10-Q

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

FORM 10-Q

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

For the quarterly period ended June 30, 2013

OR

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

For the transition period from ________________ to ________________

Commission file number: 0-22196

INNODATA INC.

(Exact name of registrant as specified in its charter)

Delaware	13-3475943
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
Three University Plaza	07601
Hackensack, New Jersey	(Zip Code)
(Address of principal executive offices)

(201) 371-8000

(Registrant’s telephone number, including area code)

[None]

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The number of outstanding shares of the registrant’s common stock, $.01 par value, as of July 22, 2013 was 25,049,889.

INNODATA INC. AND SUBSIDIARIES

For the Quarter Ended June 30, 2013

INDEX

		Page No.
	Part I – Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended June 30, 2013 and 2012	2
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the six months ended June 30, 2013 and 2012	3
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012	4
	Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2013 and 2012	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27
Item 4.	Controls and Procedures	28
	Part II – Other Information
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
Signatures		31

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

	June 30,			December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	24,379		$	25,425
Short term investments – other		2,773			3,091
Accounts receivable, net		10,898			14,317
Prepaid expenses and other current assets		2,094			2,561
Deferred income taxes		1,514			1,104
Total current assets		41,658			46,498
Property and equipment, net		12,069			10,656
Other assets		3,292			3,504
Deferred income taxes		7,156			4,848
Goodwill		675			675
Total assets	$	64,850		$	66,181
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,623		$	1,618
Accrued expenses		3,915			2,482
Accrued salaries, wages and related benefits		5,263			6,584
Income and other taxes		1,720			2,155
Current portion of long term obligations		538			818
Deferred income taxes		-			57
Total current liabilities		13,059			13,714
Deferred income taxes		190			182
Long term obligations		3,677			3,374
Commitments and contingencies
Non-controlling interests		(1,791	)		(1,598	)
STOCKHOLDERS’ EQUITY:
Serial preferred stock; 5,000,000 shares authorized, none outstanding		-			-
Common stock, $.01 par value; 75,000,000 shares authorized; 26,512,000 shares issued and 24,965,000 outstanding at June 30, 2013 and 26,439,000 shares issued and 24,892,000 outstanding at December 31, 2012		265			264
Additional paid-in capital		22,343			22,140
Retained earnings		32,552			32,356
Accumulated other comprehensive income (loss)		(1,157	)		37
		54,003			54,797
Less: treasury stock, 1,547,000 shares at cost		(4,288	)		(4,288	)
Total stockholders’ equity		49,715			50,509
Total liabilities and stockholders’ equity	$	64,850		$	66,181

See notes to condensed consolidated financial statements.

1

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended
	June 30,
	2013			2012
Revenues	$	16,160		$	22,768
Operating costs and expenses:
Direct operating costs		13,419			14,654
Selling and administrative expenses		4,357			6,186
Interest income, net		(117	)		(90	)
Totals		17,659			20,750
Income (loss) before income taxes		(1,499	)		2,018
Provision for (benefit from) income taxes		(1,013	)		365
Net income (loss)		(486	)		1,653
Loss attributable to non-controlling interests		365			435
Net income (loss) attributable to Innodata Inc. and Subsidiaries	$	(121	)	$	2,088
Income (loss) per share attributable to Innodata Inc. and Subsidiaries:
Basic	$	(0.00	)	$	0.08
Diluted	$	(0.00	)	$	0.08
Weighted average shares outstanding:
Basic		24,940			25,085
Diluted		24,940			26,862
Comprehensive income (loss):
Net income (loss) attributable to Innodata Inc. and Subsidiaries	$	(121	)	$	2,088
Pension liability adjustment, net of taxes		18			9
Change in fair value of derivatives, net of taxes of $717 and $40 for the three months ended June 30, 2013 and 2012, respectively		(1,221	)		68
Comprehensive income (loss) attributable to Innodata Inc. and Subsidiaries	$	(1,324	)	$	2,165

See notes to condensed consolidated financial statements.

2

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except per share amounts)

	Six Months Ended
	June 30,
	2013			2012
Revenues	$	33,063		$	47,904
Operating costs and expenses:
Direct operating costs		26,210			30,759
Selling and administrative expenses		8,980			11,586
Interest income, net		(257	)		(181	)
Totals		34,933			42,164
Income (loss) before income taxes		(1,870	)		5,740
Provision for (benefit from) income taxes		(1,488	)		1,273
Net income (loss)		(382	)		4,467
Loss attributable to non-controlling interests		578			1,053
Net income attributable to Innodata Inc. and Subsidiaries	$	196		$	5,520
Income per share attributable to Innodata Inc. and Subsidiaries:
Basic	$	0.01		$	0.22
Diluted	$	0.01		$	0.21
Weighted average shares outstanding:
Basic		24,938			24,771
Diluted		24,938			26,459
Comprehensive income (loss):
Net income attributable to Innodata Inc. and Subsidiaries	$	196		$	5,520
Pension liability adjustment, net of taxes		36			17
Change in fair value of derivatives, net of taxes of $722 and $447 for the six months ended June 30, 2013 and 2012, respectively		(1,230	)		761
Comprehensive income (loss) attributable to Innodata Inc. and Subsidiaries	$	(998	)	$	6,298

See notes to condensed consolidated financial statements.

3

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended
	June 30
	2013			2012
Cash flow from operating activities:
Net income (loss)	$	(382	)	$	4,467
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		1,913			1,883
Stock-based compensation		489			582
Deferred income taxes		(2,049	)		279
Pension cost		257			265
Changes in operating assets and liabilities:
Accounts receivable		3,419			2,786
Prepaid expenses and other current assets		342			623
Other assets		(143	)		(383	)
Accounts payable and accrued expenses		(389	)		83
Accrued salaries, wages and related benefits		(1,321	)		(6	)
Restricted shares withheld for taxes		(31	)		-
Income and other taxes		(435	)		(392	)
Net cash provided by operating activities		1,670			10,187
Cash flow from investing activities:
Capital expenditures		(2,971	)		(4,503	)
Sale of investments – other		318			3,224
Net cash used in investing activities		(2,653	)		(1,279	)
Cash flow from financing activities:
Proceeds from exercise of stock options		131			470
Payment of long term obligations		(194	)		(35	)
Net cash provided by (used in) financing activities		(63	)		435
Net increase (decrease) in cash and cash equivalents		(1,046	)		9,343
Cash and cash equivalents, beginning of period		25,425			11,389
Cash and cash equivalents, end of period	$	24,379		$	20,732
Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	663		$	1,039

See notes to condensed consolidated financial statements

4

INNODATA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

(In thousands)

											Accumulated
						Additional					Other
	Common Stock					Paid-in			Retained		Comprehensive			Treasury
	Shares			Amount		Capital			Earnings		Income (Loss)			Stock			Total
January 1, 2013		24,892		$	264	$	22,140		$	32,356	$	37		$	(4,288	)	$	50,509
Net income		-			-		-			196		-			-			196
Stock-based compensation		-			-		489			-		-			-			489
Issuance of common stock upon exercise of stock options		76			1		130			-		-			-			131
Restricted shares withheld for taxes		(3	)		-		(31	)		-		-			-			(31	)
Acquisition of non-controlling interest		-			-		(385	)		-		-			-			(385	)
Pension liability adjustments, net of taxes		-			-		-			-		36			-			36
Change in fair value of derivatives, net of taxes		-			-		-			-		(1,230	)		-			(1,230	)
June 30, 2013		24,965		$	265	$	22,343		$	32,552	$	(1,157	)	$	(4,288	)	$	49,715
January 1, 2012		24,691		$	262	$	21,338		$	24,883	$	(1,027	)	$	(4,288	)	$	41,168
Net income		-			-		-			5,520		-			-			5,520
Stock-based compensation		-			-		582			-		-			-			582
Issuance of common stock upon exercise of stock options		172			2		468			-		-			-			470
Restricted shares withheld for taxes		(4	)		-		-			-		-			-			-
Pension liability adjustments, net of taxes		-			-		-			-		17			-			17
Change in fair value of derivatives, net of taxes		-			-		-			-		761			-			761
June 30, 2012		24,859		$	264	$	22,388		$	30,403	$	(249	)	$	(4,288	)	$	48,518

See notes to condensed consolidated financial statements

5

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business- Innodata Inc. and subsidiaries (the “Company”) is a global provider of business process, information technology and professional services that are focused on digital enablement. Innodata’s clients comprise several of the world’s leading digital retailers that sell digital content; preeminent publishers and other providers of online business information products; and enterprises in information-intensive industries (such as aerospace, defense, financial services, healthcare, high technology, insurance, and manufacturing) that create and manage large volumes of content to support their products or operations.

The Company operates in two reporting segments: Content Services (CS) and Innodata Advanced Data Solutions (IADS).

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

The Company formed its IADS segment in mid-2011 to design and develop new capabilities to enable clients in the financial services, insurance, medical and healthcare sectors to improve decision-support through digital technologies. The Company believes that by creating and commercializing innovative business strategies and technology solutions it will be able to accelerate growth and reduce revenue volatility. IADS operates through two subsidiaries. Synodex offers a range of services for healthcare, medical and insurance companies, and docGenix provides services to financial services institutions. As of June 30, 2013, Innodata owns 85% of Synodex and 94% of docGenix, both limited liability companies.

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) which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company as of June 30, 2013, and the results of its operations and comprehensive income (loss), cash flows and stockholders’ equity for the six months ended June 30, 2013 and 2012. 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.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2012, included in the Company's Annual Report on Form 10-K. Unless otherwise noted, the accounting policies used in preparing these condensed consolidated financial statements are the same as those described in the December 31, 2012 consolidated financial statements.

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

6

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

Use of Estimates-In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include those related to revenue recognition, allowance for doubtful accounts and billing adjustments, long-lived assets, goodwill, valuation of deferred tax assets, valuation of securities underlying stock-based compensation, litigation accruals, pension benefits, valuation of derivative instruments and estimated accruals for various tax exposures.

Recent Accounting Pronouncements- In the first quarter of 2013, the Company adopted changes issued by the FASB to the reporting of amounts reclassified out of accumulated other comprehensive income. These changes require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. These requirements are to be applied to each component of accumulated other comprehensive income. Other than the additional disclosure requirements, the adoption of these changes had no impact on the Company’s condensed consolidated financial statements.

2. Income Taxes

The Company had unrecognized tax benefits of approximately $2.2 million at June 30, 2013 and December 31, 2012. The portion of unrecognized tax benefits relating to interest and penalties was approximately $0.7 million at June 30, 2013 and December 31, 2012, respectively. The unrecognized tax benefits as of June 30, 2013 and December 31, 2012, if recognized, would have an impact on the Company’s effective tax rate.

The following presents a roll-forward of the Company’s unrecognized tax benefits and associated interest for the six months ended June 30, 2013 (amounts in thousands):

	Unrecognized tax benefits
Balance - January 1, 2013	$	2,350
Interest accrual		27
Foreign currency revaluation		(200	)
Balance – June 30, 2013	$	2,177

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

7

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

Pursuant to an income tax audit by the Indian Bureau of Taxation in March 2006, one of the Company’s Indian subsidiaries received a tax assessment approximating $273,000, including interest, through June 30, 2013, for the fiscal tax year ended March 31, 2003. Management disagreed with the basis of the tax assessment and filed an appeal with the Appeal Officer against the assessment. In October 2010, the matter was resolved with a judgment in the Company’s favor. Under the Indian Income Tax Act, however, the income tax assessing officer has the right to appeal against the judgment passed by the Appeal Officer. In December 2010, the income tax assessing officer exercised this right, against which the Company has filed an application to defend the case, and the Company intends to contest it vigorously. The Indian Bureau of Taxation has also completed an audit of the Company’s Indian subsidiary’s income tax return for the fiscal tax year ended March 31, 2004. The ultimate outcome was favorable, and there was no tax assessment imposed for the fiscal tax year ended March 31, 2004. In 2008 and 2009, the Indian subsidiary received a final tax assessment for the fiscal years ended March 31, 2005 and 2006 from the Indian Bureau of Taxation. The tax assessment amounted to $295,000 and $292,000, including interest through June 30, 2013, for the fiscal years ended March 31, 2005 and 2006, respectively. Management disagrees with the basis of these tax assessments, has filed an appeal against the assessments and is contesting them vigorously. In January 2012, the Indian subsidiary received a final tax assessment of approximately $1.0 million, including interest, for the fiscal year ended March 31, 2008, from the Indian Bureau of Taxation. Management disagrees with the basis of this tax assessment, and has filed an appeal against it. Due to this assessment, the Company recorded a tax provision amounting to $455,000 including interest through June 30, 2013. Based on recent experience and the current regulatory environment, management believes that the tax provision of $455,000 including interest is adequate. The Indian Bureau of Taxation has also completed an audit of the Company’s Indian subsidiary’s income tax return for the fiscal tax year ended March 31, 2009. The ultimate outcome was favorable, and there was no tax assessment imposed for the fiscal tax year ended March 31, 2009. The Indian Bureau of Taxation commenced an audit of this subsidiary’s income tax return for the fiscal year ended March 31, 2010. The ultimate outcome cannot be determined at this time. As the Company is continually subject to tax audits by the Indian Bureau of Taxation, the Company assessed the likelihood of an unfavorable assessment for all fiscal years for which the Company has not been audited as of June 30, 2013, and recorded additional tax provisions in prior quarters amounting to $862,000 including interest through June 30, 2013.

