INNODATA INC

Basis of Presentation- The condensed consolidated financial statements for the interim periods included herein are unaudited; however, they contain all adjustments (consisting of only normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the consolidated financial position of Innodata Inc. (including its subsidiaries, the “Company”) as of September 30, 2026 and December 31, 2025, the results of its operations and comprehensive income for the three and nine months ended September 30, 2026 and 2025, cash flows for the nine months ended September 30, 2026 and 2025, and stockholders’ equity for the three and nine months ended September 30, 2026 and 2025. The results of operations for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

Certain information and note disclosures normally included in or with financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted from these condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. Unless otherwise noted, the accounting policies used in preparing these condensed consolidated financial statements are the same as those described in the notes to the consolidated financial statements for the year ended December 31, 2025.

Principles of Consolidation- The condensed consolidated financial statements include the accounts of Innodata Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates- In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Management believes that the estimates and assumptions used in the preparation of the condensed consolidated financial statements are reasonable. Actual results could differ from those estimates. Significant estimates include those related to the allowance for credit losses and billing adjustments, useful life of property and equipment, right-of-use-assets, intangible assets, impairment of goodwill and intangible assets, valuation of deferred tax assets and income tax provision, valuation of stock-based compensation, pension benefit plan assumptions, litigation accruals and estimated accruals for various tax exposures.

**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. Cash equivalents include investments in U.S. Treasury money market instruments, U.S. Treasury bills and certificates of deposit that are highly liquid, readily convertible to cash, and not subject to significant risk of change in value. These funds are redeemable on demand and are used by the Company for short-term liquidity and cash management needs.

**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 September 30, 2026, the Company had cash and cash equivalents of $164.0 million, of which $36.3 million was held by its foreign subsidiaries and $127.7 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.

**Accounts Receivable -**Accounts receivable is generally recorded at the invoiced amounts, net of an allowance for expected credit losses, allowance for billing adjustments and volume discounts. The Company records billing adjustments relating to quality issues on delivered services, service penalties and price adjustments that may arise in the ordinary course of business. The adjustments for the allowance for billing adjustments and volume discounts are recorded as a reduction in revenues.

The Company establishes credit terms for new customers based upon management’s review of their credit information and project terms, and performs ongoing credit evaluations of its customers, adjusting credit terms when management believes appropriate based upon payment history and an assessment of the customer’s current creditworthiness.

The Company records an allowance for credit losses for estimated losses resulting from the failure of its customers to make the required payments. The allowance for credit losses is based on a review of specifically identified accounts and an overall aging analysis applied to accounts pooled based on similar risk characteristics. Judgments are made with respect to the collectability of accounts receivable within each pool based on historical experience, current payment practices, and current economic trends based on the Company’s expectations over the expected life of the receivables, generally ninety days or less. Actual credit losses could differ from those estimates.

Revenue Recognition-** **The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606,Revenue from Contracts with Customers, when control of promised services or goods is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services or goods.

The Company’s contracts with customers may include multiple performance obligations. At contract inception, the Company evaluates the promised goods and services to identify each performance obligation and determines whether each is distinct. If a promised good or service is not distinct, it is combined with other promised goods or services until a distinct performance obligation is identified. For contracts with multiple distinct performance obligations, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price, which is determined using observable prices when available or estimated using appropriate valuation techniques.

The Company generates revenue from AI-enabled data services, digital transformation solutions, platform-based offerings, and related services. Revenue is recognized either over time or at a point in time, depending on the nature of the performance obligation and the manner in which control is transferred to the customer.

Revenue is primarily recognized over time as the Company’s performance creates or enhances an asset that the customer controls, or as the customer simultaneously receives and consumes the benefits of the Company’s performance. For time-and-materials arrangements, revenue is recognized based on labor hours incurred at contractually agreed rates. For output- or volume-based arrangements, revenue is recognized based on units delivered or transactions processed in the period in which the services are performed. For fixed-fee arrangements, revenue is recognized over time using an appropriate measure of progress, such as costs incurred, labor hours, or achievement of contractual milestones, depending on which method best depicts the transfer of control of the services to the customer.

Revenue from subscription-based and platform services is recognized ratably over the contractual service period as the customer receives continuous access to the Company’s platform or services and simultaneously consumes the benefits provided.

