Fellow Stockholders,
In 2021, we are ushering in what I believe will be an era of growth and excitement for our
company. My confidence comes from what we accomplished in 2020: despite the ravages of a
global pandemic that slowed business to a crawl, we acquired 20 new customers for the AI-
related services we launched in late 2019 – more new customers than our digital data solutions
business had acquired in the past three years combined – and we grew revenues, improved
earnings, and increased our cash balances.
Now it’s clearly time to scale.
Our growth plan calls for significantly expanding our sales team from an average of 15 in 2020
to a forecasted 98 by the end of 2021.1 Our plan also calls for continuing to invest in our
proprietary AI technology platform that drives our products and services and several new
platforms. We expect to fully fund these investments from our internal resources without a
need for outside financing.
We’re seeing blue-sky growth trajectory in each of our three product/service categories.
AI/ML Industry Platforms
AI/ML Solutions
Data Annotation
Proprietary
"Goldengate" AI
Technology
Platform
Our “Data Annotation” offering - which we
consider to be our foundational offering -
is geared towards helping data sciences
teams create and manage the training
data that is required to build and maintain high-performing AI algorithms. AI applications are
1 We plan to exit 2021 with 63 sales executives; 25 business development resources; and 10 sales managers and sales
enablement directors.
1
trained with data, rather than mainly programmed with computer code, which means high-
quality training data is a must-have for any company that expects its AI applications to perform
well.
The AI data training market is estimated at $1.9 billion this year and is expected to grow to $3.2
billion by 2023,2 essentially tracking the enormous growth expected in AI overall. We believe
each day our Innodata brand strengthens in this market and we are getting more and more
valuable outreaches from companies embarking on their AI journeys. At the same time, we’re
continuing to see expanded opportunities within current customers.
This year, we expect to launch a data annotation platform for text that we anticipate will
quickly be perceived as best-in-class. Our plan is that it will incorporate AI in ways that existing
tools in the market do not, reducing the cost of data annotation and improving consistency and
quality of output. The global data annotation tools market was valued at $695 million in 2019,
and is projected to reach $6.5 billion by 2027, which is a compound annual growth rate (CAGR)
of 33%.3
In our next category of services, “AI/ML Solutions”, we help businesses apply AI/ML algorithms
that we engineer and maintain to derive actionable insights from unstructured text or to
automate text-dependent business processes, fundamentally aligning the way work is done to
an era of human + machine. In this solutions category, we are both generating the training data
and engineering the AI algorithms that can be utilized as digital services, or application
programming interfaces (APIs), delivered via the Cloud. This means we can help a business
generate insights from any kind of complex document. It also means we can help businesses
significantly lower the operating costs of humans working with documents to make decisions.
2 Data Engineering, Preparation, and Labeling for AI 2020 (Cognilytica Research, January 31, 2020).
3 Data Annotation Tools Market to 2027 - Global Analysis and Forecasts by Type; Annotation Type; End-user (ReportLinker,
March 2020).
2
The document analytics market is also fast-moving and dynamic, expected to grow at a CAGR of
48% from 2020 to 2027, reaching $12 billion by 2027.4
In our “AI/ML Industry Platforms” category, we’re embedding our high-performing AI within
products used to re-model legacy, niche industry workflows. We presently have two such
products. Our Agility SaaS platform now competes in the $4.5 billion media intelligence
solutions market helping public relations and media communications professionals distribute,
monitor and analyze news.5 We have great ambitions for Agility as it has been particularly well-
received by the market. In fact, reviewers on G2 Crowd have ranked Agility as meeting the
needs of customers better than its two largest competitors that have combined revenues of
over $1 billion.6 Within Agility, we use AI to bolster both the quality of our databases and to
perform high-value monitoring. Our Synodex industry platform extracts analytical data from
medical records. Thanks to AI, our Synodex platform is delivering increased throughput speeds
at a lower cost. Consequently, we think it will enable us to address several new markets that
would benefit from faster, more automated, but highly accurate, medical data extraction. For
example, the global artificial intelligence (AI) in healthcare market is forecast to reach a market
size of $62 billion by 2027, up from $3 billion this year, with a CAGR of 43.6%.7
We view our product/service architecture as synergetic. Each product/service is increasingly
powered by our proprietary, state-of-the-art AI platform we call Goldengate. Using Goldengate
in combination with our subject matter experts (SMEs), we build high-performing, cutting-edge
models that address real-world problems. Goldengate serves up no-code AI with transfer
learning built on generative language models we have developed and perfected over the past
five years of deploying industrial deep neural networks. Our 2021 journey is to further AI-
4 Document Analytics Market by Product Type (Solution and Services), Deployment Type, Industry Vertical (BFSI, Government,
Healthcare, Retail and ecommerce, Manufacturing, Transportation), Organization Size, and Region - Global Forecast to 2027
(Meticulous Research®, December 2020).
5 Media Intelligence and Public Relations Software/Information Global Share & Segment Sizing 2020 (Burton-Taylor, May 2020).
6 https://www.agilitypr.com/wp-content/uploads/2021/03/g2-compare-agility-cision-meltwater-210312.pdf
7 Artificial Intelligence in Healthcare Market by Offering (Hardware, Software), By Technology (Machine Learning, Context-
Aware Computing, Natural Language Processing, Computer Vision), By End-Use (Hospitals & Healthcare Providers), and Region
Forecast To 2027 (Reports and Data, January 2021).
3
enable Synodex, Agility and our data annotation platform using Goldengate and to build it into
customer solutions; in 2022, we intend to commercialize it further as both a customer-facing
technology and as the engine under other potential industry solutions. Meanwhile, as we both
train and deploy Goldengate services within new business cases, we expect to identify more
opportunities to build industry SaaS platforms.
Five years ago, propelled by the belief that data and AI would reorder technology and business,
we embarked on a journey that would enable us to derive operational benefits with AI near
term while pivoting to larger markets in the longer term. As a result of this journey, we’ve
transformed and clarified the business and prospects of Innodata, with a clear drive and
direction. The realization of the vision we had for Innodata is now at hand. I believe we will
continue to reap the rewards of these investments in the years ahead in the form of strong,
profitable growth with unique beachheads of future opportunity. The common theme will
continue to be lines of business that require or otherwise benefit from high-quality data and
high-performing AI.
As we proceed on our path, we will continue to have a long-term outlook. This year, we will be
measuring ourselves against metrics most indicative of attaining market leadership and
customer loyalty: existing customer expansions; new logo acquisition; revenue growth; new use
cases supported; customer satisfaction; the strength of our brand.
I want to take this opportunity to thank my indefatigable and immensely talented global team.
Together we figured out how to shift nearly four thousand global staff to remote working
within a matter of days, missing not a single customer deliverable along the way. We’re now
practically 100% Cloud-based and remote, which means lower fixed operating costs and greater
scalability. The COVID-19 pandemic forced us to find another way, and we’ve made lemonade
when the world got served lemons.
4
I also want to thank you, my fellow stockholders, for the trust you have shown in us. We very
much appreciate your confidence, and stewarding your investment in the company is a
responsibility that we take most seriously. Toward that end, we will provide transparent
accountability around the returns we’re getting as we make investments to position our
organization for continuing growth in coming years on a consolidated basis, supported by
growth in each of our underlying businesses.
We’re truly excited about where we see the business going. This year, we’re expecting to
deliver growth in 2021 both on a consolidated basis and across each of our business segments
as we continue to undertake the kinds of initiatives that we believe will make us an increasingly
valuable player in the AI ecosystem.
Thank you for your interest and support.
Sincerely,
Jack S. Abuhoff
President & CEO
April 21, 2021
Forward Looking Statements
This letter may contain forward-looking statements within the meaning of Section 21E of the
Securities and Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended. Words such as “project,” “believe,” “expect,” “can,” “continue,” “could,” “intend,”
“may,” “should,” “will,” “anticipate,” “indicate,” “forecast,” “predict,” “likely,” “goals,”
“estimate,” “plan,” “potential,” or the negatives thereof and other similar expressions generally
identify forward-looking statements, which speak only as of the date hereof.
These forward-looking statements are based on management’s current expectations,
assumptions and estimates and are subject to a number of risks and uncertainties, including
without limitation, the expected or potential effects of the novel coronavirus (COVID-19)
pandemic and the responses of governments, the general global population, our customers, and
5
the Company thereto; that contracts may be terminated by clients; projected or committed
volumes of work may not materialize; continuing Digital Data Solutions segment reliance on
project-based work and the primarily at-will nature of such contracts and the ability of these
clients to reduce, delay or cancel projects; the likelihood of continued development of the
markets, particularly new and emerging markets, that our services support; continuing Digital
Data Solutions segment revenue concentration in a limited number of clients; potential inability
to replace projects that are completed, canceled or reduced; our dependency on content
providers in our Agility segment; difficulty in integrating and deriving synergies from acquisitions,
joint venture and strategic investments; potential undiscovered liabilities of companies and
businesses that we may acquire; potential impairment of the carrying value of goodwill and other
acquired intangible assets of companies and businesses that we acquire; changes in our business
or growth strategy; a continued downturn in or depressed market conditions, whether as a result
of the COVID-19 pandemic or otherwise; changes in external market factors; the ability and
willingness of our clients and prospective clients to execute business plans that give rise to
requirements for our services; changes in our business or growth strategy; the emergence of new
or growth in existing competitors; various other competitive and technological factors; our use
of and reliance on information technology systems, including potential security breaches, cyber-
attacks, privacy breaches or data breaches that result in the unauthorized disclosure of
consumer, client, employee or Company information, or service interruptions; and other risks
and uncertainties indicated from time to time in our filings with the Securities and Exchange
Commission.
Our actual results could differ materially from the results referred to in forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited
to, uncertainty around the COVID-19 pandemic and the effects of the global response thereto
and the risks discussed in Part I, Item 1A. “Risk Factors,” Part II, Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations, and other parts of our Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on March 15, 2021, as
updated or amended by our other filings with the Securities and Exchange Commission. In light
of these risks and uncertainties, there can be no assurance that the results referred to in the
forward-looking statements will occur, and you should not place undue reliance on these
forward-looking statements. We undertake no obligation to update or review any guidance or
other forward-looking statements, whether as a result of new information, future developments
or otherwise, except as may be required by the Federal securities laws.
6
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
For the fiscal year ended December 31, 2020
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
Commission file number 001-35774
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)
13-3475943
(I.R.S. Employer Identification No.)
07660
(Zip Code)
(201) 371-8000
(Registrant's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class
Trading Symbol(s)
Common Stock
Preferred Stock
Purchase Right
INOD
N/A
Name of each exchange on which
registered
The NASDAQ Stock Market LLC
N/A
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 o 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 o 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 preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Emerging growth company o
Non-accelerated filer þ Smaller reporting company þ
Accelerated filer o
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.
o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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, 2020) was $29,436,447.
The number of outstanding shares of the registrant’s Common Stock, $.01 par value, as of March 8, 2021 was 25,859,483.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for the 2021 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, 2020
TABLE OF CONTENTS
Part I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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
Management’s Annual Report on Internal Control over Financial Reporting
Other Information
Part III
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 Accountant’s Fees and Services
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.
Page
4
13
26
26
26
26
27
27
27
35
35
35
35
36
37
37
37
37
37
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
37
38
Part IV
Signatures
38
3
PART I
Cautionary Note Regarding Forward-Looking Statements
Disclosures in this Annual Report on Form 10-K (this “Report”) contain certain forward-looking
statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. These forward-looking statements include, without
limitation, statements concerning our operations, economic performance, and financial condition. Words such
as “project,” “believe,” “expect,” “can,” “continue,” “could,” “intend,” “may,” “should,” “will,”
“anticipate,” “indicate,” “predict,” “likely,” “estimate,” “plan,” “potential,” or the negatives thereof, and
other similar expressions generally identify forward-looking statements.
These forward-looking statements are based on management’s current expectations, assumptions and
estimates and are subject to a number of risks and uncertainties, including, without limitation, the expected or
potential effects of the novel coronavirus (“COVID-19”) pandemic and the responses of governments, the
general global population, our customers, and the Company thereto; that contracts may be terminated by
clients; projected or committed volumes of work may not materialize; continuing reliance on project-based
work in the DDS segment and the primarily at-will nature of such contracts and the ability of these clients to
reduce, delay or cancel projects; the likelihood of continued development of the markets, particularly new and
emerging markets, that our services support; continuing DDS segment revenue concentration in a limited
number of clients; potential inability to replace projects that are completed, canceled or reduced; our
dependency on content providers in our Agility segment; difficulty in integrating and deriving synergies from
acquisitions, joint venture and strategic investments; potential undiscovered liabilities of companies and
businesses that we may acquire; potential impairment of the carrying value of goodwill and other acquired
intangible assets of companies and businesses that we acquire; changes in our business or growth strategy,
such as our re-design of our solutions and product portfolio in 2019; a continued downturn in or depressed
market conditions, whether as a result of the COVID-19 pandemic or otherwise; changes in external market
factors; the ability and willingness of our clients and prospective clients to execute business plans that give rise
to requirements for our services; changes in our business or growth strategy; the emergence of new, or growth
in existing competitors; various other competitive and technological factors; the Company’s use of and reliance
on information technology systems, including potential security breaches, cyber-attacks, privacy breaches or
data breaches that result in the unauthorized disclosure of consumer, client, employee or Company information,
or service interruptions; and the risks discussed in Part I, Item 1A. “Risk Factors” included in this Report,
“Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
and other parts of this Report and in our other filings that we may make with the Securities and Exchange
Commission (the “SEC”).
Our actual results could differ materially from the results referred to in 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 will occur, and you should not place undue reliance on these forward-looking statements.
These forward-looking statements speak only as of the date hereof.
We undertake no obligation to update or review any guidance or other forward-looking statements,
whether as a result of new information, future developments or otherwise, except as may be required by the
federal securities laws.
.
Item 1. Business.
Business Overview
Innodata Inc. (NASDAQ: INOD) (including its subsidiaries, the “Company”, “Innodata”, “we”, “us”
or “our”) is a global data engineering company. We solve complex data challenges using artificial intelligence
(AI) and human expertise.
4
We provide large-scale data annotation services and platforms to companies who require high-quality
data for training AI and machine learning (ML) algorithms. We also provide AI/ML-based solutions to help
companies apply AI/ML to real-world problems relating to analyzing and deriving insights from documents.
For industry-specific, document-intensive industry use cases, we provide AI-augmented software-as-a-service
(SaaS) platforms and discrete managed services.
Our platforms and services are powered by Goldengate, our proprietary AI/ML platform, as well as
other technologies we have developed. In addition, we bring to bear 3,500 + employees spanning nine countries
with expertise in data pertaining to many professional fields. Our hybrid approach of using AI/ML in
conjunction with human experts enables us to deliver superior data quality with even the most complex and
sensitive data.
We developed our capabilities and honed our customer- and quality-centric culture progressively over
the last 30 years creating high-quality data for many of the world’s most demanding information companies.
Approximately five years ago, we formed Innodata Labs, a research and development center, to research,
develop and apply machine learning and emerging AI to our large-scale, human-intensive data operations. In
2019, we began packaging the capabilities that emerged from our R&D efforts in order to align with several
fast-growing new markets and help companies use AI/ML to drive performance benefits and business insights.
We anticipate this strategy will enable us to accelerate growth.
Market Opportunities
Data Annotation
Companies across industry verticals are increasingly seeking to develop AI-based applications for an
ever-increasing variety of use cases such as self-driving cars, surveillance systems, automated medical
diagnostics, digital assistants and chatbots and contract review. These applications depend upon high-
performing AI algorithms in areas such as speech recognition, image recognition, and text recognition.
Unlike traditional computer applications that are programmed in languages like Python and Java to tell
computers what to do, AI applications can be created with little to no programming. Instead, AI applications
are trained with large quantities of input data and expected output data. Leveraging such data, the AI application
learns on its own from the data itself through a series of regressions. Developing high-quality training data is
critical for the AI to perform correctly, but often requires technology and skilled human resources that data
science teams lack. Moreover, developing high-quality data takes up 80% of the time for most AI and ML
projects.1
We train AI algorithms for social media companies, robotics companies, financial services companies,
and many others, working with images, text, video and audio. Data sciences teams seek partners that can
perform data preparation functions for them at large-scale and at high quality, while using automated tools to
minimize cost. Moreover, as AI projects become more specialized and mission-critical, data preparation is
becoming increasingly complex, requiring deep domain knowledge and an infrastructure in which data security
is assured. We believe that Innodata is ideally situated to be such a partner.
We utilize a variety of leading third-party image and video annotation tools. For text, we use our
proprietary text annotation platform that incorporates AI to reduce cost while improving consistency and quality
of output. Our proprietary text annotation platform features auto-tagging capabilities that apply to both classical
and generative AI tasks. It also encapsulates many of the innovations we have conceived of in the course of our
30-year history of creating high-quality data. We are developing a new version of our text annotation platform
for customer use which we anticipate will be a source of competitive differentiation and potential SaaS licensing
1 Cognilytica Research, Data Engineering, Preparation, and Labeling for AI in 2019 (January 31, 2019)
5
revenue.
The AI data training market is estimated at $1.9 billion this year and is expected to grow to $3.2 billion
by 2023,2 essentially proxying the enormous growth expected in AI overall ($18 billion in 2020, $44 billion in
2024, a 24% CAGR).3 Similarly, the global data annotation tools market was valued at $695 million in 2019,
projected to reach $6.5 billion by 2027, which is a CAGR of 33%.4
AI/ML Solutions
We also provide AI/ML solutions to companies that intensively process textual data and seek to obtain
the benefits of AI/ML technologies without having to develop AI/ML engineering capabilities in-house. For
such companies, we often integrate one or more of our pre-trained text processing algorithms as a foundation
for an overall solution. Our algorithms are accessible as microservices via application programming interfaces
(APIs), enabling easy integration.
In conjunction with AI/ML solutions, we often provide a range of data engineering support services,
including data transformation, data curation, data hygiene, data consolidation, data compliance, and master data
management.
Our customers span a diverse range of industries and a wide range of AI use cases, benefiting from the
short time-to-value and high economic returns our AI/ML solutions provide.
The AI solutions market is expected to grow at a 24% CAGR reaching $44 billion in 2024. The
document analytics market - a subset of the overall AI solutions market - is also fast-moving and dynamic,
expected to grow at a CAGR of 48% from 2020 to 2027, reaching $12 billion by 2027.5 Meanwhile, overall
enterprise AI spend that is projected to reach $53.06 billion by 2026, registering a CAGR of 35.4% from 2019
to 2026.6
AI/ML Industry Platforms
Our industry platforms address specific, niche market requirements that we believe we can fulfill in
large part with our AI/ML technologies. We deploy these industry platforms as software-as-a-service (SaaS)
and as managed services. To date, we have built an industry platform for medical records data extraction and
transformation (which we brand as “Synodex®”) and for marketing communications/public relations news
distribution and monitoring (which we brand as “Agility PR Solutions”).
