strategies that we have implemented or
may implement to mitigate foreign currency exchange rate risks may not reduce or completely offset our exposure to foreign exchange rate fluctuations and may
expose our business to unexpected market, operational and counterparty credit risks. Accordingly, we may incur losses from our use of derivative financial
instruments that could have a material adverse effect on our business, results of operations and financial condition.

If tax authorities in any of the jurisdictions in which we operate contest the manner in which we allocate our profits, our net income could decrease.

A significant portion of the services we provide to our clients are provided by our Asian subsidiaries located in different jurisdictions. Tax authorities in
some of these jurisdictions have from time to time challenged the manner in which we allocate our profits among our subsidiaries, and we may not prevail in this
type of challenge. If such a challenge were successful, our worldwide effective tax rate could increase, thereby decreasing our net income.

An expiration or termination of our preferential tax rate incentives could adversely affect our results of operations.

Certain of our foreign subsidiaries are subject to preferential tax rates or enjoy tax subsidies from the government. In addition, one of our foreign
subsidiaries enjoys a tax holiday. These tax incentives provide that we pay reduced income taxes in those jurisdictions for a fixed period of time that varies
depending on the jurisdiction, or they may result in lowering our expenses. An expiration or termination of these incentives could substantially increase our
worldwide effective tax rate, or increase our tax expense, thereby decreasing our net income and adversely affecting our results of operations.

Our earnings may be adversely affected if we change our intent not to repatriate our foreign earnings or if such earnings become subject to U.S. tax
on a current basis.

In December 2017, the President signed the U.S. Tax Cuts and Jobs Act (2017 Tax Act), which includes a broad range of provisions, many of which
significantly differ from those contained in previous U.S. tax law. One such provision relates to a one-time tax on the mandatory deemed repatriation of post-
1986 untaxed foreign earnings and profits (E&P), referred to as the toll charge. A significant portion of our operations are conducted outside the United States.
Despite the access to the overseas earnings and the resulting toll charge, we intend to indefinitely reinvest the foreign earnings in our foreign subsidiaries on
account of the withholding tax that the Company has to incur on the actual remittances. Unremitted earnings of foreign subsidiaries amounted to approximately
$24.8 million at December 31, 2017. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company would
have to accrue the applicable amount of withholding taxes associated with such remittances.

Anti-outsourcing legislation, if adopted, could adversely affect our business, financial condition and results of operations and impair our ability to
service our clients.

The issue of outsourcing of services abroad by U.S. companies is a topic of political discussion in the United States. Measures aimed at limiting or
restricting outsourcing by U.S. companies are under discussion in Congress and in numerous state legislatures. While no substantive anti-outsourcing legislation
has been introduced to date, given the ongoing debate over this issue, the introduction of such legislation is possible. If introduced, our business, financial
condition and results of operations could be adversely affected and our ability to service our clients could be impaired.

Our growth could be hindered by visa restrictions.

Occasionally, we have employees from our other facilities visit or transfer to the United States to meet our clients or work on projects at a client’s site.

Any visa restrictions or new legislation putting a restriction on issuing visas could affect our business.

Immigration and visa laws and regulations in the United States and other countries are subject to legislative and administrative changes as well as
changes in the application of standards. Immigration and visa laws and regulations can be significantly affected by political forces and levels of economic activity.
Our international expansion strategy and our business, results of operations and financial condition may be materially adversely affected if legislative or
administrative changes to immigration or visa laws and regulations impair our ability to staff projects with our professionals who are not citizens of the country
where the work is to be performed.

Political uncertainty, political unrest, terrorism, and natural calamities in the Philippines, India, Sri Lanka and Israel could adversely affect business
conditions in those regions, which in turn could disrupt our business and adversely impact our results of operations and financial condition.

We conduct the majority of our production operations in the Philippines, India, Sri Lanka and Israel. These countries and regions remain vulnerable to

disruptions from political uncertainty, political unrest, terrorist acts, and natural calamities.

Any damage to our network and/or information systems would damage our ability to provide services, in whole or in part, and/or otherwise damage our
operations and could have an adverse effect on our business, financial condition or results of operations. Further, political tensions and escalation of hostilities in
any of these countries could adversely affect our operations in these countries and therefore adversely affect our revenues and results of operations.

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

Terrorist attacks and other acts of violence or war could affect us or our clients by disrupting normal business practices for extended periods of time and
reducing business confidence. In addition, acts of violence or war may make travel more difficult and may effectively curtail our ability to serve our clients' needs,
any of which could adversely affect our results of operations.

We may face various risks associated with shareholder activists or shareholder demands for better performance .

There is no assurance that we will not be subject to shareholder activism or demands. Such activities could interfere with our ability to execute our

strategic plan, be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees.

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

We are also subject to various other legal proceedings and claims which arise in the ordinary course of business.

While we currently believe that the ultimate outcome of these proceedings will not have a material adverse effect on our consolidated financial position or
overall trends in our consolidated results of operations, litigation is subject to inherent uncertainties. Substantial recovery against us in the above- referenced
Philippines action could have a material adverse impact on us, and unfavorable rulings or recoveries in the other proceedings could have a material adverse
impact on the consolidated operating results of the period in which the ruling or recovery occurs. In addition, our estimate of potential impact on our consolidated
financial position or overall consolidated results of operations for the above referenced legal proceedings could change in the future. See “Legal Proceedings.”

Our reputation could be damaged or our profitability could suffer if we do not meet the controls and procedures in respect of the services and
solutions we provide to our clients, or if we contribute to our clients’ internal control deficiencies.

Our clients may perform audits or require us to perform audits, provide audit reports or obtain certifications with respect to the controls and procedures
that we use in the performance of services for such clients, especially when we process data or information belonging to them. Our ability to acquire new clients
and retain existing clients may be adversely affected and our reputation could be harmed if we receive a qualified opinion, or if we cannot obtain an appropriate
certification or opinion with respect to our controls and procedures in connection with any such audit in a timely manner. Additionally, our profitability could suffer
if our controls and procedures were to fail or to impair our client’s ability to comply with its own internal control requirements.

New and changing corporate governance and public disclosure requirements add uncertainty to our compliance policies and increase our costs of
compliance.

Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of
2002, other SEC regulations, and the NASDAQ Stock Market rules, are creating uncertainty for companies like ours. These laws, regulations and standards may
lack specificity and are subject to varying interpretations. Their application in practice may evolve over time, as new guidance is provided by regulatory and
governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to
such corporate governance standards.

Although we are committed to maintaining high standards of corporate governance and public disclosure, and complying with evolving laws, regulations

and standards, if we fail to comply with new or changed laws, regulations or standards of corporate governance, our business and reputation may be harmed.

It is unlikely that we will pay dividends.

We have not paid any cash dividends since our inception and do not anticipate paying any cash dividends in the foreseeable future. We expect that our

earnings, if any, will be used to finance our growth.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our services are primarily performed from our Ridgefield, New Jersey headquarters and ten overseas delivery centers in the Philippines, India, Sri

Lanka, Canada, Germany, United Kingdom and Israel, all of which are leased. The square footage of all our leased properties totals approximately 293,000.

In addition, we may need to lease additional property in the future. We believe that we will be able to obtain suitable additional facilities on commercially

reasonable terms on an “as needed” basis.

Item 3. Legal Proceedings.

In 2008, a judgment was rendered in the Philippines against a Philippines subsidiary of the Company that is no longer active and purportedly also
against Innodata Inc., in favor of certain former employees of the Philippines subsidiary. The payment amount as recalculated in November 2017 by the
Philippines Department of Labor and Employment National Labor Relations Commission aggregates approximately $6.2 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 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 indicated that they proposed
to record the judgment as to them 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 entered a preliminary injunction that enjoins these former employees from pursuing or seeking recognition or enforcement of the judgment
against Innodata Inc. in the United States during the pendency of the action and until further order of the Court. The principal relevant cases in the Philippines
are Court of Appeals Case Nos. CA-G.R. SP No. 93295 Innodata Employees Association (IDEA), Eleanor Tolentino, et al. vs. Innodata Philippines, Inc., et al.,
and CA-G.R. SP No. 90538 Innodata Philippines, Inc. vs. Honorable Acting Secretary Manuel G. Imson, et al. (28 June 2007), the Department of Labor and
Employment National Labor Relations Commission, Republic of the Philippines (NLRC-NCR-Case No.07-04713-2002, et al., Innodata Employees Association
(IDEA) and Eleanor A. Tolentino, et al. vs. Innodata Philippines, Inc., et al), and the Department of Labor and Employment Office of the Secretary of Labor and
Employment, Republic of the Philippines (Case No. OS-AJ-0015-2001, In Re: Labor Dispute at Innodata Philippines, Inc.). The U.S. District Court action is Civil
Action No.: 2:17-cv-13268-SDW-LDW Innodata Inc. v. Myrna C. Augustin-Simon; et al.

We are also subject to various other legal proceedings and claims which arise in the ordinary course of business. While we believe that we have
adequate reserves for those losses we believe are probable and can be reasonably estimated, the ultimate results of legal proceedings and claims cannot be
predicted with certainty.

While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on our consolidated financial
position or overall trends in our consolidated results of operations, litigation is subject to inherent uncertainties. Substantial recovery against us in the above-
referenced Philippines action could have a material adverse impact on us, and unfavorable rulings or recoveries in the other proceedings could have a material
adverse impact on the consolidated operating results of the period in which the ruling or recovery occurs.

Item 4. Mine Safety Disclosures.

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Innodata Inc. (the “Company”) Common Stock is quoted on The Nasdaq Stock Market LLC under the symbol “INOD.” On February 9, 2018, there were
74 stockholders of record of the Company’s Common Stock based on information provided by the Company's transfer agent. Virtually all of the Company’s
publicly held shares are held in “street name” and the Company believes the actual number of beneficial holders of its Common Stock to be 2,847.

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

years ended December 31, 2017.

Common Stock
Sale Prices

2016

High

Low

First Quarter

2.83 $

Second Quarter

Third Quarter

Fourth Quarter

2.50

2.80

2.59

2017

High

Low

First Quarter

2.45 $

Second Quarter

Third Quarter

Fourth Quarter

2.25

1.85

1.50

2.21

2.16

2.15

1.90

1.35

1.30

0.88

Dividends

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

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth the aggregate information for the Company's equity compensation plans in effect as of December 31, 2017:

Number of

Securities to be Issued Weighted-Average

Number of Securities

Plan Category

Equity compensation plans approved by security holders (1)

not approved by security holders Equity compensation plans

Total

Upon Exercise of

Exercise Price of

Outstanding Options, Outstanding Options,
Warrants and Rights Warrants and Rights Equity Compensation Plans

Remaining Available for
Future Issuance Under

(a)

(b)

(c)

4,241,799 $

2.82

6,143,206

(1) 2013 Stock Plan, approved by the stockholders, see Note 10 to Consolidated Financial Statements, contained elsewhere herein.

Purchase of Equity Securities

In September 2011, our Board of Directors authorized the repurchase of up to $2.0 million of our common stock in open market or private transactions.

There is no expiration date associated with the program.

We did not repurchase any shares of our common stock during 2017. As of December 31, 2017, we had repurchased approximately 137,000 shares of

our common stock under this authorization, for a total cost of approximately $0.3 million.

We did not have any sales of unregistered equity securities during the three months ended December 31, 2017.

Item 6. Selected Financial Data.

Not applicable.

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

The following discussion should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this report.
In addition to historical information, this discussion includes forward-looking information that involves risks and assumptions which could cause actual results to
differ materially from management’s expectations. See “Forward-Looking Statements” included elsewhere in this report.