For certain transactional or project-based arrangements, revenue may be recognized at a point in time when control of the promised service is transferred to the customer, which may occur upon completion of the service or upon customer acceptance, if applicable.

The Company may also enter into arrangements to resell third-party goods or services. In such arrangements, the Company evaluates whether it acts as a principal or an agent. The Company recognizes revenue on a gross basis when it controls the specified good or service before it is transferred to the customer, including when the Company is primarily responsible for fulfillment, has discretion in establishing pricing, and bears credit risk. If the Company does not control the specified good or service before transfer, it acts as an agent and recognizes revenue on a net basis in the amount of any fee or commission.

A contract with a customer exists when the parties have approved the arrangement, each party’s rights and payment terms are identifiable, the arrangement has commercial substance, and collection of substantially all consideration is probable. The Company evaluates variable consideration, including performance-based fees, usage-based fees, and penalties, at contract inception and includes such amounts in the transaction price only to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

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. Included in prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets are contract acquisition costs amounting to $1.1 million and $0.8 million as of September 30, 2026 and December 31, 2025, respectively.

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

Revenue associated with the services provided in one period and billed in a subsequent period is commonly referred to as unbilled revenues and is included under Accounts receivable.

Foreign Currency Translation- The Company determines the functional currency of each subsidiary based on the currency of the primary economic environment in which the subsidiary operates, and as such, the functional currency of the Company’s subsidiaries in the Philippines, India, Sri Lanka, Israel, Hong Kong, and one of the Company’s subsidiaries in each of the United Kingdom and Canada is the U.S. dollar. Transactions denominated in Philippine pesos, Indian and Sri Lankan rupees, Israeli shekels, United Kingdom Pound Sterling and Canadian dollars are translated to U.S. dollars at rates which approximate those in effect on the transaction dates. Monetary assets and all liabilities denominated in foreign currencies on September 30, 2026 and December 31, 2025 are translated at the exchange rate in effect as of those dates. Non-monetary assets and stockholders’ equity are translated at the appropriate historical rates. Included in direct operating costs were foreign exchange (gains) losses resulting from such transactions of approximately $(0.2) million and $(0.3) million for the three months ended September 30, 2026 and 2025, respectively and $(0.8) million and $0.1 million for the nine months ended September 30, 2026 and 2025, respectively.

For certain foreign subsidiaries, the local currency is the functional currency because their operations are relatively self-contained and integrated within their local economic environments and they primarily generate and expend local-currency cash flows. The functional currency for the Company’s subsidiary in Germany is the Euro. The functional currencies for one of the Company’s subsidiaries in each of the United Kingdom and Canada are the Pound Sterling and the Canadian dollar, respectively. The financial statements of these subsidiaries are prepared in their respective currencies. Financial information is translated from the applicable functional currency to the U.S. dollar (the reporting currency) for inclusion in the Company’s condensed consolidated financial statements. Income, expenses, and cash flows are translated at weighted-average exchange rates prevailing during the fiscal period, and assets and liabilities are translated at fiscal period-end exchange rates. Resulting translation adjustments are included as a component of accumulated other comprehensive income or loss in stockholders’ equity. Foreign exchange transaction gains or losses are included in direct operating costs in the accompanying condensed consolidated statements of operations and comprehensive income (loss).

**Derivative Instruments -**The Company accounts for derivative transactions in accordance with the FASB’s Accounting Standards Codification (“ASC”) Topic 825, “Financial Instruments”. For derivative instruments that are designated and qualify as cash flow hedges, the entire change in fair value of the hedging instrument is recorded in other comprehensive income (loss). When the amounts recorded in other comprehensive income (loss) are reclassified to earnings, they are included as part of direct operating costs. For derivative instruments that are not designated as hedges, any change in fair value is recorded directly in earnings as part of direct operating costs.

**Capitalized Developed Software -**The Company incurs development costs related to software it develops for its internal use. Qualifying costs incurred during the application development stage are capitalized. These costs primarily consist of internal labor and third-party development costs and are amortized using the straight-line method over the estimated useful life of the capitalized developed software, which generally ranges fromtwo toten years. All other research and maintenance costs are expensed as incurred. Capitalized developed software in progress were $3.7 million and $4.2 million as of September 30, 2026 and December 31, 2025, respectively. The cumulative completed capitalized developed software was $28.8 million and $23.1 million as of September 30, 2026 and December 31, 2025, respectively.