Our Synodex industry platform transforms medical records into useable digital data organized in
accordance with our proprietary data models or client data models. At the end of 2020, we had 20 clients
utilizing our Synodex platform, including John Hancock Insurance, the insurance operating unit of John
Hancock Financial (a division of Manulife) and one of the largest life insurers in the United States. As we
further integrate AI into the platform, we aim to address the needs of the healthcare sector, which is increasingly
seeking to search, analyze, and interpret vast volumes of patient data, improve clinical documentation and make
2 Cognilytica Research, Data Engineering, Preparation, and Labeling for AI 2020 (January 31, 2020)
3 IDC, Worldwide Artificial Intelligence Systems Spending Guide, September 2019.
4 "Data Annotation Tools Market to 2027 - Global Analysis and Forecasts by Type ; Annotation Type ; End-user" (ReportLinker,
March 2020).
5 “Document Analytics Market by Product Type (Solution and Services), Deployment Type, Industry Vertical (BFSI, Government,
Healthcare, Retail and ecommerce, Manufacturing, Transportation), Organization Size, and Region - Global Forecast to 2027”
(Meticulous Research®, December 2020)
6 Allied Market Research, Enterprise Artificial Intelligence (AI) Market Outlook-2026 (2020)
6
computer-assisted coding more efficient. The global artificial intelligence (AI) in healthcare market is forecast
to reach a market size of $62 billion by 2027, up from $3 billion this year, with a CAGR of 43.6%.7
Our Agility industry platform provides marketing communications and public relations professionals
with the ability to target and distribute content to journalists and social media influencers world-wide and to
monitor and analyze global news (print, web, radio and TV) and social media. Agility is now ranked by software
review site G2 Crowd as meeting the requirements of customers better than its two largest competitors that have
combined revenues of over $1 billion.8 Agility operates in the $4.5 billion media intelligence solutions market.9
The Company’s operations are presently classified and reported in three reporting segments: Digital
Data Solutions (DDS), Synodex and Agility.
Competitive Strengths
Our Data Quality
We believe we achieve industry-leading data quality by leveraging our technology, our large staff of
human experts, and the culture we have cultivated over many years of providing high-quality data to the most
demanding customers.
For the past five years, we have been designing and refining our approach for combining human experts
and AI to produce large-scale, highly accurate data. In our approach, AI networks automatically perform much
of the required processing and human experts perform processing that the AI cannot perform at a high level of
confidence. The human output is fed back into the AI networks, which, as a result, “learn” and become “smarter”
over time, achieving progressively greater levels of automation while maintaining the highest levels of quality.
(See “Our Technology”, below.)
Our 3,500+ experts have deep domain knowledge in a wide diversity of data domains. They are selected
on the basis of data acumen, analytical ability, and deep domain proficiency. (See “Our Domain Experts”,
below.)
Our culture of quality is critical to achieving and sustaining high data quality. Our culture has been
cultivated over our decades of experience performing data-related tasks for leading global companies, including
the four largest global information companies with which we have 10-plus year relationships building and
maintaining many of their leading data products.
We maintain independent quality assurance centers that comply with and are certified to the ISO
9001:2008 quality management system standards.
Our Domain Experts
We have over 3,500+ employees with deep data domain expertise in various fields, including law,
sciences, health, finance, and technology. Many of them hold advanced degrees. They process data in over 25
languages. Most work from our global operations centers in India, Israel, Germany, Sri Lanka and the
Philippines. For annotating complex or sensitive data, our expert staff provides an attractive alternative to the
crowdsourced labor pools utilized by many of our competitors typically for mundane tasks. They are especially
well-suited for high-context data, such as legal contract classification, medical images, medical records, and
scientific and legal literature.
7 Artificial Intelligence In Healthcare Market By Offering (Hardware, Software), By Technology (Machine Learning, Context-Aware
Computing, Natural Language Processing, Computer Vision), By End-Use (Hospitals & Healthcare Providers), and Region Forecast
To 2027 (Reports and Data, January 2021)
8 https://www.agilitypr.com/wp-content/uploads/2021/03/g2-compare-agility-cision-meltwater-210312.pdf
9 Burton-Taylor, Media Intelligence and public Relations Software/Information Global Share & Segment Sizing 2020 (May 2020)
7
Our Technology
Over the past four years, we have built a technology infrastructure that automates complex data
annotation and other data engineering tasks. Our technology infrastructure combines advanced dataflow, deep
learning (a branch of AI), and purpose-built applications used by human experts, which we refer to as
“workbenches”. This infrastructure enables us to perform data annotation and other data engineering tasks at
progressively higher levels of efficiency without compromising quality as it continuously learns from human
experts.
Our proprietary, state-of-the-art Goldengate platform is our core AI technology stack. Goldengate
accepts a wide range of documents –including images, PDFs, and web copy – and performs a series of cognitive
tasks to extract intelligence and create analytical data that people can use for generating inferences and powering
analytical applications. It serves up no-code AI with transfer learning built on generative language models we
have developed over the past five years of deploying industrial deep neural networks. Goldengate serves as the
foundational technology for the AI projects we perform for customers, as well as the AI-under-the-hood that
powers our data annotation platform and our industry platforms. One of the main benefits of the platform is that
it’s “no-code”, so it doesn’t require a large number of data scientists to build models or require a data science
platform to orchestrate models and update models. Using Goldengate in combination with our SMEs, we are
able to build high-performing, cutting-edge models that address real-world problems. Our 2021 journey is to
further AI-enable Synodex, Agility and our data annotation platform using Goldengate; in 2022, we intend to
commercialize it further as both a customer-facing technology and as the engine under other potential industry
solutions.
Goldengate functionality can be consumed as domain-specific and task-specific microservices each of
which performs a discrete data-related task automatically. Each AI microservice may be invoked by the
dataflow via a RESTful API. Many complex data problems can be solved with a combination of these
microservices. Capabilities include deep sequence labelling, categorization, segmentation and sequence-to-
sequence mapping. For each cognitive task an AI microservice performs, it provides a confidence score. A
confidence score at or above an established accuracy threshold means no human expert review is required. A
confidence score below an established accuracy threshold means human expert review is required.
When expert review is required, the dataflow automatically routes data to an appropriate human expert.
Our human experts use workbenches that enable them to quickly and efficiently review the data and make
judgements. The workbenches then retroactively feed back the expert-reviewed work into Goldengate’s deep
neural network, enabling it to learn and become smarter. This feature is commonly known as “human-in-the-
loop”. It results in continuous, predictable improvement and progressively greater levels of automation.
To support our Agility industry platform, we have built a fully scalable, cloud-based infrastructure that
powers a SaaS experience for global clients on a 24/7 basis. It includes (i) an AI/ML-powered big data media
intelligence platform that indexes two billion media items per year, powering media monitoring, media
enrichment, and media database APIs; (ii) a full targeting workflow platform that integrates media targeting,
content curation, content distribution, integrated newswires, and a newsroom; (iii) a comprehensive database of
more than one million global media influencers and journalists; (iv) a media monitoring and analytics engine;
and (v) a workflow platform for media database research combining AI and machine learning to streamline
research workflows for discovery and maintenance of our database.
To support our Synodex intelligent automation platform, we have built technologies for transforming
imaged medical records and HL7/FHIR electronic health records (EHR) systems into digital data conforming
to proprietary insurance medical data dictionaries that span diseases and impairments, diagnostic tests,
pharmacology and support industry standard codes such as ICD-10 as well as rules engines for processing,
analyzing and displaying the digital data.
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Our Infrastructure
Our infrastructure supports a range of strategies to suit our clients’ requirements for data security,
compliance, scalability and reliability. We host data and applications in our own data centers at our operations
centers, in our clients’ data centers, and on third-party cloud services that provide the benefit of “infinite
scalability” of hardware resources. Our data operations are linked by multiple redundant network connections.
Our Wide Area Network – along with our Local Area Networks, Storage Area Networks, Network Attached
Storage and data centers – are configured with industry standard redundancy, often with more than one backup
to establish 24x7 availability. In 2020, our Wide Area Network had 99.96% uptime excluding scheduled
maintenance. We encrypt all sensitive information, both at rest and in transit, to the Advanced Encryption
Standard (AES) 256 or similar standard, and we employ a range of security features, including industry-leading
managed firewalls and intrusion detection and prevention services. (See “Information Security”, below.)
Our Breath of Capabilities
We are able to address clients at their highest point of need. For example, we may provide data
annotation for a data sciences team at a bank that is building an AI application to manage complex loan
agreements. For another banking client with the same requirement but without a sophisticated data sciences
team, we might provide a full AI/ML solution built on our proprietary Goldengate AI platform that extracts key
data points from the loan agreements and outputs normalized digital data via an API to the bank’s existing
application. For still another banking client that also lacked such an application, we might provide a data
analytics platform.
Data science teams that utilize our data annotation services also often have other related needs that
include data transformation, data curation, data hygiene, data consolidation, data compliance, and master data
management. Unlike many of our data annotation competitors – that are essentially staffing companies – as a
full-service data engineering company we are able to address these attendant requirements.
Our Outcomes Orientation
We have developed a strong customer-centric culture and a set of values designed around achieving
promised outcomes for our clients. This includes proactive communication, innovation, transparency, and
empathy.
Growth Strategy
Our strategy for growth is to align to and serve large, dynamic and rapidly growing markets related to
the deployment of AI/ML in businesses. Our solutions and platforms leverage the technology, human resources,
and culture of fanaticism for data quality that we have developed over the past 30 years, as well as the AI/ML
research and development we have invested in over the past five years.
We intend to invest significantly in scaling our sales and marketing. Through most of 2020, we had 15
people in sales. Our 2021 budget, by contrast, anticipates ending 2021 with a sales team of 98 in total: 63 sales
executives; 25 business development resources; and 10 sales managers and sales enablement directors. We
expect this will deliver significant returns in future years.
We also plan to continue to invest in our proprietary text annotation platform and Goldengate AI/ML
platform as sources of competitive advantage. We also plan to invest in building a proprietary resource
management platform geared specifically to managing remote staff and freelancers. Prior to the global
pandemic, our operating model was to almost exclusively use full-time employees working from large
production centers. Propelled by the need to shift to remote working, we are presently near 100% cloud-based
and remote, which has enabled us to lower fixed operating costs and achieve greater scalability.
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We expect to fully fund these investments for growth from our internal resources without need for
outside financing.
Our Customers
Our customers include leading businesses across multiple verticals including banking, insurance,
financial services, technology, digital retailing and information/media. One client in the DDS segment generated
approximately 14% and 16% of the Company’s total revenues in the fiscal years ended December 31, 2020 and
2019, respectively. Another client in the DDS segment generated 10% of the Company’s total revenues for the
fiscal year ended December 31, 2019. No other client accounted for 10% or more of total revenues during these
periods. Further, in the years ended December 31, 2020 and 2019, revenues from non-US clients accounted for
54% and 55%, respectively, of the Company's revenues.
We have long-standing relationships with many of our clients, and we have provided services to the
two clients referenced 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 agreements with our 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.
Sales and Marketing
We market and sell our solutions and platforms directly through our professional staff, senior
management and direct sales personnel operating primarily from various locations in the U.S., Canada, the
United Kingdom and Europe. In addition, we are increasingly developing and expanding our use of strategic
partnerships and channel relationships for the establishment and development of new and existing clients.
In addition to our executive-level business development professionals and 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, virtual summits, conferences and seminars), direct and database marketing, public and media
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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
clients 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 client service group support our direct
sales effort by providing ongoing project-level support to our clients.
Competition
Major competitors across industry verticals include Amazon Sagemaker Ground Truth, Appen,
CloudFactory, Defined Crowd, Deepen.ai, Lionbridge, Samasource, Scale AI, , several of which are large firms
with established client bases, as well as technology service providers such as Cognizant Technology Solutions,
ExlService Holdings, Inc., Genpact Limited, Infosys, and Tata Consultancy Services.
We compete in the data engineering market by offering high-quality services and competitive pricing
that leverage our technical platforms, IT infrastructure, offshore domain experts and economies of scale. Our
competitive advantages are especially attractive to clients for undertakings that are complex, mission-critical,
sizable in scope or scale, or that require high levels of information security.
Each of our industry platforms has its discrete set of competitors. Major competitors for our Synodex
industry platform are Risk Righter, eNoah, Parameds and a few BPO companies, several of which 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.
Our Agility industry platform competes with Meltwater, Cision, Kantar, and Intrado, several of which
are large firms with established client 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.
Intellectual Property
Innodata depends, in part, upon its proprietary technologies and methodologies, including its
Goldengate AI/ML platform, various applications of its platforms, its proprietary data models and other
intellectual property rights. Innodata has a patent and several patent applications pending and believes that the
duration of these patents is adequate relative to the expected lives of their applications. Innodata relies on a
combination of trade secret, license, nondisclosure and other contractual agreements and copyright and
trademark laws to protect its intellectual property rights.
Innodata enters into confidentiality agreements with its employees, contractors and clients, and limits
access to and distribution of Innodata’s and Innodata’s clients’ proprietary information. Innodata cannot assure
that these arrangements will be adequate to deter misappropriation of its proprietary information or that it will
be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights.
Information Security
Our operations facilities and data centers in Asia are certified to information security management
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standard - ISO27001. We employ a range of standard security features, such as two-factor authentication, patch
management, anti-virus with IDS/IPS capability, redundant firewalls with intrusion detection and prevention
features, and utilize appropriately certified cloud resources. When we are processing sensitive information, we
utilize U.S.-based, co-located data centers or HIPAA compliant cloud computing services with advanced data
encryption (AES 256 or comparable applied to data at rest and in motion). Secure desktop virtualization
technologies are used for safeguarding against data leaving secured environments in the USA.
Government Regulation
We are subject to a number of U.S. federal and state and foreign laws and regulations that relate to our
business, including those governing privacy and data protection. We comply with the requirements of the United
States Health Insurance Portability and Accountability Act of 1996 as amended (including by the Health
Information Technology for Economic and Clinical Health Data (HITECH)) (HIPAA), the United Kingdom’s
General Data Protection Regulation as tailored by the Data Protection Act 2018, the EU General Data Protection
Regulation, and local laws regulating data privacy, as applicable. We are certified to the EU-U.S. Privacy
Shield framework.
Research and Development
Our Innodata Labs researches and develops AI-based technologies that we utilize in our operations and
with our clients. The Innodata Labs team is comprised of data scientists, including data scientists who have
published leading papers on discrete topics in data science and have earned PhD degrees in fields such as data
entity extraction.
Environmental, Social, and Governance
We are values-driven company, committed to continuously improving how we perform as a steward of
nature, manage relationships with our employees, suppliers, customers and communities, and conduct our
business.
While we are driven by the vision of ushering in the promise of digital data and ubiquitous AI, we are
cognizant that the disruption AI will inevitably cause will not be equitably distributed. Ironically, many of the
communities in which we source human capital for AI projects – communities in India, the Philippines, and Sri
Lanka – are also more heavily dependent on manual labor and face greater potential disruption as a result of AI.
Therefore, as we set out on our AI journey five years ago, we made a concomitant commitment to do
our part to help economically disadvantaged youth (especially young women) in these communities become
technology-savvy. It was our aspiration that they become empowered beneficiaries of an AI-enabled world
rather than its victims.
From 2016 to 2020, our employees have contributed over 1,400 person days to our I-Hope program,
and we have contributed resources, to build 12 fully-functional computer labs at schools across India, the
Philippines, and Sri Lanka. We take immense pride knowing that as a result of our work 4,426 more children
are now technology proficient and ready to take on challenges of navigating an increasingly AI-enabled world.
In 2020, we were the proud recipients of the Asia CEO Awards Circle of Excellence for this work followed by
DSWD Philippines (Department of Social Welfare & Development) Regional Citation Award.
Our goal is to technology-enable 12,000 children by 2025, and we will be devoting a portion of our
revenue to this worthy goal.
Employees
As of December 31, 2020, we employed 169 persons in the United States, Canada and the United
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Kingdom, and 3,600 persons in global delivery centers in the Philippines, India, Sri Lanka, Canada, Germany,
and Israel, and 3,711 of our employees are full-time. 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 Offices
Our principal executive offices are located at 55 Challenger Road, Ridgefield Park, New Jersey 07660,
just outside New York City, and our telephone number is (201) 371-8000. We have an additional office location
in Ottawa, Canada. We have six operations centers in the Philippines, India, Sri Lanka, Germany, and Israel.
We were founded in 1988.
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 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.
The risk factors set forth below describe what the Company believes to be the material factors, risks, and
uncertainties related to our business, financial condition, and results of operations. The risks and uncertainties
set forth below, as well as other factors described elsewhere in this Form 10-K or in other filings by the
Company with the SEC, could adversely affect the Company’s business, financial condition and results of
operations. Additional risks and uncertainties that are not currently known to the Company or that are not
currently believed by the Company to be material may also harm the Company’s business, financial condition
and results of operations.
Risks Related to Our Business and Operations
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. One client in the DDS segment generated approximately 14% and 16% of the Company’s
total revenues in the fiscal years ended December 31, 2020 and 2019, respectively. Another client in the DDS
segment generated 10% of the Company’s total revenues for the fiscal year ended December 31, 2019. No other
client accounted for 10% or more of total revenues during these periods. Further, in the years ended December 31,
2020 and 2019, revenues from non-US clients accounted for 54% and 55%, respectively, of the Company's
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
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cases are terminable upon 30 to 90 days’ notice. The loss of these clients or a significant variation in the volume
of work performed for these clients may have a material adverse effect upon our business, financial condition
and results of operations.
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, whenever 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.
New acquisitions, joint ventures or strategic investments or partnerships could harm our operating
results.
We may pursue acquisitions, joint ventures or engage in strategic investments or partnerships to grow
and enhance our capabilities. There can be no assurance that we will successfully consummate any acquisitions
or joint ventures, or realize profit from 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.
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 or their control,
and it could lead to termination of projects or contracts. As we normally invest in people and technology and
incur other costs in anticipation of revenues, any such deviation from our expected plan or anticipated results
could impact our margins and earnings.
Our business will suffer if we fail to develop new solutions and products and enhance our existing services,
solutions and products in order to keep pace with the rapidly evolving technological environment or to
provide new 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 products and solutions that keep pace with changes in our addressable markets, such as when
we re-designed our solutions and product portfolio in 2019. We cannot guarantee that we will be successful in
developing new products and solutions, addressing evolving technologies on a timely or cost-effective basis or,
if these products and solutions 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 products and solutions
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.
14
We operate in highly competitive markets. While we invest in developing and pursuing new solutions and
product offerings from time to time, our profitability could be reduced if these solutions and products do
not yield the profit margins we expect, or if the new offerings do not generate the planned revenues.
The markets for our services, products and solutions 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. There are relatively few barriers preventing companies from entering the markets
in which we operate. 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 offerings using their own
personnel.
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. If we are not able to compete effectively in the markets we serve or if we
are not able to develop new solutions and product offerings, our revenues and results of operations could be
adversely affected.
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, our Company utilizes third party
data centers to serve our clients and generate revenue. Any disruption in the provision of services from these
data centers could result in loss of revenue, client dissatisfaction and loss of clients.
Our Agility segment relies on third parties to provide certain content and data for our solutions. The
cessation by third parties to provide their content has adversely affected, and could in the future adversely
affect, our revenue and results of operations.