Executive Overview

We are a global digital services and solution company. We operate in three reporting segments: Digital Data Solutions (DDS), Innodata Advanced Data

Solutions (IADS) and Media Intelligence Solutions (MIS).

The following table sets forth, for the period indicated, certain financial data expressed for the two years ended December 31, 2017:

Revenues
Direct operating costs
Selling and administrative expenses
Change in fair value of contingent consideration
Loss from operations

Other income

Loss before provision for
income taxes
Provision for income taxes
Net loss
Loss attributable to non-controlling interest

(Dollars in millions)

Years Ended December 31,

2017

% of revenue

2016

% of revenue

100.0% $
75.2%
33.2%
0.0%
-8.4%

60.9
45.8
20.2
-
(5.1)
-

(5.1)
0.3
(5.4)
0.3

100.0%
74.8%
30.9%
1.7%
-7.4%

63.1
47.2
19.5
1.1
(4.7)
-

(4.7)
1.2
(5.9)
0.4

Net loss attributable to Innodata Inc. and Subsidiaries

(5.1)

(5.5)

Revenues

In our DDS segment, we recognize revenues based on the quantity delivered or resources utilized and in the period in which the services are performed
and delivery has occurred. Revenues for contracts billed on a time-and-materials basis are recognized as services are performed. Revenues under fixed-fee
contracts, which are not significant to the overall revenues, are recognized on the percentage of completion method of accounting, as services are performed or
milestones are achieved.

In our IADS segment, we recognize revenues primarily based on the quantity delivered, and the period in which services are performed and deliverables
are made as per contracts. A portion of our IADS segment revenue is derived from licensing our software and providing access to our hosted software platform.
Revenue from such services are recognized monthly when access to the service is provided to the end user and there are no significant remaining obligations,
persuasive evidence of an arrangement exists, the fees are fixed or determinable and collection is reasonably assured.

Our MIS segment derives its revenues primarily from subscription arrangements and provision of enriched media analysis services. Revenue from
subscriptions are recognized monthly when access to the service is provided to the end user and there are no significant remaining obligations, persuasive
evidence of an arrangement exists, the fees are fixed or determinable, and collection is reasonably assured. Revenues from enriched media analysis services
are recognized when the services are performed and delivered to the client.

We consider U.S. GAAP standard accounting criteria for determining whether to report revenue gross as a principal versus net as an agent. Factors
considered include whether we are the primary obligor, have risks and rewards of ownership, and bear the risk that a client may not pay for the services
performed. If there are circumstances where the above criteria are not met and therefore we are not the principal in providing services, amounts received from
clients are presented net of payments in the consolidated statements of operations and comprehensive loss.

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

Direct Operating Costs

Direct operating costs consist of direct payroll, 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.

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.

Adjusted EBITDA Performance Metric

In addition to measures of financial performance presented in our consolidated financial statements, we monitor “Adjusted EBITDA” to help us evaluate

our ongoing operating performance including our ability to operate the business effectively.

We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc. and Subsidiaries in accordance with GAAP before income taxes,
depreciation, amortization of intangible assets, impairment charges, changes in fair value of contingent consideration, stock-based compensation, loss
attributable to non-controlling interests and interest income (expense).

We believe Adjusted EBITDA is useful to our management and investors in evaluating our operating performance and for financial and operational
decision-making purposes. In particular, it facilitates comparisons of the core operating performance of our Company from period to period on a consistent basis
and helps us to identify underlying trends in our business. We believe it provides useful information about our operating results, enhances the overall
understanding of our past performance and future prospects and allows for greater transparency with respect to key metrics used by the management in our
financial and operational decision-making. We use this measure to establish operational goals for managing our business and evaluating our performance.

Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for results reported under GAAP. Some

of these limitations are:

·
·

Adjusted EBITDA does not reflect tax payments, and such payments reflect a reduction in cash available to us;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs and for our cash expenditures or future requirements
for capital expenditures or contractual commitments;
Adjusted EBITDA excludes the potential dilutive impact of stock-based compensation expense related to our workforce, interest income (expense) and
net loss attributable to non-controlling interests, and these items may represent a reduction or increase in cash available to us;
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and
Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; and

· Other companies, including companies in our own industry, may calculate Adjusted EBITDA differently from our calculation, limiting its usefulness as a

comparative measure.

Adjusted EBITDA should be considered as a supplement to, and not as a substitute for or superior to, GAAP net income.

The following table shows reconciliation from net loss to Adjusted EBITDA for the periods presented (in thousands):

Adjusted EBITDA:
Net loss attributable to Innodata Inc. and Subsidiaries

Depreciation and amortization
Stock-based compensation
Provision for income taxes
Change in fair value of contingent consideration
Interest expense (income), net
Non-controlling interests

Adjusted EBITDA

DDS Segment

Adjusted EBITDA:
Net loss attributable to DDS Segment

Depreciation and amortization
Stock-based compensation
Provision for income taxes
Change in fair value of contingent consideration
Interest expense (income), net
Non-controlling interests

Adjusted EBITDA - DDS Segment

IADS Segment

Adjusted EBITDA:
Net loss attributable to IADS Segment

Stock-based compensation

Adjusted EBITDA - IADS Segment

Years Ended December 31,

2017

2016

(5,055) $
3,674
695
285
-
(23)
(304)
(728) $

Years Ended December 31,

2017

2016

(1,740) $
2,258
689
326
-
(34)
(304)
1,195 $

(5,524)
3,195
1,162
1,126
1,038
63
(387)
673

(2,570)
2,309
1,172
1,181
1,038
63
(387)
2,806

Years Ended December 31,

2017

2016

(597) $
2
(595) $

(1,778)
(10)
(1,788)

MIS Segment

Adjusted EBITDA:
Net loss attributable to MIS Segment

Depreciation and amortization
Stock-based compensation
Benefits from income taxes
Interest expense, net

Adjusted EBITDA - MIS Segment

Results of Operations

Years Ended December 31,

2017

2016

(2,718) $
1,416
4
(41)
11
(1,328) $

(1,176)
886
-
(55)
-
(345)

Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016

Revenues

Total revenues were $60.9 million for the year ended December 31, 2017, a 3% decrease from $63.1 million for the year ended December 31, 2016.

Revenues from the DDS segment were $46.7 million and $50.7 million for the years ended December 31, 2017 and 2016, respectively, a decline of $4
million or approximately 8%. The decline was primarily on account of reduced volume from a key e-book client amounting to $3.3 million and lower volume from
other clients. The decline was partially offset by an increase in revenue for one new client for whom services began in the fourth quarter of 2016.

Revenues from the IADS segment were $4.8 million and $4.3 million for the years ended December 31, 2017 and 2016, respectively, an increase of $0.5

million or approximately 12%. The increase primarily reflects additional volume from Synodex clients.

Revenues from the MIS segment were $9.4 million and $8.1 million for the year ended December 31, 2017 and 2016, respectively, an increase of $1.3

million or approximately 16%. The increase is attributable to the acquisition of the Agility business in July 2016.

Two clients in our DDS segment generated approximately 30% and 31% of our total revenues in the fiscal years ended December 31, 2017 and 2016,
respectively. No other client accounted for 10% or more of total revenues during these periods. Further, in the years ended December 31, 2017 and 2016,
revenues from non-US clients accounted for 51% and 49%, respectively, of our revenues.

Direct Operating Costs

Direct operating costs were approximately $45.8 million and $47.2 million for the years ended December 31, 2017 and 2016, respectively, a decrease of

$1.4 million or approximately 3%.

Direct operating costs for the DDS segment were $35.4 million and $37.9 million for the years ended December 31, 2017 and 2016, respectively, a
decrease of $2.5 million or approximately 7%. The decline in direct operating costs is due to a decline in revenues. It also reflects cost rationalization. Direct
operating costs for the DDS segment as a percentage of DDS segment revenues were 76% for the year ended December 31, 2017 compared to 75% for the
year ended December 31, 2016. The increase primarily reflects a decline in DDS segment direct operating costs relative to the decline in revenues.

Direct operating costs for the IADS segment were approximately $4.3 million and $4.9 million for the respective periods, net of intersegment profits, a
decrease of $0.6 million or 12%. The decline in direct operating costs reflects a lower headcount due to production efficiencies. Direct operating costs for the
IADS segment as a percentage of IADS segment revenues were 90% and 113% for the years ended December 31, 2017 and 2016, respectively.

Direct operating costs for the MIS segment were approximately $6.1 million and $4.4 million, net of intersegment profit, for the years ended December
31, 2017 and 2016, respectively, an increase of $1.7 million, or 39%. The increase in direct operating costs was primarily on account of the acquisition of the
Agility business in July 2016. Direct operating costs for the MIS segment as a percentage of MIS segment revenues were 65% and 55% for the years ended
December 31, 2017 and 2016, respectively.

Selling and Administrative Expenses

Selling and administrative expenses were $20.2 million for the year ended December 31, 2017 compared to $19.5 million for the year ended December
31, 2016, an increase of $0.7 million or approximately 4%. Selling and administrative expenses as a percentage of total revenues were 33% and 31% for the
years ended December 31, 2017 and 2016, respectively.

Selling and administrative expenses for the DDS segment were $13.2 million and $13.5 million in these respective periods, a decrease of $0.3 million or
2%. In 2016, the DDS segment incurred $1.5 million of legal, professional and other costs in connection with an internal investigation. In 2017, selling and
administrative expenses included an accrual of $1.4 million primarily in connection with legal proceedings, offset in part by the recovery of approximately $0.2
million of accounts receivable from two clients. Selling and administrative expenses for the DDS segment as a percentage of DDS segment revenues increased
to 28% for the year ended December 31, 2017 from 26% for the year ended December 31, 2016. This increase primarily reflects the decline in selling and
administrative expenses relative to the decline in revenues.

Selling and administrative expenses for the IADS segment for the respective periods were $1.0 million and $1.2 million, net of intersegment profits, a
decline of $0.2 million or 17%. The decrease in selling and administrative expenses is on account of cost optimization. Selling and administrative expenses for
the IADS segment as a percentage of IADS segment revenues decreased to 21% for the year ended December 31, 2017 compared to 28% for the year ended
December 31, 2016. The decrease in selling and administrative expenses as a percentage of IADS segment revenues was principally attributable to the
increase in IADS revenues and the decline in selling and administrative expenses.

Selling and administrative costs for the MIS segment were $6.0 million and $4.8 million for the years ended December 31, 2017 and 2016, respectively.
The increase primarily reflects the acquisition of the Agility business in July 2016. Selling and administrative expenses for the MIS segment as a percentage of
MIS segment revenues increased to 64% for the year ended December 31, 2017 from 60% for the year ended December 31, 2017.

Contingent Consideration

On September 30, 2016, we and the other parties involved in the acquisition of MediaMiser amended the terms on which one of our subsidiaries was
required to make a supplemental purchase price payment for MediaMiser. Prior to the amendment, the amount of the supplemental purchase price payment was
to be determined by the achievement of certain financial thresholds and was in no event to exceed $3.8 million (C$5 million). The amendment fixed the amount
of the supplemental purchase price payment at $1.5 million (C$2 million) payable in two equal installments. The first installment was paid 30% in cash and 70%
in shares of Innodata Inc. common stock on March 31, 2017. The second instalment is payable on March 31, 2018 to designated recipients, except that no
payments will be made to designated recipients who fail to satisfy specified conditions. We have the option to pay up to 70% of the supplemental amount in
shares of Innodata Inc. common stock. We recorded a $1.0 million charge in our statement of operations for the third quarter of 2016 to reflect the amendment.

Taxes

We recorded a provision for income taxes of approximately $0.3 million and $1.1 million for the years ended December 31, 2017 and 2016, respectively.
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. Some of our foreign subsidiaries are subject to tax holidays or preferential tax rates which reduce our overall effective tax rate when compared to
the U.S. statutory tax rate.