Advances from Customers – Represent cash received from customers in advance of the delivery of goods or services or the incurrence of project-related costs. These amounts are recorded as liabilities until the related obligations are fulfilled or otherwise settled in accordance with the applicable customer agreement. As of September 30, 2026 and December 31, 2025, advances from customers for unfulfilled obligations were $8.6 million and $1.8 million, respectively. In addition, as of September 30, 2026, $3.8 million of advance from customers remained unpaid and is included in accrued expenses.

**Income Taxes –**The Company uses the annual effective tax rate method to compute interim tax provisions for financial reporting purposes. In accordance with ASC 740-270, this method involves estimating the annual effective tax rate based on forecasted annual pre-tax book income and expected income tax expense and applying this rate to year-to-date pre-tax income to determine the interim tax provision. The Company accounts for discrete items in the quarter in which they occur.

The annual effective tax rate is calculated by dividing the estimated total tax expense for the year by the estimated total pre-tax income for the year. This calculation includes all expected permanent differences, tax credits, and other relevant tax rate reconciling items in accordance with ASC 740.

The Company updates the annual effective tax rate each interim period based on revised forecasts of annual income and tax expense. Adjustments to the interim tax provision will be made as necessary to reflect changes in the estimated annual effective tax rate.

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 deferred tax assets of a subsidiary in Canada will be realizable or not. As the expectation of future taxable income of this Canadian subsidiary cannot be predicted with reasonable accuracy, the Company continues to maintain a valuation allowance against the deferred tax assets of this subsidiary.

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

**Accounting for Stock-Based Compensation -**The Company accounts for stock-based compensation in accordance with ASC 718 and measures all awards, including stock options and restricted stock units (“RSUs”), at their grant-date fair value. The fair value of stock options is estimated using the Black-Scholes model for standard awards or a binomial (lattice) model for awards with more complex features. The fair value of time-based RSUs and performance-based RSUs with non-market conditions is based on the closing market price of the Company’s common stock at the grant date, with compensation expense recognized only when achievement of service and performance conditions is probable. For awards with market conditions, such as total shareholder return, fair value is determined using a Monte Carlo simulation or, where appropriate, a binomial model, and compensation expense is recognized over the requisite service period regardless of whether the market condition is ultimately achieved. Stock-based compensation expense for the awards that vest based solely on service conditions and for awards with market conditions is generally recognized on a straight-line basis over the requisite service period. Compensation expense for awards with non-market financial performance conditions is recognized only when achievement of the applicable performance condition is probable and is recognized over the requisite service period using an attribution method appropriate to the award’s vesting terms. Forfeitures are accounted for as they occur.

**Deferred Revenue -**Deferred revenue represents payments received from customers in advance of providing services and amounts deferred if conditions for revenue recognition have not been met. The Company expects to recognize substantially all of these performance obligations over the next 12 months. The table below summarizes the deferred revenue balances as of September 30, 2026 and December 31, 2025 (in thousands):

The table below provides information about contract liabilities (deferred revenue) and the significant changes in the balances for the three and nine months ended September 30, 2026 and 2025 were as follows (in thousands):

Recently Issued Accounting Pronouncements Not Yet Adopted - In November 2024, the FASB issued ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), fourth amendment via ASU No. 2025-01: Disaggregation of Income Statement Expenses”. ASU No. 2024-03 does not change or remove existing expense disclosure requirements but requires disaggregated disclosures about certain expense categories and captions, including but not limited to, purchases of inventory, employee compensation, depreciation, amortization and selling expenses. ASU No. 2024-03 will be effective for the Company beginning in fiscal year 2027, and for interim financial reporting beginning in the first quarter of fiscal year 2028. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on the Company’s disclosures within the condensed consolidated financial statements.

