What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-03 compared with 2021-03-05 · 822 added, 1055 removed, 256 unchanged (88% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

DYNAMICS HOLDINGS, INC

to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

GRID DYNAMICS HOLDINGS, INC

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Income/(Loss) and Comprehensive Income / (Loss) for the Years Ended December 2021, 2020, and 2019

Statements of Convertible Preferred Stock and Stockholders’ Equity for the Years Ended December 31, 2020, 2019, and

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the Years Ended December 31, 2021 , 2020, and 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020, and 2019

Notes to Consolidated Financial Statements

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Dynamics Holdings, Inc.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Grid Dynamics Holdings, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated

balance sheets of Grid Dynamics Holdings, Inc.

and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the

related consolidated statements of income/(loss) and comprehensive income/(loss), convertible preferred stock and stockholders’

equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred

to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects,

the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for

each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the

United States of America.

We have audited the accompanying consolidated balance sheets of Grid Dynamics Holdings, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income/(loss) and comprehensive income/(loss), convertible preferred stock and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based

on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have,

nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required

to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the

effectiveness of the Company’s internal control over financial reporting.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a

reasonable basis for our opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor

We have served as the Company’s auditor since 2017.

San Francisco, California

March 3, 2022

DYNAMICS HOLDINGS, INC.

GRID DYNAMICS HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

thousands, except share and per share data)

(In thousands, except share and per share data)

As of December 31,

Current assets

1 unchanged sentence

Accounts receivable, net of allowance of $ 315 , and $ 418 as of December 31, 2021 and December 31, 2020

38,838 16,890

Unbilled receivables 4,475 1,799

Prepaid income taxes 584 821

Deferred transaction costs

Prepaid expenses and other current assets 4,503 2,361

2 unchanged sentences

Intangible assets, net 19,097 8,125

Deferred income taxes

Deferred tax assets 2,731 5,609

Goodwill 35,958 14,690

Total assets $ 256,719 $ 167,135

Liabilities and equity

9 unchanged sentences

Commitments and contingencies (Note 17)

Convertible preferred stock, no par value, 0 and 1,047,942 shares authorized and outstanding as of December 31, 2020 and December 31, 2019, respectively

Stockholders’ equity (Note 12)

6 unchanged sentences

Total stockholders’ equity 227,051 151,724

Total liabilities, convertible preferred stock, and stockholders’ equity

accompanying notes are an integral part of these consolidated financial statements.

DYNAMICS HOLDINGS, INC.

Total liabilities and stockholders’ equity $ 256,719 $ 167,135

The accompanying notes are an integral part of these consolidated financial statements.

GRID DYNAMICS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)

1 unchanged sentence

For the years ended December 31,

2021 2020 2019

Revenue $ 211,280 $ 111,283 $ 118,326

Cost of revenue 123,552 69,662 70,090

Gross profit 87,728 41,621 48,236

Operating expenses

11 unchanged sentences

Earnings/(loss) per share

Basic $ ( 0.13 ) $ ( 0.28 ) $ 0.49

Diluted $ ( 0.13 ) $ ( 0.28 ) $ 0.49

Weighted average shares outstanding

accompanying notes are an integral part of these consolidated financial statements .

DYNAMICS HOLDINGS, INC.

CONSOLIDATED STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’

Basic 58,662 44,737 21,118

Diluted 58,662 44,737 21,122

The accompanying notes are an integral part of these consolidated financial statements.

GRID DYNAMICS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(In thousands)

Preferred Stock

Preferred Stock Common Stock Additional

capital Retained

earnings Accumulated

Comprehensive

stockholders’

Balance at December 31, 2017

Retroactive application of recapitalization (Note 3)

Adjusted balance beginning of period

Dividends declared

Stock-based compensation

Shares Amount Shares Amount

Balance at December 31, 2018

— $ — 20,217 $ 2 $ 8,792 $ 24,585 $ — $ 33,379

Net income — — — — — 10,807 — 10,807

Stock-based compensation — — — — 2,441 — — 2,441

Issuance of common and preferred stock, net of $ 96 issuance costs

1,048 9,187 1,048 — 5,717 — — 5,717

Exercise of stock options — — 379 — 1,700 — — 1,700

Balance at December 31, 2019

1,048 $ 9,187 21,644 $ 2 $ 18,650 $ 35,392 $ — $ 54,044

Net loss — — — — — ( 12,599 ) — ( 12,599 )