Our Agility 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, in the past, have restricted
access to certain content and 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 or have
access to 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, to a considerable degree, reliant on the continuing leadership of our Chief Executive Officer
and would be materially and adversely affected should he unexpectedly cease to 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
15
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 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 Agility
business is headquartered in Ottawa, Canada. We have six delivery centers in the Philippines, India, Sri Lanka,
Canada, Germany, 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. 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 North American workforce provides services from our
U.S. and Canadian offices, as well as from client sites; and our other international workforce provides services
from our six offshore delivery centers in the Philippines, India, Sri Lanka, Germany, 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.
Even though we have implemented network security measures, our information technology systems
may be vulnerable to computer viruses, cyber-attacks, break-ins and similar disruptions from unauthorized
tampering or intentional and unintentional disclosure of sensitive and /or confidential personal information by
employees and non-employees. Additionally, the Company may not be able to effectively identify and resolve
such issues on a timely basis. 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.
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, Canada and
Germany, while our headquarters are in the U.S., 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 have exercised, and may continue to exercise, significant
16
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, financial condition and results of operations.
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.
The majority of our delivery centers are located 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.
Our global operations expose us to risks associated with public health crises.
We use a distributed global resource model, which exposes us to risks associated with public health
crises, such as pandemics and epidemics. A public health crisis in one or more of the geographic areas in which
we operate could affect our ability to provide services to our clients and adversely affect our results of
operations.
The effects of the COVID-19 pandemic could materially adversely affect our results of operations and
financial condition.
17
The novel coronavirus disease 2019 (“COVID-19”), which the World Health Organization declared a
pandemic on March 11, 2020, continues to spread throughout the world. COVID-19 has created significant
global economic downturn, disrupted global trade and supply chains, adversely impacted many industries, and
contributed to significant declines and volatility in financial markets. In response to COVID-19, countries and
local governments have imposed restrictions on the operations of non-essential businesses and services,
imposed travel restrictions and implemented societal lockdowns. Additionally, companies are taking
precautions, such as requiring employees to work remotely and temporarily closing businesses. All of these
factors have had, and are likely to continue to have, a severe adverse effect on global economic conditions,
underemployment and unemployment, consumer spending and reductions in non-essential spending by
governments and private companies, as well as uncertainty in financial markets. We have experienced limited
operational disruptions and declines in customer demand for services to date; however, depending upon the
extent and duration of the COVID-19 pandemic, we may experience a material adverse effect on our results of
operations and financial condition as a result of the effects of COVID-19.
In response to the declaration of the COVID-19 pandemic we triggered our Business Continuity Plan
for our global delivery centers and offices, enabling us to continue operations while safeguarding the health and
welfare of our employees. While the pandemic presented, and may in the future present, new risks to our
business and there have been logistical and other challenges, there was no material adverse impact on our
financial condition or results of operations for the year ended December 31, 2020.
The COVID-19 pandemic could have a material adverse effect on our results of operations and financial
condition by, among others, customers with at-will contracts, particularly in our DDS segment, reducing,
delaying or cancelling orders; reduced spending by customers on third-party service providers as part of cost-
rationalization efforts or otherwise; or customers determining to bring services in-house and/or customers
delaying or postponing data engineering needs. Additionally, the effects of COVID-19 could exacerbate any
other risks or uncertainties to which we are subject. Lastly, should we experience material adverse effects on
our results of operations or financial condition, we may not be able to access additional sources of liquidity at
rates that are acceptable to us, if at all.
The situation surrounding COVID-19 crisis remains fluid and the extent and duration of its impact to
the economy remains unclear. For this reason, we cannot reasonably estimate with any degree of certainty the
future impact to our results of operations and financial condition. The potential for a material impact on our
results of operations and financial condition increases the longer the virus affects the level of economic activity
in the United States and globally. In the event we experience a significant or prolonged reduction in revenues,
the likelihood of which is uncertain, we would seek to manage our liquidity by reducing capital expenditures,
deferring investment activities, and reducing operating costs as we would likely have no other source of liquidity
to support ongoing operations in a manner that is not significantly detrimental to the business.
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.
18
We are the subject of continuing litigation, including litigation by certain of our former employees.
In 2008, a judgment was rendered in the Philippines against a Philippine subsidiary of the Company
that is no longer active and purportedly also against Innodata Inc., in favor of certain former employees of the
Philippine subsidiary. The potential payment amount aggregates to approximately $6.8 million, plus legal
interest that accrued at 12% per annum from August 13, 2008 to June 30, 2013, and thereafter accrued and
continues to accrue at 6% per annum. The potential payment amount as expressed in U.S. dollars varies with
the Philippine peso to U.S. dollar exchange rate. In December 2017, a group of 97 of the former employees of
the Philippine subsidiary indicated that they proposed to record the judgment as to themselves in New Jersey.
In January 2018, in response to an action initiated by Innodata Inc., the United States District Court for the
District of New Jersey (“USDC”) entered a preliminary injunction that enjoins these former employees from
pursuing or seeking recognition or enforcement of the judgment against Innodata Inc. in the U.S. during the
pendency of the action and until further order of the USDC. In June 2018, the USDC entered a consent order
administratively closing the action subject to return of the action to the active docket upon the written request
of Innodata Inc. or the former employees, with the USDC retaining jurisdiction over the matter and the
preliminary injunction remaining in full force and effect. The 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 that have arisen in the ordinary course
of business. While we believe that we have adequate reserves for those losses that we believe are probable and
can be reasonably estimated, the ultimate results of legal proceedings and claims cannot be predicted with
certainty.
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.
19
We had a material weakness in internal control over financial reporting as of September 30, 2020 and
cannot assure you that additional material weaknesses will not be identified in the future.
Our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations
regarding our required assessment of our internal control over financial reporting requires the commitment of
significant financial and managerial resources. We regularly assess the adequacy of our internal control over
financial reporting, remediate any control deficiencies that may be identified, and validate through testing that our
controls are functioning as documented. We identified a material weakness in our internal control over financial
reporting as of September 30, 2020 in accounting for capital leases under ASC Topics 840 and 842. We
implemented enhancements to our internal controls to prevent and detect such errors from occurring in the future.
Our failure to successfully remediate a material weakness could result in adverse consequences to us, including,
but not limited to, a loss of investor confidence in the reliability of our financial statements, which could cause the
market price of our stock to decline.
Risks Related to Our Contracts
A portion of our revenue is generated from projects that 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 the risks that these projects may not be renewed by our clients or they 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 Agility 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 Agility 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 levels of revenue, our
revenues and results of operations will be adversely affected.
If our clients are not satisfied with our services, they may terminate our contracts with them or our
services and we may suffer reputational damage, 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
could 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
reputation and our ability to compete for new contracts with current and prospective clients.
Risks Related to Financial Performance or General Economic Conditions
20
We have no bank facilities or line of credit.
We believe that our existing cash and cash equivalents and cash flows from operations 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 reductions in our cash and cash equivalents from operating losses, capital
expenditures, adverse legal decisions, acquisitions or other events affecting our access to capital could
materially and adversely affect the Company. See “Management Discussion and Analysis – Liquidity and
Capital Resources” for additional information.
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 obligations could 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 could be materially adversely affected. As of December 31, 2020, 36% or $3.6 million, of our accounts
receivable was due from three clients. See “Management Discussion and Analysis – Liquidity and Capital
Resources”.
In addition, we evaluate the financial condition of our clients prior to extending credit to them. 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
timely collect 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 income of
approximately $1.2 million in the fourth quarter of 2020 to a loss of approximately $0.7 million in the second
quarter of 2019.
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 due to competition from other companies in our markets. Our
ability to maintain or increase pricing is restricted as clients generally expect to receive volume discounts or
21
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. If our pricing structures do not accurately anticipate the cost and
complexity of performing our work, then our contracts could be unprofitable.
Our profit margin, and therefore our profitability, is dependent on the rates we are able to charge for
our services measured against the costs of providing the 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 amounts 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.
Furthermore, 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 or volume 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 could negatively impact our results of operations.
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 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, the United Kingdom 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 (U.S. GAAP). 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.
We are also subject to fluctuations in exchange rates that affect the value of funds held by our foreign
subsidiaries.
Although we selectively undertake hedging activities to mitigate certain of these risks, our hedging
activities may not be effective and may result in losses. See Note 14, “Derivatives,” to the consolidated financial
statements.
In the event that the governments of India or 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.
22
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 jurisdictions where
we operate, could affect our future results of operations.
In September 2015, the Company’s Indian subsidiary was subject to an inquiry by the Service Tax
Department in India regarding the classification of services provided by this subsidiary, asserting that the
services provided by this subsidiary fall under the category of online information and database access or retrieval
services (“OID Services”), 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. Our management
disagrees with the Service Tax Department’s position. In November 2019, the Commissioner of Central Tax,
GST & Central Excise issued an order confirming the Service Tax Department’s position. The Company is
contesting this order in an appeal to the Customs, Excise and Service Tax Appellate Tribunal. In the event the
Service Tax Department is ultimately successful in proving that the services fall under the category of OID
Services, the revenues earned by the Company’s Indian subsidiary for the period July 2012 through November
2016 would be subject to a service tax of between 12.36% and 15%, and this subsidiary may also be liable to
pay interest and penalties. The revenue of our Indian subsidiary during this period was approximately $64.0
million. In accordance with new rules promulgated by the Service Tax Department, as of December 1, 2016
service tax is no longer applicable to OID or BS Services. Based on the assessment of the Company’s counsel,
the Company has not recorded any tax liability for this case.
In a separate action relating to service tax refunds, in October 2016, the Company’s Indian subsidiary
received notices from the Indian Service Tax Department in India seeking to reverse service tax refunds of
approximately $160,000 previously granted to our Indian subsidiary for three quarters in 2014, asserting that
the services provided by this subsidiary fall under the category of OID Services and not BS Services. The appeal
was determined in favor of the Service Tax Department. Management disagrees with the basis of this decision
and is contesting it. The Company expects delays in its Indian subsidiary receiving further service tax refunds
until this matter is adjudicated with finality, and currently has service tax credits of approximately $1.0 million
recorded as a receivable. Based on the assessment of the Company’s counsel, the Company has not recorded
any tax liability for this case.
Substantial recovery against us in the above referenced 2015 Service Tax Department case could have
a material adverse impact on us, and unfavorable rulings or recoveries in other tax proceedings could have a
material impact on the consolidated operating results of the period in which the rulings or recovery occurs.
If tax authorities in any of the jurisdictions in which we operate contest the manner in which we allocate
our profits, our net loss could be higher.
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 any future challenge
of this type. If such a challenge were successful, our worldwide effective tax rate could increase, thereby
decreasing our profitability.
An expiration or termination of our preferential tax rate incentives could adversely affect our results of
operations.
23
Two of our foreign subsidiaries are subject to preferential tax rates. This tax incentive provides that we
pay reduced income taxes with respect to those jurisdictions for a fixed period of time. An expiration or termination
of these incentives could 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
and profits or if such earnings and profits become subject to U.S. tax on a current basis.
A significant portion of our operations are conducted outside the U.S. Despite our 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 foreign jurisdiction withholding tax that the Company has to incur on the actual
remittances. Unremitted earnings of foreign subsidiaries amounted to approximately $47.0 million at December
31, 2020. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested,
the Company would have to accrue as a liability the applicable amount of foreign jurisdiction withholding taxes
associated with such remittances.
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.
Risks Related to Laws and Regulations
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 services 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’s
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.
24
Our 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 of 2010 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.
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
U.S. 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 U.S. 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 U.S. 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.
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,
create 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 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.
Item 1B. Unresolved Staff Comments.
25
None.
Item 2. Properties.
Our services are primarily performed from our Ridgefield Park, New Jersey headquarters and seven
overseas delivery centers in the Philippines, India, Sri Lanka, Canada, Germany, and Israel, all of which are
leased. The square footage of all our leased properties totals approximately 236,000. Our leased properties in
the Philippines, Sri Lanka, Germany and Israel are primarily used by our DDS segment; our leased property in
India is primarily used by our DDS and Synodex segments; and our leased property in Canada is primarily used
by our Agility segment. Our leased property in the United States is our corporate headquarters and is used by
all segments.
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.
Reference is made to Note 6, “Commitments and Contingencies - Litigation,” to the consolidated
financial statements in Item 8 of this Report, which is incorporated by reference herein.
Item 4. Mine Safety Disclosures.
Not applicable.
26
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 10, 2021, there were 64 stockholders of record of the Company’s Common Stock
based on information provided by the Company's transfer agent. The number of stockholders of record is based
upon the actual number of holders registered at such date and does not include holders of shares in “street
names” or persons, partnerships, associates, corporations, or other entities identified in security position listings
maintained by depositories. We did not have any sales of unregistered securities during the year ended December
31, 2020. We do not anticipate paying any dividends in the foreseeable future.
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, 2020:
Number of
Securities to be Issued Weighted-Average
Exercise Price of
Upon Exercise of
Outstanding Options, Outstanding Options,
Warrants and Rights Warrants and Rights
(a)
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(c)
5,906,884
$ 1.61
2,925,638
-
-
-
Plan Category
Equity compensation plans
approved by security holders (1)
Equity compensation plans
not approved by security
holders
Total
5,906,884
$ 1.61
2,925,638
(1) 2013 Stock Plan, approved by the stockholders, see Note 10, “Stock Options,” to the consolidated financial
statements.
Purchase of Equity Securities
We did not repurchase any shares of our common stock during 2020.
We did not have any sales of unregistered equity securities during the year ended December 31, 2020.
Item 6. Selected Financial Data.
Not applicable to smaller reporting companies.
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 thereto included elsewhere in this report, which are incorporated by reference herein. In addition
to historical information, this discussion includes forward-looking information that involves risks and assumptions
based upon management’s current expectations. Our actual results could differ materially from the results
27
referred to in any forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”
included elsewhere in this report.
Correction of Immaterial Errors – During the preparation of the September 30, 2020 condensed
consolidated financial statements, certain historical errors were identified relating to the accounting for capital
leases under ASC Topics 840 and 842. The lease obligations under certain leases were not recorded at their
present values at the inception of the leases; in addition, the asset buyout prices were not reassessed in December
2019 by the Company, both of which resulted in an understatement of expenses from December 31, 2017 to
December 31, 2019 and an overstatement of expenses for the nine months ended September 30, 2020.
The errors were not material, either quantitatively or qualitatively, in any of the reported periods.
However, the corrections, if recorded in the three-month period ended September 30, 2020 would have been
material to such period. Accordingly, the prior period financial statements were corrected by revising such
consolidated financial statements for comparability. For the December 31, 2019 consolidated financial
statements included in this Form 10-K, the corrections are as follows:
• An increase in net loss of $540,000 for the year ended December 31, 2019.
• An increase in expenses of $540,000 for the year ended December 31, 2019.
• An increase in the loss per share of $0.02 for the year ended December 31, 2019.
• An increase in liabilities of $528,000 as of December 31, 2019.
• A decrease in retained earnings of $777,000 and $237,000 as of December 31, 2019 and 2018,
respectively.
• A decrease in total assets of $249,000 as of December 31, 2019.
• The impact on cash flows for the year ended December 31, 2019 was:
• A decrease in net cash flows provided by operating activities of $573,000.
• A decrease in net cash flows used in investing activities of $102,000.
• A decrease in net cash flows used in financing activities of $471,000.
Executive Overview
We are a global data engineering company. We operate in three reporting segments: Digital Data Solutions
(DDS), Synodex and Agility.
The following table sets forth certain financial data for the two years ended December 31, 2020 and 2019:
Revenues
Direct operating costs
Selling and administrative expenses
Income (loss) from operations
Other expense
Income (loss) before provision for income taxes
Provision for income taxes
Net income (loss)
(Dollars in millions)
Years Ended December 31,
2020
% of revenue
2019
% of revenue
100.0 %
66.0 %
32.0 %
%
2.0
$
55.9
37.3
19.5
(0.9)
0.1
(1.0)
1.1
(2.1)
100.0
66.7
34.9
(1.6)
%
%
%
%
$
58.2
38.4
18.7
1.1
0.1
1.0
0.4
0.6
28
Results of Operations
All percentages have been calculated using rounded amounts.
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Revenues
Total revenues were $58.2 million for the year ended December 31, 2020, an increase of $2.3 million
or 4% from total revenues of $55.9 million for the year ended December 31, 2019.
Revenues from the DDS segment were $42.0 million and $41.3 million for the years ended December
31, 2020 and 2019, respectively, an increase of $0.7 million or approximately 2%. The increase was due to
higher volume from one client, partially offset by lower volume from two clients of the DDS segment.
Revenues from the Synodex segment were $4.8 million and $3.9 million for the years ended December
31, 2020 and 2019, respectively, an increase of $0.9 million or approximately 23%. The increase was primarily
due to higher volume from three clients, partially offset by lower volume from two clients.
Revenues from the Agility segment were $11.4 million and $10.7 million for the year ended December
31, 2020 and 2019, respectively, an increase of $ 0.7 million or approximately 7%. The increase was attributable
to higher revenues from subscriptions to our Agility media database.
One client in the DDS segment generated approximately 14% and 16% of the Company’s total revenues
in the fiscal years ended December 31, 2020 and 2019, respectively. Another client in the DDS segment generated
10% of the Company’s total revenues for the fiscal year ended December 31, 2019. No other client accounted
for 10% or more of total revenues during these periods. Further, in the years ended December 31, 2020 and 2019,
revenues from non-US clients accounted for 54% and 55% of the Company's revenues respectively.
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 remeasurement gain (loss), and other direct expenses
that are incurred in providing services to our clients.
Direct operating costs were $38.4 million and $37.3 million for the years ended December 31, 2020
and 2019, respectively, an increase of $1.1 million or approximately 3%. This increase was primarily due to an
increase in labor related costs of $2.1 million, and technology-related expenditures in connection with our BCP in
response to the COVID-19 pandemic of $1.1 million. The increase was offset in part by reductions in occupancy
and related costs of $1.1 million, content acquisition costs of $0.2 million, and a decrease of $0.8 million due to
reversal of a one-time charge of $0.4 million made in the second quarter of 2019 for an assessment of retroactive
foreign social security contributions that was successfully adjudicated. Direct operating costs as percentage of total
revenues were 66% and 67% for the years ended December 31, 2020 and 2019, respectively.
Direct operating costs for the DDS segment were $28.5 million and $27.5 million for the years ended
December 31, 2020 and 2019, respectively, an increase of $1.0 million or approximately 4%. This increase was
primarily due to an increase in labor related costs of $1.8 million, and technology-related expenditures in
connection with our BCP in response to the COVID-19 pandemic of $1.1 million. The increase was offset in part
by reductions in occupancy and related costs of $1.0 million and a decrease of $0.8 million due to reversal of a
one-time charge of $0.4 million made in the second quarter of 2019 for an assessment of retroactive foreign social
security contributions that was successfully adjudicated. Direct operating costs for the DDS segment as a
percentage of DDS segment revenues were 68% and 67% for the years ended December 31, 2020 and 2019,
29
respectively.