In September 2025, the FASB issued ASU No. 2025-06, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. ASU No. 2025-06 modernizes the accounting for internal-use software costs by increasing the operability of the recognition guidance considering different methods of software development. ASU No. 2025-06, which can be applied prospectively, retrospectively, or with a modified transition approach, is effective for the Company for annual reporting as well as interim period reporting beginning in fiscal year 2028. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on the Company’s financial statements and disclosures within the condensed consolidated financial statements.

**2.**Accounts Receivable

Accounts receivable consists of the following (in thousands):

Effective January 1, 2026, the Company adopted ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets. The Company elected to apply the practical expedient permitted under the standard, which assumes that current conditions at the balance sheet date remain unchanged over the remaining life of the asset when estimating expected credit losses. The Company applied the standard prospectively to current accounts receivable and current contract assets arising from revenue contracts. Prior period amounts were not adjusted.

Activity in the allowance for credit losses for the three and nine months ended September 30, 2026 and 2025 was as follows (in thousands):

**3.**Prepaid and Other Current Assets

Prepaid and other current assets consist of the following (in thousands):

4**.**Goodwill and Intangible Assets

Goodwill

The Company evaluates goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. Following the Company’s determination that it operates as a single reporting segment, goodwill is assigned to a reporting unit. Accordingly, the Company performs its goodwill impairment assessment at the reporting unit level.

As of September 30, 2026, the Company performed its annual goodwill impairment analysis on its reporting unit. It involved a quantitative goodwill impairment test and estimated the fair value based on a combination of the income approach (estimates of future discounted cash flows) and the market approach (market multiples for similar companies) using unobservable inputs (Level 3). The income approach uses a discounted cash flow (“DCF”) method that utilizes the present value of cash flows to estimate the reporting unit’s fair value. The future cash flows of the reporting unit were projected based on the Company’s estimates of future revenues, operating income, and other factors such as working capital and capital expenditures. As part of the DCF analysis, the Company projected revenue and operating profits and assumed long-term revenue growth rates in the terminal year. The market approach utilizes multiples of revenues and earnings before interest expense, taxes, depreciation, and amortization (“EBITDA”) to estimate the reporting unit’s fair value. The market multiples used for the reporting unit were based on a group of comparable companies’ market multiples applied to the Company’s revenue. The Company concluded that there isno impairment of goodwill.

As of September 30, 2026, the Company concluded that the fair value of the reporting unit exceeded its carrying value andno impairment was recognized. The carrying amount of goodwill was $2.0 million and $2.1 million as of September 30, 2026 and December 31, 2025, respectively.

The change in the carrying amount of goodwill for the nine months ended September 30, 2026 was as follows (in thousands):

Intangibles

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

Amortization expense relating to acquired intangible assets was $0.01 million and $0.2 million for the three month periods ended September 30, 2026 and 2025, respectively. Amortization expense relating to acquired intangible assets was $0.3 million and $0.6 million for the nine month periods ended September 30, 2026 and 2025, respectively.

Amortization expense relating to capitalized developed software was $1.3 million and $1.0 million for the three month periods ended September 30, 2026 and 2025, respectively. Amortization expense relating to capitalized developed software was $3.6 million and $2.9 million for the nine month periods ended September 30, 2026 and 2025, respectively.

As of September 30, 2026, estimated future amortization expense for intangible assets was as follows (in thousands):

**5.**Accrued expenses and other liabilities

As of September 30, 2026 and December 31, 2025, the Company had accrued expenses of $33.0 million and $7.8 million, respectively, primarily related to content acquisition costs incurred for AI enabled projects and outstanding obligations associated with ongoing customer programs.

**6.**Income Taxes

The Company’s tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter including excess tax benefits from stock-based compensation, offset by stock-based compensation related to IRC Section 162(m), the expense and benefits related to foreign prior year true-ups, foreign exchange fluctuations and changes in unrecognized tax benefits. In each quarter, the Company updates the annual effective tax rate based on the most recent annual forecast and makes a year-to-date adjustment to the tax provision.

The estimated annual effective tax rate is subject to significant volatility due to several factors including the Company’s ability to accurately forecast the pre-tax book income and permanent adjustments in multiple jurisdictions including certain stock-based compensation expense, IRC Section 162(m) adjustments, Foreign-Derived Deduction Eligible Income (“FDDEI”) formerly known as Foreign-Derived Intangible Income (“FDII”), and a net benefit related to foreign tax credits (“FTC”) and the U.S. tax implications of Global Intangible Low Taxed Income (“GILTI”).