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

•

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

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

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

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

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

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

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

We continue to evaluate the GILTI provisions of the 2017 Tax Act and its impact, if any, on the consolidated financial statements as of December 31,

2017.

One of the several provisions of the 2017 Tax Act was a one-time tax on the mandatory deemed repatriation of post-1986 untaxed foreign earnings and
profits (E&P), referred to as the toll charge. A significant portion of our operations are conducted outside the United States. The toll charge amounted to $6.4
million. The charge was offset by the available net operating loss carryforwards. Despite the access to the overseas earnings and the resulting toll charge, we
intend to indefinitely reinvest the foreign earnings in our foreign subsidiaries on account of the withholding tax that we would have to incur on the actual
remittances. Unremitted earnings of foreign subsidiaries amounted to approximately $24.8 million at December 31, 2017. If such earnings are repatriated in the
future, or are no longer deemed to be indefinitely reinvested, we would have to accrue the applicable amount of withholding taxes associated with such
remittances.

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

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

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

In 2015, our Indian subsidiary was subject to an inquiry by the Service Tax Bureau in India regarding the classification of services provided by this
subsidiary, asserting that the services provided by this subsidiary fall under the category of online information and database access or retrieval services (OID
Services), and not under the category of business support services (BS Services) that are exempt from service tax as historically indicated in the subsidiary’s
service tax filings. In the event the Service Tax Bureau is successful in proving that the services fall under the category of OID Services the revenues earned by
our Indian subsidiary would be subject to a service tax of approximately 14.5% of the subsidiary’s revenues and this would increase our operating costs by an
equivalent amount. The revenues of our Indian subsidiary for the year ended December 31, 2017 were $15.6 million. We disagree with the Service Tax Bureau’s
position and are vigorously contesting these assertions.

From time to time we are subject to various other tax proceedings and claims for our Philippines subsidiaries. We have recorded a tax provision
amounting to $184,000 including interest through December 31, 2017, for several ongoing tax proceedings in the Philippines. Although the ultimate outcome
cannot be determined at this time, we continue to contest these claims vigorously.

Net Loss

We incurred a net loss of $5.1 million during the year ended December 31, 2017 compared to a net loss of $5.5 million during the year ended December

31, 2016.

Net loss for the DDS segment was $1.7 million for the year ended December 31, 2017, compared to a net loss of $2.6 million for the year ended
December 31, 2016, net of intersegment profits. The decline in net loss is primarily due to the decline in direct operating costs and selling and administrative
expenses offset in part by the decline in revenues. In 2016, we had a charge to our operations referred to under “Contingent Consideration.”

Net loss for the IADS segment was $0.6 million for the year ended December 31, 2017 compared to a net loss of $1.7 million for the year ended
December 31, 2016, net of intersegment profits. The decline in net loss is primarily due to the increase in revenues and the decline in direct operating costs and
selling and administrative expenses.

Net loss for the MIS segment was $1.4 million and $1.2 million for the years ended December 31, 2017 and 2016, respectively. The increased net loss

is mainly due to the increase in direct operating costs and selling and administrative expenses partially offset by an increase in revenues.

Adjusted EBITDA

Adjusted EBITDA for the year ended December 31, 2017 was a loss of $0.7 million compared to income of $0.7 million for the year ended December 31,
2016, a decline of $1.4 million. Adjusted EBITDA for the DDS segment was $1.2 million and $2.8 million for the years ended December 31, 2017 and 2016,
respectively, a decrease of $1.6 million or approximately 57%. Adjusted EBITDA for the IADS segment was a loss of $0.6 million and a loss of $1.8 million for the
years ended December 31, 2017 and 2016, respectively. Adjusted EBITDA for the MIS segment was a loss of $1.3 million compared to a loss of $0.3 million for
the years ended December 31, 2017 and 2016, respectively.

Liquidity and Capital Resources

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

Cash and cash equivalents
Working capital

December 31,

2017

2016

11,407 $
9,729

14,172
14,407

At December 31, 2017, we had cash and cash equivalents of $11.4 million, of which $5.7 million was held by our foreign subsidiaries, and$5.7 million
was held in the United States. Despite the passage of the new tax law under which the Company may repatriate funds from overseas after paying toll charge, it
is our intent as of December 31, 2017, to permanently reinvest the overseas funds in our foreign subsidiaries on account of the withholding tax that we would
have to incur on the actual remittances.

We have used, and plan to use, our cash and cash equivalents for (i) investments in the MIS Segment; (ii) the expansion of our other operations; (iii)
general corporate purposes, including working capital; and (iv) possible business acquisitions. As of December 31, 2017, we had working capital of
approximately $9.7 million, as compared to working capital of approximately $14.4 million as of December 31, 2016.

Net Cash Provided by (Used in) Operating Activities

Cash provided by our operating activities for the year ended December 31, 2017 was $0.7 million, resulting from a net loss of $5.4 million and
adjustments for non-cash items of $4.2 million and uses of working capital of $1.9 million. Adjustments for non-cash items primarily consisted of $3.7 million for
depreciation and amortization, and stock-based compensation expense of $0.7 million.

Cash used in our operating activities for the year ended December 31, 2016 was $2.7 million, resulting from a net loss of $5.9 million and adjustments
for non-cash items of $5.5 million and uses of working capital of $2.3 million. Adjustments for non-cash items primarily consisted of $3.2 million for depreciation
and amortization, a change in fair value of contingent consideration of $1.0 million and stock-based compensation expense of $1.2 million.

At December 31, 2017, our days’ sales outstanding were 61 days as compared to 55 days as of December 31, 2016. We calculate DSO by first dividing
the total revenues for the period by average net accounts receivable, which is the sum of net accounts receivable at the beginning of the period and net
accounts receivable at the end of the period, to yield an amount we refer to as the “accounts receivable turnover.” Then we divide the total number of days within
the period reported by the accounts receivable turnover to yield DSO expressed in number of days.

Net Cash Used in Investing Activities

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

For the year ended December 31, 2016, cash used in our investing activities was $7.0 million. These expenditures consisted of $4.2 million paid to
acquire Agility in July 2016 and capital expenditures of $2.7 million principally for the purchase of technology equipment including servers, network infrastructure
and workstations. Capital expenditures of $2.7 million consisted of $2.2 million for the DDS segment and $0.5 million for the MIS segment.

For the year 2018, we anticipate that capital expenditures for ongoing technology, equipment and infrastructure upgrades will approximate $1.0 to $2.0

million, a portion of which we may finance.

Net Cash Provided Used in Financing Activities

Payment of long-term obligations approximated $1.1 million and $0.7 million for 2017 and 2016, respectively. Cash from financing activities represents
the net proceeds from a capital lease transaction we entered into during 2017 amounting to $0.8 million. There were no stock option exercises during the years
ended December 31, 2017 and 2016, respectively. During the year ended December 31, 2016, we repurchased 57,000 shares of our common stock for
approximately $0.1 million.

Although most of our revenues are denominated in U.S. dollars, a significant portion of our revenues is denominated in Canadian dollars, Pound Sterling
and Euros. In addition, a significant portion of our expenses, primarily labor expenses in the Philippines, India, Sri Lanka, Germany, Canada and Israel, is
incurred in the local currencies of the countries in which we operate. For financial reporting purposes, we translate all non-U.S. denominated transactions into
U.S. dollars in accordance with accounting principles generally accepted in the United States. Thus, we are exposed to the risk that fluctuations in the value of
these currencies relative to the U.S. dollar could have a direct impact on our revenues and our results of operations.

The Philippines and India have at times experienced high rates of inflation as well as major fluctuations in the exchange rate between the Philippine peso
and the U.S. dollar and the Indian rupee and the U.S. dollar. Although we selectively undertake hedging activities to mitigate certain of these risks, our hedging
activities may not be effective and may result in losses.

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

Contractual Obligations

The table below summarizes our contractual obligations (in thousands) at December 31, 2017, and the effect that those obligations are expected to have

on our liquidity and cash flows in future periods.

Contractual Obligations

Total

Payments Due by Period

Less than
1 year

1-3 years

4-5 years

After 5
years

Capital lease
Vendor obligations
Non cancellable operating leases
Total contractual cash obligations

829 $
751
3,255
4,835 $

436 $
395
687
1,518 $

393 $
356
964
1,713 $

- $
-
720
720 $

-
-
884
884

Future expected obligations under our pension benefit plans have not been included in the contractual cash obligations table above.

Inflation, Seasonality and Prevailing Economic Conditions

Our most significant costs are the salaries and related benefits of our employees in Asia. We are exposed to higher inflation in wage rates in the
countries in which we operate. We generally perform work for our clients under project-specific contracts, requirements-based contracts or long-term contracts.
We must adequately anticipate wage increases, particularly on our fixed-price contracts. There can be no assurance that we will be able to recover cost
increases through increases in the prices that we charge for our services to our clients.

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

Our Synodex subsidiary experiences seasonal fluctuations in revenues. Typically, revenue is lowest in the third quarter of the calendar year and highest

in the fourth quarter of the calendar year. The seasonality is directly linked to the number of life insurance applications received by the insurance companies.

Critical Accounting Policies and Estimates

Basis of Presentation and Use of Estimates

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

Allowance for Doubtful Accounts

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

Foreign Currency Translation

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

The functional currency for our subsidiaries in Germany, United Kingdom and Canada are the Euro, the Pound Sterling and the Canadian dollar,
respectively. The financial statements of these subsidiaries are reported in these respective currencies. Financial information is translated from the applicable
functional currency to the U.S. dollar (the reporting currency) for inclusion in our consolidated financial statements. Income, expenses and cash flows are
translated at weighted average exchange rates prevailing during the fiscal period, and assets and liabilities are translated at fiscal period-end exchange rates.
Resulting translation adjustments are included as a component of accumulated other comprehensive income (loss) in stockholders' equity. Foreign exchange
transaction gains or losses are included in direct operating costs in the accompanying consolidated statements of operations and comprehensive loss. The
amount of foreign currency translation adjustment was ($687,000) and $1,393,000 for the years ended December 31, 2017 and 2016, respectively.

Revenue Recognition

For the DDS segment, revenue is recognized based on the quantity delivered or resources utilized and in the period in which services are performed
and delivery has occurred. Revenues for contracts billed on a time-and-materials basis are recognized as services are performed. Revenues under fixed-fee
contracts, which are not significant to the overall revenues, are recognized on the percentage of completion method of accounting, as services are performed or
milestones are achieved.

For the IADS segment, revenue is recognized primarily based on the quantity delivered and the period in which services are performed and deliverables
are made as per contracts. A portion of our IADS segment revenue is derived from licensing our software and providing access to our hosted software platform.
Revenue from such services are recognized monthly when access to the service is provided to the end user and there are no significant remaining obligations,
persuasive evidence of an arrangement exists, the fees are fixed or determinable and collection is reasonably assured.

The MIS segment derives its revenues primarily from subscription arrangements and provision of enriched media analysis services. Revenue from
subscriptions is recognized monthly when access to the service is provided to the end user and there are no significant remaining obligations, persuasive
evidence of an arrangement exists, the fees are fixed or determinable and collection is reasonably assured. Revenue from enriched media analysis services is
recognized when the services are performed and delivered to the client.