Direct operating costs for the Synodex segment were approximately $3.4 million and $3.2 million for
the years ended December 31, 2020 and 2019, respectively, an increase of $0.2 million or 6%. The increase was
principally due to labor related costs associated with the increase in volume. Direct operating costs for the
Synodex segment as a percentage of segment revenues were 71% and 82% for the years ended December 31,
2020 and 2019, respectively. The decrease in Direct operating costs as a percentage of segment revenues during
the year was primarily due to higher revenue.
Direct operating costs for the Agility segment were approximately $6.5 million and $6.6 million for the
years ended December 31, 2020 and 2019, respectively, a decrease of $0.1 million or 2%. This decrease was
primarily due to a reduction in content acquisition costs. Direct operating costs for the Agility segment as a
percentage of Agility segment revenues were 57% and 62% for the years ended December 31, 2020 and 2019,
respectively. The decrease in Direct operating costs as a percentage of segment revenues during the year was
primarily due to higher revenue from subscriptions to our Agility intelligent data platform and newswire products.
Selling and Administrative Expenses
Selling and administrative expenses consist of management and administrative salaries, sales and
marketing costs including commissions, new services research and related software development, third-party
software, advertising and trade conferences, professional fees and consultant costs, and other administrative
overhead costs.
Selling and administrative expenses were $18.7 million for the year ended December 31, 2020 compared
to $19.5 million for the year ended December 31, 2019, a decrease of $0.8 million or 4%. This decrease was
primarily due to lower marketing, travel and occupancy expenses of $0.3 million and professional fees of $0.5
million. Selling and administrative expenses as a percentage of total revenues were 32% and 35% for the years
ended December 31, 2020 and 2019, respectively. The decrease in selling and administrative expenses as
percentage of revenues during the year was primarily due to higher revenues and lower selling and administrative
costs.
Selling and administrative expenses for the DDS segment were $12.4 million for the year ended
December 31, 2020 compared to $13.1 million for the year ended December 31, 2019, a decrease of $0.7 million
or 5%. This decrease was primarily due to lower marketing, travel and occupancy expenses of $0.2 million and
professional fees of $0.5 million. As a percentage of DDS revenues, DDS selling and administrative expenses
were 30% and 32% for the years ended December 31, 2020 and 2019, respectively. The decrease in selling and
administrative expenses as a percentage of revenues was due to higher revenues and lower selling and
administrative expenses.
Selling and administrative expenses for the Synodex segment was $0.9 million for the year ended
December 31, 2020 compared to $0.7 million for the year ended December 31, 2019, an increase of $0.2 million
or 29%. This increase was primarily due to labor related expenses. Selling and administrative expenses for the
Synodex segment as a percentage of Synodex segment revenues were 19% and 18% for the years ended
December 31, 2020 and 2019, respectively.
Selling and administrative expenses for the Agility segment were $5.4 million and $5.7 million for the
years ended December 31, 2020 and 2019, respectively, a decrease of $0.3 million or 5%. This decrease was
primarily due to labor related expenses. Selling and administrative expenses for the Agility segment as a
percentage of Agility segment revenues were 47% and 53% for the years ended December 31, 2020 and 2019,
respectively. The decrease in selling and administrative expenses as a percentage of revenues was due to higher
revenues and lower selling and administrative expenses.
30
Goodwill Impairment
On March 31, 2020, we determined that adverse changes in macroeconomic trends as a consequence of
the continuing COVID-19 pandemic constituted a triggering event under the Financial Accounting Standards
Board’s (the “FASB”) Accounting Standards Codification (“ASC”) No. 350, “Intangibles - Goodwill and
Other” and ASC No. 360, “Impairment or Disposal of Long-Lived Assets”). We completed our impairment
analysis procedures as of March 31, 2020. We determined that there was no impairment of long-lived assets in
any of the reporting units as of March 31, 2020.
On September 30, 2020, we performed our annual goodwill assessment for the Agility segment in
accordance with the provisions of the FASB’s Accounting Standards Update (“ASU”) 2017-04, “Intangibles –
Goodwill and Other (Topic 350)”, by using a single step approach that evaluates the carrying value of goodwill
and comparing it against the reporting unit’s fair value. Our conclusion was consistent with the results of the
March 31, 2020 impairment test.
Income Taxes
We recorded a provision for income taxes of approximately $0.4 million and $1.1 million for the years
ended December 31, 2020 and 2019, respectively. Tax-related charges primarily consisted of a provision for
foreign taxes recorded in accordance with the local tax regulations by our foreign subsidiaries. Effective income
tax rates are disproportionate primarily due to the valuation allowance recorded on the deferred taxes on the U.S.
and Canadian entities. See Note 4, “Income Taxes” of the notes to the consolidated financial statements for
additional information.
The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for the years ended
December 31, 2020 and 2019 are summarized in the table below:
Federal income tax expense (benefit) at statutory rate
Effect of:
Change in valuation allowance
Increase in unrecognized tax benefits (ASC 740)
Tax effects of foreign operations
Foreign operations permanent differences - foreign exchange gains and
losses
Deemed interest
State income tax net of federal benefit
Foreign rate differential
Effect of share based compensation
Return to provision true up
Change in rates
Withholding tax
Other
Effective tax rate
2020
2019
21.0
%
(21.0)
%
137.7
31.5
57.7
(1.3)
(2.1)
(4.3)
(8.6)
(10.9)
(10.8)
(172.7)
1.5
(0.3)
38.4
%
22.4
55.1
59.7
(12.2)
-
1.3
0.8
-
(2.6)
-
6.0
(7.3)
102.2
%
Despite access to overseas earnings and the resulting toll charge, we intend to indefinitely reinvest
earnings and profits in our foreign subsidiaries on account of the foreign jurisdiction withholding taxes that we
would have to incur on the actual remittances. Unremitted foreign earnings and profits amounted to
approximately $47.0 million at December 31, 2020. If such foreign earnings and profits are repatriated in the
31
future, or are no longer deemed to be indefinitely reinvested, we would have to accrue the applicable amount
of foreign jurisdiction withholding taxes associated with such remittances.
We have a valuation allowance on all of our U.S. deferred tax assets on account of continuing losses
incurred by our U.S. entity. In addition, we also have a valuation allowance on the deferred tax assets of our
Canadian subsidiaries. Our Canadian subsidiaries also have research and development credits available to
reduce taxable income in future years, which may be carried forward indefinitely. The potential benefits from
these balances have not been recognized for financial statement purposes.
Tax Assessments
In September 2015, our Indian subsidiary was subject to an inquiry by the Service Tax Department in
India regarding the classification of services provided by this subsidiary, asserting that the services provided by
this subsidiary fall under the category of online information and database access or retrieval services (OID
Services), and not under the category of business support services (BS Services) that are exempt from service
tax as historically indicated in the subsidiary’s service tax filings. We disagree with the Service Tax
Department’s position. In November 2019, the Commissioner of Central Tax, GST & Central Excise issued an
order confirming the Service Tax Department’s position. We are vigorously contesting this order in an appeal
to the Customs, Excise and Service Tax Appellate Tribunal. In the event the Service Tax Department is
ultimately successful in proving that the services fall under the category of OID Services, the revenues earned
by our Indian subsidiary for the period July 2012 through November 2016 would be subject to a service tax of
between 12.36% and 15%, and this subsidiary may also be liable to pay interest and penalties. The revenue of
our Indian subsidiary during this period was approximately $64.0 million. In accordance with new rules
promulgated by the Service Tax Department, as of December 1, 2016 service tax is no longer applicable to OID
or BS Services. Based on our counsel’s assessment, we have not recorded any tax liability for this case.
In a separate action relating to service tax refunds, in October 2016, our Indian subsidiary received
notices from the Indian Service Tax Department in India seeking to reverse service tax refunds of approximately
$160,000 previously granted to our Indian subsidiary for three quarters in 2014, asserting that the services
provided by this subsidiary fall under the category of OID Services and not BS Services. The appeal was
determined in favor of the Service Tax Department. We disagree with the basis of this decision and are
contesting it vigorously. We expect delays in our Indian subsidiary receiving further service tax refunds until
this matter is adjudicated with finality, and currently have service tax credits of approximately $1.0 million
recorded as a receivable. Based on our counsel’s assessment, we have not recorded any tax liability for this
case.
Net Income (Loss)
We had a net income of $0.6 million during the year ended December 31, 2020, compared to a net loss of
$2.1 million during the year ended December 31, 2019. The $2.7 million improvement was attributable to higher
revenues of $2.3 million, and a decrease in tax provision of $0.7 million, partially offset by higher operating
expenses of $0.3 million.
Net income for the DDS segment was $0.3 million for the year ended December 31, 2020, compared to a
net loss of $0.5 million for the year ended December 31, 2019. The $0.8 million improvement was attributable to
higher revenues of $0.7 million and a decrease in tax provisions of $0.4 million, partially offset by higher operating
expenses of $0.3 million.
Net income for the Synodex segment was $0.5 million for the year ended December 31, 2020, compared
to breakeven for the year ended December 31, 2019. The $0.5 million increase was primarily attributable to the
higher revenues of $0.9 million offset in part by higher operating expenses of $0.4 million.
Net loss for the Agility segment was $0.2 million for the year ended December 31, 2020, compared to a
32
net loss of $1.6 million for the year ended December 31, 2019. The $1.4 million improvement was the result of
higher revenues of $0.7 million, reductions in operating expenses of $0.4 million and a tax benefit of $0.3 million.
Liquidity and Capital Resources
Selected measures of liquidity and capital resources, expressed in thousands, are as follows:
December 31,
2020
2019
Cash and cash equivalents
Working capital
$
17,573
13,515
$
10,874
8,250
On December 31, 2020, we had cash and cash equivalents of $17.6 million, of which $10.2 million was
held by our foreign subsidiaries, and $7.4 million was held in the United States. Despite the passage of the new
tax law under which we may repatriate funds from overseas after paying the toll charge, it is our intent, as of
December 31, 2020, to permanently reinvest the overseas funds in our foreign subsidiaries on account of the
withholding tax that we would have to incur on the actual remittances.
We have used, and plan to use, our cash and cash equivalents for (i) investments in the Agility segment;
(ii) the expansion of our other operations; (iii) technology innovation; (iv) product management and strategic
marketing; (v) general corporate purposes, including working capital; and (vi) possible business acquisitions. As
of December 31, 2020, we had working capital of approximately $13.5 million, as compared to working capital
of approximately $8.3 million as of December 31, 2019.
On May 4, 2020, we received loan proceeds of $579,700 under the Paycheck Protection Program (PPP),
which was established as part of the Coronavirus Aid, Relief and Economic Security Act. The loans and accrued
interest are forgivable, as long as the borrower uses the loan proceeds for eligible purposes, including payroll,
benefits, rent and utilities, and maintains its payroll levels. The unforgiven portion of the loan is payable over two
years at an interest rate of 1% per year, with a deferral of payments until the date that the Small Business
Administration remits the borrower’s loan forgiveness amount to the lender. On January 29, 2021, we filed our
loan forgiveness application for 100% of the approved loan under the PPP.
Proceeds from stock option exercises for the year ended December 31, 2020 were $2.6 million.
We did not have any material commitments for capital expenditures as of December 31, 2020.
We believe that our existing cash and cash equivalents and cash flows from operations will provide
sufficient sources of liquidity to satisfy our financial needs for the next 12 months from the date of issuance of
these financial statements. However, as we have no bank facilities or lines of credit, reductions in our cash and
cash equivalents from operating losses, capital expenditures, adverse legal decisions, acquisitions or otherwise
could materially and adversely affect the Company.
Net Cash Provided by Operating Activities
Cash provided by our operating activities for the year ended December 31, 2020 was $5.7 million and
was the result of the net income of $0.6 million, the effect of adjustments for non-cash items of $3.4 million and
sources of working capital of $1.6 million. Adjustments for non-cash items primarily consisted of $2.3 million for
depreciation and amortization, stock-based compensation of $0.9 million and $0.2 million for other non-cash
items. Working capital activities primarily consisted of sources from a $1.4 million increase in accrued salaries,
33
wages and related benefits, a $0.8 million increase in income and other taxes, offset by a $0.6 million increase in
prepaid expenses and other current assets. Refer to the Consolidated Statements of Cash Flows for further details.
Cash provided by our operating activities for the year ended December 31, 2019 was $4.3 million and
was the result of the net loss of $2.1 million, the effect of adjustments for non-cash items of $3.6 million and
sources of working capital of $2.9 million. Adjustments for non-cash items primarily consisted of $2.7 million for
depreciation and amortization, stock option expense of $0.8 million and $0.1 million for other non-cash items.
Working capital activities primarily consisted of sources from a $1.2 million decrease in our accounts receivable,
a $1.2 million decrease in prepaid and other current assets, and a $0.9 million increase in income and other taxes
which was offset in part by a use of $0.5 million due to an increase in other working capital. The reduction in
accounts receivable is a result of higher collections during the year ended December 31, 2019. Refer to the
Consolidated Statements of Cash Flows for further details.
Our days’ sales outstanding were 62 days and 66 days December 31, 2020 and 2019, respectively. We
calculate DSO by first dividing the total revenues for the period by average net accounts receivable, which is the
sum of net accounts receivable at the beginning of the period and net accounts receivable at the end of the period,
to yield an amount we refer to as the “accounts receivable turnover”. 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
Cash used in our investing activities was $1.4 million and $1.7 million for the years ended December 31,
2020 and 2019, respectively. These capital expenditures were principally for the purchase of technology
equipment including servers, network infrastructure and workstations, and expenditures for internally developed
software. Capital expenditures for the year ended December 31, 2020 amounting to $1.4 million consisted of $0.6
million for the DDS segment and $0.8 million for the Agility segment.
For the year 2020, we anticipate that capital expenditures for ongoing technology, equipment and
infrastructure upgrades will approximate $2.0 to $2.3 million, a portion of which we may finance.
Net Cash Used in Financing Activities
Cash provided by financing activities for the year ended December 31, 2020 was from PPP loan proceeds
of $0.6 million and proceeds from stock option exercises of $2.6 million. Payments of long-term obligations were
$0.9 million and $0.6 million for December 31, 2020 and 2019, respectively. Cash used in financing activities for
2019 was $1.8 million for the repurchase of 1,503,095 shares of our common stock at a volume-weighted average
price of $1.23 per share.
Inflation, Seasonality and Prevailing Economic Conditions
Although most of our revenues are denominated in U.S. dollars, a significant portion of our revenues is
denominated in Canadian dollars, Pound Sterling and Euros. In addition, a significant portion of our expenses,
primarily labor expenses in the Philippines, India, Sri Lanka, Germany, Canada and Israel, 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 U.S. GAAP. Thus, we are exposed to the risk that
fluctuations in the value of these currencies relative to the U.S. dollar could have a direct impact on our revenues
and our results of operations.
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. As
of December 31, 2020, the aggregate notional amount of our hedges against the Indian rupee was approximately
$2.9 million, and $4.0 million for the Philippine peso.
34
Fluctuations in exchange rates also affect the value of funds held by our foreign subsidiaries. We do not
currently intend to hedge these assets.
Our most significant costs are the salaries and related benefits of our employees in Asia. We are exposed
to high inflation in wage rates in the countries in which we operate. We generally perform work for our clients
under project-specific contracts, requirements-based contracts or long-term contracts. We must adequately
anticipate wage increases, particularly on our fixed-price contracts. There can be no assurance that we will be able
to recover cost increases through increases in the prices that we charge for our services to our clients.
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable to smaller reporting companies.
Item 8. Financial Statements and Supplementary Data.
See Financial Statement Index and Financial Statements commencing on page F-1, which are
incorporated by reference 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 (as such term is defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure
that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure.
Under the supervision, and with the participation of our management, including our principal executive
officer and our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure
controls and procedures, as defined under Exchange Act Rule 13a-15(e), as of December 31, 2020. Based on
this evaluation, our principal executive officer and our principal financial officer concluded that, as of December
31, 2020, our disclosure controls and procedures were effective.
35
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our
financial reporting. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of our financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. GAAP. Internal control over financial reporting includes maintaining
records that in reasonable detail accurately and fairly reflect our transactions and disposition of assets; providing
reasonable assurance that transactions are recorded as necessary for preparation of our financial statements;
providing reasonable assurance that receipts and expenditures of company assets are made in accordance with
management and director authorization; and providing reasonable assurance that unauthorized acquisition, use
or disposition of company assets that could have a material effect on our financial statements would be
prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial
reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be
prevented or detected.
Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief
Financial Officer, management conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework 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, 2020.
A material weakness is a deficiency or a combination of deficiencies in internal control over financial
reporting, such that there is reasonable possibility that a material misstatement of the Company’s annual or
interim financial information will not be prevented or detected on a timely basis.
This Annual Report on Form 10-K does not include an attestation report of our independent registered
public accounting firm regarding internal control over financial reporting. Management’s report was not subject
to attestation by our independent registered public accounting firm pursuant to rules of the Securities and
Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-
K.
Changes in Internal Control over Financial Reporting
There were changes in our internal control over financial reporting (as such term is defined in Rules
13a-15(f) or 15d-15(f) under the Exchange Act) during the three months ended December 31, 2020 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
These changes relate to remediation of the material weakness on appropriate review procedures related to
evaluation and proper accounting for lease contracts consistent with capital lease accounting under U.S. GAAP.
The Company implemented enhancements to its internal controls to prevent and detect errors by instituting
additional controls and procedures that entails a comprehensive review of new lease contracts to ensure that all
appropriate clauses are thoroughly evaluated and accounted for in accordance with ASC 842 guidance.
Item 9B. Other information.
None.
36
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information called for by Items 401, 405, if required, and 407(c)(3), (d)(4) and (d)(5) of Regulation
S-K is incorporated by reference from the Company’s definitive proxy statement for the 2021 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A under the Exchange Act no later than 120 days after
the end of the Company’s 2020 fiscal year.
The Company has a code of ethics that applies to all of its employees, officers, and directors, including
its principal executive officer, principal financial officer, and corporate controller. The text of the Company’s
code of ethics is posted on its website at www.innodata.com. The Company intends to disclose future
amendments to, or waivers from, certain provisions of the code of ethics for executive officers and directors
in accordance with applicable Nasdaq and SEC requirements.
Item 11. Executive Compensation.
The information called for by Item 11 is incorporated by reference from the Company’s definitive proxy
statement for the 2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Exchange Act no later than 120 days after the end of the Company’s 2020 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by this Item regarding the Company’s equity compensation plans is set forth
in Part II, Item 5 of this Annual Report on Form 10-K under the caption “Securities Authorized for Issuance
Under Equity Compensation Plans” and is incorporated by reference herein. The information called for under
Item 403 of Regulation S-K by Item 12 is incorporated by reference from the Company’s definitive proxy
statement for the 2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Exchange Act no later than 120 days after the end of the Company’s 2020 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 2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Exchange Act no later than 120 days after the end of the Company’s 2020 fiscal year.
Item 14. Principal Accountant’s Fees and Services.
The information called for by Item 14 is incorporated by reference from the Company’s definitive proxy
statement for the 2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Exchange Act no later than 120 days after the end of the Company’s 2020 fiscal year.
Item 15. Exhibits, Financial Statement Schedules.