In January 2013, one of the Company’s Philippine subsidiaries received an informal tax assessment for an amount totaling $3.8 million for the year ended December 31, 2009. The Company has not yet received a formal notice of this assessment and the statute of limitations expired on April 15, 2013 for formal notice of the assessment. Management believes that it is reasonably likely that it will be successful in contesting an assessment, if any. Accordingly, the Company recorded no tax provision on said informal tax assessment. The Company will continuously monitor this matter and will record an appropriate tax provision in the event there is any change in circumstances.

3. Commitments and Contingencies

Line of Credit-The Company has a $15.0 million line of credit pursuant to which it may borrow up to 80% of eligible accounts receivable. Borrowings under the credit line bear interest at the bank’s alternate base rate plus 0.5%, or LIBOR plus 2.5%. The line, which expires in June 2014, is collateralized by the Company’s accounts receivable. The Company has no outstanding obligations under this credit line as of June 30, 2013.

Litigation-In 2008, the Supreme Court of the Republic of the Philippines refused to review a decision of the Court of Appeals in Manila against a Philippines subsidiary of the Company that is inactive and has no material assets, and purportedly also against Innodata Inc., that orders the reinstatement of certain former employees of the subsidiary to their former positions and also orders the payment of back wages and benefits that aggregate approximately $8.5 million. Based on consultation with legal counsel, the Company believes that recovery against the Company is unlikely.

8

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

The Company is also subject to various legal proceedings and claims which arise 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 financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Substantial recovery against the Company in the above-referenced Philippines actions 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 operating results of the period in which the ruling or recovery occurs. In addition, the Company’s estimate of potential impact on the Company’s financial position or overall results of operations for the above legal proceedings could change in the future.

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

4. Stock Options

The Company adopted, with stockholder approval, the Innodata Inc. 2013 Stock Plan (the “2013 Plan”). The maximum number of shares of common stock that may be delivered, purchased or used for reference purposes with respect to awards granted under the 2013 Plan is 1,041,096 shares, plus any shares subject to an award or portion of any award under the Innodata Isogen, Inc. 2009 Stock Plan, as amended and restated (the “Prior Plan”) that were outstanding as of June 4, 2013 that expire or terminate unexercised, become unexercisable or are forfeited or otherwise terminated, surrendered or cancelled as to any shares without the delivery of shares of stock or other consideration. Shares of stock subject to options or stock appreciation rights (“SARs”) granted under the 2013 Plan count against the share reserve as one share for every one share subject to such option or SAR and shares subject to any other type of award granted under the 2013 Plan count against the share reserve as two shares for every one share subject to such award. If any award, or portion of an award, under the 2013 Plan expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares without the delivery of shares of stock or other consideration, the shares subject to such award will thereafter be available for further awards under the 2013 Plan as provided in the next sentence. Shares of stock that again become available for awards pursuant to the expiration, termination, forfeiture or cancellation of any award (other than an option or SAR) granted under the 2013 Plan, or of any award (other than an option or SAR) granted after March 31, 2011 under the Prior Plan, will be added back as two shares for every one share subject to such award or Prior Plan award. All other awards under the 2013 Plan and all other awards under the Prior Plan will be added back as one share for every one share subject to such award or Prior Plan award. The number of shares used for reference purposes in connection with these awards will be considered "delivered" for purposes of computing the maximum number of shares that may be delivered under the Plan.

A summary of option activity under the Company’s stock option plans as of June 30, 2013, and changes during the period then ended, is presented below:

9

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2013		2,986,057		$	2.75
Granted		1,014,022			3.39
Exercised		(75,500	)		1.72
Forfeited/Expired		(423,444	)		2.99
Outstanding at June 30, 2013		3,501,135		$	2.93		4.56	$	1,705,812
					2.73
Exercisable at June 30, 2013		1,227,557		$	2.75		1.86	$	965,662
Vested and expected to vest at June 30, 2013		3,501,135		$	2.93		4.56	$	1,705,812

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

	Six months ended
	June 30,
	2013			2012 (1)
Weighted average fair value of options granted	$	1.89		$	-
Risk-free interest rate		0.76	%		-
Expected life (years)		5			-
Expected volatility factor		67	%		-
Expected dividends		-			-

⁽¹⁾ There were no options granted during the six months ended June 30, 2012.

A summary of restricted shares under the Company’s stock option plans as of June 30, 2013, and changes during the period then ended, are presented below:

10

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

	Number of Shares			Weighted-Average Grant Date Fair Value
Unvested at January 1, 2013		32,500		$	3.14
Granted		-			-
Vested		(7,500	)		2.59
Forfeited/Expired		-			-
Unvested at June 30, 2013		25,000		$	3.31

The total compensation cost related to non-vested stock awards not yet recognized as of June 30, 2013 totaled approximately $2.2 million. The weighted-average period over which these costs will be recognized is twenty-nine months.

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

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Direct operating costs	$	78	$	19	$	129	$	45
Selling and adminstrative expenses		133		284		360		537
Total stock-based compensation	$	211	$	303	$	489	$	582

5. Comprehensive Income (loss)

Accumulated other comprehensive income (loss), as reflected in the condensed consolidated balance sheets, consists of pension liability adjustments, net of taxes, and changes in fair value of derivatives, net of taxes. The components of accumulated other comprehensive income (loss) as of June 30, 2013, and reclassifications out of accumulated other comprehensive income (loss) for the six months ended June 30, 2013 and 2012, were as follows (net of tax):

11

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

	Pension Liability			Fair value of			Accumulated Other
	Adjustment			Derivatives			Comprehensive Income (loss)
Balance at January 1, 2013	$	(43	)	$	80		$	37
Other comprehensive income (loss):
Net change from periodic revaluations, net of taxes		-			(1,499	)		(1,499	)
Total other comprehensive income (loss) before reclassifications, net of taxes		(43	)		(1,419	)		(1,462	)
Net amount reclassified to earnings		36			269			305
Balance at June 30, 2013	$	(7	)	$	(1,150	)	$	(1,157	)

	Pension Liability		Fair value of			Accumulated Other
	Adjustment		Derivatives			Comprehensive Income (loss)
Balance at January 1, 2012	$	95	$	(1,122	)	$	(1,027	)
Other comprehensive income (loss):
Net change from periodic revaluations, net of taxes		-		1,433			1,433
Total other comprehensive income (loss) before reclassifications, net of taxes		95		311			406
Net amount reclassified to earnings		18		(673	)		(655	)
Balance at June 30, 2012	$	113	$	(362	)	$	(249	)

6. Segment Reporting and Concentrations

The Company’s operations are classified into two reportable segments: Content Services (CS) and Innodata Advanced Data Solutions (IADS).

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

In the second quarter of 2011, the Company launched its IADS segment to perform advanced data analysis. IADS operates through two subsidiaries: Synodex and docGenix. Synodex offers a range of data analysis services in the healthcare, medical and insurance areas. DocGenix provides services to certain financial services institutions.

A significant portion of the Company’s revenues are generated from its production facilities in the Philippines, India, Sri Lanka and Israel.

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

12

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
	2013			2012			2013			2012
Revenues:
Content Services	$	16,008		$	22,653		$	32,276		$	47,191
IADS		152			115			787			713
Total consolidated	$	16,160		$	22,768		$	33,063		$	47,904
Income (loss) before provision for income taxes:(1)
Content Services	$	1,062		$	3,404		$	2,080		$	9,896
IADS		(2,561	)		(1,386	)		(3,950	)		(4,156	)
Total consolidated	$	(1,499	)	$	2,018		$	(1,870	)	$	5,740

	June 30, 2013		December 31, 2012
Total assets:
Content Services	$	60,203	$	61,858
IADS		4,647		4,323
Total consolidated	$	64,850	$	66,181

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

Income (loss) before provision for (benefit from) income taxes for CS and IADS was $0.6 million and $(2.1) million, respectively, for the three months ended June 30, 2013, after eliminating inter-segment profits. Income (loss) before provision for (benefit from) income taxes for CS and IADS was $1.3 million and $(3.2) million, respectively, for the six months ended June 30, 2013, after eliminating inter-segment profits.

Income (loss) before provision for income taxes for Content Service and IADS was $3.7 million and $(1.7) million, respectively, for the three months ended June 30, 2012, after eliminating inter-segment profits. Income (loss) before provision for income taxes for Content Service and IADS were $8.9 million and $(3.2) million, respectively, for the six months ended June 30, 2012, after eliminating inter-segment profits.

13

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

The following table summarizes revenues by geographic region (determined based upon customer’s domicile) (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2013		2012		2013		2012
Unites States	$	10,992	$	17,813	$	22,903	$	37,846
United Kingdom		1,813		2,004		3,662		4,151
The Netherlands		2,151		1,780		4,210		3,477
Other - principally Europe		1,204		1,171		2,288		2,430
	$	16,160	$	22,768	$	33,063	$	47,904

Long-lived assets as of June 30, 2013 and December 31, 2012, respectively, by geographic region, are comprised of (in thousands):

	June 30,		December 31,
	2013		2012
United States	$	4,729	$	3,978
Foreign countries:
Philippines		1,995		1,424
India		4,953		4,926
Sri Lanka		1,022		931
Israel		45		72
Total foreign		8,015		7,353
	$	12,744	$	11,331

Two clients generated approximately 28% and 47% of our total revenues for the three months ended June 30, 2013 and 2012, respectively. Two additional clients accounted for 26% of our total revenues for the three months ended June 30, 2013 but each accounted for less than 10% of our total revenues for the three months ended June 30, 2012. No other client accounted for 10% or more of total revenues during these periods. Further, for the three months ended June 30, 2013 and 2012, revenues from non-U.S. clients accounted for 32% and 22%, respectively, of our total revenues.

Two clients generated approximately 27% and 48% of our total revenues for the six months ended June 30, 2013 and 2012, respectively. Two additional clients accounted for 25% of our total revenues for the six months ended June 30, 2013 but each accounted for less than 10% of our total revenues for the six months ended June 30, 2012. No other client accounted for 10% or more of total revenues during these periods. Further, for the six months ended June 30, 2013 and 2012, revenues from non-U.S. clients accounted for 31% and 21%, respectively, of our total revenues.

As of June 30, 2013, approximately 36% of the Company's accounts receivable was from foreign (principally European) clients and 61% of accounts receivable was due from four clients. As of December 31, 2012, approximately 30% of the Company's accounts receivable was from foreign (principally European) clients and 55% of accounts receivable was due from four clients.

14

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

7. Income (Loss) Per Share

	Three months ended					Six months ended
	June 30,					June 30,
	2013			2012		2013		2012
	(in thousands, except per share amounts)
Net income (loss) attributable to
Innodata Inc. and Subsidiaries	$	(121	)	$	2,088	$	196	$	5,520
Weighted average common shares outstanding		24,940			25,085		24,938		24,771
Dilutive effect of outstanding options		-			1,777		-		1,688
Adjusted for dilution computation		24,940			26,862		24,938		26,459

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 1.7 million shares of common stock for the three months ended June 30, 2013 were outstanding but not included in the computation of diluted income (loss) per share, because the options exercise price was greater than the average market price of the common shares and, therefore, the effect would have been antidilutive. All options outstanding were included in the computation of diluted net income (loss) per share for the three months ended June 30, 2012 as the exercise price was lower than the average market price. In addition, diluted net income (loss) per share for the three months does not include 1.7 million potential common shares derived from the exercise of stock options because as a result of the Company’s incurring losses, their effect would have been antidilutive.

Options to purchase 0.6 million shares and 0.1 million shares of common stock for the six months ended June 30, 2013 and 2012, respectively, were outstanding but not included in the computation of diluted income (loss) per share, because the options exercise price was greater than the average market price of the common shares, and therefore, the effect would have been antidilutive.