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

Long-lived Assets

future operating results; (ii) significant negative

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

trends; (iii) a significant decline

industry or economic

Income Taxes

We determine our deferred taxes based on the difference between the financial statement and tax basis of assets and liabilities, using enacted tax rates,
as well as any net operating loss or tax credit carryforwards expected to reduce taxes payable in future years. We provide a valuation allowance when it is more
likely than not that all or some portion of the deferred tax assets will not be realized. While we consider future taxable income in assessing the need for the
valuation allowance, in the event we were to determine that we would be able to realize the deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax assets would increase income in the period such determination was made. Similarly, in the event we were to
determine that we would not be able to realize the deferred tax assets in the future considering the future taxable income, an adjustment to the deferred tax
assets would decrease income in the period such determination was made. Changes in the valuation allowance from period to period are included in our tax
provision in the period of change. As of December 31, 2017, we intend to indefinitely reinvest the foreign earnings in our foreign subsidiaries. However, if we
change our intent and repatriate such earnings, we will have to accrue the applicable amount of withholding taxes associated with such remittances.

In assessing the realization of deferred tax assets, management considered whether it was more likely than not that all or some of the U.S. deferred tax

assets would not be realizable. As of December 31, 2017, we continue to maintain a valuation allowance on all U.S. deferred tax assets.

As of December 31, 2017, our Canadian subsidiaries have available net operating loss carryforwards and research and development expenditures

available to reduce taxable income of future years. The potential benefits from balances have not been recognized for financial statement purposes.

We account for income taxes regarding uncertain tax positions, and recognize interest and penalties related to uncertain tax positions under “Income Tax

Expense” in our consolidated statements of operations and comprehensive loss.

Goodwill and Other Intangible Assets

Goodwill represents the excess purchase price paid over the fair value of net assets acquired. We test our goodwill on an annual basis using a two-step
fair value-based test. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit, with its
carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment test must be
performed to measure the amount of the impairment loss, if any. If impairment is determined, we will recognize additional charges to operating expenses in the
period in which they are identified, which would result in a reduction of operating results and a reduction in the amount of goodwill.

In the annual impairment test conducted by us as of September 30, 2017 and 2016, the estimated fair value of the reporting unit exceeded its carrying

amount, including goodwill. As such, no impairment was identified or recorded.

Accounting for Stock-Based Compensation

We are authorized to grant stock options to officers, directors, employees and others who render services to us under the 2013 Stock Plan approved by

the stockholders.

We measure and recognize stock-based compensation expense for all share-based payment awards made to employees and directors based on
estimated fair value at the grant date and recognized over the requisite service period. Determining the fair value of stock-based awards at the grant date
requires judgment, including estimating the expected term of stock options and the expected volatility of our stock. The fair value is determined using the Black-
Scholes option-pricing model. We recorded stock-based compensation expense of approximately $0.7 million and $1.2 million for the years ended December 31,
2017 and 2016, respectively.

Legal Proceedings

We are subject to various legal proceedings and claims which arise in the ordinary course of business. Our legal reserves related to these proceedings
and claims are based on a determination of whether or not a loss is probable. We review outstanding claims and proceedings with external counsel to assess
probability and estimates of loss. The reserves are adjusted if necessary. If circumstances change, we may be required to record adjustments that could be
material to our reported financial condition and results of operations.

Pensions

Most of our non-U.S. subsidiaries provide for government mandated defined pension benefits covering those employees who meet certain eligibility
requirements. Pension assumptions are significant inputs to actuarial models that measure pension benefit obligations and related effects on operations. Two
critical assumptions – discount rate and rate of increase in compensation levels – are important elements of plan expense and asset/liability measurements.
These critical assumptions are evaluated at least annually on a plan and a country-specific basis. Other assumptions involving demographic factors such as
retirement age, mortality and turnover are evaluated periodically and are updated to reflect actual experience and expectations for the future. Actual results in
any given year will often differ from actuarial assumptions because of economic and other factors, and in accordance with generally accepted accounting
principles, the impact of these differences is accumulated and amortized over future periods.

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance on revenue from contracts with clients. This update is a comprehensive new revenue recognition model that
requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to
receive in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash
flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a
contract. This accounting guidance is effective prospectively for annual reporting periods, and interim periods within those periods, beginning after December 15,
2017 and early adoption is permitted starting from the first quarter of 2017. Companies may use either a full retrospective or a modified retrospective approach to
adopt the new standard when it takes effect. We will adopt the new standard and related updates effective January 1, 2018 using the modified retrospective
method of adoption. The new standard further requires new disclosures about contracts with customers, including the significant judgments the company has
made when applying the guidance. We have finalized our analysis and the adoption of this guidance will not have a material impact on our consolidated financial
statements and internal controls over financial reporting.

In February 2016, the FASB issued guidance related to leases. This new guidance requires lessees to recognize on the balance sheet a right-of-use
asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance
also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard
requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. This
new guidance is effective for annual periods beginning after December 15, 2018. Early application is permitted. We are in the process of evaluating the effect
the guidance will have on our existing accounting policies and consolidated financial statements but expect there will be an increase in assets and liabilities on
the consolidated balance sheets at adoption due to the recording of right-of-use assets and corresponding lease liabilities, which may be material.

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

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

In January 2017, the FASB issued guidance simplifying the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test.
Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount
of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying
value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of
the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2020,
with early adoption permitted.

In August 2017, the FASB amended the requirements of the Derivatives and Hedging Topic of the Accounting Standards Codification to improve the
financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The
amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We do not
anticipate that the adoption of this guidance will have a material impact on our consolidated financial statements.

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

Interest rate risk

Our equipment sales leaseback financing and capital lease transactions carry a fixed interest rate. Thus, as of December 31, 2017 we are not exposed

to any market risk due to interest rate fluctuations.

Foreign currency risk

Although most of our revenues are denominated in U.S. dollars, a significant portion of our revenues are denominated in Canadian dollars, Pound
Sterling and Euros. In addition, a significant portion of our expenses, primarily labor expenses in the Philippines, India, Sri Lanka, Germany, Canada and Israel,
are incurred in the local currencies of the countries in which we operate. For financial reporting purposes, we translate all non-U.S. denominated transactions
into U.S. dollars in accordance with accounting principles generally accepted in the United States. Thus, we are exposed to the risk that fluctuations in the value
of these currencies relative to the U.S. dollar could have a direct impact on our revenues and our results of operations.

To mitigate the exposure of fluctuating future cash flows due to changes in foreign exchange rates, we entered into foreign currency forward contracts in
2017. These foreign currency forward contracts were entered into with a maximum term of twelve months and have an aggregate notional amount of
approximately $15.9 million as of December 31, 2017. The total unrealized gain on the outstanding hedges were $0.3 million as of December 31, 2017.

The impact of foreign currency fluctuations will continue to present economic challenges to us and could negatively impact our overall results of
operations. A 10% appreciation in the U.S. dollar’s value relating to the hedged currencies would decrease the forward contracts’ fair value by approximately
$1.4 million as of December 31, 2017. Similarly, a 10% depreciation in the U.S. dollar’s value relative to the hedged currencies would increase the forward
contracts’ fair value by approximately $1.8 million as of December 31, 2017. Any increase or decrease in the fair value of our currency exchange rate sensitive
forward contracts, if utilized, would be substantially offset by a corresponding decrease or increase in the fair value of the hedged underlying cash flows.

We may continue to enter into these, or other such instruments, in the future to reduce foreign currency exposure to appreciation or depreciation in the

value of these foreign currencies.

Other than the forward contracts mentioned above, we have not in 2017 engaged in any hedging activities or entered into off-balance-sheet transactions
or arrangements. As of December 31, 2017, our foreign subsidiaries held cash and cash equivalents totaling approximately $5.7 million. These assets are
exposed to foreign exchange risk arising from changes in foreign exchange rates. At present, we do not enter into any hedging instruments to mitigate foreign
exchange risk on such assets; however, we may do so in the future.

Item 8. Financial Statements and Supplementary Data.

See Financial Statement Index, Financial Statements and Supplementary Data commencing on page F-1 herein.

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

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules
and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer 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 Chief 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). Based on this
evaluation, our Chief Executive Officer and our Principal Financial Officer concluded that, as of December 31, 2017, our disclosure controls and procedures were
effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange
Act) during the last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

Report of Management on Internal Control over Financial Reporting

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

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control –
Integrated Framework (2013) - issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation,
management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017.

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

Item 9B. Other information.

None.

Item 10. Directors, Executive Officers and Corporate Governance.

PART III

The information called for by Item 10 is incorporated by reference from the Company’s definitive proxy statement for the 2018 Annual Meeting of

Stockholders to be filed pursuant to Regulation 14A under the Exchange Act no later than 120 days after the end of the Company’s 2017 fiscal year.

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

Item 11. Executive Compensation.

The information called for by Item 11 is incorporated by reference from the Company’s definitive proxy statement for the 2018 Annual Meeting of

Stockholders to be filed pursuant to Regulation 14A under the Exchange Act no later than 120 days after the end of the Company’s 2017 fiscal year.

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

The information called for by Item 12 is incorporated by reference from the Company’s definitive proxy statement for the 2018 Annual Meeting of

Stockholders to be filed pursuant to Regulation 14A under the Exchange Act no later than 120 days after the end of the Company’s 2017 fiscal year.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information called for by Item 13 is incorporated by reference from the Company’s definitive proxy statement for the 2018 Annual Meeting of

Stockholders to be filed pursuant to Regulation 14A under the Exchange Act no later than 120 days after the end of the Company’s 2017 fiscal year.

Item 14. Principal Accounting Fees and Services.

The information called for by Item 14 is incorporated by reference from the Company’s definitive proxy statement for the 2018 Annual Meeting of

Stockholders to be filed pursuant to Regulation 14A under the Exchange Act no later than 120 days after the end of the Company’s 2017 fiscal year.

Item 15. Exhibits, Financial Statement Schedules.

(a)

Financial Statements. See Item 8. Index to Financial Statements.

1.
2. Exhibits – See Exhibit Index attached hereto and incorporated by reference herein.

PART IV

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

duly authorized.

SIGNATURES

INNODATA INC.

/s/ Jack Abuhoff
Jack Abuhoff
Chairman of the Board,
Chief Executive Officer and President
March 22, 2018

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

the dates indicated.

Signature

/s/ Jack Abuhoff
Jack Abuhoff

/s/ Raj Jain
Raj Jain

/s/ Haig S. Bagerdjian
Haig S. Bagerdjian

/s/ Louise C. Forlenza
Louise C. Forlenza

/s/ Stewart R. Massey
Stewart R. Massey

/s/ Michael J. Opat
Michael J. Opat

/s/ Anthea C. Stratigos
Anthea C. Stratigos

/s/ Andargachew S. Zelleke
Andargachew S. Zelleke

Title

Date

Chairman of the Board,
Chief Executive Officer and President

March 22, 2018

Vice President and Principal Accounting Officer

March 22, 2018

Director

March 22, 2018

Item 8. Financial Statements.

INNODATA INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2017 and 2016

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2017 and 2016

Consolidated Statements of Stockholders’ Equity for the years ended ended December 31, 2017 and 2016

Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016

Notes to Consolidated Financial Statements

F-1

PAGE

F-2

F-3

F-4

F-5

F-6

F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Innodata, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Innodata, Inc. and Subsidiaries (the Company) as of December 31, 2017 and 2016, and the
related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes
(collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and its results of operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

/s/ CohnReznick LLP

We have served as the Company’s auditor since 2008.