Stock-based compensation — — — — 20,006 — — 20,006

2 unchanged sentences

ChaSerg shares recapitalized, net of transaction costs of $ 4,142

— — 28,088 2 204,323 — — 204,325

Conversion of promissory note to common stock — — 53 — 530 — — 530

3 unchanged sentences

Balance at December 31, 2020

accompanying notes are an integral part of these consolidated financial statements.

DYNAMICS HOLDINGS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

— $ — 50,879 $ 5 $ 128,930 $ 22,793 $ ( 4 ) $ 151,724

Net loss — — — — — ( 7,700 ) — ( 7,700 )

Stock-based compensation — — — — 33,036 — — 33,036

Exchange of warrants into common stock

— — 6,680 1 49,123 — — 49,124

Exercise of stock options, net of shares withheld — — 1,631 — ( 27,528 ) — — ( 27,528 )

Issuance of common stock in July 2021 offering, net of transaction costs of $ 498

— — 5,470 1 77,812 — — 77,813

Issuance of shares and payments of tax obligations resulted from net share settlement of vested stock awards

— — 2,060 — ( 49,296 ) — — ( 49,296 )

Issuance of escrow common stock due to Closing of Business Combination — — 131 — — — — —

Foreign currency translation adjustment, net of tax — — — — — — ( 122 ) ( 122 )

Balance at December 31, 2021

— $ — 66,851 $ 7 $ 212,077 $ 15,093 $ ( 126 ) $ 227,051

The accompanying notes are an integral part of these consolidated financial statements.

GRID DYNAMICS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the years ended December 31,

2021 2020 2019

Cash flows from operating activities

Net income/(loss) $ ( 7,700 ) $ ( 12,599 ) $ 10,807

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income/(loss) to net cash provided by operating activities:

Depreciation and amortization 5,049 2,672 2,311

3 unchanged sentences

Stock-based compensation 33,036 20,006 2,441

Change in fair value of warrants 979 — —

Changes in operating assets and liabilities:

12 unchanged sentences

Purchase of property and equipment ( 4,716 ) ( 2,252 ) ( 2,811 )

Daxx acquisition, net of cash acquired

Acquisition of business, net of cash acquired (Note 4)

( 30,650 ) ( 16,087 ) —

Net cash used in investing activities ( 35,366 ) ( 18,339 ) ( 2,811 )

2 unchanged sentences

GDI shares redeemed for cash — ( 123,865 ) —

Proceeds related to issuance of Common Stock from July 2021 Offering 78,311 — —

Equity issuance costs ( 498 ) ( 2,264 ) —

1 unchanged sentence

Payments of dividends — — ( 2,000 )

Proceeds from exercises of stock options

Payments of tax obligations resulted from exercises of stock options, net of proceeds ( 27,528 ) 99 1,700

Payments of tax obligations resulted from net share settlement of vested stock units ( 49,296 ) — —

Proceeds from exercise of warrants 48,145 — —

Net cash provided by financing activities 49,134 82,967 14,604

3 unchanged sentences

Cash and cash equivalents, end of period $ 144,364 $ 112,745 $ 42,189

GRID DYNAMICS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the years ended December 31,

2021 2020 2019

Supplemental disclosure of cash flow information:

3 unchanged sentences

Acquisition fair value of contingent consideration issued for acquisition of business

Dividends declared

$ 4,986 $ 1,947 $ —

Conversion of preferred stock to common stock $ — $ 9,187 $ —

accompanying notes are an integral part of these consolidated financial statements.

DYNAMICS HOLDINGS, INC.

The accompanying notes are an integral part of these consolidated financial statements.

GRID DYNAMICS HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

1 — Background and nature of operations

Dynamics Holdings, Inc.