8. Derivatives

The Company conducts a large portion of its operations in international markets that subject it to foreign currency fluctuations. The most significant foreign currency exposures occur when revenue and associated accounts receivable are collected in one currency and expenses to generate that revenue are incurred in another currency. The Company’s primary exchange rate exposure relates to payroll, other payroll costs and operating expenses in the Philippines, India, Sri Lanka and Israel.

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

15

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Company does not hold or issue derivatives for trading purposes. All derivatives are recognized at their fair value and classified based on the instrument’s maturity date. The total notional amount for outstanding derivatives as of June 30, 2013 and December 31, 2012 was $33.2 million and $32.3 million, respectively, which is comprised of cash flow hedges denominated in U.S. dollars.

The following table presents the fair value of derivative instruments included within the condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012 (in thousands):

	Balance Sheet Location	Fair Value
		2013		2012
Derivatives designated as hedging instruments:
Foreign currency forward contracts	Prepaid expenses and other current assets	$	-	$	125
Foreign currency forward contracts	Accrued expenses	$	1,827	$	-

The effects of foreign currency forward contracts designated as cash flow hedges on the Company’s condensed consolidated statements of operations and comprehensive income (loss) for the six months ended June 30, 2013 and 2012, respectively, were as follows (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2013			2012			2013			2012
Net gain (loss) recognized in OCI (1)	$	(1,977	)	$	(565	)	$	(1,683	)	$	253
Net gain (loss) reclassified from accumulated OCI into income (2)	$	(39	)	$	(673	)	$	269		$	(955	)
Net gain (loss) recognized in income (3)	$	—		$	—		$	—		$	—

⁽¹⁾ Net change in the fair value of the effective portion classified in other comprehensive income ("OCI").

⁽²⁾ Effective portion classified as direct operating costs.

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

9. Financial Instruments

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximated their fair value as of June 30, 2013 and December 31, 2012, because of the relative short maturity of these instruments.

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

16

INNODATA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

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

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

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

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

The following table sets forth the assets and liabilities as of June 30, 2013 and December 31, 2012 that the Company measured at fair value, on a recurring basis by level, within the fair value hierarchy (in thousands). As required by the standard, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

June 30, 2013	Level 1		Level 2		Level 3
Liabilities
Derivatives	$	—	$	1,827	$	—

December 31, 2012	Level 1		Level 2		Level 3
Assets
Derivatives	$	—	$	125	$	—

The Level 2 assets and liabilities contain foreign currency forward contracts. Fair value is determined based on the observable market transactions of spot and forward rates. The fair value of these contracts as of June 30, 2013 is included in accrued expenses and December 31, 2012 is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

These forward-looking statements are based largely on our current expectations, and are subject to a number of risks and uncertainties, including without limitation, that contracts could be terminated by clients, projected or committed volumes of work may not materialize; that our Innodata Advanced Data Solutions segment has not reported any substantial revenues to date and is subject to the risks and uncertainties of early-stage companies; the primarily at-will nature of the contracts with our clients and the ability of our clients to reduce, delay or cancel projects; continuing Content Services segment revenue concentration in a limited number of clients; continuing Content Services segment reliance on project-based work; inability to replace projects that are completed, cancelled or reduced; depressed market conditions; changes in external market factors; the ability and willingness of our clients and prospective clients to execute business plans which give rise to requirements for digital content and professional services in knowledge processing; difficulty in integrating and deriving synergies from acquisitions, joint venture and strategic investments; potential undiscovered liabilities of companies that we acquire; changes in our business or growth strategy; the emergence of new or growing competitors; various other competitive and technological factors; and other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

Our actual results could differ materially from the results referred to in the forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the results referred to in the forward-looking statements contained in this Form 10-Q will occur.

We undertake no obligation to update or review any guidance or changes in status of client contracts, client relationships, or other forward-looking information, whether as a result of new information, future developments or otherwise.

Business Overview

Innodata (NASDAQ: INOD) is a global provider of business process, information technology and professional services that are focused on digital enablement. Our clients comprise several of the world’s leading digital retailers that sell digital content; preeminent publishers and other providers of online business information products; and enterprises in information-intensive industries (such as aerospace, defense, financial services, healthcare, high technology, insurance, and manufacturing) that create and manage large volumes of content to support their products or operations.

We operate in two reporting segments: Content Services (CS) and Innodata Advanced Data Solutions (IADS).

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

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

We are one of the largest producers of eBooks, serving four of the five leading digital retailers of eBooks as well as 80 leading trade, education and professional publishers that sell eBooks. We manufacture both standard eBooks and interactive eBooks in a variety of formats (including EPUB, Mobi and Kindle) and in 12 major languages (including Japanese and Chinese). In addition, we distribute eBooks on behalf of publishers and authors to more than 25 eBook retailers across North America, the United Kingdom, Australia and 24 countries in the European Union. We have produced over one million eBooks since the third quarter of 2011.

We help our clients develop high-value information products and knowledge repositories. Our clients include four of the ten largest information industry companies in the world, spanning financial, legal, healthcare and scientific information.

We formed our IADS segment in mid-2011 to design and develop new capabilities to enable clients in the financial services, insurance, medical and healthcare sectors to improve decision-support through digital technologies. We believe that by creating and commercializing innovative business strategies and technology solutions, we will be able to accelerate growth and reduce revenue volatility. IADS operates through two subsidiaries. Synodex offers a range of services for healthcare, medical and insurance companies, and docGenix provides services to certain financial services institutions. As of June 30, 2013, Innodata owns 85% of Synodex and 94% of docGenix, both limited liability companies.

Each of our segments is organized and managed around three vectors: a vertical industry focus, a horizontal service/process focus, and a supportive operations focus.

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

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

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Our globally distributed delivery personnel are responsible for executing our client engagements in accordance with service-level agreements. We deliver services from facilities in the United States, India, the Philippines, Sri Lanka and Israel.

Other support groups are responsible for managing diverse enabling functions including human resources, organizational development, network and communications technology infrastructure support and physical infrastructure and facilities management. 

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

Revenues

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

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

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

Direct Operating Costs

Direct operating costs consist of direct payroll, occupancy costs, depreciation and amortization, travel, telecommunications, computer services and supplies, and other direct expenses that are incurred in providing services to our clients.

Selling and Administrative Expenses

Selling and administrative expenses consist of management and administrative salaries, sales and marketing costs, new services research and related software development, professional fees and consultant costs, and other administrative overhead costs.

Results of Operations

Three Months Ended June 30, 2013 and 2012

Revenues

Total revenues were $16.1 million for the three months ended June 30, 2013 compared to $22.8 million for the three months ended June 30, 2012, a decline of $6.7 million or approximately 29%. Revenues from the CS segment were $16.0 million and $22.7 million for the three months ended June 30, 2013 and 2012, respectively, a decline of $6.7 million or approximately 30%. This decline is principally attributable to a reduction in eBook-related services that we performed for one of our significant clients. Revenues from the IADS segment were $0.1 million in both the three months ended June 30, 2013 and 2012, respectively.

20

Two clients generated approximately 28% and 47% of our total revenues for the three months ended June 30, 2013 and 2012, respectively. Two additional clients accounted for 26% of our total revenues for the three months ended June 30, 2013 but each accounted for less than 10% of our total revenues for the three months ended June 30, 2012. No other client accounted for 10% or more of total revenues during these periods. Further, for the three months ended June 30, 2013 and 2012, revenues from non-U.S. clients accounted for 32% and 22%, respectively, of our total revenues.

Direct Operating Costs

Direct operating costs were $13.4 million and $14.7 million for the three months ended June 30, 2013 and 2012, respectively, a decline of $1.3 million or approximately 8%. Direct operating costs for the CS segment were $11.8 million and $13.8 million for the three months ended June 30, 2013 and 2012, respectively, a decline of $2.0 million or approximately 14%. Direct operating costs for the IADS segment were $1.6 million and $0.9 million for the respective periods, net of intersegment profits, an increase of $0.7 million.

Direct operating costs as a percentage of total revenues increased to 83% for the three months ended June 30, 2013 compared to 64% for the three months ended June 30, 2012. Direct operating costs for the CS segment as a percentage of CS segment revenues were 74% for the three months ended June 30, 2013 compared to 61% for the three months ended June 30, 2012.

The decline in direct operating costs for the CS segment was principally attributable to a decrease in production headcount due to a decline in CS revenues; however, direct operating costs as a percentage of CS segment revenues have increased. Since our direct operating costs are comprised of both fixed and variable costs, a decline in revenues does not translate into a proportionate decline in direct operating costs.

Direct operating costs for the IADS segment represents certain production costs for initial engagements, including pilot engagements, and facility overhead costs for our new delivery center in Asia.

Selling and Administrative Expenses

Selling and administrative expenses were $4.4 million, or approximately 27% as a percentage of total revenues during the three months ended June 30, 2013, and $6.2 million, or 27% as a percentage of total revenues for the three months ended June 30, 2012, and represents a decrease of $1.8 million or approximately 30%. Selling and administrative expenses for the CS segment were $3.8 million and $5.3 million in these respective periods. Selling and administrative expenses for the IADS segment for the respective periods were $0.6 million and $0.9 million, net of intersegment profits.

In the second half of 2012 we restructured our operations, which resulted in cost savings in the first quarter of 2013. This led to a decline in selling and administrative expenses for the CS segment during the three months ended June 30, 2013 compared to the three months ended June 30, 2012.

Selling and administrative expenses for the CS segment as a percentage of CS segment revenues was 23% for both the three months ended June 30, 2013 and June 30, 2012.

The $0.3 million decrease in selling and administrative expenses for the IADS segment is primarily attributable to compensation costs of an executive who left the company at the end of 2012.

21

Income Taxes

For the three months ended June 30, 2013, we recorded a net benefit from income taxes, as our U.S. entity recorded a benefit from income tax on account of losses it incurred; and with respect to our foreign subsidiaries, we recorded a provision for income taxes in accordance with local tax regulations. Some of our foreign subsidiaries are subject to tax holidays or preferential tax rates which reduces our overall effective tax rate when compared to the U.S. statutory tax rate. In addition, the earnings of our foreign subsidiaries are not subject to tax in the U.S. unless the earnings are repatriated.

For the three months ended June 30, 2012, we recorded a provision for income taxes for the U.S. entity and certain, but not all, of our foreign subsidiaries, as certain foreign subsidiaries are subject to tax holidays or preferential tax rates, thereby lowering our overall effective tax rate compared to the U.S. statutory tax rate. In addition, the earnings of our foreign subsidiaries are not subject to tax in the U.S. unless the earnings are repatriated.

Net Income (Loss)

We generated a net loss of $0.1 million in the three months ended June 30, 2013 compared to a net income of $2.1 million in the three months ended June 30, 2012. Net income for the CS segment was $2.0 million for the three months ended June 30, 2013, compared to $3.5 million for the three months ended June 30, 2012, net of intersegment profits. The change was primarily attributable to a decline in gross margins resulting from lower revenues offset by a decline in selling and administrative expenses. In addition, we recorded a benefit from income taxes for the three months ended June 30, 2013, compared to a provision for income taxes for the three months ended June 30, 2012. Net loss for the IADS segment was $2.1 million for the three months ended June 30, 2013 compared to $1.4 million for the three months ended June 30, 2012, net of intersegment profits.

Six Months Ended June 30, 2013 and 2012

Revenues

Total revenues were $33.1 million for the six months ended June 30, 2013 compared to $47.9 million for the six months ended June 30, 2012, a decline of $14.8 million or approximately 31%. Revenues from the CS segment were $32.3 million and $47.2 million for the six months ended June 30, 2013 and 2012, respectively, a decline of $14.9 million or approximately 32%. This decline is principally attributable to a reduction in eBook-related services that we performed for one of our significant clients. Revenues from the IADS segment were $0.8 million and $0.7 million for the six months ended June 30, 2013 and 2012, respectively.

Two clients generated approximately 27% and 48% of our total revenues for the six months ended June 30, 2013 and 2012, respectively. Two additional clients accounted for 25% of our total revenues for the six months ended June 30, 2013 but each accounted for less than 10% of our total revenues for the six months ended June 30, 2012. No other client accounted for 10% or more of total revenues during these periods. Further, for the six months ended June 30, 2013 and 2012, revenues from non-U.S. clients accounted for 31% and 21%, respectively, of our total revenues.

Direct Operating Costs

Direct operating costs were $26.2 million and $30.8 million for the six months ended June 30, 2013 and 2012, respectively, a decline of $4.6 million or approximately 15%. Direct operating costs for the CS segment were $23.6 million and $28.3 million for the six months ended June 30, 2013 and 2012, respectively, a decline of $4.7 million or approximately 16%. Direct operating costs for the IADS segment were $2.6 million and $2.5 million for the respective periods, net of intersegment profits.