The following table provides effective tax rate information for the three and nine months ended September 30, 2026 and 2025:

The Company’s tax provision for the three and nine months ended September 30, 2026 was favorably impacted by net windfalls related to stock-based compensation, a U.S. deduction on FDDEI, and a net benefit related FTC, partially offset by IRC Section 162(m) adjustments, the U.S. tax implications of GILTI and the impact of foreign prior year true-ups and exchange fluctuations.

The Company’s overall effective tax rate for the nine months ended September 30, 2026 was favorably impacted by net windfalls related to stock-based compensation, a U.S. deduction on FDDEI, and a net benefit related FTC, partially offset by IRC Section 162(m) adjustments, the U.S. tax implications of GILTI and the impact of foreign prior year true-ups and exchange fluctuations.

The Company’s overall effective tax rate applied to the nine-month period ended September 30, 2025 is higher than the U.S. federal statutory rate of 21% principally due to IRC Section 162(m) adjustments, state income tax provisions, deemed interest and tax effect of foreign operations offset in part by the favorable effect of stock-based compensation, withholding taxes and a change in the valuation allowance.

In addition, the Company’s effective tax rate reflects the impact of state tax planning and apportionment methodologies, which reduced the incremental state income tax impact that would otherwise increase the combined federal and state statutory rate.

The following table presents a roll-forward of the Company’s unrecognized tax benefits and associated interest for the nine months ended September 30, 2026 (in thousands):

**7.**Operating Leases

The Company has various lease agreements for its offices and service delivery centers and has determined that the risks and benefits related to these leased properties are retained by the lessors. Accordingly, these are accounted for as operating leases. Lease agreements with a term of less than one year are treated as short-term leases and are accounted for separately, as shown in the table below.

Most of these lease agreements are renewable at the mutual consent of the parties to the contract. These lease agreements are for terms ranging from three toeleven years and, in most cases, provide for rent escalations ranging from 1.75% to 15%.

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

The following table presents the maturity profile of the Company’s operating lease liabilities based on the contractual undiscounted payments with a reconciliation of these amounts to the remaining net present value of the operating lease liability reported in the condensed consolidated balance sheet as of September 30, 2026 (in thousands):

The supplemental information, weighted average remaining lease terms and discount rates for all of the Company’s operating leases were as follows:

**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 completingsix 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 three and nine months ended September 30, 2026 and 2025 the Company did not make any matching contributions.

Most of the Company’s non-U.S. subsidiaries provide for government-mandated defined pension benefits. For certain of these non-U.S. 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 September 30, 2026, these plans were unfunded. Pension expense for the Company’s foreign subsidiaries totaled approximately $0.4 million and $0.3 million for the three months ended September 30, 2026 and 2025, respectively, and $1.2 million and $1.0 million for the nine months ended September 30, 2026 and 2025, respectively.

Components of Net Periodic Pension Cost:

There were no plan amendments, settlements, or curtailments during the period. The Company does not expect any significant changes to its pension funding requirements or benefit obligations during the remainder of the fiscal year.

**9.**Long-term obligations

Total long-term obligations as of September 30, 2026 and December 31, 2025 consisted of the following (in thousands):

**10.**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 $5.2 million, plus legal interest that accrued at 12% per annum from August 13, 2008 to June 30, 2013, and thereafter accrued and continues to accrue legal interest 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 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.

The Company is also subject to various other legal proceedings and claims that have arisen in the ordinary course of business. While the Company believes that it has adequate reserves for those losses that it believes are probable and can be reasonably estimated, the ultimate results of legal proceedings and claims cannot be predicted with certainty.

While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on 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 judgements in the other proceedings could have a material adverse impact on the consolidated operating results in the period in which the ruling or recovery occurs. In addition, the Company’s estimate of the potential impact on the Company’s consolidated financial position or overall consolidated results of operations for the above referenced legal proceedings could change in the future.

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 $400,000 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.