PART IV
(a)(1) Financial Statements. The following Report of Independent Registered Public Accounting firm,
consolidated financial statements, and accompanying notes are included in Item 8. Index to
Financial Statements:
Reports of Independent Registered Public Accounting Firms.
37
Consolidated Balance Sheets as of December 31, 2020 and 2019.
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended
December 31, 2020 and 2019.
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020 and 2019.
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019.
(a)(2) Exhibits – See Exhibit Index attached hereto, which is incorporated by reference herein.
Item 16. Form 10K Summary.
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
INNODATA INC.
By
/s/ Jack S. Abuhoff
Jack S. Abuhoff
Chief Executive Officer and President
March 12, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Jack S. Abuhoff
Jack S. Abuhoff
/s/ Mark A. Spelker
Mark A. Spelker
/s/ Louise C. Forlenza
Louise C. Forlenza
/s/ Stewart R. Massey
Stewart R. Massey
/s/ Nauman (Nick) Toor
Nauman (Nick) Toor
Chief Executive Officer and President March 12, 2021
Chief Financial Officer and Executive
Vice President
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
Director
Director
Director
38
INNODATA INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations and Comprehensive Income (Loss) for
the years ended December 31, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the years ended
December 31, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2020
and 2019
Notes to Consolidated Financial Statements
PAGE
F-2
F-6
F-8
F-9
F-10
F-11
F-1
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Innodata Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Innodata Inc. and subsidiaries (the
“Company”) as of December 31, 2020, the related consolidated statements of operations and comprehensive
income, stockholders’ equity, and cash flows for the year ended December 31, 2020, 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,
2020 and the results of its operations and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
Revision to 2019 consolidated financial statements.
We have also audited the revision adjustments to 2019 consolidated financial statements to correct the
immaterial errors as discussed in Note 1 to the consolidated financial statements. In our opinion, such revision
adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply
any procedures to the 2019 consolidated financial statements of the Company other than with respect to the
revision adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2019
consolidated financial statements taken as a whole.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audit provides a reasonable basis for our opinion.
F-2
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that: (i) relate to accounts or disclosures that are material to the consolidated financial statements
and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole,
and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical
audit matters or on the accounts or disclosures to which they relate.
1. Intangible Assets Impairment Assessment (Including Goodwill)
Description of Matter:
As described in Note 3 to the consolidated financial statements, the Company’s Intangible assets and goodwill
balance was $ 6.8 million as of December 31, 2020. Goodwill is tested for impairment at least annually at the
reporting unit level and more frequently when an event occurs, or circumstances change, that indicates the
carrying value may not be recoverable. The determination of the fair value of the reporting unit requires
management to make significant estimates and assumptions related to forecasts of future revenues and operating
margins and discount rates which are complex and subjective. Changes in these assumptions could have a
significant impact on the fair value.
We identified the intangible assets, including goodwill, impairment assessment of the Agility Segment
Reporting Unit as a critical audit matter considering materiality of the amounts involved together with the
inherent subjectivity related to principal assumptions, which are dependent on current and future economic
factors including uncertainties arising from corona virus disease 2019 (“COVID-19”) pandemic; hence
assessment of carrying values of intangible asset including goodwill for these unit is considered to be complex
and determined to be a critical audit matter in our current period audit. Auditing management’s judgments
regarding forecasts of future revenue, operating margin, and the discount rate to be applied, involved a high
degree of subjectivity.
How the matter was addressed in our audit:
The primary procedures we performed to address this critical audit matter included:
• Obtained understanding of the management process for impairment assessment and analysis prepared
by management for the reporting unit.
• Evaluated management’s ability to accurately forecast by comparing actual results with historical
performance, budgets and whether assumptions considered are consistent with evidence obtained in
other areas of the audit. Also evaluated the appropriateness of judgments applied by the management
while assessing the possible impact of COVID-19.
•
Involved professionals with specialized skill and knowledge to assist in the evaluation of the
Company’s discounted cash flow model, growth rates, discount rates and market participant
assumptions including testing the underlying source of information, and the mathematical accuracy of
the calculations.
• Performed independent sensitivity analysis of key assumptions, including the implied growth rates
during explicit period, terminal growth rate and discount rate, to assess the effect of possible variations
on the current estimated fair value for the reporting unit.
F-3
2. Measurement of the provision for income tax exposures
Description of Matter
The Company operates in various countries and is subject to income taxes in multiple tax jurisdictions, with
complexities of transfer pricing and changing tax laws, and is involved in various tax cases with respective
tax authorities. Uncertainties arise primarily from certain ongoing tax litigations and open tax years for its
foreign subsidiaries. As described in Note 4 to the consolidated financial statements, the Company has
recognized accruals with respect of uncertain tax positions aggregating $ 3.2 million as of December 31,
2020.
We identified measurement of accruals for the aforementioned income tax exposures as a critical audit
matter, as the amounts involved are material, and the determination of provision for taxes requires the
Company to make judgments on tax issues and develop estimates regarding the Company’s exposure to tax
risks. Further, auditing management judgments on whether the tax positions are probable of being sustained
in tax assessments involves a high degree of subjectivity.
How the matter was addressed in our audit:
The primary procedures we performed to address this critical audit matter included:
• Obtained an understanding of management’s process of estimating the provision for income taxes
including assessment of uncertain tax positions and those related to interpretation of tax laws and its
application in the estimation of tax liabilities including uncertain tax positions.
•
Involved professionals with specialized skill and knowledge in domestic and international taxes, who
assisted in:
inspection of correspondences and assessment orders with applicable tax authorities
o
o evaluation of the Company’s interpretation of tax laws and their potential impact on uncertain tax
positions
o evaluation of the assumptions used to determine tax provisions.
/s/ BDO INDIA LLP
We have served as the Company's auditor since 2020.
Mumbai, India
March 11, 2021
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Innodata Inc.
Opinion on the Financial Statements
We have audited, before the effects of the adjustments for the correction of the errors described in Note 1
(Correction of Immaterial Errors), the accompanying consolidated balance sheet of Innodata Inc. and
Subsidiaries (the Company) as of December 31, 2019, and the related consolidated statements of operations and
comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes
(collectively referred to as the consolidated financial statements). In our opinion, except for the errors described
in Note 1 (Correction of Immaterial Errors), the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2019, and its results of operations and its
cash flows for the year then ended, in conformity with accounting principles generally accepted in the United
States of America.
We were not engaged to audit, review, or apply any procedures to the adjustments for the correction of the
errors described in Note 1(Correction of Immaterial Errors), and, accordingly, we do not express an opinion or
any other form of assurance about whether such adjustments are appropriate and have been properly applied.
Those adjustments were audited by BDO India LLP. (The 2019 consolidated financial statements before the
effects of the adjustments discussed in Note 1 are not presented herein).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required
to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audit provides a reasonable basis for our opinion.
Adoption of New Accounting Standard
As discussed in Note 7 to the consolidated financial statements, the Company adopted Accounting Standards
F-5
Codification ASU 2016-02, beginning January 1, 2019 and applied the practical expedients consistently for all
of its leases.
/s/ CohnReznick LLP
Parsippany, New Jersey
March 16, 2020
We served as the Company’s auditor from 2008 to 2020.
F-6
INNODATA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2020 AND 2019
(in thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $670
and $750, respectively
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Right-of-use-asset, net
Other assets
Deferred income taxes, net
Intangibles, net
Goodwill
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other
Accrued salaries, wages and related benefits
Income and other taxes
Long-term obligations - current portion
Operating lease liability - current portion
Total current liabilities
Deferred income taxes, net
Long-term obligations, net of current portion
Operating lease liability, net of current portion
Total liabilities
Commitments and contingencies
Non-controlling interests
STOCKHOLDERS’ EQUITY:
2020
2019
$ 17,573
$ 10,874
10,048
4,240
31,861
9,723
3,407
24,004
7,227
6,610
2,563
2,187
4,656
2,150
$ 57,254
6,887
7,005
2,110
1,906
5,477
2,108
$ 49,497
$ 1,435
3,490
5,719
5,000
1,712
990
18,346
$ 1,419
3,340
4,265
4,183
1,440
1,107
15,754
44
6,282
6,332
363
4,534
6,731
31,004
27,382
(3,390)
(3,417)
Serial preferred stock; 4,998,000 shares authorized, none outstanding
-
-
Common stock, $.01 par value; 75,000,000 shares authorized;
28,984,000 shares issued and 25,800,000 outstanding at December 31,
2020; 27,643,000 shares issued and 24,459,000 outstanding at
December 31, 2019
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
289
275
31,921
4,833
(938)
36,105
28,426
4,216
(920)
31,997
Less: treasury stock, 3,184,000 shares at December 31, 2020 and 2019,
at cost
Total stockholders’ equity
Total liabilities and stockholders’ equity
(6,465)
29,640
$ 57,254
(6,465)
25,532
$ 49,497
See notes to consolidated financial statements.
F-7
INNODATA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2020 AND 2019
(In thousands, except per share amounts)
Revenues
Operating costs and expenses:
Direct operating costs
Selling and administrative expenses
Interest expense, net
Income (loss) before provision for income taxes
Provision for income taxes
Consolidated net income (loss)
Income (loss) attributable to non-controlling interests
2020
2019
$
58,240
$
55,858
38,398
18,662
135
57,195
1,045
401
644
27
37,325
19,481
120
56,926
(1,068)
1,091
(2,159)
(17)
Net income (loss) attributable to Innodata Inc. and Subsidiaries
$
617
$
(2,142)
Income (loss) per share attributable to Innodata Inc. and Subsidiaries:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Comprehensive income (loss):
Consolidated net income (loss)
Pension liability adjustment, net of taxes
Change in fair value of derivatives, net of taxes
Foreign currency translation adjustment, net of taxes
Other comprehensive loss
Total comprehensive income (loss)
Comprehensive income (loss) attributed to non-controlling interest
Comprehensive income (loss) attributable to Innodata Inc. and
Subsidiaries
See notes to consolidated financial statements.
$
$
0.03
0.02
$
$
(0.08)
(0.08)
24,607
25,573
25,774
25,774
$
644
(391)
(33)
406
(18)
626
27
$
(2,159)
(1,504)
33
566
(905)
(3,064)
(17)
$
599
$
(3,047)
F-8
INNODATA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2020 AND 2019
(In thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury Stock
Shares
Amount
Total
January 1, 2019 as reported
Revision adjustments
January 1, 2019 as adjusted
Net loss
Purchase of treasury stock
Stock-based compensation
Exercise of stock options
Pension liability adjustments, net of taxes
Foreign currency translation adjustment, net of taxes
Change in fair value of derivatives, net of taxes
December 31, 2019 as reported
Revision adjustments
December 31, 2019 as adjusted
Net income
Stock-based compensation
Exercise of stock options
Pension liability adjustments, net of taxes
Foreign currency translation adjustment, netof taxes
Change in fair value of derivatives, net of taxes
December 31, 2020
27,558
-
27,558
-
-
75
10
-
-
-
27,643
-
27,643
-
-
1,341
-
-
-
28,984
(15)
1,681
-
-
(15)
1,681
-
-
- 1,503
-
-
-
-
-
-
-
-
-
-
- (1,504)
- 566
- 33
(920)
275
-
275
6,595
27,579
- (237)
6,358
27,579
- (1,602)
-
-
-
- 836
- 11
-
-
-
-
-
-
4,756
28,426
- (540)
28,426
4,216
- 617
275
-
275
-
- 913
2,582
14
-
-
-
$ 289
-
-
-
$ 31,921
-
-
-
-
-
- (391)
- 406
- (33)
$ (938)
$ 4,833
-
-
-
-
-
-
3,184
(4,622)
(4,622)
(1,843)
29,812
- (237)
29,575
- (1,602)
(1,843)
- 836
- 11
- (1,504)
- 566
- 33
26,072
- (540)
25,532
- 617
- 913
- 2,596
- (391)
- 406
- (33)
$ 29,640
$ (6,465)
3,184
(6,465)
-
-
(920)
3,184
(6,465)
See notes to consolidated financial statements.
F-9
INNODATA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2020 AND 2019
(In thousands)
Cash flows from operating activities:
Consolidated net income (loss)
Adjustments to reconcile consolidated net income (loss) to net cash
provided by operating activities:
Depreciation and amortization
Stock-based compensation
Deferred income taxes
Pension cost
Loss on disposal of property and equipment
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Other assets
Accounts payable, accrued expenses and other
Accrued salaries, wages and related benefits
Income and other taxes
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from disposal of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from bank loan
Proceeds from exercise of stock options
Payment of long-term obligations
Purchase of treasury stock
Net cash provided by (used in) financing activities
2020
2019
$
644
$
(2,159)
2,266
913
(618)
791
48
(481)
(555)
270
155
1,449
778
5,660
(1,414)
39
(1,375)
580
2,596
(864)
-
2,312
2,697
836
(313)
335
-
1,216
1,248
332
(589)
(249)
926
4,280
(1,667)
-
(1,667)
-
11
(567)
(1,843)
(2,399)
Effect of exchange rate changes on cash and cash equivalents
102
(209)
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
6,699
10,874
5
10,869
Cash and cash equivalents, end of year
$
17,573
$
10,874
Supplemental disclosures of cash flow information:
Cash paid for income taxes
Cash paid for operating leases
Cash paid for interest
$
$
348
2,286
$
$
962
2,110
$
141
$
130
See notes to consolidated financial statements.
F-10
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
Description of Business - Innodata Inc. (including its subsidiaries, the “Company”, “Innodata”, “we”,
“us” or “our”) is a global data engineering company. The Company solves complex data challenges using
artificial intelligence (AI) and human expertise.
The Company provides large-scale data annotation services and platforms to companies who require
high-quality data for training AI and machine learning (ML) algorithms. The Company also provides AI/ML-
based solutions to help companies apply AI/ML to real-world problems relating to analyzing and deriving
insights from documents. For industry-specific, document-intensive industry use cases, the Company provides
AI-augmented software-as-a-service (SaaS) platforms and discrete managed services.
The Company’s platforms and services are powered by Goldengate, its proprietary AI/ML platform, as
well as other technologies it has developed. In addition, the Company bring to bear 3,500 + employees spanning
nine countries with expertise in data pertaining to many professional fields. The Company’s hybrid approach
of using AI/ML in conjunction with human experts enables the Company to deliver superior data quality with
even the most complex and sensitive data.
The Company developed its capabilities and honed its customer- and quality-centric culture
progressively over the last 30 years creating high-quality data for many of the world’s most demanding
information companies. Approximately five years ago, the Company formed Innodata Labs, a research and
development center, to research, develop and apply machine learning and emerging AI to its large-scale, human-
intensive data operations. In 2019, the Company began packaging the capabilities that emerged from its R&D
efforts in order to align with several fast-growing new markets and help companies use AI/ML to drive
performance benefits and business insights. The Company anticipates this strategy will enable it to accelerate
growth.
Data Annotation
The Company trains AI algorithms for social media companies, robotics companies, financial services
companies, and many others, working with images, text, video and audio. Data sciences teams seek partners
that can perform data preparation functions for them at large-scale and at high quality, while using automated
tools to minimize cost. Moreover, as AI projects become more specialized and mission-critical, data preparation
is becoming increasingly complex, requiring deep domain knowledge and an infrastructure in which data
security is assured.
The Company utilize a variety of leading third-party image and video annotation tools. For text, the
Company use its proprietary text annotation platform that incorporates AI to reduce cost while improving
consistency and quality of output. The Company’s proprietary text annotation platform features auto-tagging
capabilities that apply to both classical and generative AI tasks. It also encapsulates many of the innovations
the Company has conceived of in the course of its 30-year history of creating high-quality data.
AI/ML Solutions
The Company also provides AI/ML solutions to companies that intensively process textual data and
seek to obtain the benefits of AI/ML technologies without having to develop AI/ML engineering capabilities
in-house. For such companies, the Company often integrates one or more of its pre-trained text processing
algorithms as a foundation for an overall solution. The Company’s algorithms are accessible as microservices
via application programming interfaces (APIs), enabling easy integration.
F-11
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In conjunction with AI/ML solutions, the Company often provides a range of data engineering support
services, including data transformation, data curation, data hygiene, data consolidation, data compliance, and
master data management.
The Company’s customers span a diverse range of industries and a wide range of AI use cases,
benefiting from the short time-to-value and high economic returns the Company’s AI/ML solutions provide.
AI/ML Industry Platforms
The Company’s industry platforms address specific, niche market requirements that the Company
believes it can fulfill in large part with its AI/ML technologies. The Company deploys these industry platforms
as software-as-a-service (SaaS) and as managed services. To date, the Company has built an industry platform
for medical records data extraction and transformation (which the Company brands as “Synodex®”) and for
marketing communications/public relations news distribution and monitoring (which the Company brands as
“Agility PR Solutions”).
The Company’s Synodex industry platform transforms medical records into useable digital data
organized in accordance with its proprietary data models or client data models. At the end of 2020, the Company
had 20 clients utilizing its Synodex platform, including John Hancock Insurance, the insurance operating unit
of John Hancock Financial (a division of Manulife) and one of the largest life insurers in the United States.
The Company’s Agility industry platform provides marketing communications and public relations
professionals with the ability to target and distribute content to journalists and social media influencers world-
wide and to monitor and analyze global news (print, web, radio and TV) and social media.
Principles of Consolidation - The consolidated financial statements include the accounts of Innodata
Inc. and its wholly owned subsidiaries, and the Synodex and docGenix limited liability companies that are
majority-owned by the Company. The non-controlling interests in the Synodex and docGenix limited liability
companies are accounted for in accordance with Financial Accounting Standards Board (FASB) non-controlling
interest guidance. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates - In preparing consolidated financial statements in conformity with U.S. GAAP,
management is required to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements,
and the reported amounts of revenues and expenses during the reporting period. Management believes that the
estimates used in the preparation of the consolidated financial statements are reasonable, and management has
made assumptions about the possible effects of the novel coronavirus (“COVID-19”) pandemic on critical and
significant accounting estimates. Actual results could differ from those estimates. Significant estimates include
those related to the allowance for doubtful accounts and billing adjustments, useful life of long-lived assets,
useful life of intangible assets, impairment of goodwill, valuation of deferred tax assets, valuation of stock-
based compensation, litigation accruals and estimated accruals for various tax exposures.
Revenue Recognition - The Company’s revenue is recognized when services are rendered or goods are
delivered to a customer, in an amount that reflects the consideration that the Company expects to receive in
exchange for those services or goods as per the agreement with the customer. In cases where there are
agreements with multiple performance obligations, the Company identifies each performance obligation and
evaluates whether the performance obligations are distinct within the context of the agreement at the
agreement’s inception. Performance obligations that are not distinct at agreement inception are combined. For
agreements with distinct performance obligation, the Company allocates the transaction price to each distinct
performance obligation proportionately based on the estimated standalone selling price for each performance
F-12
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
obligation, if any, and then evaluates how the services are performed for the customer to determine the timing
of revenue recognition.