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Direct operating costs as a percentage of total revenues increased to 79% for the six months ended June 30, 2013 compared to 64% for the six months ended June 30, 2012. Direct operating costs for the CS segment as a percentage of CS segment revenues were 73% for the six months ended June 30, 2013 compared to 60% for the six months ended June 30, 2012.

The decline in direct operating costs for the CS segment was principally attributable to a decrease in production headcount due to a decline in CS revenues; however, direct operating costs as a percentage of CS segment revenues have increased. Since our direct operating costs are comprised of both fixed and variable costs, a decline in revenues does not translate into a proportionate decline in direct operating costs.

Direct operating costs for the IADS segment represents certain production costs for initial engagements, including pilot engagements, and facility overhead costs for our new delivery center in Asia.

Selling and Administrative Expenses

Selling and administrative expenses were $9.0 million, or approximately 27% as a percentage of total revenues during the six months ended June 30, 2013, and $11.6 million, or 24% as a percentage of total revenues for the six months ended June 30, 2012, and represents a decrease of $2.6 million or approximately 22%. Selling and administrative expenses for the CS segment were $7.7 million and $10.2 million in these respective periods. Selling and administrative expenses for the IADS segment for the respective periods were $1.3 million and $1.4 million, net of intersegment profits.

In the second half of 2012, we restructured our operations, which resulted in cost savings in the first quarter of 2013. This led to a decline in selling and administrative expenses for the CS segment during the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

Selling and administrative expenses for the CS segment as a percentage of CS segment revenues was 24% for the six months ended June 30, 2013 compared to 21% for the six months ended June 30, 2012.

Income Taxes

For the six months ended June 30, 2013, we recorded a net benefit from income taxes, as our U.S. entity recorded a benefit from income tax on account of losses it incurred; and with respect to our foreign subsidiaries, we recorded a provision for income taxes in accordance with local tax regulations. Some of our foreign subsidiaries are subject to tax holidays or preferential tax rates which reduces our overall effective tax rate when compared to the U.S. statutory tax rate. In addition, the earnings of our foreign subsidiaries are not subject to tax in the U.S. unless the earnings are repatriated.

For the six months ended June 30, 2012, we recorded a provision for income taxes for the U.S. entity and certain, but not all, of our foreign subsidiaries, as certain foreign subsidiaries are subject to tax holidays or preferential tax rates, thereby lowering our overall effective tax rate compared to the U.S. statutory tax rate. In addition, the earnings of our foreign subsidiaries are not subject to tax in the U.S. unless the earnings are repatriated.

23

Net Income

We generated net income of $0.2 million in the six months ended June 30, 2013 compared to $5.5 million in the six months ended June 30, 2012. Net income for the CS segment was $3.3 million for the six months ended June 30, 2013, compared to $8.7 million for the six months ended June 30, 2012, net of intersegment profits. The change was primarily attributable to a decline in gross margins resulting from lower revenues offset by a decline in selling and administrative expenses. In addition, we recorded a benefit from income taxes for the six months ended June 30, 2013, compared to a provision for income taxes for the six months ended June 30, 2012. Net loss for the IADS segment was $3.1 million for the six months ended June 30, 2013 compared to $3.2 million for the six months ended June 30, 2012, net of intersegment profits.

Liquidity and Capital Resources

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

	June 30, 2013		December 31, 2012
Cash and cash equivalents	$	24,379	$	25,425
Short term investments – other		2,773		3,091
Working capital		28,599		32,784

At June 30, 2013, we had cash and cash equivalents of $24.3 million, of which about $20.0 million was held by our foreign subsidiaries, and short term investments of $2.7 million, which was entirely held by our operating foreign subsidiaries located in Asia. Cash balances are held in bank deposits at leading U.S. and foreign commercial banks. We have used, and plan to use, such cash for (i) continuing investments in IADS, which in the second quarter aggregated approximately $2.2 million and is expected to require similar investments in the third and fourth quarters, (ii) the expansion of our other operations; (iii) general corporate purposes, including working capital; and (iv) possible business acquisitions. As of June 30, 2013, we had working capital of approximately $28.6 million, as compared to working capital of approximately $32.8 million as of December 31, 2012. We have a $15 million line of credit that expires in June 2014 pursuant to which we may borrow up to 80% of eligible accounts receivable.

Net Cash Provided By Operating Activities

Cash provided by our operating activities for the six months ended June 30, 2013 was $1.6 million, resulting from a net loss of $0.4 million, adjustments for non-cash items of $0.6 million, and $1.4 million provided by working capital changes. Adjustment for non-cash items primarily consisted of $1.9 million for depreciation and amortization and $0.5 million for stock-based compensation expense but partially offset by tax benefits recognized amounting to $2.0 million. Working capital activities primarily consisted of a source of cash of $3.4 million as a result of net collections of accounts receivable, a use of cash of $1.3 million for a decrease in accrued salaries, wages and related benefits and a use of cash of $0.4 million for a decrease in income and other taxes.

Cash provided by our operating activities for the six months ended June 30, 2012 was $10.2 million, resulting from net income of $4.5 million, adjustments for non-cash items of $3 million, and $2.7 million provided by working capital changes. Adjustment for non-cash items primarily consisted of $1.9 million for depreciation and amortization and $0.6 million for stock-based compensation expense. Working capital activities primarily consisted of a source of cash of $2.8 million as a result of net collections of accounts receivable.

24

At June 30, 2013, our days’ sales outstanding were approximately 60 days as compared to 76 days as of December 31, 2012. The decrease is on account of collection of outstanding amounts from one of our significant clients.

Net Cash Used in Investing Activities

For the six months ended June 30, 2013 and 2012, cash used in our investing activities for capital expenditures were $3.0 million and $4.5 million, respectively. Capital spending in 2013 principally consisted of the purchase of technology equipment including servers, network infrastructure and workstations. Also included within capital expenditures are costs incurred to develop our proprietary software platform, tools and technology for the IADS segment amounting to $0.5 million. Capital spending in 2012 principally consisted of the purchase of technology equipment including workstations, computer software, and leasehold improvements. During the next twelve months, we anticipate that capital expenditures for ongoing technology, equipment, infrastructure upgrades and development of our proprietary software platform, tools and technologies for both CS and IADS will approximate $4.0 to $5.0 million, a portion of which we may finance. Also included in investing activities for the six months ended June 30, 2013 is the sale of short-term investments primarily representing proceeds on maturity of $0.3 million of certificates of deposit, and for the six months ended June 30, 2012, is the sale of short-term investments primarily representing proceeds on maturity of $3.2 million of certificates of deposit.

Net Cash Provided by (Used in) Financing Activities

Total payments of long-term obligations approximated $0.2 million for the six months ended June 30, 2013. Proceeds from the exercise of stock options amounted to $0.1 million and $0.5 million during the six months ended June 30, 2013 and 2012, respectively.

Future Liquidity and Capital Resource Requirements

We have a $15.0 million line of credit pursuant to which we may borrow up to 80% of eligible accounts receivable. Borrowings under the credit line bear interest at the bank’s alternate base rate plus 0.5%, or LIBOR plus 2.5%. The line, which expires in June 2014, is collateralized by our accounts receivable. We have no outstanding obligations under this credit line as of June 30, 2013.

A significant portion of our cash and cash equivalents and short term investments are held by our foreign operating subsidiaries.

We believe that our existing cash and cash equivalents, short-term investments, funds generated from our operating activities and funds available under our credit facility will provide sufficient sources of liquidity to satisfy our financial needs for the next twelve months. However, if circumstances change, we may need to raise debt or additional equity capital in the future. We have historically funded our foreign expenditures from our U.S. corporate headquarters on an as-needed basis.

In the second quarter of 2012, we filed a shelf registration statement on Form S-3, which gives us the ability to offer, from time to time, up to an aggregate of $70 million of securities which may consist of common stock, preferred stock, debt securities, warrants, or units consisting of any of the foregoing. The registration is intended to give us flexibility should financing opportunities arise.

Contractual Obligations

The table below summarizes our contractual obligations (in thousands) at June 30, 2013 and the effects that those obligations are expected to have on our liquidity and cash flows in future periods.

		Payments Due by Period
Contractual Obligations		Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Vendor obligations	$	194	$	194	$	-	$	-	$	-
Non-cancelable operating leases		9,312		1,752		3,676		2,068		1,816
Total contractual cash obligations	$	9,506	$	1,946	$	3,676	$	2,068	$	1,816

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

25

Inflation, Seasonality and Prevailing Economic Conditions

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

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

Critical Accounting Policies and Estimates

Our discussion and analysis of our results of operations, liquidity and capital resources is based on our condensed consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts and billing adjustments, long-lived assets, goodwill, valuation of deferred tax assets, value of securities underlying stock-based compensation, litigation accruals, pension benefits, valuation of derivative instruments and estimated accruals for various tax exposures. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates and could have a significant adverse effect on our results of operations and financial position. For a discussion of our critical accounting policies see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes to our critical accounting policies during the six months ended June 30, 2013.

26

Recent Accounting Pronouncements

In the first quarter of 2013, we adopted changes issued by the Financial Accounting Standard Board to the reporting of amounts reclassified out of accumulated other comprehensive income. These changes require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. These requirements are to be applied to each component of accumulated other comprehensive income. Other than the additional disclosure requirements, the adoption of these changes had no impact on our condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk

We are exposed to market risk due to interest rate fluctuations with respect to our credit line with a financial institution which is priced based on the bank’s alternate base rate (3.25% at June 30, 2013) plus 0.5%, or LIBOR (0.20% at June 30, 2013) plus 2.5%. We have no outstanding obligations under this line. To the extent we utilize all or a portion of this line of credit, changes in the interest rate will have a positive or negative effect on our interest expense.

Foreign currency risk

We have operations in several international markets that subject us to foreign currency fluctuations. Although the majority of our contracts are denominated in U.S. dollars, a substantial portion of the costs incurred to render services under these contracts is incurred in the local currencies of several international markets where we carry on our operations. Our significant operations are based in the Philippines, India, Sri Lanka and Israel where revenues are generated in U.S. dollars and the corresponding expenses are generated in Philippine peso, Indian rupee, Sri Lanka rupee and Israeli shekel.

To mitigate the exposure of fluctuating future cash flows due to changes in foreign exchange rates, we have entered into foreign currency forward contracts. These foreign currency forward contracts were entered into with a maximum term of twelve months and have an aggregate notional amount of approximately $33.2 million as of June 30, 2013. We may continue to enter into such instruments or other instruments in the future to reduce foreign currency exposure to appreciation or depreciation in the value of these foreign currencies.

The impact of foreign currency fluctuations will continue to present economic challenges to us and could negatively impact our overall results of operations. A 10% appreciation in the U.S. dollar’s value relating to hedged currencies would decrease the forward contracts’ fair value by approximately $3.0 million as of June 30, 2013. Similarly, a 10% depreciation in the U.S. dollar’s value relative to hedged currencies would increase the forward contracts’ fair value by approximately $3.7 million. Any increase or decrease in the fair value of our currency exchange rate sensitive forward contracts, if utilized, would be substantially offset by a corresponding decrease or increase in the fair value of the hedged underlying cash flows.

27

Other than the aforementioned forward contracts, we have not engaged in any hedging activities nor have we entered into off-balance sheet transactions or arrangements.

As of June 30, 2013, our foreign locations held cash and short term investments totaling approximately $22.8 million. These assets are exposed to foreign exchange risk arising from changes in foreign exchange rates. At present, we do not enter into any hedging instruments to mitigate foreign exchange risk on such assets; however, we may do so in the future.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we performed an evaluation under the supervision, and with the participation, of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (the Exchange Act)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective.