Roseland, New Jersey
March 22, 2018

F-2

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

2017

2016

11,407 $
10,291
3,630
25,328
7,189
3,159
1,757
7,606
2,832
47,871 $

1,258 $
5,571
5,539
1,098
2,133
15,599
614
4,477

(3,938)
-

14,172
9,952
3,124
27,248
5,397
2,377
1,641
8,191
2,734
47,588

1,018
4,333
5,040
1,330
1,120
12,841
680
3,917

(3,634)
-

ASSETS
Current assets:

Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other current assets

Total current assets
Property and equipment, net
Other assets
Deferred income taxes
Intangibles, net
Goodwill

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Accrued salaries, wages and related benefits
Income and other taxes
Current portion of long-term obligations

Total current liabilities

Deferred income taxes
Long-term obligations, net of current portion

Non-controlling interests
Commitments and contingencies

STOCKHOLDERS’ EQUITY:

Serial preferred stock; 5,000,000 shares authorized, none outstanding
Common stock, $.01 par value; 75,000,000 shares authorized; 27,559,000 shares issued and 25,878,000
outstanding at December 31, 2017 and 27,305,000 shares issued and 25,624,000 outstanding at December
31, 2016
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)

Less: treasury stock, 1,681,000 shares at December 31, 2017 and December 31, 2016, at cost
Total stockholders’ equity

Total liabilities and stockholders’ equity

275
27,275
7,345
846
35,741
(4,622)
31,119
47,871 $

273
26,057
12,400
(324)
38,406
(4,622)
33,784
47,588

See notes to consolidated financial statements.

F-3

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

Revenues

Operating costs and expenses:

Direct operating costs
Selling and administrative expenses
Change in fair value of contingent consideration

Loss from operations

Interest expense (income), net

Loss before provision for income taxes

Provision for income taxes

Net loss

Loss attributable to non-controlling interests

Net loss attributable to Innodata Inc. and Subsidiaries

Loss per share attributable to Innodata Inc. and Subsidiaries:

Basic and diluted

Weighted average shares outstanding:

Basic and diluted

Comprehensive income (loss):
Net loss

Pension liability adjustment, net of taxes
Change in fair value of derivatives, net of taxes
Foreign currency translation adjustment
Other comprehensive income (loss)

Total comprehensive loss
Comprehensive loss attributed to non-controlling interest

Comprehensive loss attributable to Innodata Inc. and Subsidiaries

See notes to consolidated financial statements.

F-4

2017

2016

60,929 $

45,826
20,200
-
66,026

63,074

47,219
19,539
1,038
67,796

(5,097)

(4,722)

(23)

(5,074)

285

(5,359)

304

(4,785)

1,126

(5,911)

387

(5,055) $

(5,524)

(0.20) $

(0.22)

25,816

25,542

(5,359) $
(196)
660
706
1,170
(4,189)
304
(3,885) $

(5,911)
(136)
(153)
49
(240)
(6,151)
387
(5,764)

INNODATA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2017 AND 2016
(In thousands)

Common Stock

Amount

Additional
Paid-in

Capital

Retained

Earnings

Accumulated
Other
Comprehensive

Income (Loss)

Treasury

Stock

Total

January 1, 2016
Net loss
Stock-based compensation
Issuance of common stock in connection with
MediaMiser acquisition
Acquisition of non-controlling interest
Pension liability adjustments, net of taxes
Foreign currency translation adjustment
Change in fair value of derivatives, net of
taxes
Purchase of treasury stock

December 31, 2016

Net loss
Stock-based compensation
Issuance of common stock in connection with
MediaMiser acquisition
Pension liability adjustments, net of taxes
Foreign currency translation adjustment
Change in fair value of derivatives, net of
taxes

December 31, 2017

25,445
-
-

270
-
-

24,590
-
1,162

236
-
-
-

-
(57)

25,624

-
-

254
-
-

3
-
-
-

-
-
273

-
-

2
-
-

566
(261)
-
-

-
-
26,057

-
695

523
-
-

17,924
(5,524)

-
-
-
-

-
-
12,400

(5,055)

-
-
-

(84) $
-
-

(4,488) $
-
-

-
-
(136)
49

(153)
-
(324)

-
-

-
(196)
706

-
-
-
-

-
(134)
(4,622)

-
-

-
-
-

-
25,878

-
275

-
27,275

-
7,345

660
846

-
(4,622) $

38,212
(5,524)
1,162

569
(261)
(136)
49

(153)
(134)
33,784

(5,055)
695

525
(196)
706

660
31,119

See notes to consolidated financial statements.

F-5

INNODATA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(In thousands)

Cash flow from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

2017

2016

(5,359) $

(5,911)

Depreciation and amortization
Provision for doubtful accounts
Stock-based compensation
Deferred income taxes
Pension cost
Change in fair value of contingent consideration
Changes in operating assets and liabilities:

Accounts receivable
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued expenses
Accrued salaries, wages and related benefits
Income and other taxes

Net cash provided by (used in) operating activities

Cash flow from investing activities:

Capital expenditures
Acquisition of business

Net cash used in investing activities

Cash flow from financing activities:
Proceeds from equipment financing
Payment of long-term obligations
Purchase of treasury stock

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Supplemental disclosures of cash flow information:

Cash paid for income taxes
Vendor financed software licenses acquired
Common stock issued for MediaMiser acquistion

3,674
(139)
695
(255)
245
-

(40)
284
(188)
1,595
484
(258)
738

(3,410)
-
(3,410)

793
(1,077)
-
(284)

191

3,195
136
1,162
(159)
103
1,038

17
(133)
(395)
(1,749)
84
(123)
(2,735)

(2,740)
(4,228)
(6,968)

-
(703)
(134)
(837)

(196)

(2,765)

(10,736)

14,172

11,407 $

1,090 $
1,213 $
525 $

24,908

14,172

1,306
-
569

$
$
$

See notes to consolidated financial statements.

F-6

Description of Business and Summary of Significant Accounting Policies

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company operates in three reporting segments: Digital Data Solutions (DDS), Innodata Advanced Data Solutions (IADS) and Media Intelligence

Solutions (MIS).

The Company’s DDS segment provides solutions to digital retailers, information services companies, publishers and enterprises that have one or more of
the following broad business requirements: development of digital content (including e-books); development of new digital information products; and operational
support of existing digital information products and systems.

The Company’s IADS segment designs and develops new capabilities to enable clients in the financial services, insurance and healthcare sectors to
improve decision-support through digital technologies. IADS operates through two subsidiaries. Synodex offers a range of services for healthcare and insurance
companies, and docGenix provides services to financial services institutions. As of December 31, 2017, Innodata owned 91% of Synodex and 94% of docGenix,
both limited liability companies.

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

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

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

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

F-7

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates - In preparing 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 at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include those related to
revenue recognition, allowance for doubtful accounts and billing adjustments, long-lived assets, intangible assets, goodwill, valuation of deferred tax assets,
valuation of securities underlying stock-based compensation, litigation accruals, pension benefits, purchase price allocation of the net assets acquired in the
acquisition of Agility, valuation of derivative instruments and estimated accruals for various tax exposures.

Revenue Recognition - For the DDS segment, revenue is recognized based on the quantity delivered or resources utilized and in the period in which
services are performed and delivery has occurred. Revenues for contracts billed on a time-and-materials basis are recognized as services are performed.
Revenues under fixed-fee contracts, which are not significant to the overall revenues, are recognized on the percentage of completion method of accounting, as
services are performed or milestones are achieved.

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

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

F-8

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments - The Company has designated its derivatives (foreign currency forward contracts) as a cash flow hedge. Accordingly, the
effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income or loss, and is subsequently
reclassified to earnings when the hedge exposure affects earnings. The Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk management objective and strategy for undertaking various hedging activities.

Cash Equivalents - For financial statement purposes (including cash flows), the Company considers all highly liquid instruments purchased with an

original maturity of three months or less to be cash equivalents.

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

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

Goodwill and Other Intangible Assets - Goodwill represents the excess purchase price paid over the fair value of net assets acquired. The Company
tests its goodwill on an annual basis using a two-step fair value based test. The first step of the goodwill impairment test, used to identify potential impairment,
compares the fair value of a reporting unit, with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the
second step of the goodwill impairment test must be performed to measure the amount of the impairment loss, if any. If impairment is determined, the Company
will recognize additional charges to operating expenses in the period in which they are identified, which would result in a reduction of operating results and a
reduction in the amount of goodwill.

In the annual impairment test conducted by the Company as of September 30, 2017 and 2016, the estimated fair value of the reporting unit exceeded its

carrying amount, including goodwill. As such, no impairment was identified or recorded.

Income Taxes - Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities, using
enacted tax rates, as well as any net operating loss or tax credit carryforwards expected to reduce taxes payable in future years. A valuation allowance is
provided when it is more likely than not that all or some portion of the 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 that it would be able to realize the deferred tax assets in
the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.
Similarly, in the event that the Company determines that it would not be able to realize the deferred tax assets in the future considering future taxable income,
an adjustment to the deferred tax assets would decrease income in the period such determination was made. Changes in the valuation allowance from period
to period are included in the Company’s tax provision in the period of change. The Company indefinitely reinvests the foreign earnings in its foreign subsidiaries.
Unremitted earnings of foreign subsidiaries have been included in the consolidated financial statements without giving effect to the United States taxes that may
be payable on distribution to the United States, because such earnings are not anticipated to be remitted to the United States.

F-9

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company accounts for income taxes regarding uncertain tax positions, and recognizes interest and penalties related to uncertain tax positions in

income tax expense in the consolidated statements of operations and comprehensive loss.

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

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

Direct operating costs
Selling and adminstrative expenses

Total stock-based compensation

Year Ended December 31,

2017

2016

260 $
435

330
832

695 $

1,162

Fair Value of Financial Instruments - The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and

accounts payable approximated their fair value as of December 31, 2017 and 2016, because of the relative short maturity of these instruments.

Fair value measurements and disclosures define fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in

the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

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

defined as follows:

·
·
·

Level 1: Unadjusted quoted price in active market for identical assets and liabilities.
Level 2: Observable inputs other than those included in Level 1.
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

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

F-10

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Deferred Revenue - Deferred revenue represents payments received from clients in advance of providing services and amounts deferred if conditions
for revenue recognition have not been met. Included in accrued expenses on the accompanying consolidated balance sheets as of December 31, 2017 and
2016 is deferred revenue amounting to $1.9 million and $2.0 million, respectively.

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

In February 2016, the FASB issued guidance related to leases. This new guidance requires lessees to recognize on the balance sheet a right-of-use
asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance
also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard
requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. This
new guidance is effective for annual periods beginning after December 15, 2018. Early application is permitted. The Company is in the process of evaluating
the effect the guidance will have on its existing accounting policies and consolidated financial statements but expects there will be an increase in assets and
liabilities on the consolidated balance sheets at adoption due to the recording of right-of-use assets and corresponding lease liabilities, which may be material.

F-11

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Property and equipment

Property and equipment, which include amounts recorded under capital leases, are stated at cost less accumulated depreciation and amortization (in

thousands), and consist of the following:

F-12

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equipment
Software
Furniture and equipment
Leasehold improvements

Total

Less: accumulated depreciation and amortization

December 31,

2017

2016

13,574 $
7,291
2,276
5,342
28,483
(21,294)
7,189 $

14,558
5,685
2,119
4,929
27,291
(21,894)
5,397

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

2017 and 2016, respectively.

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

Acquisitions

On July 14, 2016, Innodata’s MediaMiser subsidiary completed the acquisition of the Agility business from PR Newswire under an asset purchase

agreement for cash consideration of $4.2 million.

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

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

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

allocation for the acquisition:

F-13

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts receivable
Media contact database
Developed technology
Tradenames and trademarks

Total identifiable assets acquired

Accrued salaries, wages and related benefits
Deferred revenues
Income and other taxes

Total liabilities assumed

Net identifiable assets acquired

Goodwill
Net assets acquired

Amount
$

771
3,610
994
310
5,685

63
2,560
97
2,720
2,965
1,263
4,228

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

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

of 10 years.