(the “Company” or “GDH”) provides enterprise-level digital transformation in the

areas of search, analytics, and release automation to Fortune 1000 companies.

The Company’s headquarters and principal place

of business is in San Ramon, California.

Company was originally incorporated in Delaware on May 21, 2018 as a special purpose acquisition company under the name ChaSerg

Technology Acquisition Corp.

(“ChaSerg”) for the purpose of effecting a merger, capital stock exchange, asset

acquisition, stock purchase, reorganization or similar business combination involving ChaSerg and one or more businesses.

5, 2020 (the “Closing”), the Company consummated its business combination with Grid Dynamics International, Inc.

pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated November 13, 2019 (the “Business

Combination”).

In connection with the Closing, the Company changed its name from ChaSerg Technology Acquisition Corp.

Note 1 — Background and nature of operations

Grid Dynamics Holdings, Inc.

(the “Company” or “GDH”) provides enterprise-level digital transformation in the areas of search, analytics, and release automation to Fortune 1000 companies.

The Company’s headquarters and principal place of business is in San Ramon, California.

The Company was originally incorporated in Delaware on May 21, 2018 as a special purpose acquisition company under the name ChaSerg Technology Acquisition Corp.

(“ChaSerg”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving ChaSerg and one or more businesses.

On March 5, 2020 (the “Closing”), the Company consummated its business combination with Grid Dynamics International, Inc.

(“GDI”) pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated November 13, 2019 (the “Business Combination”).

In connection with the Closing, the Company changed its name from ChaSerg Technology Acquisition Corp.

to Grid Dynamics Holdings, Inc.

The Company’s common stock is now listed on the NASDAQ under the symbol “GDYN” .

and warrants to purchase the common stock at an exercise price of $11.50 per share are listed on the NASDAQ under the symbol “GDYNW.”

the context otherwise requires, the “Company” refers to the combined company and its subsidiaries following the Business

Combination, “ChaSerg” refers to the Company prior to the Closing, and “GDI” refers to GDI prior to the

Unless the context otherwise requires, the “Company” refers to the combined company and its subsidiaries following the Business Combination, “ChaSerg” refers to the Company prior to the Closing, and “GDI” refers to GDI prior to the Closing.

Refer to Note 3 for further discussion of the Business Combination.

2 — Basis of presentation and summary of significant accounting policies

following is a summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated

financial statements.

of presentation

Business Combination was accounted for as a reverse recapitalization in accordance with U.S.

Although ChaSerg was the legal

acquirer, for accounting purposes, GDI was deemed to be the accounting acquirer.

GDI was determined to be the accounting acquirer

based on evaluation of the following facts and circumstances:

holds executive management roles for the Company and those individuals are responsible for the day-to-day operations;

former owners have the largest minority voting rights in the Company;

a revenue and business operation standpoint, GDI was the larger entity in terms of relative size;

San Ramon, CA headquarters are the headquarters of the Company;

intended strategy of the Company will continue GDI’s strategy of driving enterprise-level digital transformation in

the Fortune 1000 companies.

In conjunction with the Business Combination,

outstanding shares of GDI were converted into common stock of the Company, par value $ 0.0001 per share, shown as a recapitalization,

and the net assets of ChaSerg were acquired at historical cost, with no goodwill or other intangible assets recorded.

GDI was deemed

to be the predecessor of the Company, and the consolidated assets and liabilities and results of operations prior to the Closing

(for the years ended December 31, 2019 and 2018 and the period from January 1, 2020 to March 5, 2020) are those of GDI.

assets and liabilities, which include net cash from the trust of $ 85.1 million, and results of operations were consolidated with

GDI beginning on the Closing.

In accordance with guidance applicable

to these circumstances, the equity structure has been restated in all comparative periods up to the Closing Date, to reflect the

number of shares of the Company’s common stock, $ 0.0001 par value per share, issued to GDI shareholders in connection with

the recapitalization transaction.

As such, the shares and corresponding capital amounts and earnings per share related to GDI preferred

and common stock prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio established

in the Business Combination.

of consolidation

accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries that are directly

or indirectly owned or controlled.