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

28

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There were no material changes from the legal proceedings previously disclosed in Part I, Item 3. “Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 1A. Risk Factors

There were no material changes from the risk factors previously disclosed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

29

Item 6. Exhibits

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

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

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

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

101. INS XBRL Instance Document

101. SCH XBRL Taxonomy Extension Schema Document

101. CAL XBRL Taxonomy Extension Calculation Link base Document

101. DEF XBRL Taxonomy Extension Definition Link base Document

101. LAB XBRL Taxonomy Extension Label Link base Document

101. PRE XBRL Taxonomy Extension Presentation Link base Document

30

Date:	August 8, 2013	/s/ Jack Abuhoff
		Jack Abuhoff
		Chairman of the Board,
		Chief Executive Officer and President
Date:	August 8, 2013	/s/ O’Neil Nalavadi
		O’Neil Nalavadi
		Senior Vice President Chief Financial Officer and Principal Accounting Officer

31

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Jack Abuhoff, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Innodata Inc.;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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) 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 report is being prepared;

b) 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;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this 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

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent 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 officer 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) 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

b) 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: August 8, 2013

/s/ Jack Abuhoff

Jack Abuhoff

Chairman of the Board,

Chief Executive Officer and President

2

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, O’Neil Nalavadi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Innodata Inc.;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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) 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 report is being prepared;

b) 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;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this 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

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent 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 officer 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) 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

1

b) 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: August 8, 2013

/s/ O’Neil Nalavadi

O’Neil Nalavadi

Senior Vice President

Chief Financial Officer

and Principal Accounting Officer

2

EX-32.1

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 Quarterly Report of Innodata Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jack Abuhoff, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

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

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

/s/ Jack Abuhoff

Jack Abuhoff

Chairman of the Board,

Chief Executive Officer and President

August 8, 2013

EX-32.2

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 Quarterly Report of Innodata Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, O’Neil Nalavadi, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

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

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

/s/ O’Neil Nalavadi

O’Neil Nalavadi

Senior Vice President

Chief Financial Officer

and Principal Accounting Officer

August 8, 2013

XML

Description of Business and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

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) which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company as of June 30, 2013, and the results of its operations and comprehensive income (loss), cash flows and stockholders’ equity for the six months ended June 30, 2013 and 2012. 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.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2012, included in the Company's Annual Report on Form 10-K. Unless otherwise noted, the accounting policies used in preparing these condensed consolidated financial statements are the same as those described in the December 31, 2012 consolidated financial statements.

Consolidation, Policy [Policy Text Block]

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

Use of Estimates, Policy [Policy Text Block]

Use of Estimates-In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include those related to revenue recognition, allowance for doubtful accounts and billing adjustments, long-lived assets, goodwill, valuation of deferred tax assets, valuation of securities underlying stock-based compensation, litigation accruals, pension benefits, valuation of derivative instruments and estimated accruals for various tax exposures.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements- In the first quarter of 2013, the Company adopted changes issued by the FASB to the reporting of amounts reclassified out of accumulated other comprehensive income. These changes require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. These requirements are to be applied to each component of accumulated other comprehensive income. Other than the additional disclosure requirements, the adoption of these changes had no impact on the Company’s condensed consolidated financial statements.

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenues	$ 16,160	$ 22,768	$ 33,063	$ 47,904
Operating costs and expenses:
Direct operating costs	13,419	14,654	26,210	30,759
Selling and administrative expenses	4,357	6,186	8,980	11,586
Interest income, net	(117)	(90)	(257)	(181)
Totals	17,659	20,750	34,933	42,164
Income (loss) before income taxes	(1,499)	2,018	(1,870)	5,740
Provision for (benefit from) income taxes	(1,013)	365	(1,488)	1,273
Net income (loss)	(486)	1,653	(382)	4,467
Loss attributable to non-controlling interests	365	435	578	1,053
Net income (loss) attributable to Innodata Inc. and Subsidiaries	(121)	2,088	196	5,520
Income (loss) per share attributable to Innodata Inc. and Subsidiaries:
Basic (in dollars per share)	$ 0.00	$ 0.08	$ 0.01	$ 0.22
Diluted (in dollars per share)	$ 0.00	$ 0.08	$ 0.01	$ 0.21
Weighted average shares outstanding:
Basic (in shares)	24,940	25,085	24,938	24,771
Diluted (in shares)	24,940	26,862	24,938	26,459
Comprehensive income (loss):
Net income (loss) attributable to Innodata Inc. and Subsidiaries	(121)	2,088	196	5,520
Pension liability adjustment, net of taxes	18	9	36	17
Change in fair value of derivatives, net of taxes	(1,221)	68	(1,230)	761
Comprehensive income (loss) attributable to Innodata Inc. and Subsidiaries	$ (1,324)	$ 2,165	$ (998)	$ 6,298

XML

Commitments and Contingencies

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

3. Commitments and Contingencies

Line of Credit-The Company has a $15.0 million line of credit pursuant to which it may borrow up to 80% of eligible accounts receivable. Borrowings under the credit line bear interest at the bank’s alternate base rate plus 0.5%, or LIBOR plus 2.5%. The line, which expires in June 2014, is collateralized by the Company’s accounts receivable. The Company has no outstanding obligations under this credit line as of June 30, 2013. 

Litigation-In 2008, the Supreme Court of the Republic of the Philippines refused to review a decision of the Court of Appeals in Manila against a Philippines subsidiary of the Company that is inactive and has no material assets, and purportedly also against Innodata Inc., that orders the reinstatement of certain former employees of the subsidiary to their former positions and also orders the payment of back wages and benefits that aggregate approximately $8.5 million. Based on consultation with legal counsel, the Company believes that recovery against the Company is unlikely.

The Company is also subject to various legal proceedings and claims which arise 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 financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Substantial recovery against the Company in the above-referenced Philippines actions 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 operating results of the period in which the ruling or recovery occurs. In addition, the Company’s estimate of potential impact on the Company’s financial position or overall results of operations for the above legal proceedings could change in the future.

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

XML

Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Investments, All Other Investments [Abstract]

Fair Value, Liabilities Measured on Recurring Basis [Table Text Block]

The following table sets forth the assets and liabilities as of June 30, 2013 and December 31, 2012 that the Company measured at fair value, on a recurring basis by level, within the fair value hierarchy (in thousands). As required by the standard, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

June 30, 2013	Level 1		Level 2		Level 3
Liabilities
Derivatives	$	—	$	1,827	$	—

December 31, 2012	Level 1		Level 2		Level 3
Assets
Derivatives	$	—	$	125	$	—

XML

Income Taxes (Tables)

6 Months Ended

Jun. 30, 2013

Income Tax Disclosure [Abstract]

Summary of Income Tax Contingencies [Table Text Block]

The following presents a roll-forward of the Company’s unrecognized tax benefits and associated interest for the six months ended June 30, 2013 (amounts in thousands):

	Unrecognized tax benefits
Balance - January 1, 2013	$	2,350
Interest accrual		27
Foreign currency revaluation		(200)
Balance – June 30, 2013	$	2,177

XML

Segment Reporting and Concentrations (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2013		Jun. 30, 2012		Jun. 30, 2013		Jun. 30, 2012		Dec. 31, 2012
Income (Loss) from Continuing Operations before Income Taxes, Extraordinary Items, Noncontrolling Interest	$ (1,499)	[1]	$ 2,018	[1]	$ (1,870)	[1]	$ 5,740	[1]
Content Services [Member]
Income (Loss) from Continuing Operations before Income Taxes, Extraordinary Items, Noncontrolling Interest	1,062	[1]	3,404	[1]	2,080	[1]	9,896	[1]
Content Services [Member] | After Intersegment Elimination [Member]
Income (Loss) from Continuing Operations before Income Taxes, Extraordinary Items, Noncontrolling Interest	600		3,700		1,300		8,900
IADS [Member]
Income (Loss) from Continuing Operations before Income Taxes, Extraordinary Items, Noncontrolling Interest	(2,561)	[1]	(1,386)	[1]	(3,950)	[1]	(4,156)	[1]
IADS [Member] | After Intersegment Elimination [Member]
Income (Loss) from Continuing Operations before Income Taxes, Extraordinary Items, Noncontrolling Interest	$ (2,100)		$ (1,700)		$ (3,200)		$ (3,200)
Major Customer [Member]
Entity-Wide Accounts Receivable, Major Customer, Percentage	36.00%				36.00%				30.00%
Foreign Customer [Member]
Concentration Risk, Percentage	32.00%		22.00%		31.00%		21.00%
Entity-Wide Accounts Receivable, Major Customer, Percentage	61.00%				61.00%				55.00%
Major Customer One [Member]
Concentration Risk, Percentage	28.00%		47.00%		27.00%		48.00%
Major Customer Two [Member]
Concentration Risk, Percentage	26.00%				25.00%

[1] Before elimination of any inter-segment profits.

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Income Taxes (Details Textual) (USD $)			6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Indian Bureau Of Taxation [Member]	Jun. 30, 2013 Indian Bureau Of Taxation [Member] Fiscal Tax YE March 31 2003 [Member]	Jun. 30, 2013 Indian Bureau Of Taxation [Member] Fiscal Tax YE March 31 2008 [Member]	Jun. 30, 2013 Indian Bureau Of Taxation [Member] Fiscal Tax YE March 31 2005 [Member]	Jun. 30, 2013 Indian Bureau Of Taxation [Member] Fiscal Tax YE March 31 2006 [Member]	Jun. 30, 2013 Philippine Bureau Of Taxation [Member]
Unrecognized Tax Benefits	$ 2,177,000	$ 2,350,000
Income Tax Examination, Penalties and Interest Accrued	700,000	700,000
Foreign Income Tax Expense (Benefit), Continuing Operations				273,000	1,000,000	295,000	292,000
Tax Adjustments, Settlements, and Unusual Provisions			455,000
Informal Tax Assessment Received Amount								3,800,000
Additional Foreign Income Tax Expense Benefit Continuing Operations			$ 862,000

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Unrecognized tax benefits, Balance - January 1, 2013	$ 2,350
Unrecognized tax benefits, Interest accrual	27
Unrecognized tax benefits, Foreign currency revaluation	(200)
Unrecognized tax benefits, Balance - June 30, 2013	$ 2,177

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Comprehensive Income (loss) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Pension Liability Adjustment, Balance at Beginning of the Period	$ (43)	$ 95
Pension Liability Adjustment, Other comprehensive income (loss):
Pension Liability Adjustment, Net change from periodic revaluations, net of taxes	0	0
Pension Liability Adjustment, Total Other comprehensive income (loss) before reclassifications, net of taxes	(43)	95
Pension Liability Adjustment, Net amount reclassified to earnings	36	18
Pension Liability Adjustment, Balance at End of the Period	(7)	113
Fair value of Derivatives, Balance at Beginning of the Period	80	(1,122)
Fair value of Derivatives, Other comprehensive income (loss):
Fair value of Derivatives, Net change from periodic revaluations, net of taxes	(1,499)	1,433
Fair value of Derivatives, Total Other comprehensive income (loss) before reclassifications, net of taxes	(1,419)	311
Fair value of Derivatives, Net amount reclassified to earnings	269	(673)
Fair value of Derivatives, Balance at End of the Period	(1,150)	(362)
Accumulated Other Comprehensive Income (loss), Balance at Beginning of the period	37	(1,027)
Accumulated Other Comprehensive Income (loss), Other comprehensive income (loss):
Accumulated Other Comprehensive Income (loss), Net change from periodic revaluations, net of taxes	(1,499)	1,433
Accumulated Other Comprehensive Income (loss), Total Other comprehensive income (loss) before reclassifications, net of taxes	(1,462)	406
Accumulated Other Comprehensive Income (loss), Net amount reclassified to earnings	305	(655)
Accumulated Other Comprehensive Income (loss), Balance at End of the period	$ (1,157)	$ (249)

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Income (Loss) Per Share (Details Textual) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1.7	1.7	0.6	0.1

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Stock Options (Details 2) (USD $)	6 Months Ended
	Jun. 30, 2013
Number of Shares, Unvested at January 1, 2013 (in shares)	32,500
Number of Shares, Granted (in shares)	0
Number of Shares, Vested (in shares)	(7,500)
Number of Shares, Forfeited/Expired (in shares)	0
Number of Shares, Unvested at June 30, 2013 (in shares)	25,000
Weighted-Average Grant Date Fair Value, Unvested at January 1, 2013 (in dollars per share)	$ 3.14
Weighted-Average Grant Date Fair Value, Granted (in dollars per share)	$ 0
Weighted-Average Grant Date Fair Value, Vested (in dollars per share)	$ 2.59
Weighted-Average Grant Date Fair Value, Forfeited/Expired (in dollars per share)	$ 0
Weighted-Average Grant Date Fair Value, Unvested at June 30, 2013 (in dollars per share)	$ 3.31

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Derivatives (Details Textual) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Derivative, Notional Amount	$ 33.2	$ 32.3

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Description of Business and Summary of Significant Accounting Policies (Details Textual)	Jun. 30, 2013
Synodex [Member]
Noncontrolling Interest, Ownership Percentage by Parent	85.00%
DocGenix [Member]
Noncontrolling Interest, Ownership Percentage by Parent	94.00%

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flow from operating activities:
Net income (loss)	$ (382)	$ 4,467
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,913	1,883
Stock-based compensation	489	582
Deferred income taxes	(2,049)	279
Pension cost	257	265
Changes in operating assets and liabilities:
Accounts receivable	3,419	2,786
Prepaid expenses and other current assets	342	623
Other assets	(143)	(383)
Accounts payable and accrued expenses	(389)	83
Accrued salaries, wages and related benefits	(1,321)	(6)
Restricted shares withheld for taxes	(31)	0
Income and other taxes	(435)	(392)
Net cash provided by operating activities	1,670	10,187
Cash flow from investing activities:
Capital expenditures	(2,971)	(4,503)
Sale of investments - other	318	3,224
Net cash used in investing activities	(2,653)	(1,279)
Cash flow from financing activities:
Proceeds from exercise of stock options	131	470
Payment of long term obligations	(194)	(35)
Net cash provided by (used in) financing activities	(63)	435
Net increase (decrease) in cash and cash equivalents	(1,046)	9,343
Cash and cash equivalents, beginning of period	25,425	11,389
Cash and cash equivalents, end of period	24,379	20,732
Supplemental disclosures of cash flow information:
Cash paid for income taxes	$ 663	$ 1,039

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Description of Business and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Business Description and Accounting Policies [Text Block]

1. Description of Business and Summary of Significant Accounting Policies  

Description of Business- Innodata Inc. and subsidiaries (the “Company”) is a global provider of business process, information technology and professional services that are focused on digital enablement. Innodata’s clients comprise several of the world’s leading digital retailers that sell digital content; preeminent publishers and other providers of online business information products; and enterprises in information-intensive industries (such as aerospace, defense, financial services, healthcare, high technology, insurance, and manufacturing) that create and manage large volumes of content to support their products or operations.