For the Digital Data Solutions (DDS) segment, revenue is recognized primarily based on the quantity
delivered or resources utilized in the period in which services are performed and performance conditions are
satisfied as per the agreement. Revenues for agreements billed on a time-and-materials basis are recognized as
services are performed. Revenues under fixed-fee agreements, which are not significant to overall revenues, are
recognized based on the proportional performance method of accounting, as services are performed, or
milestones are achieved.
For the Synodex segment, revenue is recognized primarily based on the quantity delivered in the period
in which services are performed and performance conditions are satisfied as per the agreement. A portion of the
Synodex segment revenue is derived from licensing our functional software and providing access to the
Company’s hosted software platform. Revenue from such services is recognized monthly when all parties to the
agreement have agreed to the agreement; each party’s rights are identifiable; the payment terms are identifiable;
the agreement has commercial substance; access to the service is provided to the end user; and collection is
probable.
The Agility segment derives its revenue primarily from subscription arrangements and provision of
enriched media analysis services. It also derives revenue as a reseller of corporate communication solutions.
Revenue from subscriptions is recognized monthly when access to the service is provided to the end user; all
parties to the agreement have agreed to the agreement; each party’s rights are identifiable; the payment terms
are identifiable; the agreement has commercial substance; and collection is probable. Revenue from enriched
media analysis services is recognized when the services are performed, and performance conditions are
satisfied. Revenues from the reseller agreements are recognized at the gross amount received for the goods in
accordance with our functioning as a principal due to our meeting the following criteria: the Company acts as
the primary obligor in the sales transaction; assumes the credit risk; sets the price; can select suppliers; and is
involved in the execution of the services, including after sales service.
Revenues include reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket
expenses included in direct operating costs.
The Company considers U.S. GAAP criteria for determining whether to report gross revenue as a
principal versus net revenue as an agent. The Company evaluates whether it is in control of the services before
the same are transferred to the customer to assess whether it is principal or agent in the arrangement. Revenues
are recognized on a gross basis if the Company is in the capacity of principal and on a net basis if it falls in the
capacity of an agent.
Contract acquisition costs, which are included in prepaid expenses and other current assets are amortized
over the term of a subscription agreement or contract that normally has a duration of 12 months or less. The
Company reviews these prepaid acquisition costs on a periodic basis to determine the need to adjust the carrying
values for early terminated contracts.
Foreign Currency Translation - The functional currency of our locations in the Philippines, India, Sri
Lanka, Israel and Hong Kong is the U.S. dollar. Transactions denominated in Philippine pesos, Indian and Sri
Lankan rupees, Israeli shekels and Hong Kong dollars are translated to U.S. dollars at rates which approximate
those in effect on the transaction dates. Monetary assets and liabilities denominated in foreign currencies at
December 31, 2020 and 2019 are translated at the exchange rate in effect as of those dates. Nonmonetary assets,
liabilities, and stockholders’ equity are translated at the appropriate historical rates. Included in direct operating
costs were exchange losses resulting from such transactions of approximately $108,000 and $158,000 for the years
ended December 31, 2020 and 2019, respectively.
F-13
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The functional currency for the Company’s subsidiaries in Germany, the United Kingdom and Canada
are the Euro, the Pound Sterling and the Canadian dollar, respectively. The financial statements of these
subsidiaries are prepared in these respective currencies. Financial information is translated from the applicable
functional currency to the U.S. dollar (the reporting currency) for inclusion in the Company’s 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 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 income (loss). The amount of foreign
currency translation adjustment was $406,000 and $566,000 for the years ended December 31, 2020 and 2019,
respectively.
Derivative Instruments - The Company accounts for derivative transactions in accordance with ASC
825, “Financial Instruments,” with the corresponding unrealized gain or loss recognized outright as part of
operating income. The total notional value of outstanding foreign currency forward contracts at December 31,
2020 was $6.9 million.
Cash Equivalents - For financial statement purposes, 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 ten years. Leasehold
improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the terms of
the leases. Certain assets under capital leases are amortized over the lives of the respective leases or the estimated
useful lives of the assets, whichever is shorter.
Capitalized Software Development Costs - the Company incurs development costs related to its internal
use software. Qualifying costs incurred during the application development stage are capitalized. These costs
primarily consist of internal labor and third-party development costs and are amortized using the straight-line
method over the estimated useful life of the software, which is generally ranges between three and nine years. All
other research and maintenance costs are expensed as incurred. Capitalized software and development costs – in
progress as of December 31, 2020 and 2019 were $1.4 million and $2.5 million respectively. Completed
capitalized software and development cost as of December 31, 2020 and 2019 were $10.7 million and $8.1 million
respectively.
Long-lived Assets - Management assesses the recoverability of its long-lived 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, using undiscounted cash
flow projections. Management makes assumptions regarding estimated future cash flows and other factors to
determine the fair value of these respective assets. An impairment loss will be recognized only if the carrying
value of a long-lived asset is not recoverable and exceeds its fair value, and is measured as the amount by which
the carrying amount of a long-lived asset exceeds its fair value.
Goodwill and Other Intangible Assets – The Company performs a valuation of assets acquired and
liabilities assumed on each acquisition accounted for as a business combination and allocates the purchase price
of each acquired business to its respective net tangible and intangible assets and liabilities. Acquired intangible
assets principally consist of technology, client relationships, backlog and trademarks. Liabilities related to
intangibles principally consist of unfavorable vendor contracts. The Company determines the appropriate useful
F-14
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
life by performing an analysis of expected cash flows based on projected financial information of the acquired
businesses. Intangible assets are amortized over their estimated useful lives using the straight-line method, which
approximates the pattern in which the majority of the economic benefits are expected to be consumed. Intangible
assets are amortized into direct operating costs ratably over their expected related revenue streams over their useful
lives.
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net
assets. The Company does not amortize goodwill but evaluates it for impairment at the reporting unit level annually
during the third quarter of each fiscal year (as of September 30 of that year) or when an event occurs, or
circumstances change, that indicates the carrying value may not be recoverable.
The Company performed its annual goodwill assessment for the Agility segment as of September 30,
2020. In performing the assessment, the Company adhered to the provisions of ASU 2017-04 by using a single
step approach that determines the carrying value of goodwill and comparing it against the excess of the reporting
unit’s fair value. Based on the Company’s assessment, the Company reached the conclusion that there was no
goodwill impairment because the fair value of the Agility segment’s goodwill exceeded its carrying value.
Income Taxes - Estimated deferred taxes are determined based on the difference between the financial
statement and tax basis of assets and liabilities, using enacted tax rates, as well as any net operating loss or tax
credit carryforwards expected to reduce taxes payable in future years. A valuation allowance is provided when it
is more likely than not that all or some portion of the estimated deferred tax assets will not be realized. While the
Company considers future taxable income in assessing the need for the valuation allowance, in the event that the
Company anticipates that it will be able to realize the estimated deferred tax assets in the future in excess of its net
recorded amount, an adjustment to the provision for deferred tax assets would increase income in the period such
determination was made. Similarly, in the event that the Company anticipates that it will not be able to realize the
estimated deferred tax assets in the future considering future taxable income, an adjustment to the provision for
deferred tax assets would decrease income in the period such determination was made. Changes in the valuation
allowance from period to period are included in the Company’s tax provision in the period of change. The
Company indefinitely reinvests the foreign earnings in its foreign subsidiaries. If such earnings are repatriated in
the future, or are no longer deemed to be indefinitely reinvested, the Company would have to accrue as a liability
the applicable amount of foreign jurisdiction withholding taxes associated with such remittances.
In assessing the realization of deferred tax assets, management considered whether it is more likely than
not that all or some portion of the U.S. and Canadian deferred tax assets will not be realizable. As the expectation
of future taxable income resulting from the Synodex and Agility segments cannot be predicted with certainty,
the Company maintains a valuation allowance against all the U.S. and Canadian net deferred tax assets.
The Company accounts for income taxes regarding uncertain tax positions, and recognizes interest and
penalties related to uncertain tax positions in income tax expense in the consolidated statements of operations
and comprehensive loss.
Accounting for Leases - In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),”
as modified (“ASU 2016-02”), which replaced existing leasing rules with a comprehensive lease measurement
and recognition standard and expanded disclosure requirements. ASU 2016-02 requires lessees to recognize
most leases on their balance sheets as liabilities, with corresponding “right-of-use” assets and is effective for
annual reporting periods beginning after December 15, 2018, subject to early adoption. The Company adopted
ASU 2016-02 effective January 1, 2019. Upon adoption, the Company recognized a right-of-use asset and
corresponding lease liability. See Note 6, Operating Leases.
The determination of whether an arrangement is, or contains, a lease is based on the substance of the
arrangement at the inception date and requires an assessment of whether the fulfillment of the arrangement is
dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A
F-15
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reassessment is made after inception of the lease only if one of the following applies:
a.
there is a change in contractual terms, other than a renewal or extension of the arrangement;
b. a renewal option is exercised, or extension granted, unless the term of the renewal or extension was
initially included in the lease term;
c.
there is a change in the determination of whether fulfillment is dependent on a specified asset; or
d.
there is a substantial change to the asset.
Whenever a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or
extension period for scenario (b).
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as
operating leases. As of December 31, 2020, all of the Company’s leases are classified under operating leases.
Operating lease payments are recognized as an operating expense on a straight-line basis over the lease term.
Accounting for Stock-Based Compensation - The Company measures and recognizes stock-based
compensation expense for all share-based payment awards made to employees and directors based on the
estimated fair value at the grant date. The stock-based compensation expense is recognized over the requisite
service period. The fair value is determined using the Black-Scholes option-pricing model.
The stock-based compensation expense related to the Company’s stock plans were allocated as follows
(in thousands):
Year Ended December 31,
2020
2019
Direct operating costs
Selling and adminstrative expenses
$
158
755
$
113
723
Total stock-based compensation
$
913
$
836
Fair Value of Financial Instruments - The carrying amounts of financial instruments approximated
their fair value as of December 31, 2020 and 2019, because of the relative short maturity of these instruments.
See Note 14, Financial Instruments.
Fair value measurements and disclosures define fair value as the price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date.
The accounting standard establishes a fair value hierarchy that prioritizes the inputs used to measure
fair value into three levels. The three levels are defined as follows:
• Level 1: Unadjusted quoted price in active market for identical assets and liabilities.
• Level 2: Inputs other than those included in Level 1 that are observable for the asset or liability, either
directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
F-16
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in
pricing the asset or liability.
The Company’s forward contracts are at level 2 in the fair value hierarchy.
Accounts Receivable - The Company establishes credit terms for new clients based upon management’s
review of their credit information and project terms, and performs ongoing credit evaluations of its clients,
adjusting credit terms when management believes appropriate based upon payment history and an assessment of
the client’s current creditworthiness. The Company records an allowance for doubtful accounts for estimated
losses resulting from the inability of its clients to make required payments. The Company determines its allowance
by considering a number of factors, including the length of time trade accounts receivable are past due (accounts
outstanding longer than the payment terms are considered past due), the Company’s previous loss history, the
client’s current ability to pay its obligation to the Company, and the condition of the general economy and the
industry as a whole. This cannot guarantee that credit loss rates in the future will not be greater than those
experienced in the past. In addition, there is credit exposure if the financial condition of one of the Company’s
major clients were to deteriorate. In the event that the financial condition of one of the Company’s clients were to
deteriorate resulting in an impairment of their ability to make payments, additional allowances may be necessary.
The allowance for doubtful accounts as of December 31, 2020 and 2019 was approximately $0.7 million and $0.8
million, respectively. Total amounts written off against the existing allowance for doubtful accounts for the year
ended December 31, 2020 was $0.3 million.
Concentration of Credit Risk - The Company maintains its cash with highly rated financial
institutions, located in the United States and in foreign locations where the Company has its operations. At
December 31, 2020, the Company had cash and cash equivalents of $17.6 million, of which $10.2 million was
held by its foreign subsidiaries with local banks located mainly in Asia and $7.4 million was held in the United
States. To the extent that such cash exceeds the maximum insurance levels, the Company is uninsured. The
Company has not experienced any losses in such accounts.
Income (Loss) per Share – Income (loss) per share is computed using the weighted-average number
of common shares outstanding during the year. Diluted income (loss) per share is computed by considering the
impact of the potential issuance of common shares, using the treasury stock method, on the weighted average
number of shares outstanding. For those securities that are not convertible into a class of common stock, the
“two class” method of computing income (loss) per share is used.
Pension - The Company records annual pension costs based on calculations, which include various
actuarial assumptions including discount rates, compensation increases and other assumptions involving
demographic factors. The Company reviews its actuarial assumptions on an annual basis and makes
modifications to the assumptions based on current rates and trends. The Company believes that the assumptions
used in recording its pension obligations are reasonable based on its experience, market conditions and inputs
from its actuaries.
Deferred Revenue - Deferred revenue represents payments received from clients in advance of
providing services and amounts deferred if conditions for revenue recognition have not been met. Included in
accrued expenses on the accompanying consolidated balance sheets is deferred revenue amounting to $1.2
million and $1.1 million as of December 31, 2020 and 2019, respectively.
Recent Accounting Pronouncements – In December 2019, the FASB issued ASU 2019-12, “Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes” as part of its initiative to reduce complexity in
the accounting standards. The standard eliminates certain exceptions related to the approach for intra-period tax
allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax
liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting
for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning
F-17
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
after December 15, 2020. Early adoption is permitted. We do not expect that the adoption of the new guidance
will have a significant impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, “Compensation-Retirement Benefits-Defined
Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for
Defined Benefit Plans” (“ASU 2018-14”), which makes minor changes to the disclosure requirements for
employers that sponsor defined benefit pension and/or other postretirement benefit plans. The guidance
eliminates requirements for certain disclosures that are no longer considered cost beneficial and adds new
disclosure requirements that the FASB considers pertinent. ASU 2018-14 is effective for fiscal years ending
after December 15, 2020 for public entities. The Company adopted the standard and it had no material impact
on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Statements” (“ASU 2016-13”). ASU 2016-13 requires a financial
asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected
to be collected. The allowance for credit losses is a valuation amount that is deducted from the amortized cost
basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the
financial asset. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic
326, Financial Instruments-Credit Losses,” which clarifies codification and corrects unintended application of
the guidance, and in November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to
Topic 326, Financial Instruments-Credit Losses,” which clarifies or addresses specific issues about certain
aspects of ASU 2016-13. In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to
Financial Instruments,” which modifies the measurement of expected credit losses of certain financial
instruments. ASU 2016-13 is effective for certain Smaller Reporting Companies for financial statements issued
for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, which will be
fiscal 2023 for us if we continue to be classified as a Smaller Reporting Company, with early adoption permitted.
We do not expect that the adoption of the new guidance will have a material impact on our consolidated financial
statements.
Correction of Immaterial Errors – During the preparation of the September 30, 2020 condensed
consolidated financial statements, certain historical errors were identified relating to the accounting for capital
leases under ASC Topics 840 and 842. The lease obligations under certain leases were not recorded at their
present values at the inception of the leases; in addition, the asset buyout prices were not reassessed in December
2019 by the Company, both of which resulted in an understatement of expenses from December 31, 2017 to
December 31, 2019 and an overstatement of expenses for the nine months ended September 30, 2020.
The errors were not material, either quantitatively or qualitatively, in any of the reported periods.
However, the corrections, if recorded in the three-month period ended September 30, 2020 would have been
material to such period. Accordingly, the prior period financial statements were corrected by revising such
consolidated financial statements for comparability. For the December 31, 2019 consolidated financial
statements included in this Form 10-K, the corrections are as follows:
• An increase in net loss of $540,000 for the year ended December 31, 2019.
• An increase in expenses of $540,000 for the year ended December 31, 2019.
• An increase in the loss per share of $0.02 for the year ended December 31, 2019.
• An increase in liabilities of $528,000 as of December 31, 2019.
• A decrease in retained earnings of $777,000 and $237,000 as of December 31, 2019 and 2018,
respectively.
• A decrease in total assets of $249,000 as of December 31, 2019.
• The impact on cash flows for the year ended December 31, 2019 was:
• A decrease in net cash flows provided by operating activities of $573,000.
F-18
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• A decrease in net cash flows used in investing activities of $102,000.
• A decrease in net cash flows used in financing activities of $471,000.
The Company evaluated each year’s/period’s errors under Staff Accounting Bulletins 99 and 108 and
concluded that a restatement of year’s/prior periods’ consolidated financial statements is not required.
Accordingly, the consolidated financial statements for prior periods (March 31, 2020 and June 30, 2020) will
be revised in future Forms 10-Q to be filed with the Securities and Exchange Commission.
Reclassification - Certain information presented in the 2019 supplemental disclosures of cash flow
information has been revised to conform to the 2020 presentation.
2.
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:
December 31,
2020
2019
Equipment
Capitalized software development costs
Capitalized software development cost - work in progress
Furniture and equipment
Leasehold improvements
Total
Less: accumulated depreciation and amortization
$
$
11,199
10,693
1,360
1,437
3,267
27,956
(20,729)
7,227
12,826
8,074
2,536
2,119
4,492
30,047
(23,160)
6,887
$
$
Included in the property and equipment was capitalized software development cost - in progress. The
estimated useful lives of the property and equipment ranges between two years and ten years. Depreciation and
amortization expense of property and equipment excluding capitalized software development cost - in progress
were approximately $1.4 million and $1.7 million for the years ended December 31, 2020 and 2019, respectively.
3.
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 were
as follows (in thousands):
Balance as of January 1, 2019
Foreign currency translation
Balance as of December 31, 2019
Foreign currency translation
Balance as of December 31, 2020
$
$
2,050
58
2,108
42
2,150
The Company determined that adverse changes in macroeconomic trends as a consequence of the
continuing COVID-19 pandemic constituted a triggering event under U.S. GAAP (Accounting Standards
Codification (ASC) No. 350, “Intangibles - Goodwill and Other” and ASC No. 360, “Impairment or Disposal
of Long-Lived Assets”). The Company completed its impairment analysis procedures as of March 31, 2020.
The Company determined that there was no impairment of long-lived assets in any of the reporting units as of
March 31, 2020.
F-19
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 30, 2020, The Company performed its annual goodwill assessment for the Agility segment
in accordance with the provisions of ASU 2017-04, by using a single-step approach that determines the carrying
value of goodwill and compares it against the reporting unit’s fair value. The Company’s conclusion was
consistent with the results of the March 31, 2020 impairment test.
The fair value measurement of goodwill for the Agility segment was classified within Level 3 of the fair
value hierarchy because the Company used the income approach, which utilizes significant inputs that are
unobservable in the market and the market multiple approach using comparable entities to further validate the
carrying values. The Company believes it made reasonable estimates and assumptions to calculate the fair value
of the reporting unit as of the impairment test measurement date. The carrying value of Goodwill was $2,150,000
and $2,108,000 as of December 31, 2020 and 2019, respectively.