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

F-14

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31,
2016

Revenues:

As reported
Proforma

Net loss attributable to Innodata Inc. and Subsidiaries:

As reported
Proforma

Basic and diluted net loss per share:

As reported
Proforma

$
$

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill as of December 31, 2017 and 2016 were as follows (in thousands):

Balance as of January 1, 2016
Goodwill recorded in connection with an acquisition
Foreign currency translation adjustment
Balance as of December 31, 2016
Foreign currency translation adjustment
Balance as of December 31, 2017

The goodwill recorded in connection with the acquisition is not deductible for tax purposes.

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

63,074
66,574

(5,524)
(5,188)

(0.22)
(0.20)

1,476
1,263
(5)
2,734
98
2,832

Gross carrying amounts:
Balance as of January 1, 2016
Additions
Foreign currency translation

Balance as of December 31, 2016
Foreign currency translation
Balance as of December 31, 2017

Developed
technology

Customer

Trademarks
and

relationships

tradenames

Patents

Media
Contact
Database

Total

1,978 $
994
47
3,019
185
3,204 $

2,036 $
-
76
2,112
152
2,264 $

555 $
310
-
865
19
884 $

41 $
-
2
43
3
46 $

- $
3,610
(100)
3,510
137
3,647 $

4,610
4,914
25
9,549
496
10,045

F-15

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Developed
technology

Customer

Trademarks
and

relationships

tradenames

Patents

Media
Contact
Database

Total

280 $
257
8
545
312
45
902 $

240 $
178
7
425
182
38
645 $

98 $
105
-
203
121
6
330 $

5 $
4
1
10
4
1
15 $

- $
181
(6)
175
361
11
547 $

623
725
10
1,358
980
101
2,439

Accumulated amortization:
Balance as of January 1, 2016
Amortization expense
Foreign currency translation
Balance as of December 31, 2016
Amortization expense
Foreign currency translation
Balance as of December 31, 2017

Amortization expense relating to acquisition-related intangible assets was $1.0 million and $0.7 million for the years ended December 31, 2017 and

2016, respectively.

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

Year

2018
2019
2020
2021
2022
Thereafter

Amortization
1,000
$
1,000
935
935
935
2,801
7,606

Taxes

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

•

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

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

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

F-16

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

•

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

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

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

•

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

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

The significant components of the provision for income taxes for each of the two years in the period ended December 31, 2017 are as follows (in

thousands):

Current income tax expense:

Foreign
Federal
State and local

Deferred income tax expense (benefit):

Foreign
Federal

2017

2016

594 $
176
5
775

(97)
(393)
(490)

1,301
-
1
1,302

(176)
-
(176)

Provision for income taxes

285 $

1,126

F-17

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for each of the two years in the period ended December 31, 2017 is

summarized as follows:

Federal statutory rate
Effect of:

State income taxes (net of federal tax benefit)
Taxes on foreign income at rates that differ from U.S. statutory rate
Change in valuation allowance on deferred tax assets
2017 Tax Act
Deemed dividend under Section 956 of the Internal Revenue Code
Increase (decrease) in unrecognized tax benefits
Other
Effective tax rate

2017

2016

(34.0)%

(0.5)
28.0
(90.1)
136.9
(35.4)
0.7
-
5.6%

(2.7)
17.3
(34.5)
-
75.9
1.6
0.1
23.7%

Deferred tax assets and liabilities are classified as non-current. Significant components of the Company’s deferred tax assets and liabilities as of

December 31, 2017 and 2016 are as follows (in thousands):

Deferred income tax assets:

Allowances not currently deductible
Depreciation and amortization
Equity compensation not currently deductible
Net operating loss carryforwards
Expenses not deductible until paid
Tax credit carryforwards
Other

Total gross deferred income tax assets before valuation allowance

Valuation allowance

Deferred income tax assets, net

Deferred income tax liabilities:
Acquisition of MediaMiser
Other

Total deferred income tax liabilities

Net deferred income tax assets

December 31,

2017

2016

226 $
1,222
853
4,542
1,142
-
297
8,282
(6,525)
1,757

(446)
(168)
(614)

1,143 $

546
1,654
1,836
6,718
1,079
176
188
12,197
(10,556)
1,641

(471)
(209)
(680)

961

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

F-18

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

are as follows:

United States
Foreign
Total

2017

2016

(2,243) $
(2,831)
(5,074) $

(5,401)
616
(4,785)

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

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

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

F-19

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company had unrecognized tax benefits of $0.9 million and $1.2 million as of December 31, 2017 and 2016. The portion of unrecognized tax
benefits relating to interest and penalties was $0.4 million and $0.5 million as of December 31, 2017 and 2016, respectively. The unrecognized tax benefits as of
December 31, 2017 and 2016, if recognized, would have an impact on the Company’s effective tax rate.

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

thousands):

Balance at January 1
Increase for tax position
Decrease for tax position on account of settlement
Interest accrual
Foreign currency revaluation
Balance at December 31

December 31,

2017

2016

1,184 $
-
(402)
44
85
911 $

1,207
40
(108)
51
(6)
1,184

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

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

In 2015, the Company’s Indian subsidiary was subject to an inquiry by the Service Tax Bureau in India regarding the classification of services provided
by this subsidiary, asserting that the services provided by this subsidiary fall under the category of online information and database access or retrieval services
(OID Services), and not under the category of business support services (BS Services) that are exempt from service tax as historically indicated in the
subsidiary’s service tax filings. In the event the Service Tax Bureau is successful in proving that the services fall under the category of OID Services the
revenues earned by the Company’s Indian subsidiary would be subject to a service tax of approximately 14.5% of the subsidiary’s revenues and this would
increase the operating costs of the Company by an equivalent amount. The revenues of the Company’s Indian subsidiary for the year ended December 31,
2017 were $15.6 million. The Company disagrees with the Service Tax Bureau’s position and is vigorously contesting these assertions.

F-20

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company established a valuation allowance of approximately $6.5 million and $10.6 million at December 31, 2017 and 2016, respectively. The
valuation allowance relates to U.S. deferred tax assets and the Company’s Canadian subsidiaries. The net change in the total valuation allowance was a
decrease of $4.1 million for the years ended December 31, 2017 compared to an increase of $0.7 million in December 31, 2016. The decrease in the valuation
allowance in 2017 is primarily the result of the 2017 Tax Act. The adoption of the provisions of ASU 2016-9 resulted in a $1.8 million increase in the valuation
allowance in 2016.

The Company from time to time is also subject to various other tax proceedings and claims for its Philippines subsidiaries. The Company has recorded a
tax provision amounting to $184,000 including interest through December 31, 2017, for several ongoing tax proceedings in the Philippines. Although the ultimate
outcome cannot be determined at this time, the Company continues to contest these claims vigorously.

Long-term obligations

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

Capital lease obligations
Deferred lease payments (1)
Microsoft licenses (2)
Acquisition related liability (3)
Lease incentive liability (4)
Pension obligations - accrued pension liability

Less: Current portion of long-term obligations
Totals

December 31,

2017

2016

829 $

731
751
800
664
2,835
6,610
2,133
4,477 $

224

705
-
1,492
-
2,616
5,037
1,120
3,917

(1) Deferred lease payments represent the effect of straight-lining operating lease payments over the respective lease terms.

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

Prepaid expenses and other current assets
Other assets

404
809
1,213

(3) On September 30, 2016 the Company and the other parties to the transaction in which the Company acquired MediaMiser amended the terms on
which a subsidiary of the Company is required to make a supplemental purchase price payment for MediaMiser. Prior to the amendment, the amount of the
supplemental purchase price payment was to be determined by the achievement of certain financial thresholds and was in no event to exceed $3.8 million (C$5
million). The amendment fixed the amount of the supplemental purchase price payment at $1.5 million (C$2 million) payable in two equal installments on March
31, 2017 and 2018 to designated recipients, except that no payments will be made to designated recipients who fail to satisfy specified conditions. The Company
has the option to pay up to 70% of the supplemental amount in shares of Innodata Inc. stock. In March 2017, the Company paid 70% of the first installment by
issuing 253,622 shares of Innodata Inc.’s common stock and paid 30% of the first installment in cash in April 2017.

F-21

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Commitments and contingencies

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

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

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

Years Ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments

687
500
464
478
242
884
3,255

Litigation – In 2008, a judgment was rendered in the Philippines against a Philippines subsidiary of the Company that is no longer active and
purportedly also against Innodata Inc., in favor of certain former employees of the Philippines subsidiary. The payment amount as recalculated in November
2017 by the Philippines Department of Labor and Employment National Labor Relations Commission aggregates approximately $6.2 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 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 indicated that
they proposed to record the judgment as to them 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 entered a preliminary injunction that enjoins these former employees from pursuing or seeking recognition or enforcement of
the judgment against Innodata Inc. in the United States during the pendency of the action and until further order of the Court.

The Company is also subject to various other legal proceedings and claims which arise in the ordinary course of business.

F-22

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company’s legal reserves related to legal proceedings and claims are based on a determination of whether or not a loss is probable. The Company
reviews outstanding proceedings and claims with external counsel to assess probability and estimates of loss. The reserves are adjusted if necessary. While the
Company intends to defend these matters vigorously, adverse outcomes that it estimates could reach approximately $100,000 in the aggregate beyond recorded
amounts are reasonably possible. If circumstances change, the Company may be required to record adjustments that could be material to its reported
consolidated financial condition and results of operations.

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

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

Pension benefits

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

Non-U.S. Pension benefits - The accounting standard for pensions requires an employer to recognize a net liability or asset and an offsetting

adjustment to accumulated other comprehensive loss to report the funded status of defined benefit pension and other post-retirement benefit plans.

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

F-23

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Amortization of transition obligation
Actuarial loss

Years Ended December 31,

2017

2016

Totals $

38
(226)
(188)

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

Actuarial gain
Transition obligation

Totals $

1,331
(132)
1,199

43
(179)
(136)

1,557
(170)
1,387

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

Actuarial gain
Transition obligation

Totals $

(157)
38
(119)

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

Benefit Obligations:

Projected benefit obligation at beginning of the year
Service cost
Interest cost
Curtailment
Actuarial gain
Foreign currency exchange rates changes
Benefits paid
Projected benefit obligation at end of the year

F-24

2017

2016

2,896 $
333
187
(69)
(107)
51
(170)
3,121 $

2,840
368
170
-
(197)
(142)
(143)
2,896

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Components of Net Periodic Pension Cost:

Service cost
Interest cost
Curtailment
Actuarial gain recognized
Net periodic pension cost

2017

2016

333 $
187
(69)
(249)
202 $

368
170
-
(315)
223

The accumulated benefit obligation, which represents benefits earned to date, was approximately $2.0 million and $1.5 million as of December 31, 2017

and 2016, respectively.

Actuarial assumptions for all non-U.S. plans are described below. The discount rates are used to measure the year end benefit obligations and the

earnings effects for the subsequent year. The assumptions for each of the two years in the period ended December 31, 2017 are as follows:

Discount rate
Rate of increase in compensation level

Estimated Future Benefit Payments:

2017

5.78%-10.6%

5%-7%

2016
5.4%-12.5%
5%-8.5%

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

Years Ending December 31,

2018
2019
2020
2021
2022
2023 to 2027

360
221
577
142
151
1,749
3,200

Capital Stock

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

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

F-25

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

The Rights Agreement was approved by the Company’s stockholders at the 2016 annual meeting. The Rights will expire on January 13, 2019 unless

earlier redeemed or exchanged.

Common Stock Reserved - As of December 31, 2017, the Company had reserved for issuance approximately 6,143,000 shares of common stock

pursuant to the Company’s stock option plans.

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

10.