The Company operates in two reporting segments: Content Services (CS) and Innodata Advanced Data Solutions (IADS).

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

The Company formed its IADS segment in mid-2011 to design and develop new capabilities to enable clients in the financial services, insurance, medical and healthcare sectors to improve decision-support through digital technologies. The Company believes that by creating and commercializing innovative business strategies and technology solutions it will be able to accelerate growth and reduce revenue volatility. IADS operates through two subsidiaries. Synodex offers a range of services for healthcare, medical and insurance companies, and docGenix provides services to financial services institutions. As of June 30, 2013, Innodata owns 85% of Synodex and 94% of docGenix, both limited liability companies.

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) which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company as of June 30, 2013, and the results of its operations and comprehensive income (loss), cash flows and stockholders’ equity for the six months ended June 30, 2013 and 2012. 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.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2012, included in the Company's Annual Report on Form 10-K. Unless otherwise noted, the accounting policies used in preparing these condensed consolidated financial statements are the same as those described in the December 31, 2012 consolidated financial statements.

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

Use of Estimates-In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include those related to revenue recognition, allowance for doubtful accounts and billing adjustments, long-lived assets, goodwill, valuation of deferred tax assets, valuation of securities underlying stock-based compensation, litigation accruals, pension benefits, valuation of derivative instruments and estimated accruals for various tax exposures.

Recent Accounting Pronouncements- In the first quarter of 2013, the Company adopted changes issued by the FASB to the reporting of amounts reclassified out of accumulated other comprehensive income. These changes require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. These requirements are to be applied to each component of accumulated other comprehensive income. Other than the additional disclosure requirements, the adoption of these changes had no impact on the Company’s condensed consolidated financial statements.

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Stock Options

6 Months Ended

Jun. 30, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

4. Stock Options

The Company adopted, with stockholder approval, the Innodata Inc. 2013 Stock Plan (the “2013 Plan”). The maximum number of shares of common stock that may be delivered, purchased or used for reference purposes with respect to awards granted under the 2013 Plan is 1,041,096 shares, plus any shares subject to an award or portion of any award under the Innodata Isogen, Inc. 2009 Stock Plan, as amended and restated (the “Prior Plan”) that were outstanding as of June 4, 2013 that expire or terminate unexercised, become unexercisable or are forfeited or otherwise terminated, surrendered or cancelled as to any shares without the delivery of shares of stock or other consideration. Shares of stock subject to options or stock appreciation rights (“SARs”) granted under the 2013 Plan count against the share reserve as one share for every one share subject to such option or SAR and shares subject to any other type of award granted under the 2013 Plan count against the share reserve as two shares for every one share subject to such award. If any award, or portion of an award, under the 2013 Plan expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares without the delivery of shares of stock or other consideration, the shares subject to such award will thereafter be available for further awards under the 2013 Plan as provided in the next sentence. Shares of stock that again become available for awards pursuant to the expiration, termination, forfeiture or cancellation of any award (other than an option or SAR) granted under the 2013 Plan, or of any award (other than an option or SAR) granted after March 31, 2011 under the Prior Plan, will be added back as two shares for every one share subject to such award or Prior Plan award. All other awards under the 2013 Plan and all other awards under the Prior Plan will be added back as one share for every one share subject to such award or Prior Plan award. The number of shares used for reference purposes in connection with these awards will be considered "delivered" for purposes of computing the maximum number of shares that may be delivered under the Plan. 

A summary of option activity under the Company’s stock option plans as of June 30, 2013, and changes during the period then ended, is presented below:

	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2013		2,986,057	$	2.75
Granted		1,014,022		3.39
Exercised		(75,500)		1.72
Forfeited/Expired		(423,444)		2.99
Outstanding at June 30, 2013		3,501,135	$	2.93		4.56	$	1,705,812
				2.73
Exercisable at June 30, 2013		1,227,557	$	2.75		1.86	$	965,662
Vested and expected to vest at June 30, 2013		3,501,135	$	2.93		4.56	$	1,705,812

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

	Six months ended
	June 30,
	2013			2012 (1)
Weighted average fair value of options granted	$	1.89		$	-
Risk-free interest rate		0.76	%		-
Expected life (years)		5			-
Expected volatility factor		67	%		-
Expected dividends		-			-

⁽¹⁾ There were no options granted during the six months ended June 30, 2012.

A summary of restricted shares under the Company’s stock option plans as of June 30, 2013, and changes during the period then ended, are presented below:

	Number of Shares		Weighted-Average Grant Date Fair Value
Unvested at January 1, 2013		32,500	$	3.14
Granted		-		-
Vested		(7,500)		2.59
Forfeited/Expired		-		-
Unvested at June 30, 2013		25,000	$	3.31

The total compensation cost related to non-vested stock awards not yet recognized as of June 30, 2013 totaled approximately $2.2 million. The weighted-average period over which these costs will be recognized is twenty-nine months.

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

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Direct operating costs	$	78	$	19	$	129	$	45
Selling and adminstrative expenses		133		284		360		537
Total stock-based compensation	$	211	$	303	$	489	$	582

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Income Taxes

6 Months Ended

Jun. 30, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

2. Income Taxes

The Company had unrecognized tax benefits of approximately $2.2 million at June 30, 2013 and December 31, 2012. The portion of unrecognized tax benefits relating to interest and penalties was approximately $0.7 million at June 30, 2013 and December 31, 2012, respectively. The unrecognized tax benefits as of June 30, 2013 and December 31, 2012, if recognized, would have an impact on the Company’s effective tax rate.

The following presents a roll-forward of the Company’s unrecognized tax benefits and associated interest for the six months ended June 30, 2013 (amounts in thousands):

	Unrecognized tax benefits
Balance - January 1, 2013	$	2,350
Interest accrual		27
Foreign currency revaluation		(200)
Balance – June 30, 2013	$	2,177

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

Pursuant to an income tax audit by the Indian Bureau of Taxation in March 2006, one of the Company’s Indian subsidiaries received a tax assessment approximating $273,000, including interest, through June 30, 2013, for the fiscal tax year ended March 31, 2003. Management disagreed with the basis of the tax assessment and filed an appeal with the Appeal Officer against the assessment. In October 2010, the matter was resolved with a judgment in the Company’s favor. Under the Indian Income Tax Act, however, the income tax assessing officer has the right to appeal against the judgment passed by the Appeal Officer. In December 2010, the income tax assessing officer exercised this right, against which the Company has filed an application to defend the case, and the Company intends to contest it vigorously. The Indian Bureau of Taxation has also completed an audit of the Company’s Indian subsidiary’s income tax return for the fiscal tax year ended March 31, 2004. The ultimate outcome was favorable, and there was no tax assessment imposed for the fiscal tax year ended March 31, 2004. In 2008 and 2009, the Indian subsidiary received a final tax assessment for the fiscal years ended March 31, 2005 and 2006 from the Indian Bureau of Taxation. The tax assessment amounted to $295,000 and $292,000, including interest through June 30, 2013, for the fiscal years ended March 31, 2005 and 2006, respectively. Management disagrees with the basis of these tax assessments, has filed an appeal against the assessments and is contesting them vigorously. In January 2012, the Indian subsidiary received a final tax assessment of approximately $1.0 million, including interest, for the fiscal year ended March 31, 2008, from the Indian Bureau of Taxation. Management disagrees with the basis of this tax assessment, and has filed an appeal against it. Due to this assessment, the Company recorded a tax provision amounting to $455,000 including interest through June 30, 2013. Based on recent experience and the current regulatory environment, management believes that the tax provision of $455,000 including interest is adequate. The Indian Bureau of Taxation has also completed an audit of the Company’s Indian subsidiary’s income tax return for the fiscal tax year ended March 31, 2009. The ultimate outcome was favorable, and there was no tax assessment imposed for the fiscal tax year ended March 31, 2009. The Indian Bureau of Taxation commenced an audit of this subsidiary’s income tax return for the fiscal year ended March 31, 2010. The ultimate outcome cannot be determined at this time. As the Company is continually subject to tax audits by the Indian Bureau of Taxation, the Company assessed the likelihood of an unfavorable assessment for all fiscal years for which the Company has not been audited as of June 30, 2013, and recorded additional tax provisions in prior quarters amounting to $862,000 including interest through June 30, 2013.

In January 2013, one of the Company’s Philippine subsidiaries received an informal tax assessment for an amount totaling $3.8 million for the year ended December 31, 2009. The Company has not yet received a formal notice of this assessment and the statute of limitations expired on April 15, 2013 for formal notice of the assessment. Management believes that it is reasonably likely that it will be successful in contesting an assessment, if any. Accordingly, the Company recorded no tax provision on said informal tax assessment. The Company will continuously monitor this matter and will record an appropriate tax provision in the event there is any change in circumstances.

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Derivatives (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Derivatives designated as hedging instruments:
Foreign currency forward contracts, Prepaid expenses and other current assets	$ 0	$ 125
Foreign currency forward contracts, Accrued expenses	$ 1,827	$ 0

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Commitments and Contingencies (Details Textual) (USD $)	6 Months Ended
	Jun. 30, 2013
Line of Credit Facility, Maximum Borrowing Capacity	$ 15,000,000
Line Of Credit Facility, Maximum Borrowing Percentage	80.00%
Line of Credit Facility, Interest Rate Description	Borrowings under the credit line bear interest at the banks alternate base rate plus 0.5%, or LIBOR plus 2.5%.
Loss Contingency, Damages Sought, Value	8,500,000
Line of Credit Facility, Expiration Date	Jun. 30, 2014
Litigation Settlement, Expense	$ 300,000

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Stock Options (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Total stock-based compensation	$ 211	$ 303	$ 489	$ 582
Cost of Sales [Member]
Total stock-based compensation	78	19	129	45
Selling and Marketing Expense [Member]
Total stock-based compensation	$ 133	$ 284	$ 360	$ 537

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Segment Reporting and Concentrations (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Long - lived assets	$ 12,744	$ 11,331
United States [Member]
Long - lived assets	4,729	3,978
Philippines [Member]
Long - lived assets	1,995	1,424
India [Member]
Long - lived assets	4,953	4,926
Sri Lanka [Member]
Long - lived assets	1,022	931
Israel [Member]
Long - lived assets	45	72
Foreign Countries [Member]
Long - lived assets	$ 8,015	$ 7,353

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CONDENSED CONSOLIDATED BALANCE SHEETS [Parenthetical] (USD $)	Jun. 30, 2013	Dec. 31, 2012
Serial preferred stock, shares authorized	5,000,000	5,000,000
Serial preferred stock, outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	26,512,000	26,439,000
Common stock, shares outstanding	24,965,000	24,892,000
Treasury stock, shares	1,547,000	1,547,000

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Income (Loss) Per Share

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

7. Income (Loss) Per Share

	Three months ended				Six months ended
	June 30,				June 30,
	2013		2012		2013		2012
	(in thousands, except per share amounts)
Net income (loss) attributable to
Innodata Inc. and Subsidiaries	$	(121)	$	2,088	$	196	$	5,520
Weighted average common shares outstanding		24,940		25,085		24,938		24,771
Dilutive effect of outstanding options		-		1,777		-		1,688
Adjusted for dilution computation		24,940		26,862		24,938		26,459

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 1.7 million shares of common stock for the three months ended June 30, 2013 were outstanding but not included in the computation of diluted income (loss) per share, because the options exercise price was greater than the average market price of the common shares and, therefore, the effect would have been antidilutive. All options outstanding were included in the computation of diluted net income (loss) per share for the three months ended June 30, 2012 as the exercise price was lower than the average market price. In addition, diluted net income (loss) per share for the three months does not include 1.7 million potential common shares derived from the exercise of stock options because as a result of the Company’s incurring losses, their effect would have been antidilutive.