Information regarding our acquisition-related intangible assets is as follows for the dates indicated (in
thousands):
Developed
technology
Customer
relationships
Trademarks
and trade
names
Patents
Media
Contact
Database
Total
Gross carrying amounts:
Balance as of January 1, 2019
Foreign currency translation
Balance as of December 31, 2019
Foreign currency translation
Balance as of December 31, 2020
Accumulated amortization:
Balance as of January 1, 2019
Amortization expense
Foreign currency translation
Balance as of December 31, 2019
Amortization expense
Foreign currency translation
Balance as of December 31, 2020
$
$
$
$
$
$
$
$
$
$
$
$
Developed
technology
Customer
relationships
Trademarks
and trade
names
Patents
Media
Contact
Database
Total
$
$
$
$
$
$
2,999
109
3,108
67
3,175
1,137
305
51
1,493
308
43
1,844
2,081
96
2,177
51
2,228
766
178
39
983
179
30
1,192
855
16
871
11
882
440
120
7
567
55
7
629
42
1
43
2
45
19
4
1
24
4
1
29
3,546
60
3,606
64
3,670
886
357
18
1,261
361
28
1,650
9,523
282
9,805
195
10,000
3,248
964
116
4,328
907
109
5,344
$
$
$
$
$
$
Net carrying values - December 31, 2020
$
1,331
$
1,036
$
253
$
16
$
2,020
$
4,656
Net carrying values - December 31, 2019
$
1,615
$
1,194
$
304
$
19
$
2,345
$
5,477
Amortization expense relating to acquisition-related intangible assets was approximately $0.9 million and
$1.0 million for the years ended December 31, 2020 and 2019, respectively.
Estimated annual amortization expense for intangible assets subsequent to December 31, 2020 is as
follows (in thousands):
F-20
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year
2021
2022
2023
2024
2025
Thereafter
Amortization
$
931
931
931
829
684
350
4,656
$
4.
Income Taxes
The significant components of the provision for income taxes for the years ended December 31, 2020 and
2019 were as follows (in thousands):
Current income tax expense (benefit):
Foreign
Federal
State and local
Deferred income tax expense (benefit):
Foreign
Federal
State and local
Provision for income taxes
2020
2019
$ 1,065
15
(61)
1,019
$ 1,333
71
-
1,404
(628)
10
(323)
10
-
-
(618)
(313)
$ 401
$ 1,091
The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for the years ended
December 31, 2020 and 2019 is summarized as follows:
F-21
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Federal income tax expense (benefit) at statutory rate
Effect of:
Change in valuation allowance
Increase in unrecognized tax benefits (ASC 740)
Tax effects of foreign operations
Foreign operations permanent differences - foreign exchange gains and
losses
Deemed interest
State income tax net of federal benefit
Foreign rate differential
Effect of share based compensation
Return to provision true up
Change in rates
Withholding tax
Other
Effective tax rate
2020
2019
21.0
%
(21.0)
%
137.7
31.5
57.7
(1.3)
(2.1)
(4.3)
(8.6)
(10.9)
(10.8)
(172.7)
1.5
(0.3)
38.4
%
22.4
55.1
59.7
(12.2)
-
1.3
0.8
-
(2.6)
-
6.0
(7.3)
102.2
%
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, 2020 and 2019 were as follows (in thousands):
F-22
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Other
Total gross deferred income tax assets before valuation allowance
Valuation allowance
Deferred income tax assets, net
Deferred income tax liabilities:
Intangibles from acquisition of MediaMiser
Other
Total deferred income tax liabilities
December 31,
2020
2019
$
192
334
778
6,751
1,691
358
10,104
(7,917)
2,187
$
223
297
966
5,317
1,245
379
8,427
(6,521)
1,906
-
(44)
(44)
(316)
(47)
(363)
Net deferred income tax assets
$
2,143
$
1,543
Net deferred income tax assets
Net deferred income tax liability
Net deferred income tax assets
$
2,187
(44)
$
1,906
(363)
$
2,143
$
1,543
In assessing the realization of deferred tax assets, management considers whether it is more likely than
not that all or some portion of the deferred tax assets will not be realizable. The ultimate realization of the deferred
tax assets is dependent upon the generation of future taxable income during the periods in which temporary
differences are deductible and net operating losses are available. As of December 31, 2020, the Company continues
to maintain a valuation allowance on all U.S. and Canadian net deferred tax assets.
The Company maintained a valuation allowance of approximately $7.9 million and $6.5 million as of
December 31, 2020 and 2019, respectively. The valuation allowance relates to U.S. and the Company’s
Canadian subsidiaries deferred tax assets. The net change in the total valuation allowance was an increase of
$1.4 million and $1.8 million for the years ended December 31, 2020 and December 31, 2019, respectively.
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 foreign jurisdiction withholding tax
that the Company has to incur on the actual remittances. Unremitted earnings of foreign subsidiaries amounted
to approximately $47.0 million at December 31, 2020. If such earnings are repatriated in the future, or are no
longer deemed to be indefinitely reinvested, the Company would have to accrue the applicable amount of
foreign jurisdiction withholding taxes associated with such remittances.
United States and foreign components of income (loss) before provision for income taxes for each of
the two years ended December 31, were as follows (in thousands):
F-23
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2020
2019
United States
Foreign
Totals
$
930
115
1,045
$
$
(537)
(531)
(1,068)
$
At December 31, 2020, the Company had available U.S. federal net operating loss carryforwards of
approximately $15.5 million. These net operating loss carryforwards expire at various times through the year 2035.
On March 27, 2020, the CARES Act was signed into law in response to the economic challenges facing
US businesses. Under the CARES Act, the Internal Revenue Code was amended to allow for federal NOL
carrybacks for five years to offset previous years income or can be carryforward indefinitely to offset 100% of
taxable income for the tax year 2020 and 80% of taxable income for tax years 2021 and thereafter. As of the
date the financial statements were available to be issued, the state NOL carryforwards, if not utilized, will expire
beginning in 2022.
At December 31, 2020, the Company’s Canadian subsidiaries had available net operating loss
carryforwards of approximately $16.1 million in Canada which begin to expire in 2028. The potential benefits
from these balances have not been recognized for financial statement purposes.
The Company had unrecognized tax benefits of $3.2 million and $3.0 million as of December 31, 2020
and 2019, respectively. The Company expects that unrecognized tax benefits as of December 31, 2020 and
December 31, 2019, if recognized, would have a material impact on the Company’s effective tax rate.
The Company is subject to Federal income tax, as well as income tax in various states and foreign
jurisdictions. The Company has open tax years for U.S. Federal and state taxes from 2016 through 2020. Various
foreign subsidiaries have open tax years from 2003 through 2019, some of which are under audit by local tax
authorities. The Company believes that its accruals for uncertain tax positions as of December 31, 2020 under
ASC 740, Income Taxes are adequate to cover the Company’s income tax exposures.
The following table represents a roll forward of the Company’s unrecognized tax benefits and
associated interest for the years ended (amounts in thousands):
December 31,
2020
2019
Balance at January 1
Increase for current year tax position
Decrease for prior year tax position
Interest accrual
Foreign currency revaluation
Balance at December 31
F-24
$
$
2,957
308
(161)
199
(72)
3,231
2,424
355
-
234
(56)
2,957
$
$
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tax Assessments
In September 2015, the Company’s Indian subsidiary was subject to an inquiry by the Service Tax
Department in India regarding the classification of services provided by this subsidiary, asserting that the
services provided by this subsidiary fall under the category of online information and database access or retrieval
services (OID Services), and not under the category of business support services (BS Services) that are exempt
from service tax as historically indicated in the subsidiary’s service tax filings. The Company disagrees with
the Service Tax Department’s position. In November 2019, the Commissioner of Central Tax, GST & Central
Excise issued an order confirming the Service Tax Department’s position. The Company is contesting this order
in an appeal to the Customs, Excise and Service Tax Appellate Tribunal. In the event the Service Tax
Department is ultimately successful in proving that the services fall under the category of OID Services, the
revenues earned by the Company’s Indian subsidiary for the period July 2012 through November 2016 would
be subject to a service tax of between 12.36% and 15%, and this subsidiary may also be liable for interest and
penalties. The revenue of our Indian subsidiary during this period was approximately $64.0 million. In
accordance with new rules promulgated by the Service Tax Department, as of December 1, 2016 service tax is
no longer applicable to OID or BS Services. Based on the assessment of the Company’s counsel, the Company
has not recorded any tax liability for this case.
In a separate action relating to service tax refunds, in October 2016, the Company’s Indian subsidiary
received notices from the Indian Service Tax Department in India seeking to reverse service tax refunds of
approximately $160,000 previously granted to our Indian subsidiary for three quarters in 2014, asserting that
the services provided by this subsidiary fall under the category of OID Services and not BS Services. The appeal
was determined in favor of the Service Tax Department. The Company disagrees with the basis of this decision
and is contesting it. The Company expects delays in its Indian subsidiary receiving further service tax refunds
until this matter is adjudicated with finality, and currently has service tax credits of approximately $1.0 million
recorded as a receivable. Based on the assessment of the Company’s counsel, the Company has not recorded
any tax liability for this case.
Substantial recovery against the Company in the above referenced 2015 Service Tax Department case
could have a material adverse impact on the Company, and unfavorable rulings or recoveries in other tax
proceedings could have a material adverse impact on the consolidated operating results of the period (and
subsequent periods) in which the rulings or recovery occurs.
5.
Long-term obligations
Total long-term obligations as of December 31, 2020 and 2019 consisted of the following (in
thousands):
December 31,
2020
2019
Pension obligations - accrued pension liability
Settlement agreement (1)
Capital lease obligations
Microsoft licenses (2)
Bank loans payable (3)
Less: Current portion of long-term obligations
Totals
$ 5,940
518
209
$ 4,611
708
655
747
-
580
7,994
1,712
$ 6,282
-
5,974
1,440
$ 4,534
F-25
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Represents payment to be made pursuant to a settlement agreement entered into in December 2018
between a subsidiary of the Company and 19 former employees of such subsidiary. The balance is payable in
monthly installments through March 2023.
(2) On April 2020, the Company renewed a vendor agreement to acquire certain additional software
licenses and to receive support and subsequent software upgrades on these and other currently owned software
licenses through February 2023. Pursuant to this agreement, the Company was obligated to pay approximately
$0.4 million annually over the term of the agreement.
(3) On May 4, 2020, the Company received loan proceeds of $579,700 under the Paycheck Protection
Program (“PPP”) which was established as part of the Coronavirus Aid, Relief and Economic Security Act of
2020, as amended. The loans and accrued interest are forgivable, as long as the borrower uses the loan proceeds
for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. On January
29, 2021, the Company filed its loan forgiveness application for 100% of the approved loan under the PPP.
6.
Commitments and contingencies
Litigation – In 2008, a judgment was rendered in the Philippines against a Philippine subsidiary of the
Company that is no longer active and purportedly also against Innodata Inc., in favor of certain former
employees of the Philippine subsidiary. The potential payment amount aggregates to approximately $6.8
million, plus legal interest that accrued at 12% per annum from August 13, 2008 to June 30, 2013, and thereafter
accrued and continues to accrue at 6% per annum. The potential payment amount as expressed in U.S. dollars
varies with the Philippine peso to U.S. dollar exchange rate. In December 2017, a group of 97 of the former
employees of the Philippine subsidiary indicated that they proposed to record the judgment as to themselves in
New Jersey. In January 2018, in response to an action initiated by Innodata Inc., the United States District Court
for the District of New Jersey (USDC) entered a preliminary injunction that enjoins these former employees
from pursuing or seeking recognition or enforcement of the judgment against Innodata Inc. in the United States
during the pendency of the action and until further order of the USDC. In June 2018, the USDC entered a
consent order administratively closing the action subject to return of the action to the active docket upon the
written request of Innodata Inc. or the former employees, with the USDC retaining jurisdiction over the matter
and the preliminary injunction remaining in full force and effect.
The Company is also subject to various other legal proceedings and claims that have arisen in the
ordinary course of business.
While management currently believes that the ultimate outcome of these proceedings will not have a
material adverse effect on the Company’s consolidated financial position or overall trends in consolidated
results of operations, litigation is subject to inherent uncertainties. Substantial recovery against the Company in
the above-referenced Philippine action could have a material adverse impact on the Company, and unfavorable
rulings or recoveries in the other proceedings could have a material adverse impact on the consolidated operating
results of the period in which the ruling or recovery occurs. In addition, the Company’s estimate of the potential
impact on the Company’s consolidated financial position or overall consolidated results of operations for the
above referenced legal proceedings could change in the future.
The Company’s legal accruals related to legal proceedings and claims are based on the Company’s
determination of whether or not a loss is probable. The Company reviews outstanding proceedings and claims
with external counsel to assess probability and estimates of loss. The accruals are adjusted if necessary. While
the Company intends to defend these matters vigorously, adverse outcomes that it estimates could reach
approximately $350,000 in the aggregate beyond recorded amounts are reasonably possible. If circumstances
change, the Company may be required to record adjustments that could be material to its reported consolidated
financial condition and results of operations.
F-26
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
of 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, officer or fiduciary of the Company. In
addition, the Company has contracts with certain clients pursuant to which the Company has agreed to indemnify
the client for certain specified and limited claims. These indemnification obligations occur in the ordinary course
of business and, in many cases, do not include a limit on potential maximum future payments. As of December
31, 2020, the Company has not recorded a liability for any obligations arising as a result of these indemnification
obligations.
7.
Operating Leases
The Company has various lease agreements for its offices and service delivery centers. The Company
has determined that the risks and benefits related to the leased properties are retained by the lessors.
Accordingly, these are accounted for as operating leases.
These lease agreements are for terms ranging from two to eleven years and, in most cases, provide for
rental escalations ranging from 1.75% to 10%. Most of these agreements are renewable at the mutual consent
of the parties to the contract.
The Company adopted ASU 2016-02, effective January 1, 2019, and applied the practical expedients
consistently for all of its leases. Accordingly, the Company:
1. Did not reassess whether any expired or existing contracts are or contain leases.
2. Did not reassess the lease classification for any expired or existing leases.
3. Did not reassess initial direct costs for any existing leases.
In addition, the Company elected to retrospectively determine the lease term and assess impairment of
the right-of-use asset.
Under the standard, the Company recognizes an operating lease liability and right-of-use asset. The
amount of right-of use asset is equal to the present value of the remaining lease payments discounted using the
incremental borrowing rate of each respective country. Modifications, if any are recalculated and corresponding
adjustments are made to the carrying values of both the lease liability and right-of-use assets.
A right-of-use asset is measured as the amount of the lease liability adjusted for the amount of deferred
straight-line rent, prepaid rent and lease incentive allowances previously recognized.
The table below summarizes the amounts recognized in the financial statements related to operating
leases for the years presented (in thousands):
F-27
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended
December 31, 2020
Deceember 31, 2019
Rent expense for long-term operating leases
Rent expense for short-term leases
Total rent expense
$
$
$
$
1,667
619
2,286
1,813
297
2,110
The following table presents the maturity profile of the Company’s operating lease liabilities based on
the contractual undiscounted payments with a reconciliation of these amounts to the remaining net present value
of the operating lease liability reported in the consolidated balance sheet as of December 31, 2020 (in
thousands):
Year
Amount
2021
2022
2023
2024
2025
2026 and thereafter
Total lease payments
Less: Interest
Net present value of lease liabilities
Current portion
Long-term portion
Total
$
1,565
1,531
1,261
1,027
1,043
3,490
9,917
(2,595)
7,322
990
6,332
7,322
$
$
$
The weighted average remaining lease terms and discount rates for all of our operating leases as of
December 31, 2020 were as follows:
Weighted-average lease term remaining
Weighted-average discount rate
65 months
8.68%
8.
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. For the years ended December 31, 2020 and 2019, the Company did not make any matching
contributions.
Non-U.S. Pension Benefits - The accounting standard for pensions requires an employer to recognize
F-28
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2020, these plans were unfunded. Pension expense for foreign subsidiaries
totaled approximately $0.8 million and $0.3 million for the years ended December 31, 2020 and 2019,
respectively.
The following tables set out the status of the non-U.S. pension benefits and the amounts (in thousands)
recognized in the Company’s consolidated financial statements and the components of pension costs as of and
for each of the two years in the period ended December 31, 2020:
Benefit Obligations:
2020
2019
Projected benefit obligation at beginning of the year
Service cost
Interest cost
Actuarial loss (gain)
Foreign currency exchange rates changes
Benefits paid
Projected benefit obligation at end of the year
Components of Net Periodic Pension Cost:
Service cost
Interest cost
Actuarial gain (loss) recognized
Net periodic pension cost
$
$
4,611
492
249
505
168
(85)
5,940
492
249
50
791
$
$
2020
2019
$
$
$
$
2,591
289
194
1,720
52
(235)
4,611
289
194
(148)
335
The accumulated benefit obligation, which represents benefits earned to date, was approximately
$3.7 million and $2.9 million as of December 31, 2020 and 2019, respectively.
Amounts recognized in the consolidated balance sheets for the years ended December 31, 2020 and
2019 consisted of the following (in thousands):
2020
2019
Current accrued benefit cost
Non-current accrued benefit cost
Total amount recognized
F-29
$
$
332
5,608
5,940
570
4,041
4,611
$
$
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Current accrued benefit cost for pension benefits was included in the current portion of long-term
obligations in the consolidated balance sheets. Non-current accrued benefit cost for pension benefits was
included in long-term obligations, net of current portion, in the consolidated balance sheets.
Actuarial assumptions for all non-U.S. plans are described below. The discount rates are used to
measure the year end benefit obligations and the earnings effects for the subsequent year. The assumptions for
each of the two years in the period ended December 31, 2020 were as follows:
Discount rate
Rate of increase in compensation level
3.57%-8.06% 4.85%-10.42%
5%-7%
5%-7%
2020
2019
Estimated Future Benefit Payments:
As of December 31, 2020, the following benefit payments, which reflect expected future service, as
appropriate, were expected to be paid (in thousands):
Years Ending December 31,
Amount
2021
2022
2023
2024
2025
2026 to 2030
$ 629
234
157
206
413
3,251
$ 4,890
9.
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 4,998,000 shares of preferred stock. The Board
of Directors is authorized to fix the terms, rights, preferences and limitations of the preferred stock and to issue
the preferred stock in series that differ as to their relative terms, rights, preferences and limitations.
Stockholders Rights Agreement - On February 1, 2019, the Board of Directors declared a dividend of
one preferred share purchase right (each, a “Right,” and collectively, the “Rights”) for each outstanding share
of the Company’s common stock on February 15, 2019. The description and terms of the Rights are set forth in
a Rights Agreement between the Company and American Stock Transfer & Trust Co., as rights agent, dated as
of February 1, 2019 (the “Rights Agreement”). Each Right entitles its holder to purchase, under certain
conditions, one one-thousandth of a share of Series C Participating Preferred Stock (“Preferred Stock”). Each
one one-thousandth of a share of Preferred Stock has substantially the same rights as one share of the Company’s
common stock. Subject to the terms and conditions of the Rights Agreement, Rights become exercisable ten
F-30
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2019 annual meeting. The
Rights will expire on January 31, 2022 unless earlier redeemed or exchanged.
Common Stock Reserved - As of December 31, 2020, the Company had available for future issuance
2,925,638 shares of common stock pursuant to the Company’s stock option plans.
Treasury Stock - In July 2019, the Company’s Board of Directors authorized the repurchase of up to
$2.0 million of its common stock in open market or private transactions. There is no expiration date associated
with the program. The total value of common stock acquired under the plan was $1.5 million as of December 31,
2020.