Stock Options

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

F-26

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model. The weighted average fair values of the

options granted and weighted average assumptions are as follows:

Weighted average fair value of options granted

Risk-free interest rate
Expected life (years)
Expected volatility factor
Expected dividends

For the Years Ended December 31,

2017

2016

0.73

1.11

1.91%
6
49.62%
None

1.26%-1.93%

5-6

47%-49%
None

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

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

Number of
Options

Weighted -
Average Exercise
Price

Weighted-Average
Remaining
Contractual Term
(years)

Aggregate
Intrinsic Value

Outstanding at January 1, 2017

Granted
Exercised
Forfeited/Expired

Outstanding at December 31, 2017

Exercisable at December 31, 2017

Vested and Expected to Vest at December 31, 2017

5,169,169 $
40,000
-
(967,370)
4,241,799 $

3,567,136 $

4,241,799 $

2.88
1.50
-
3.08
2.82

2.89

2.82

4.80 $

4.08 $

4.80 $

The total compensation cost related to non-vested stock options not yet recognized as of December 31, 2017 totaled approximately $0.8 million. The

weighted-average period over which these costs will be recognized is eighteen months.

F-27

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

11.

Comprehensive income (loss)

Accumulated other comprehensive income (loss), as reflected in the consolidated balance sheets, consists of pension liability adjustments, net of taxes,
foreign currency translation adjustment and changes in fair value of derivatives, net of taxes. The components of accumulated other comprehensive income
(loss) as of December 31, 2017 and 2016, and reclassifications out of other comprehensive income (loss) for the years then ended, are presented below (in
thousands):

Pension Liability
Adjustment

Fair Value of
Derivatives

Foreign Currency
Translation
Adjustment

Accumulated Other
Comprehensive
Income (Loss)

Balance at January 1, 2017
Other comprehensive income before reclassifications, net of taxes
Total other comprehensive income (loss) before reclassifications, net
of taxes
Net amount reclassified to earnings
Balance at December 31, 2017

1,387 $
-

1,387
(196)
1,191 $

(318) $
574

256
86
342 $

(1,393) $
706

(687)
-
(687) $

(324)
1,280

956
(110)
846

Pension Liability
Adjustment

Fair Value of
Derivatives

Foreign Currency
Translation
Adjustment

Accumulated Other
Comprehensive
Income (Loss)

Balance at January 1, 2016
Other comprehensive income (loss) before reclassifications, net of
taxes
Total other comprehensive income (loss) before reclassifications, net
of taxes
Net amount reclassified to earnings
Balance at December 31, 2016

1,523 $

(165) $

(1,442) $

(90)

1,523
(136)
1,387 $

(255)
(63)
(318) $

(1,393)
-
(1,393) $

(84)

(41)

(125)
(199)
(324)

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

operations and comprehensive loss.

12.

Segment reporting and concentrations

The Company’s operations are classified into three reportable segments: Digital Data Solutions (DDS), Innodata Advanced Data Solutions (IADS) and

Media Intelligence Solutions (MIS).

The DDS segment provides solutions to digital retailers, information services companies, publishers and enterprises that have one or more of the
following broad business requirements: development of digital content (including e-books); development of new digital information products; and operational
support of existing digital information products and systems.

The IADS segment performs advanced data analysis. IADS operates through two subsidiaries: Synodex and docGenix. Synodex offers a range of data

analysis services in the healthcare, medical and insurance areas. docGenix provides services to financial services institutions.

The Company’s MIS segment operates through its Agility PR Solutions and Bulldog Reporter subsidiaries. Agility PR Solutions offers self and full-
service solutions that address the entire communications life cycle – from identifying influencers, amplifying messages, monitoring coverage, to measuring
impact.

F-28

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A significant portion of the Company’s revenues is generated from its production facilities in the Philippines, India, Sri Lanka, Canada, Germany, the

United Kingdom and Israel.

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

Revenues:
DDS
IADS
MIS

Total Consolidated

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

DDS
IADS
MIS

Total Consolidated

Loss before provision for income taxes (2):

DDS
IADS
MIS

Total Consolidated

Total assets:

DDS
IADS
MIS

Total Consolidated

Goodwill:
DDS
MIS

Total Consolidated

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

F-29

For the Years Ended December 31,

2017

2016

46,753 $
4,751
9,425
60,929 $

1,327 $
(3,588)
(2,813)
(5,074) $

(1,729) $
(596)
(2,749)
(5,074) $

50,639
4,347
8,088
63,074

1,137
(4,664)
(1,258)
(4,785)

(1,776)
(1,778)
(1,231)
(4,785)

December 31, 2017 December 31, 2016

25,520 $
1,331
21,020
47,871 $

24,432
1,282
21,874
47,588

December 31, 2017 December 31, 2016

675 $
2,157
2,832 $

675
2,059
2,734

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-lived assets as of December 31, 2017 and 2016 by geographic region are comprised of:

United States

Foreign countries:

Canada
United Kingdom
Philippines
India
Sri Lanka
Israel
Germany
Total foreign

2017

2016

(in thousands)

5,321 $

4,669

6,888
2,388
1,446
1,042
504
36
2
12,306
17,627 $

5,085
2,376
1,940
1,520
683
47
2
11,653
16,322

Total

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

Revenues for each of the two years in the period ended December 31, 2017 by geographic region (determined based upon client’s domicile), are as

follows:

United States
United Kingdom
Others - principally Europe
The Netherlands
Canada

Total

2017

2016

(in thousands)

30,135 $
10,514
7,773
6,871
5,636
60,929 $

32,070
8,271
7,555
9,216
5,962
63,074

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

F-30

13.

Loss per Share

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended
December 31,

2017

2016

(in thousands)

Net loss attributable to Innodata Inc. and Subsidiaries

(5,055) $

(5,524)

Weighted average common shares outstanding
Dilutive effect of outstanding options
Adjusted for dilutive computation

25,816
-
25,816

25,542
-
25,542

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

Options to purchase 4.2 million and 5.2 million shares of common stock in 2017 and 2016, respectively, were outstanding but not included in the
computation of diluted loss per share because the options’ exercise price was greater than the average market price of the common shares and therefore, the
effect would have been antidilutive.

14.

Derivatives

The Company conducts a large portion of its operations in international markets that 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’s primary 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 denominated in U.S. dollars, a significant portion of the total revenues is denominated in

Canadian dollars, Pound Sterling and Euros.

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

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and
strategy for undertaking hedge transactions. The Company does not hold or issue derivatives for trading purposes. All derivatives are recognized at their fair
value and classified based on the instrument’s maturity date. The total notional amount for outstanding derivatives as of December 31, 2017 and 2016 was $15.9
million and $19.3 million, respectively, which is comprised of cash flow hedges denominated in U.S. dollars.

The following table presents the fair value of derivative instruments included within the consolidated balance sheets as of December 31, 2017 and 2016

(in thousands):

F-31

INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheet Location

Fair Value

2017

2016

Derivatives designated as hedging instruments:

Foreign currency forward contracts

Prepaid expenses and other current assets

Foreign currency forward contracts

Accrued expenses

342 $

- $

318

The effect of foreign currency forward contracts designated as cash flow hedges on the consolidated statements of operations for the years ended

December 31, 2017 and 2016 were as follows (in thousands):

Net gain (loss) recognized in OCI (1)
Net gain (loss) reclassified from accumulated OCI into income (2)
Net gain recognized in income (3)

(1)Net change in fair value of the effective portion classified into other comprehensive income ("OCI")
(2)Effective portion classified within direct operating costs
(3)There were no ineffective portions for the period presented.

15.

Financial Instruments

2017

2016

574 $

(86) $
$

(90)

63
-

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximated their fair

value as of December 31, 2017 and 2016, because of the relative short maturity of these instruments.

“Fair Value Measurements and Disclosures ” defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price)

in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

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

defined as follows:

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

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

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

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

December 31, 2017

Assets

Derivatives

December 31, 2016

Liabilities

Derivatives

Level 1

Level 2

Level 3

- $

342 $

Level 1

Level 2

Level 3

- $

318 $

The Level 2 liabilities contain foreign currency forward contracts. Fair value is determined based on the observable market transactions of spot and
forward rates. The fair value of these contracts as of December 31, 2017 and 2016 are included in accrued expenses in the accompanying consolidated balance
sheets.

F-32

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

Exhibit

Description

Filed as Exhibit

2.1 (a)

Share Purchase Agreement, dated as of July 28, 2014 among Innodata

Filed as Exhibit 2.1 to our Form 8-K dated July 28, 2014

Inc., Media Miser Ltd. and certain other parties

2.1 (b)

Amendment No. 1 to Share Purchase Agreement dated as of

Filed as Exhibit 2.1 to our Form 8-K dated September 30, 2016

September 30, 2016

2.2 (a)

Asset Purchase Agreement dated as of May 11, 2016 among Innodata

Filed as Exhibit 2.1 to our Form 8-K dated May 11, 2016

Inc., MediaMiser LLC, MediaMiser Ltd. and PWW Acquisition LLC

2.2 (b)

Amendment No. 1 to Asset Purchase Agreement dated as of July 14,
2016 among PWW Acquisition LLC, MediaMiser LLC and MediaMiser
Ltd

Filed as Exhibit 2.1 to our Form 8-K dated July 14, 2016

3.1 (a)

Restated Certificate of Incorporation filed on April 29, 1993

Filed as Exhibit 3.1(a) to our Form 10-K for the year ended December

31, 2003

3.1 (b)

Certificate of Amendment of Certificate of Incorporation of Innodata

Filed as Exhibit 3.1(b) to our Form 10-K for the year ended December

Corporation filed on March 1, 2001

31, 2003

3.1 (c)

Certificate of Amendment of Certificate of Incorporation of Innodata

Filed as Exhibit 3.1(c) to our Form 10-K for the year ended December

Corporation Filed on November 14, 2003

31, 2003

3.1 (d)

Certificate of Amendment of Certificate of Incorporation of Innodata

Filed as Exhibit 3.1 to our Form 10-Q for the quarter ended June 30,

Isogen, Inc.

2012

3.2

3.3

4.2

4.3

4.4

4.5

4.6

10.1

10.2

10.3

Form of Amended and Restated By-Laws

Exhibit 3.1 to Form 8-K dated December 16, 2002

Form of Certificate of Designation of Series C Participating Preferred

Filed as Exhibit A to Exhibit 4.1 to Form 8-K dated December 16, 2002

Stock

Specimen of Common Stock certificate

Exhibit 4.2 to Form SB-2 Registration Statement No. 33-62012

Form of Rights Agreement, dated as of December 16, 2002 between
Innodata Corporation and American Stock Transfer and Trust Co., as
Rights Agent