**11.**Stock Options and Restricted Stock Units

Equity Compensation Plans

On April 20, 2026, the Company adopted the Amended and Restated Innodata Inc. Equity Compensation Plan (the “2026 Plan”), which was approved by the Company’s stockholders on June 4, 2026. The 2026 Plan amends and restates the Innodata Inc. 2021 Equity Compensation Plan, as amended and restated (the “2021 Plan”). The 2021 Plan was originally approved by the Board on April 8, 2021, and approved by stockholders on June 8, 2021, and was amended and restated effective as of April 11, 2022.

The stock-based compensation expense related to the Innodata Inc. 2013 Stock Plan, as amended and restated effective June 7, 2016 (the “2013 Plan”, and together with the 2021 Plan, and the 2026 Plan, collectively, the “Equity Plans”) were allocated as follows (in thousands):

Stock Options

2013 Plan

A summary of option activity under the 2013 Plan and changes during the nine-month period ended September 30, 2026 is presented below:

2021 Plan

A summary of option activity under the 2021 Plan and changes during the nine-month period ended September 30, 2026 is presented below.

There wereno options granted during the nine months ended September 30, 2026.

During the nine months ended September 30, 2026, a total of 2,034,924 options were exercised at a weighted average exercise price of $5.38.

The compensation cost related to non-vested stock options not yet recognized as of September 30, 2026 totaled approximately $3.5 million. The weighted-average period over which these costs will be recognized is 15 months.

Restricted Stock Units

Restricted stock unit activity under the Equity Plans during the nine-month period ended September 30, 2026 is presented below:

During the nine months ended September 30, 2026, the Company granted 7,024 restricted stock units to a non-employee advisor and non - employee directors.

The compensation cost related to non-vested restricted stock units not yet recognized as of September 30, 2026 totaled approximately $38.3 million. The weighted-average period over which these costs will be recognized is 24 months.

**12.**Comprehensive loss

Accumulated other comprehensive loss, as reflected in the condensed consolidated balance sheets, consists of pension liability adjustments, net of taxes, foreign currency translation adjustment and changes in fair value of derivatives, net of taxes. The components of accumulated other comprehensive loss as of September 30, 2026 and 2025, and reclassifications from accumulated other comprehensive loss for the three and nine-month periods, are presented below (in thousands):

Taxes related to each component of other comprehensive loss were not material for each of the three-month periods presented and therefore not disclosed separately.

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

**13.**Segment reporting and concentrations

The Company’s Chief Operating Decision Maker (“CODM”) is the Company’s Chief Executive Officer (“CEO”).

During the quarter ended March 31, 2026, the Company reassessed its operating and reportable segment structure and concluded that it operates as a single reportable segment. This change reflects a shift in how the Company’s CEO evaluates performance and allocates resources. The CEO now reviews financial results on a consolidated basis and does not regularly review discrete financial information at a level below the consolidated entity for purposes of allocating resources or assessing performance. In addition, the Company’s operations have become increasingly integrated, with shared delivery infrastructure, technology platforms, and workforce supporting its service offerings. As a result, the Company determined that it hasone operating and reportable segment.

The U.S. GAAP measures used by the Company’s CEO to evaluate segment performance and allocate resources such as employees, property, and financial or capital resources during the annual budgeting and forecasting process, are Revenues, Gross Profit and Net Income. Performance results are monitored, reviewed, and measured monthly and quarterly by comparing budget and forecast to actual results for profit measures, assessing returns on investment, compensation decisions and changing strategies, if required.

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

Revenues for the three and nine-month periods ended September 30, 2026, and 2025 by geographic region (determined based upon customer’s domicile), were as follows (in thousands):

Long-lived assets as of September 30, 2026 and December 31, 2025 by geographic region were comprised of (in thousands):

Long-lived assets include the unamortized balance of right-of-use-assets amounting to $3.3 million and $4.1 million as of September 30, 2026 and December 31, 2025, respectively.

One customer generated approximately 31% and 56% of the Company’s total revenues for the three months ended September 30, 2026 and 2025, respectively. Another customer generated approximately 43% of the Company’s total revenues for the three months ended September 30, 2026. No other customer accounted for 10% or more of total revenues during these periods. Revenues from non-U.S. customers accounted for 11% and 16% of the Company’s total revenues for the three months ended September 30, 2026 and 2025, respectively.