10.
Stock Options
On June 7, 2016, stockholders of the Company approved amendments to the Innodata Inc. 2013 Stock
Plan (as amended, the “Plan”). The number of shares of common stock of Innodata Inc. 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 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
count against the Share Reserve as two shares for every share granted. Any award, or portion of an award, under
the Plan or under the Company’s 2009 Stock Plan (as amended and restated (the Prior Plan)) 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 will be added back to the Share Reserve as
one share for each such share that was subject to an option or stock appreciation right granted under the Plan or
the Prior Plan, and two shares for each such share that was subject to an award other than an option or stock
appreciation right granted under the Plan or the Prior Plan. If any shares are withheld, tendered or exchanged
by a participant in the Plan as full or partial payment to Innodata of the exercise price under an option under the
Plan or the Prior Plan or in satisfaction of a participant’s tax withholding obligations with respect to any award
under the Plan or the Prior Plan, there will be added back to the Share Reserve one share for each such share
that was withheld, tendered or exchanged in respect of an option or stock appreciation right granted under the
F-31
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing
model. The weighted-average fair value of the options granted and weighted-average assumptions were as follows:
For the Years Ended December 31,
2020
2019
Weighted average fair value of options granted
$
0.61
$
0.56
Risk-free interest rate
Expected life (years)
Expected volatility factor
Expected dividends
0.29%-0.56%
5-6
46.75%-50.09%
None
1.68% - 2.55%
5-6
45.03%-46.38%
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, 2020, and changes during the years
ended December 31, 2020 and 2019, is presented below:
Number of
Options
Weighted -
Average Exercise
Price
Weighted-Average
Remaining
Contractual Term
(years)
Aggregate
Intrinsic Value
Outstanding at January 1, 2019
Granted
Exercised
Forfeited/Expired
Outstanding at December 31, 2019
Granted
Exercised
Forfeited/Expired
Outstanding at December 31, 2020
4,982,040
2,112,500
(10,000)
(256,237)
6,828,303
1,080,000
(1,357,116)
(644,303)
5,906,884
$
$
$
2.14
1.25
1.11
2.42
1.86
1.37
1.97
3.06
1.61
6.86
$
89,405
7.34
$
21,769,727
Exercisable at December 31, 2020
3,923,564
$
1.79
6.66
$
13,769,733
Vested and Expected to Vest at
December 31, 2020
5,906,884
$
1.61
7.34
$
21,769,727
The total compensation cost related to non-vested stock options not yet recognized as of December 31,
2020 totals approximately $1.1 million. The weighted-average period over which these costs will be recognized
is 21 months.
F-32
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of restricted shares under the Company’s Plan as of December 31, 2020 are presented
below:
Outstanding January 1, 2019
Granted
Vested
Unvested at December 31, 2019
Granted
Vested
Forfeited/Expired
Unvested at December 31, 2020
11.
Comprehensive loss
Number of Shares
-
75,000
-
75,000
-
(25,000)
-
50,000
Weighted-Average
Grant Date Fair
Value
$
1.38
$
1.38
Accumulated other comprehensive 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 loss as of December 31, 2020
and 2019, and reclassifications out of accumulated other comprehensive loss for the years then ended, are
presented below (in thousands):
Balance at January 1, 2020
Other comprehensive income (loss) before
reclassifications, net of taxes
Total other comprehensive loss before
reclassifications, net of taxes
Net amount reclassified to earnings
Balance at December 31, 2020
Balance at January 1, 2019
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, 2019
Pension Liability
Adjustment
Fair Value of
Derivatives
Foreign Currency
Translation
Adjustment
Accumulated Other
Comprehensive Loss
$
(53)
$
33
$
(900)
$
(920)
-
(106)
406
300
(53)
(391)
(444)
$
(73)
73
$
-
(494)
-
(494)
$
(620)
(318)
(938)
$
Pension Liability
Adjustment
Fair Value of
Derivatives
Foreign Currency
Translation
Adjustment
Accumulated Other
Comprehensive Loss
$
1,451
$
-
$
(1,466)
$
(15)
-
46
566
612
1,451
(1,504)
(53)
$
46
(13)
33
$
(900)
-
(900)
$
597
(1,517)
(920)
$
All reclassifications out of accumulated other comprehensive loss had an impact on direct operating
costs in the consolidated statements of operations and comprehensive income (loss).
F-33
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.
Segment reporting and concentrations
The Company’s operations are classified in three reporting segments: Digital Data Solutions (DDS),
Synodex and Agility.
The DDS segment provides a range of solutions and platforms for solving complex data challenges
that companies face when they seek to obtain the benefits of AI systems and analytics platforms. These include
data annotation, data transformation, data curation and intelligent automation. The DDS segment also provides
a variety of services for clients in the information industry that relate to content operations and product
development.
The Synodex segment provides an intelligent data platform that transforms medical records into useable
digital data organized in accordance with our proprietary data models or client data models.
The Agility segment provides an intelligent data platform that provides marketing communications and
public relations professionals with the ability to target and distribute content to journalists and social media
influencers world-wide and to monitor and analyze global news channels (print, web, radio and TV) and social
media channels.
A significant portion of the Company’s revenues is generated from its locations 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 were as follows (in thousands):
For the Years Ended December 31,
2020
2019
$
$
$
$
$
$
$
$
$
$
$
$
41,983
4,828
11,429
58,240
1,260
357
(572)
1,045
980
536
(471)
1,045
41,172
3,942
10,744
55,858
944
(129)
(1,883)
(1,068)
683
40
(1,791)
(1,068)
Revenues:
DDS
Synodex
Agility
Total Consolidated
Income (loss) before provision for income taxes(1):
DDS
Synodex
Agility
Total Consolidated
Income (loss) before provision for income taxes(2):
DDS
Synodex
Agility
Total Consolidated
F-34
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
December 31, 2019
Total assets:
DDS
Synodex
Agility
Total Consolidated
Goodwill:
Agility
Total
(1) Before elimination of any inter-segment profits
(2) After elimination of any inter-segment profits
$
$
27,767
457
29,030
57,254
23,115
675
25,707
49,497
$
$
December 31, 2020
December 31, 2019
$
$
2,150
2,150
$
$
2,108
2,108
Long-lived assets as of December 31, 2020 and 2019 by geographic region were comprised of (in thousands):
United States
Foreign countries:
Canada
United Kingdom
Philippines
India
Sri Lanka
Israel
Germany
Total foreign
Totals
2020
2019
$ 4,045
$ 4,521
9,044
1,759
4,545
930
319
1
-
16,598
$ 20,643
8,708
1,907
5,135
508
678
19
1
16,956
$ 21,477
One client in the DDS segment generated approximately 14% and 16% of the Company’s total revenues
in the fiscal years ended December 31, 2020 and 2019, respectively. Another client in the DDS segment generated
10% of the Company’s total revenues for the fiscal year ended December 31, 2019. No other client accounted
for 10% or more of total revenues during these periods. Further, in the years ended December 31, 2020 and 2019,
revenues from non-US clients accounted for 54% and 55%, respectively, of the Company's revenues.
F-35
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues for each of the two years in the period ended December 31, 2020 and 2019 by geographic region
(determined based upon client’s domicile), were as follows (in thousands):
United States
United Kingdom
The Netherlands
Canada
Others - principally Europe
Totals
2020
2019
$ 26,764
11,184
6,695
5,791
7,806
$ 58,240
$ 25,015
9,577
6,982
6,192
8,092
$ 55,858
As of December 31, 2020, approximately 55% of the Company's accounts receivable was due from
foreign (principally European) clients and 36% of accounts receivable was due from three clients. As of December
31, 2019, approximately 60% of the Company's accounts receivable was due from foreign (principally European)
clients and 44% of accounts receivable was due from three clients. No other client accounted for 10% or more of
the accounts receivable as of December 31, 2020.
13.
Income (Loss) per Share
For the Years Ended
December 31,
2020
2019
Net income (loss) attributable to Innodata Inc. and Subsidiaries
$ 617
$ (2,142)
Weighted average common shares outstanding
Dilutive effect of outstanding options
Adjusted for dilutive computation
24,607
966
25,573
25,774
-
25,774
Basic income (loss) per share is computed using the weighted-average number of common shares
outstanding during the year. Diluted income per share is computed by considering the impact of the potential
issuance of common shares, using the treasury stock method, on the weighted average number of shares
outstanding. For those securities that are not convertible into a class of common stock, the two-class method
of computing loss per share is used.
Options to purchase 1.6 million shares of common stock for the year ended December 31, 2020, were
outstanding but not included in the computation of diluted income (loss) per share because the exercise price of
the options were greater than the average market price of the common shares and therefore have not been
considered as potential equity shares. Options to purchase 6.8 million shares of common stock for the year
ended December 31, 2019 were outstanding but not included in the computation of diluted loss per share because
the effect would have been anti-dilutive.
14.
Derivatives
The Company conducts a large portion of its operations in international markets which subject it to
F-36
INNODATA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
foreign currency fluctuations. The most significant foreign currency exposures occur when revenue and
associated accounts receivable are collected in one currency and expenses to generate that revenue are incurred
in another currency. The Company is also subject to wage inflation and other government mandated increases
and operating expenses in Asian countries where the Company has the majority of its operations. The
Company’s primary inflation and exchange rate exposure relates to payroll, other payroll costs and operating
expenses in the Philippines, India, Sri Lanka and Israel.
In addition, although most of the Company’s revenue is denominated in U.S. dollars, a significant portion
of total revenues is denominated in Canadian dollars, Pound Sterling and Euros.
The Company was previously following hedge accounting guidelines and formally documented all
relationships between hedging instruments and hedged items, as well as its risk management objective and strategy
for undertaking hedge transactions. However, commencing November 2020, the Company discontinued this
practice. The Company does not hold or issue derivatives for trading purposes. All derivatives are recognized at
their fair value and classified based on the instrument’s maturity date. The total notional amount for outstanding
derivatives was $6.9 million and $4.3 million as of December 31, 2020 and 2019, respectively.
The following table presents the fair value of derivative instruments included within the consolidated
balance sheets as of December 31, 2020 and 2019 (in thousands):
Derivatives:
Balance Sheet Location
Fair Value
2020
2019
Foreign currency forward contracts
Prepaid expenses and other
current assets
$
48
$
33
The effect of foreign currency forward contracts designated as cash flow hedges on the consolidated
statements of operations for the years ended December 31, 2020 and 2019 were as follows (in thousands):
Net loss recognized in OCI(1)
Net loss reclassified from accumulated OCI into income(2)
Net gain recognized in income(3)
2020
2019
$
(106)
$
(73)
$
-
$
46
$
13
$
-
(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.
F-37
Exhibit Index
Exhibits which are indicated as being included in previous filings are incorporated herein by reference.
Exhibit Description
Filed as Exhibit
3.1 (a)
3.1 (b)
3.1 (c)
Restated Certificate of Incorporation dated
April 27, 1993
Filed as Exhibit 3.1(a) to our Form 10-K for the year ended
December 31, 2003
Certificate of Amendment of Certificate of
Incorporation of Innodata Corporation dated
February 28, 2001
Filed as Exhibit 3.1(b) to our Form 10-K for the year ended
December 31, 2003
Certificate of Amendment of Certificate of
Incorporation of Innodata Corporation
dated November 14, 2003
Filed as Exhibit 3.1(c) to our Form 10-K for the year ended
December 31, 2003
3.1 (d)
Certificate of Amendment of Certificate of
Incorporation of Innodata Isogen, Inc. dated June 5,
2012
Filed as Exhibit 3.1 to our Form 10-Q for the quarter ended
June 30, 2012
3.2
3.3
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Form of Amended and Restated By-Laws
Filed as Exhibit 3.1 to Form 8-K dated December 16, 2002
Form of Certificate of Designation of
Series C Participating Preferred Stock
Filed as Exhibit A to Exhibit 4.1 to Form 8-K dated
December 16, 2002
Specimen of Common Stock certificate
Filed as Exhibit 4.1 to Form 10-Q dated August 7, 2015
Form of Rights Agreement, as of February 1, 2019
between Innodata Inc. and American Stock
Transfer and Trust Co., as Rights Agent
Description of the Registrant’s Securities
Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934
Filed as Exhibit 4.1 to Form 8-K dated February 4, 2019
Filed as Exhibit 4.3 to Form 10-K for the year ended December 31,
2019
Form of Indemnification Agreement between us
and our Directors and one of our Officers
Filed as Exhibit 10.3 to Form 10-K for the year ended December 31,
2002
Employment Agreement dated as of January 1,
2007 with Ashok Mishra*
Filed as Exhibit 10.1 to Form 10-Q for the quarter ended June 30,
2007
Employment Agreement dated as of March 25,
2009 with Jack S. Abuhoff*
Filed as Exhibit 10.1 to Form 8-K dated March 25, 2009
Amendment to Employment Agreement with Jack
S. Abuhoff dated as of July 11, 2011*
Form of Director Stock Option Grant Letter dated
March 8, 2013*
Form of Stock Option Grant Letter dated March 8,
2013 for Messrs. Abuhoff, Mishra and Nalavadi*
Form of Stock Option Grant Letter dated March 8,
2013 for Jack Abuhoff*
Filed as Exhibit 10.1 to Form 8-K dated July 12, 2011
Filed as Exhibit 10.42 to Form 10-K dated March 15, 2013
Filed as Exhibit 10.43 to Form 10-K dated March 15, 2013
Filed as Exhibit 10.44 to Form 10-K dated March 15, 2013
Form of Stock Option Grant Letter
for December 31, 2015 Grant, for Directors*
Filed as Exhibit 10.53 to Form 10-K dated March 14, 2016
1
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
Form of Stock Option Grant Letter
for December 31, 2015 Grant, for Messrs. Abuhoff,
Mishra and Nalavadi*
Innodata Inc. 2013 Stock Plan (as Amended and
Restated effective June 7, 2016)
Form of Stock Option Grant Letter for
December 31, 2016 Grant, for Directors*
Form of Stock Option Grant Letter
For December 31, 2016 Grant, for Messrs.
Abuhoff, Mishra and Nalavadi*
Amendment Number 1 dated August 24, 2018 to
Agreement dated January 1, 2007 between the
Company and Mr. Mishra*
Form of Stock Option Grant Letter for
July 13, 2018 Grant, for Directors*
Form of Stock Option Grant Letter
for July 13, 2018 Grant, for Messrs. Abuhoff and
Mishra*
Offer of Employment effective April 17, 2019
between the Company and Mr. O’ Connor*
Offer of Employment, effective October 2, 2020,
between Innodata Inc. and Mr. Mark Spelker*
Separation Agreement and General Release dated
October 2, 2020 between Innodata Inc. and Robert
O’Connor*
Filed as Exhibit 10.53 to Form 10-K dated March 14, 2016
Filed as Annex B to Definitive Proxy dated April 18, 2016
Filed as Exhibit 10.56 to Form 10-K dated March 15, 2017
Filed as Exhibit 10.57 to Form 10-K dated March 15, 2017
Filed as Exhibit 10.1 to Form 8-K dated August 28, 2018
Filed as Exhibit 10.59 to Form 10-K dated March 26, 2019
Filed as Exhibit 10.60 to Form 10-K dated March 26, 2019
Filed as Exhibit 10.1 to Form 8-K dated April 18, 2019
Filed as Exhibit 10.1 to Form 8-K dated October 8, 2020
Filed as Exhibit 10.2 to Form 8-K dated October 8, 2020
16.1
Letter from CohnReznick LLP to Innodata Inc.
Dated August 24., 2020
Filed as Exhibit 16.1 Form 8-K dated August 25, 2020
21
Significant subsidiaries of the registrant
Filed herewith
23.1
Consent of BDO India LLP
Filed herewith
23.2
Consent of CohnReznick LLP
Filed herewith
31.1
31.2
32.1
32.2
Certification of Chief Executive Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Filed herewith
Filed herewith
Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Furnished herewith
Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Furnished herewith
2
Sarbanes-Oxley Act of 2002.
101 Interactive data files pursuant to Rule 405 of Filed herewith
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.
____________
* Exhibit represents a management contract or compensatory plan, contract or arrangement required to be
filed as Exhibits to this Annual Report on Form 10-K.
3
Exhibit 21
Significant Subsidiaries
Name of Subsidiary
Innodata India Private Limited
Innodata Knowledge Services, Inc.
ESS Manufacturing Company, Inc.
EBAR Abstracting Company, Inc.
Innodata Book Distribution Services Ltd.
Agility PR Solutions Canada Ltd.
Agility PR Solutions Ltd
State or other
jurisdiction of
incorporation
India
Philippines
Philippines
Philippines
Hong Kong
Canada
United Kingdom
Name under
which subsidiary
conducts
business
Same
Same
Same
Same
Same
Same
Same
4
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the registration statements on Form S-8 (File Nos. 333-
193051, 333-201659, and 333-215130) and the registration statements on Form S-3 (File Nos. 333-91649 and
333-51400) of our report, dated March 11, 2021, relating to the consolidated financial statements of Innodata
Inc. as of December 31, 2020, and for the year then ended, included in this Annual Report on Form 10-K of
Innodata Inc. for the year ended December 31, 2020.
/s/ BDO INDIA LLP
Mumbai, India
March 11, 2021
5
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statements on Form S-8 (File Nos. 333-193051,
333-201659, and 333-215130) and the registration statements on Form S-3 ((File Nos. 333-91649 and 333-
51400) of our report, which includes explanatory paragraphs relating to a revision of the 2019 consolidated
financial statements and the 2019 adoption of ASC Topic 842, Leases, dated March 16, 2020, relating to our
audit of the consolidated financial statements of Innodata Inc. and Subsidiaries as of December 31, 2019, and
for the year then ended, included in this Annual Report on Form 10-K of Innodata Inc. for the year ended
December 31, 2020.
/s/ CohnReznick LLP
Parsippany, New Jersey
March 11, 2021
6
CERTIFICATIONS
Exhibit 31.1
I, Jack S. Abuhoff, certify that:
1. I have reviewed this annual report on Form 10-K of Innodata Inc.;
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:
a)
b)
c)
d)
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):
a)
b)
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.
7
Dated: March 12, 2021
/s/ Jack S. Abuhoff
Jack S. Abuhoff
Chief Executive Officer and President
8
I, Mark A. Spelker, certify that:
1. I have reviewed this annual report on Form 10-K of Innodata Inc.;
Exhibit 31.2
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:
a)
b)
c)
d)
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):
a)
b)
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 12, 2021
/s/ Mark A Spelker
Mark A. Spelker
Chief Financial Officer and
Executive Vice President
9
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Innodata Inc. (the “Company”) on Form 10-K for the year
ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Jack S. Abuhoff, 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:
1.
2.
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 S. Abuhoff
Jack S. Abuhoff
Chief Executive Officer and President
March 12, 2021
10
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Innodata Inc. (the “Company”) on Form 10-K for the year
ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Mark A. Spelker, Chief Financial Officer and Executive Vice President, 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:
1.
2.
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/ Mark A. Spelker
Mark A. Spelker
Chief Financial Officer and
Executive Vice President
March 12, 2021
11