Exhibit 4.1 to Form 8-K dated December 16, 2002

Form of Rights Agreement, as of December 27, 2012 between Innodata

Exhibit 4.1 to Form 8-K dated December 27, 2012

Inc. and American Stock Transfer and Trust Co., as Rights Agent

Form of Rights Agreement, as of January 14, 2016 between Innodata

Exhibit 4.1 to Form 8-K dated January 14, 2016

Inc. and American Stock Transfer and Trust Co., as Rights agent

Specimen of Common Stock certificate

Exhibit 4.1 to Form 10-Q dated August 7, 2015

1994 Stock Option Plan

1993 Stock Option Plan

Exhibit A to Definitive Proxy dated August 9, 1994

Exhibit 10.4 to Form SB-2 Registration Statement No. 33-62012

Form of Indemnification Agreement between us and our directors and

Exhibit 10.3 to Form 10-K for the year ended December 31, 2002

one of our Officers

10.4

10.5

10.6

10.7

10.8

10.9

1994 Disinterested Directors Stock Option Plan

Exhibit B to Definitive Proxy dated August 9, 1994

1995 Stock Option Plan

1996 Stock Option Plan

1998 Stock Option Plan

2001 Stock Option Plan

2002 Stock Option Plan

Exhibit A to Definitive Proxy dated August 10, 1995

Exhibit A to Definitive Proxy dated November 7, 1996

Exhibit A to Definitive Proxy dated November 5, 1998

Exhibit A to Definitive Proxy dated June 29, 2001

Exhibit A to Definitive Proxy dated September 3, 2002

10.10

Employment Agreement dated as of January 1, 2004 with George

Filed as Exhibit 10.10 to our Form 10-K for the year ended December

Kondrach

31, 2003

10.11

Letter Agreement dated as of August 9, 2004, by and between us and

Filed as Exhibit 10.2 to Form S-3 Registration statement No. 333-

The Bank of New York

121844

10.12

Employment Agreement dated as of December 22, 2005, by and

Exhibit 10.1 to Form 8-K dated December 28, 2005

between us and Steven L. Ford

10.13

Form of 2001 Stock Option Plan Grant Letter, dated December 22,

Exhibit 10.2 to Form 8-K dated December 28, 2005

2005

10.14

Form of 1995 Stock Option Agreement

Exhibit 10.4 to Form 8-K dated December 15, 2005

10.15

Form of 1998 Stock Option Agreement for Directors

Exhibit 10.5 to Form 8-K dated December 15, 2005

10.16

Form of 1998 Stock Option Agreement for Officers

Exhibit 10.6 to Form 8-K dated December 15, 2005

10.17

Form of 2001 Stock Option Agreement

Exhibit 10.7 to Form 8-K dated December 15, 2005

10.18

Form of new vesting and lock-up agreement for each of Haig Bagerdjian,

Exhibit 10.8 to Form 8-K dated December 15, 2005

Louise Forlenza, John Marozsan and Todd Solomon

10.19

Form of new vesting and lock-up agreement for Jack Abuhoff

Exhibit 10.9 to Form 8-K dated December 15, 2005

10.20

Form of new vesting and lock-up agreement for George Kondrach

Exhibit 10.10 to Form 8-K dated December 15, 2005

10.21

Form of new vesting and lock-up agreement for Stephen Agress

Exhibit 10.11 to Form 8-K dated December 15, 2005

10.22

Form of 2001 Stock Option Plan Grant Letter, dated December 31,

Exhibit 10.2 to Form 8-K dated January 5, 2006

2005, for Messrs. Abuhoff, Agress and Kondrach

10.23

Form of 2001 Stock Option Plan Grant Letter, dated December 31,

Exhibit 10.3 to Form 8-K dated January 5, 2006

2005, for Messrs. Bagerdjian and Marozsan and Ms. Forlenza

10.24

Transition Agreement Dated as of September 29, 2006 with Stephen

Exhibit 10.1 to Form 8-K dated October 3, 2006

Agress

10.25

Form of Stock Option Modification Agreement with Stephen Agress

Exhibit 10.2 to Form 8-K dated October 3, 2006

10.26

Employment Agreement dated as of February 1, 2006 with Jack Abuhoff Exhibit 10.1 to Form 8-K dated April 27, 2006

10.27

Employment Agreement dated as of January 1, 2007 with Ashok Mishra Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2007

10.28

Innodata Incentive Compensation Plan

Exhibit 10.1 to Form 8-K dated February 13, 2008

10.29

Form of 2002 Stock Option Plan Grant Letter, dated August 13, 2008,
for Messrs. Bagerdjian, Marozsan and Woodward, and Ms. Forlenza

Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2008

10.30

Amended and Restated Employment Agreement dated as of December

Exhibit 10.1 to Form 8-K dated December 30, 2008

24, 2008 with Jack S. Abuhoff

10.31

Employment Agreement dated as of March 25, 2009 with Jack Abuhoff

Exhibit 10.1 to Form 8-K dated March 25, 2009

10.32

Separation Agreement and General Release dated as of April 27, 2009

Exhibit 10.1 to Form 8-K dated April 27, 2009

with Steven Ford

10.33

2009 Stock Plan

Annex A to Definitive Proxy dated April 28, 2009

10.34

Employment Agreement dated as of November 9, 2009 with O’Neil

Exhibit 10.1 to Form 8-K dated October 11, 2009

Nalavadi

10.35

Form of 2009 Stock Option Plan Grant Letter, dated April 2, 2010 for

Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2010

O’Neil Nalavadi

10.36

Form of 2009 Stock Option Plan Grant Letter, dated March 16, 2010 for

Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2010

O’Neil Nalavadi

10.37

Form of 2009 Stock Option Plan Grant Letter, dated March 16, 2010 for

Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2010

O’Neil Nalavadi

10.38

Amended and Restated 2009 Stock Plan

Annex A to Definitive Proxy dated April 22, 2011

10.39

Amendment dated as of July 11, 2011 to Employment Agreement with

Exhibit 10.1 to Form 8-K dated July 12, 2011

Jack S. Abuhoff

10.40

Amended dated as of July 11, 2011 to Employment Agreement with

Exhibit 10.2 to Form 8-K dated July 12, 2011

O’Neil Nalavadi

10.41

Amendment dated as of November 9, 2012 to Employment Agreement

Exhibit 10.3 to Form 8-K dated November 8, 2012

with O’Neil Nalavadi

10.42

Form of Director Stock Option Grant Letter dated March 8, 2013

Exhibit 10.42 to Form 10-K dated March 15, 2013

10.43

Form of Stock Option Grant Letter dated March 8, 2013 for Messrs.

Exhibit 10.43 to Form 10-K dated March 15, 2013

Abuhoff, Mishra and Nalavadi

10.44

Form of Stock Option Grant Letter dated March 8, 2013 for Jack Abuhoff Exhibit 10.44 to Form 10-K dated March 15, 2013

10.45

Form of Rights Agreement as of December 27, 2012 between Innodata
Inc. and American Stock Transfer Agent and Trust Co., as Rights Agent

Annexure A to Definitive Proxy dated April 8, 2013

10.46

Innodata Inc. 2013 Stock Plan

Annexure B to Definitive Proxy dated April 8, 2013

10.47

Advised Line of Credit Note dated June 25, 2012 in favor of Chase

Exhibit 99.1 to Form 8-K dated February 7, 2014

10.48

Note Modification Agreement dated June 27, 2013 between Innodata

Exhibit 99.2 to Form 8-K dated February 7, 2014

and Chase

10.49

Continuing Security Agreement dated May 22, 2008 between Innodata

Exhibit 99.3 to Form 8-K dated February 7, 2014

and Chase

10.50

Letter dated June 27, 2013 from Chase to Innodata

Exhibit 99.4 to Form 8-K dated February 7, 2014

10.51

Letter dated February 7, 2014 from Chase to Innodata

Exhibit 99.5 to Form 8-K dated February 7, 2014

10.52

Innodata Inc. 2013 Stock Plan (as Amended and Restated effective

Annexure A to Definitive Proxy dated April 23, 2014

June 3, 2014)

10.53

Form of Stock Option Grant Letter for December 31, 2015 Grant, for

Exhibit 10.53 to Form 10-K dated March 14, 2016

Directors

10.54

Form of Stock Option Grant Letter for December 31, 2015 Grant, for

Exhibit 10.54 to Form 10-K dated March 14, 2016

Messrs. Abuhoff, Mishra and Nalavadi

10.55

Innodata Inc. 2013 Stock Plan (as Amended and Restated effective

Annex B to Definitive Proxy dated April 18, 2016

June 7, 2016)

10.56

Form of Stock Option Grant Letter for December 31, 2016 Grant, for

Exhibit 10.56 to Form 10-K dated March 15, 2017

Directors

10.57

Form of Stock Option Grant Letter for December 31, 2016 Grant, for

Exhibit 10.57 to Form 10-K dated March 15, 2017

Messrs. Abuhoff, Mishra and Nalavadi

Letter of Grant Thornton regarding change in certifying accountant

Exhibit 4.01 to Form 8-K dated September 12, 2008

Significant subsidiaries of the registrant

Consent of CohnReznick LLP

Filed herewith

31.1

Certificate of Chief Executive Officer pursuant to Section 302 of the

Filed herewith

Sarbanes-Oxley Act of 2002

31.2

Certificate of Chief Financial Officer pursuant to Section 302 of the

Filed herewith

Sarbanes-Oxley Act of 2002.

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant

Filed herewith

to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant

Filed herewith

to Section 906 of the Sarbanes-Oxley Act of 2002.

101

Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the
Consolidated Balance Sheets, (ii) the Consolidated Statements of
Operations and Comprehensive Loss (iii) the Consolidated Statements
of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows
and (v) the Notes to the Consolidated Financial Statements.

Filed herewith

Name of Subsidiary

Innodata India Private Limited
Innodata Knowledge Services, Inc.
ESS Manufacturing Company, Inc.
EBAR Abstracting Company, Inc.
Innodata Book Distribution Services Ltd.
Innodata Asia Holdings, Limited
Agility PR Solutions Canada Ltd.

Significant Subsidiaries

Exhibit 21

Name under
which subsidiary
conducts
business
Same
Same
Same
Same
Same
Same
Same

State or other
jurisdiction of
incorporation
India
Philippines
Philippines
Philippines
Hong Kong
Bermuda
Canada

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 33-85530, dated October 21, 1994, Registration No. 333-3464, dated April 18, 1996,
Registration No. 333-63085, dated September 9, 1998, Registration No. 333-82185, dated July 2, 1999, Registration No. 333-118506, dated August 24, 2004,
Registration No. 333-172831, dated March 15, 2011, Registration No. 333-176402, dated August 19, 2011, Registration No. 333-193051, dated December 23,
2013, Registration No. 333-201659, dated January 23, 2015 and Registration No. 333-215130 dated December 16, 2016 on Form S-8 and Registration No. 33-
62012, dated April 11, 1996, Registration No. 333-91649, dated November 24, 1999, Registration No. 333-51400, dated December 7, 2000, Registration No.
333-121844, dated January 5, 2005, Registration No. 333-182114, dated June 14, 2012 and Registration No. 333-207524 dated October 20, 2015 on Form S-3,
Registration No. 333-121844, dated January 21, 2005 and Registration No. 333-207524, dated December 21, 2015 on Form S-3/A of our report dated March 22,
2018, relating to our audits of the consolidated financial statements of Innodata Inc. and Subsidiaries as of December 31, 2017 and 2016, and for the years then
ended, included in this Annual Report on Form 10-K of Innodata Inc. for the year ended December 31, 2017.

Exhibit 23

/s/ CohnReznick LLP

Roseland, New Jersey
March 22, 2018

Exhibit 31.1

I, Jack Abuhoff, certify that:

I have reviewed this annual report on Form 10-K of Innodata Inc.;

CERTIFICATIONS

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the

financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
we have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the

registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.

Dated: March 22, 2018

/s/ Jack Abuhoff
Jack Abuhoff
Chairman of the Board,
Chief Executive Officer and President

Exhibit 31.2

I, Raj Jain, certify that:

I have reviewed this annual report on Form 10-K of Innodata Inc.;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the

financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the

registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.

Dated: March 22, 2018

/s/ Raj Jain
Raj Jain
Vice President, Principal Financial Officer and Principal Accounting Officer

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.1

In connection with the Annual Report of Innodata Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Jack Abuhoff, Chairman of the Board, Chief Executive Officer and President of the
Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jack Abuhoff
Jack Abuhoff
Chairman of the Board,
Chief Executive Officer and President

March 22, 2018

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.2

In connection with the Annual Report of Innodata Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Raj Jain, Vice President and Principal Accounting Officer of the Company, certify,
pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Raj Jain
Raj Jain
Vice President, Principal Financial Officer and Principal Accounting Officer

March 22, 2018