Options to purchase 0.6 million shares and 0.1 million shares of common stock for the six months ended June 30, 2013 and 2012, respectively, were outstanding but not included in the computation of diluted income (loss) per share, because the options exercise price was greater than the average market price of the common shares, and therefore, the effect would have been antidilutive.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) [Parenthetical] (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax	$ 717	$ 40	$ 722	$ 447

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
ASSETS
Cash and cash equivalents	$ 24,379	$ 25,425
Short term investments - other	2,773	3,091
Accounts receivable, net	10,898	14,317
Prepaid expenses and other current assets	2,094	2,561
Deferred income taxes	1,514	1,104
Total current assets	41,658	46,498
Property and equipment, net	12,069	10,656
Other assets	3,292	3,504
Deferred income taxes	7,156	4,848
Goodwill	675	675
Total assets	64,850	66,181
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	1,623	1,618
Accrued expenses	3,915	2,482
Accrued salaries, wages and related benefits	5,263	6,584
Income and other taxes	1,720	2,155
Current portion of long term obligations	538	818
Deferred income taxes	0	57
Total current liabilities	13,059	13,714
Deferred income taxes	190	182
Long term obligations	3,677	3,374
Commitments and contingencies
Non-controlling interests	(1,791)	(1,598)
STOCKHOLDERS' EQUITY:
Serial preferred stock; 5,000,000 shares authorized, none outstanding	0	0
Common stock, $.01 par value; 75,000,000 shares authorized; 26,512,000 shares issued and 24,965,000 outstanding at June 30, 2013 and 26,439,000 shares issued and 24,892,000 outstanding at December 31, 2012	265	264
Additional paid-in capital	22,343	22,140
Retained earnings	32,552	32,356
Accumulated other comprehensive income (loss)	(1,157)	37
Stockholders' Equity before Treasury Stock, Total	54,003	54,797
Less: treasury stock, 1,547,000 shares at cost	(4,288)	(4,288)
Total stockholders' equity	49,715	50,509
Total liabilities and stockholders' equity	$ 64,850	$ 66,181

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Stock Options (Details) (USD $)	6 Months Ended
	Jun. 30, 2013
Number of Shares, Outstanding at January 1, 2013 (in shares)	2,986,057
Number of Shares, Granted (in shares)	1,014,022
Number of Shares, Exercised (in shares)	(75,500)
Number of Shares, Forfeited/Expired (in shares)	(423,444)
Number of Shares, Outstanding at June 30, 2013 (in shares)	3,501,135
Number of Shares, Exercisable at June 30, 2013 (in shares)	1,227,557
Number of Shares, Vested and expected to vest at June 30, 2013 (in shares)	3,501,135
Weighted - Average Exercise Price, Outstanding at January 1, 2013 (in dollars per share)	$ 2.75
Weighted - Average Exercise Price, Granted (in dollars per shares)	$ 3.39
Weighted - Average Exercise Price, Exercised (in dollars per share)	$ 1.72
Weighted - Average Exercise Price, Forfeited/Expired (in dollars per share)	$ 2.99
Weighted - Average Exercise Price, Outstanding at June 30, 2013 (in dollars per share)	$ 2.93
Weighted - Average Exercise Price, Exercisable at June 30, 2013 (in dollars per share)	$ 2.75
Weighted - Average Exercise Price,Vested and expected to vest at June 30, 2013 (in dollars per share)	$ 2.93
Weighted - Average Remaining Contractual Term, Outstanding at June 30, 2013 (in years)	4 years 6 months 22 days
Weighted - Average Remaining Contractual Term, Exercisable at June 30, 2013 (in years)	1 year 10 months 10 days
Weighted - Average Remaining Contractual Term, Vested and expected to vest at June 30, 2013 (in years)	4 years 6 months 22 days
Aggregate Intrinsic Value, Outstanding at June 30, 2013	$ 1,705,812
Aggregate Intrinsic Value, Exercisable at June 30, 2013	965,662
Aggregate Intrinsic Value, Vested and expected to vest at June 30, 2013	$ 1,705,812

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Derivatives (Tables)

6 Months Ended

Jun. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block]

The following table presents the fair value of derivative instruments included within the condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012 (in thousands):

	Balance Sheet Location	Fair Value
		2013		2012
Derivatives designated as hedging instruments:
Foreign currency forward contracts	Prepaid expenses and other current assets	$	-	$	125
Foreign currency forward contracts	Accrued expenses	$	1,827	$	-

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance [Table Text Block]

The effects of foreign currency forward contracts designated as cash flow hedges on the Company’s condensed consolidated statements of operations and comprehensive income (loss) for the six months ended June 30, 2013 and 2012, respectively, were as follows (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2013		2012		2013		2012
Net gain (loss) recognized in OCI (1)	$	(1,977)	$	(565)	$	(1,683)	$	253
Net gain (loss) reclassified from accumulated OCI into income (2)	$	(39)	$	(673)	$	269	$	(955)
Net gain (loss) recognized in income (3)	$	—	$	—	$	—	$	—

⁽¹⁾ Net change in the fair value of the effective portion classified in other comprehensive income ("OCI").

⁽²⁾ Effective portion classified as direct operating costs.

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

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Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fair Value, Inputs, Level 1 [Member]
Assets
Derivatives		$ 0
Liabilities
Derivatives	0
Fair Value, Inputs, Level 2 [Member]
Assets
Derivatives		125
Liabilities
Derivatives	1,827
Fair Value, Inputs, Level 3 [Member]
Assets
Derivatives		0
Liabilities
Derivatives	$ 0

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Income (Loss) Per Share (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Net income (loss) attributable to Innodata Inc. and Subsidiaries (in dollars)	$ (121)	$ 2,088	$ 196	$ 5,520
Weighted average common shares outstanding	24,940	25,085	24,938	24,771
Dilutive effect of outstanding options	0	1,777	0	1,688
Adjusted for dilution computation	24,940	26,862	24,938	26,459

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Segment Reporting and Concentrations (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2013		Jun. 30, 2012		Jun. 30, 2013		Jun. 30, 2012		Dec. 31, 2012
Revenues:
Revenues	$ 16,160		$ 22,768		$ 33,063		$ 47,904
Income (loss) before provision for income taxes:
Income (loss) before provision for income taxes	(1,499)	[1]	2,018	[1]	(1,870)	[1]	5,740	[1]
Total assets:
Assets	64,850				64,850				66,181
Content Services [Member]
Revenues:
Revenues	16,008		22,653		32,276		47,191
Income (loss) before provision for income taxes:
Income (loss) before provision for income taxes	1,062	[1]	3,404	[1]	2,080	[1]	9,896	[1]
Total assets:
Assets	60,203				60,203				61,858
IADS [Member]
Revenues:
Revenues	152		115		787		713
Income (loss) before provision for income taxes:
Income (loss) before provision for income taxes	(2,561)	[1]	(1,386)	[1]	(3,950)	[1]	(4,156)	[1]
Total assets:
Assets	$ 4,647				$ 4,647				$ 4,323

[1] Before elimination of any inter-segment profits.

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Segment Reporting and Concentrations (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenues	$ 16,160	$ 22,768	$ 33,063	$ 47,904
United States [Member]
Revenues	10,992	17,813	22,903	37,846
United Kingdom [Member]
Revenues	1,813	2,004	3,662	4,151
Netherlands [Member]
Revenues	2,151	1,780	4,210	3,477
Other - Principally Europe [Member]
Revenues	$ 1,204	$ 1,171	$ 2,288	$ 2,430

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Segment Reporting and Concentrations

6 Months Ended

Jun. 30, 2013

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

6. Segment Reporting and Concentrations

The Company’s operations are classified into two reportable segments: Content Services (CS) and Innodata Advanced Data Solutions (IADS).

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

In the second quarter of 2011, the Company launched its IADS segment to perform advanced data analysis. IADS operates through two subsidiaries: Synodex and docGenix. Synodex offers a range of data analysis services in the healthcare, medical and insurance areas. DocGenix provides services to certain financial services institutions.

A significant portion of the Company’s revenues are generated from its production facilities in the Philippines, India, Sri Lanka and Israel.

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

	Three months ended				Six months ended
	June 30,				June 30,
	2013		2012		2013		2012
Revenues:
Content Services	$	16,008	$	22,653	$	32,276	$	47,191
IADS		152		115		787		713
Total consolidated	$	16,160	$	22,768	$	33,063	$	47,904
Income (loss) before provision for income taxes:(1)
Content Services	$	1,062	$	3,404	$	2,080	$	9,896
IADS		(2,561)		(1,386)		(3,950)		(4,156)
Total consolidated	$	(1,499)	$	2,018	$	(1,870)	$	5,740

	June 30, 2013		December 31, 2012
Total assets:
Content Services	$	60,203	$	61,858
IADS		4,647		4,323
Total consolidated	$	64,850	$	66,181

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

Income (loss) before provision for (benefit from) income taxes for CS and IADS was $0.6 million and $(2.1) million, respectively, for the three months ended June 30, 2013, after eliminating inter-segment profits. Income (loss) before provision for (benefit from) income taxes for CS and IADS was $1.3 million and $(3.2) million, respectively, for the six months ended June 30, 2013, after eliminating inter-segment profits.

Income (loss) before provision for income taxes for Content Service and IADS  was $3.7 million and $(1.7) million, respectively, for the three months ended June 30, 2012, after eliminating inter-segment profits. Income (loss) before provision for income taxes for Content Service and IADS were $8.9 million and $(3.2) million, respectively, for the six months ended June 30, 2012, after eliminating inter-segment profits. 

The following table summarizes revenues by geographic region (determined based upon customer’s domicile) (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2013		2012		2013		2012
Unites States	$	10,992	$	17,813	$	22,903	$	37,846
United Kingdom		1,813		2,004		3,662		4,151
The Netherlands		2,151		1,780		4,210		3,477
Other - principally Europe		1,204		1,171		2,288		2,430
	$	16,160	$	22,768	$	33,063	$	47,904

Long-lived assets as of June 30, 2013 and December 31, 2012, respectively, by geographic region, are comprised of (in thousands):

	June 30,		December 31,
	2013		2012
United States	$	4,729	$	3,978
Foreign countries:
Philippines		1,995		1,424
India		4,953		4,926
Sri Lanka		1,022		931
Israel		45		72
Total foreign		8,015		7,353
	$	12,744	$	11,331

Two clients generated approximately 28% and 47% of our total revenues for the three months ended June 30, 2013 and 2012, respectively. Two additional clients accounted for 26% of our total revenues for the three months ended June 30, 2013 but  each accounted for less than 10% of our total revenues for the three months ended June 30, 2012. No other client accounted for 10% or more of total revenues during these periods. Further, for the three months ended June 30, 2013 and 2012, revenues from non-U.S. clients accounted for 32% and 22%, respectively, of our total revenues.

Two clients generated approximately 27% and 48% of our total revenues for the six months ended June 30, 2013 and 2012, respectively. Two additional clients accounted for 25% of our total revenues for the six months ended June 30, 2013 but  each accounted for less than 10% of our total revenues for the six months ended June 30, 2012. No other client accounted for 10% or more of total revenues during these periods. Further, for the six months ended June 30, 2013 and 2012, revenues from non-U.S. clients accounted for 31% and 21%, respectively, of our total revenues.

As of June 30, 2013, approximately 36% of the Company's accounts receivable was from foreign (principally European) clients and 61% of accounts receivable was due from four clients. As of December 31, 2012, approximately 30% of the Company's accounts receivable was from foreign (principally European) clients and 55% of accounts receivable was due from four clients.

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Stock Options (Details 1) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Weighted average fair value of options granted	$ 1.89	$ 0	[1]
Risk-free interest rate	0.76%	0.00%	[1]
Expected life (years)	5 years	0 years	[1]
Expected volatility factor	67.00%	0.00%	[1]
Expected dividends	0.00%	0.00%	[1]

[1] There were no options granted during the six months ended June 30, 2012.