One customer generated approximately 41% and 58% of the Company’s total revenues for the nine months ended September 30, 2026 and 2025, respectively. Another customer generated approximately 32% of the Company’s total revenues for the nine months ended September 30, 2026. No other customer accounted for 10% or more of total revenues during these periods. Revenues from non-U.S. customers accounted for 12% and 16% of the Company’s total revenues for the nine months ended September 30, 2026 and 2025, respectively.

As of September 30, 2026, approximately 10% of the Company’s accounts receivable was due from foreign (principally European) customers and 67% of the Company’s accounts receivable was due fromtwo customers. As of December 31, 2025, approximately 10% of the Company’s accounts receivable was due from foreign (principally European) customers and 63% of the Company’s accounts receivable was due fromone customer. No other customer accounted for 10% or more of the accounts receivable as of September 30, 2026 and December 31, 2025.

**14.**Income Per Share

The calculation of the dilutive effect of outstanding options and restricted stock units is shown in the table below (in thousands):

Basic income per share is computed using the weighted-average number of common shares outstanding during the period. 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 income per share is used.

Options to purchase 1.2 million shares of common stock for the three and nine months ended September 30, 2026 are outstanding and included in the computation of diluted income per share. Also included in the computation of diluted income per share are 282,784 and 226,578 restricted stock units for the three and nine months ended September 30, 2026, respectively, using the treasury stock method to determine the dilutive effect of restricted stock units outstanding as of September 30, 2026.

Options to purchase 3.6 million shares of common stock for the three months and nine months ended September 30, 2025 were outstanding and included in the computation of diluted income per share. Also included in the computation of diluted income per share for the three months and nine months ended September 30, 2025 are 390,569 restricted stock units using the treasury stock method to determine the dilutive effect of restricted stock units outstanding as of September 30, 2025.

**15.**Derivatives

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

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

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

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Company does not hold or issue derivatives for trading purposes. All derivatives are recognized at their fair value and classified based on the instrument’s maturity date. The total notional amount for outstanding derivatives designated as hedges was $40.4 million and $19.7 million as of September 30, 2026 and December 31, 2025, respectively.

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

The following table presents the fair value of derivative instruments included within the condensed consolidated balance sheets as of September 30, 2026 and December 31, 2025 (in thousands):

The effect of foreign currency forward contracts designated as cash flow hedges on the condensed consolidated statements of operations for the three and nine months ended September 30, 2026 and 2025 were as follows (in thousands):

**16.**Line of Credit

On April 4, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as lender, and Innodata Inc., Innodata Synodex, LLC, Innodata docGenix, LLC and Agility PR Solutions LLC as co-borrowers. On July 21, 2023, Innodata Services, LLC signed a Joinder Agreement to join the Credit Agreement as a co-borrower. On August 5, 2024, July 18, 2025, and March 19, 2026 the Company entered into a second amendment, third amendment, and fourth amendment, respectively, to the Credit Agreement (together with the Credit Agreement, the “Amended Credit Agreement”). The Amended Credit Agreement provides for a secured revolving line of credit (the “Revolving Credit Facility”) up to an amount equal to the lesser of the borrowing base and $50.0 million (the “Maximum Credit”). The Revolving Credit Facility’s borrowing base is calculated on the basis of (i)85% of eligible accounts (other than eligible foreign accounts and unbilled accounts), plus (ii)85% of eligible government prime accounts (other than eligible foreign accounts and unbilled accounts), plus (iii) the lesser of (a)80% of eligible accounts that are unbilled accounts and (b)30% of all eligible accounts, plus (iv) the lesser of (a)85% of eligible foreign accounts from accounts in a tier 1 country, (b)20% of all eligible accounts, and (c) $5.0 million, minus (v) reserves. As of September 30, 2026, such borrowing base calculation equaled approximately $29.0 million. The Credit Agreement contains a financial covenant that requires the Borrowers, on a consolidated basis, to maintain a fixed charge coverage ratio of not less than 1.10 to 1.00. Except as set forth in the Credit Agreement, borrowings under the Revolving Credit Facility bear interest at a rate equal to the daily simple secured overnight financing rate (“SOFR”) plus 2.25%. The Company did not utilize the Revolving Credit Facility during the nine months ended September 30, 2026 or during the subsequent period through the filing date of this Report.