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Derivatives (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2013		Jun. 30, 2012		Jun. 30, 2013		Jun. 30, 2012
Net gain (loss) recognized in OCI	$ (1,977)	[1]	$ (565)	[1]	$ (1,683)	[1]	$ 253	[1]
Net gain (loss) reclassified from accumulated OCI into income	(39)	[2]	(673)	[2]	269	[2]	(955)	[2]
Net gain (loss) recognized in income	$ 0	[3]	$ 0	[3]	$ 0	[3]	$ 0	[3]

[1] Net change in the fair value of the effective portion classified in other comprehensive income ("OCI").

[2] Effective portion classified as direct operating costs.

[3] There were no ineffective portions for the periods presented.

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Financial Instruments

6 Months Ended

Jun. 30, 2013

Investments, All Other Investments [Abstract]

Financial Instruments Disclosure [Text Block]

9. Financial Instruments

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximated their fair value as of June 30, 2013 and December 31, 2012, because of the relative short maturity of these instruments.

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

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

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

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

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

The following table sets forth the assets and liabilities as of June 30, 2013 and December 31, 2012 that the Company measured at fair value, on a recurring basis by level, within the fair value hierarchy (in thousands). As required by the standard, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

June 30, 2013	Level 1		Level 2		Level 3
Liabilities
Derivatives	$	—	$	1,827	$	—

December 31, 2012	Level 1		Level 2		Level 3
Assets
Derivatives	$	—	$	125	$	—

The Level 2 assets and liabilities contain foreign currency forward contracts. Fair value is determined based on the observable market transactions of spot and forward rates. The fair value of these contracts as of June 30, 2013 is included in accrued expenses and December 31, 2012 is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets.

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Comprehensive Income (loss)

6 Months Ended

Jun. 30, 2013

Stockholders' Equity Note [Abstract]

Comprehensive Income (Loss) Note [Text Block]

5. Comprehensive Income (loss)

Accumulated other comprehensive income (loss), as reflected in the condensed consolidated balance sheets, consists of pension liability adjustments, net of taxes, and changes in fair value of derivatives, net of taxes. The components of accumulated other comprehensive income (loss) as of June 30, 2013, and reclassifications out of accumulated other comprehensive income (loss) for the six months ended June 30, 2013 and 2012, were as follows (net of tax):

	Pension Liability		Fair value of		Accumulated Other
	Adjustment		Derivatives		Comprehensive Income (loss)
Balance at January 1, 2013	$	(43)	$	80	$	37
Other comprehensive income (loss):
Net change from periodic revaluations, net of taxes		-		(1,499)		(1,499)
Total other comprehensive income (loss) before reclassifications, net of taxes		(43)		(1,419)		(1,462)
Net amount reclassified to earnings		36		269		305
Balance at June 30, 2013	$	(7)	$	(1,150)	$	(1,157)

	Pension Liability		Fair value of		Accumulated Other
	Adjustment		Derivatives		Comprehensive Income (loss)
Balance at January 1, 2012	$	95	$	(1,122)	$	(1,027)
Other comprehensive income (loss):
Net change from periodic revaluations, net of taxes		-		1,433		1,433
Total other comprehensive income (loss) before reclassifications, net of taxes		95		311		406
Net amount reclassified to earnings		18		(673)		(655)
Balance at June 30, 2012	$	113	$	(362)	$	(249)

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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (USD $) In Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]
Balance at Dec. 31, 2011	$ 41,168	$ 262	$ 21,338	$ 24,883	$ (1,027)	$ (4,288)
Balance (in shares) at Dec. 31, 2011		24,691
Net income	5,520	0	0	5,520	0	0
Stock-based compensation	582	0	582	0	0	0
Issuance of common stock upon exercise of stock options	470	2	468	0	0	0
Issuance of common stock upon exercise of stock options (in shares)		172
Restricted shares withheld for taxes	0	0	0	0	0	0
Restricted shares withheld for taxes (in shares)		(4)
Pension liability adjustments, net of taxes	17	0	0	0	17	0
Change in fair value of derivatives, net of taxes	761	0	0	0	761	0
Balance at Jun. 30, 2012	48,518	264	22,388	30,403	(249)	(4,288)
Balance (in shares) at Jun. 30, 2012		24,859
Balance at Dec. 31, 2012	50,509	264	22,140	32,356	37	(4,288)
Balance (in shares) at Dec. 31, 2012		24,892
Net income	196	0	0	196	0	0
Stock-based compensation	489	0	489	0	0	0
Issuance of common stock upon exercise of stock options	131	1	130	0	0	0
Issuance of common stock upon exercise of stock options (in shares)		76
Restricted shares withheld for taxes	(31)	0	(31)	0	0	0
Restricted shares withheld for taxes (in shares)		(3)
Acquisition of non-controlling interest	(385)	0	(385)	0	0	0
Pension liability adjustments, net of taxes	36	0	0	0	36	0
Change in fair value of derivatives, net of taxes	(1,230)	0	0	0	(1,230)	0
Balance at Jun. 30, 2013	$ 49,715	$ 265	$ 22,343	$ 32,552	$ (1,157)	$ (4,288)
Balance (in shares) at Jun. 30, 2013		24,965

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Stock Options (Details Textual) (USD $) In Millions, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)	1,041,096
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	$ 2.2
Stock Appreciation Rights (SARs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Plan Modification, Description and Terms	The maximum number of shares of common stock that may be delivered, purchased or used for reference purposes with respect to awards granted under the 2013 Plan is 1,041,096 shares, plus any shares subject to an award or portion of any award under the Innodata Isogen, Inc.

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Stock Options (Tables)

6 Months Ended

Jun. 30, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

A summary of option activity under the Company’s stock option plans as of June 30, 2013, and changes during the period then ended, is presented below:

	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2013		2,986,057	$	2.75
Granted		1,014,022		3.39
Exercised		(75,500)		1.72
Forfeited/Expired		(423,444)		2.99
Outstanding at June 30, 2013		3,501,135	$	2.93		4.56	$	1,705,812
				2.73
Exercisable at June 30, 2013		1,227,557	$	2.75		1.86	$	965,662
Vested and expected to vest at June 30, 2013		3,501,135	$	2.93		4.56	$	1,705,812

Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value [Table Text Block]

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

	Six months ended
	June 30,
	2013			2012 (1)
Weighted average fair value of options granted	$	1.89		$	-
Risk-free interest rate		0.76	%		-
Expected life (years)		5			-
Expected volatility factor		67	%		-
Expected dividends		-			-

⁽¹⁾ There were no options granted during the six months ended June 30, 2012.

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

A summary of restricted shares under the Company’s stock option plans as of June 30, 2013, and changes during the period then ended, are presented below:

	Number of Shares		Weighted-Average Grant Date Fair Value
Unvested at January 1, 2013		32,500	$	3.14
Granted		-		-
Vested		(7,500)		2.59
Forfeited/Expired		-		-
Unvested at June 30, 2013		25,000	$	3.31

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

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

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Direct operating costs	$	78	$	19	$	129	$	45
Selling and adminstrative expenses		133		284		360		537
Total stock-based compensation	$	211	$	303	$	489	$	582

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Derivatives

6 Months Ended

Jun. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

8. Derivatives

The Company conducts a large portion of its operations in international markets that subject it to foreign currency fluctuations. The most significant foreign currency exposures occur when revenue and associated accounts receivable are collected in one currency and expenses to generate that revenue are incurred in another currency. The Company’s primary exchange rate exposure relates to payroll, other payroll costs and operating expenses in the Philippines, India, Sri Lanka and Israel.

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

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Company does not hold or issue derivatives for trading purposes. All derivatives are recognized at their fair value and classified based on the instrument’s maturity date. The total notional amount for outstanding derivatives as of June 30, 2013 and December 31, 2012 was $33.2 million and $32.3 million, respectively, which is comprised of cash flow hedges denominated in U.S. dollars.

The following table presents the fair value of derivative instruments included within the condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012 (in thousands):

	Balance Sheet Location	Fair Value
		2013		2012
Derivatives designated as hedging instruments:
Foreign currency forward contracts	Prepaid expenses and other current assets	$	-	$	125
Foreign currency forward contracts	Accrued expenses	$	1,827	$	-

The effects of foreign currency forward contracts designated as cash flow hedges on the Company’s condensed consolidated statements of operations and comprehensive income (loss) for the six months ended June 30, 2013 and 2012, respectively, were as follows (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2013		2012		2013		2012
Net gain (loss) recognized in OCI (1)	$	(1,977)	$	(565)	$	(1,683)	$	253
Net gain (loss) reclassified from accumulated OCI into income (2)	$	(39)	$	(673)	$	269	$	(955)
Net gain (loss) recognized in income (3)	$	—	$	—	$	—	$	—

⁽¹⁾ Net change in the fair value of the effective portion classified in other comprehensive income ("OCI").

⁽²⁾ Effective portion classified as direct operating costs.

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

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Income (Loss) Per Share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three months ended				Six months ended
	June 30,				June 30,
	2013		2012		2013		2012
	(in thousands, except per share amounts)
Net income (loss) attributable to
Innodata Inc. and Subsidiaries	$	(121)	$	2,088	$	196	$	5,520
Weighted average common shares outstanding		24,940		25,085		24,938		24,771
Dilutive effect of outstanding options		-		1,777		-		1,688
Adjusted for dilution computation		24,940		26,862		24,938		26,459

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Comprehensive Income (loss) (Tables)

6 Months Ended

Jun. 30, 2013

Stockholders' Equity Note [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

The components of accumulated other comprehensive income (loss) as of June 30, 2013, and reclassifications out of accumulated other comprehensive income (loss) for the six months ended June 30, 2013 and 2012, were as follows (net of tax):

	Pension Liability		Fair value of		Accumulated Other
	Adjustment		Derivatives		Comprehensive Income (loss)
Balance at January 1, 2013	$	(43)	$	80	$	37
Other comprehensive income (loss):
Net change from periodic revaluations, net of taxes		-		(1,499)		(1,499)
Total other comprehensive income (loss) before reclassifications, net of taxes		(43)		(1,419)		(1,462)
Net amount reclassified to earnings		36		269		305
Balance at June 30, 2013	$	(7)	$	(1,150)	$	(1,157)

	Pension Liability		Fair value of		Accumulated Other
	Adjustment		Derivatives		Comprehensive Income (loss)
Balance at January 1, 2012	$	95	$	(1,122)	$	(1,027)
Other comprehensive income (loss):
Net change from periodic revaluations, net of taxes		-		1,433		1,433
Total other comprehensive income (loss) before reclassifications, net of taxes		95		311		406
Net amount reclassified to earnings		18		(673)		(655)
Balance at June 30, 2012	$	113	$	(362)	$	(249)

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Document And Entity Information	6 Months Ended
	Jun. 30, 2013	Jul. 22, 2013
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Trading Symbol	INOD
Entity Common Stock, Shares Outstanding		25,049,889
Entity Registrant Name	INNODATA INC
Entity Central Index Key	0000903651
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer

XML

Segment Reporting and Concentrations (Tables)

6 Months Ended

Jun. 30, 2013

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

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

	Three months ended				Six months ended
	June 30,				June 30,
	2013		2012		2013		2012
Revenues:
Content Services	$	16,008	$	22,653	$	32,276	$	47,191
IADS		152		115		787		713
Total consolidated	$	16,160	$	22,768	$	33,063	$	47,904
Income (loss) before provision for income taxes:(1)
Content Services	$	1,062	$	3,404	$	2,080	$	9,896
IADS		(2,561)		(1,386)		(3,950)		(4,156)
Total consolidated	$	(1,499)	$	2,018	$	(1,870)	$	5,740

	June 30, 2013		December 31, 2012
Total assets:
Content Services	$	60,203	$	61,858
IADS		4,647		4,323
Total consolidated	$	64,850	$	66,181

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

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

The following table summarizes revenues by geographic region (determined based upon customer’s domicile) (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2013		2012		2013		2012
Unites States	$	10,992	$	17,813	$	22,903	$	37,846
United Kingdom		1,813		2,004		3,662		4,151
The Netherlands		2,151		1,780		4,210		3,477
Other - principally Europe		1,204		1,171		2,288		2,430
	$	16,160	$	22,768	$	33,063	$	47,904

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

Long-lived assets as of June 30, 2013 and December 31, 2012, respectively, by geographic region, are comprised of (in thousands):

	June 30,		December 31,
	2013		2012
United States	$	4,729	$	3,978
Foreign countries:
Philippines		1,995		1,424
India		4,953		4,926
Sri Lanka		1,022		931
Israel		45		72
Total foreign		8,015		7,353
	$	12,744	$	11,331