Note 2 — Basis of presentation and summary of significant accounting policies

The following is a summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements.

Basis of presentation

The Business Combination was accounted for as a reverse recapitalization in accordance with U.S.

Although ChaSerg was the legal acquirer, for accounting purposes, GDI was deemed to be the accounting acquirer.

GDI was determined to be the accounting acquirer based on evaluation of the following facts and circumstances:

• GDI holds executive management roles for the Company and those individuals are responsible for the day-to-day operations;

• GDI’s former owners have the largest minority voting rights in the Company;

• From a revenue and business operation standpoint, GDI was the larger entity in terms of relative size;

• GDI’s San Ramon, CA headquarters are the headquarters of the Company;

• The intended strategy of the Company will continue GDI’s strategy of driving enterprise-level digital transformation in the Fortune 1000 companies.

Refer to Note 3 for further discussion of the Business Combination.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries that are directly or indirectly owned or controlled.

Intercompany transactions and balances have been eliminated upon consolidation.

The preparation of the consolidated financial

statements in accordance with U.S.

GAAP requires the Company to make estimates and assumptions that affect the amounts reported

in the consolidated financial statements and accompanying notes.

Actual results could differ from these estimates and such differences

could be material.

Significant estimates include useful lives and recoverability of property and equipment, determination of fair

value, useful lives and recoverability of intangible assets and goodwill, allowances for receivables, calculation of accrued liabilities,

capitalization of internally developed software, stock-based compensation, contingent consideration payable, determination of provision

for income taxes and uncertain tax positions.

significant risks and uncertainties

Company is subject to risks, including but not limited to customer concentration, concentrations of credit and foreign currency

Additionally, the Company has been impacted by the recent coronavirus (“COVID-19”) pandemic.

The global pandemic

of COVID-19 has negatively affected the U.S.

and global economy, disrupted global supply chains, resulted in significant travel

and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant

disruption of the financial market.

The COVID-19 pandemic has impacted the Company’s revenues and the Company’s business

continues to be exposed to risks and uncertainties related to the pandemic.

The impact of the COVID-19 pandemic has been more

pronounced with the Company’s retail customers, which depend on keeping their stores open.

Additionally, in situations where

the Company’s customers encounter financial difficulties, there is a risk associated with the Company’s inability

to collect money from customers.

The Company has taken several actions to deal with the COVID-19 pandemic.

These include enabling

its employees to work from home, company-wide salary and compensation cuts, hiring freezes, and suspending all non-essential travel.

The ultimate impact and the extent to which the COVID-19 pandemic will continue to affect the business, results of operation and

financial condition is difficult to predict and depends on numerous evolving factors outside of the Company’s control including:

the duration and scope of the pandemic;

government, social, business and other actions that have been and will be taken in response

to the pandemic;

and the effect of the pandemic on short and long-term general economic conditions.

and cash equivalents

The Company considers cash equivalents

to be highly liquid investments with original maturities of three months or less.

Cash equivalents are stated at cost, which approximates

The Company provides services to its customers utilizing its own personnel as well as personnel from subcontractors.

The most significant subcontractor is GD Ukraine, LLC ("Affiliate"), a third-party contractor in the Ukraine.

The affiliate performs services and support exclusively on behalf of the Company and its customers.

The Company has no ownership in the Affiliate.

The Company is required to apply accounting standards which address how a business enterprise should evaluate whether it has a controlling financial interest in a variable interest entity (“VIE”) through means other than voting rights and accordingly should determine whether or not to consolidate the entity.

The Company has determined that it is required to consolidate the Affiliate because the Company has the power to direct the VIE’s most significant activities and is the primary beneficiary of the Affiliate.

The assets and liabilities of the Affiliate primarily consist of inter-company balances and transactions all of which have been eliminated in consolidation.

The net income of the Affiliate was $ 0.6 million for the year ended December 31, 2021 and $ 0.1 million for each of the years ended December 31, 2020 and 2019.

Use of estimates

The preparation of the consolidated financial statements in accordance with U.S.

GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Actual results could differ from these estimates and such differences could be material.

Significant estimates include useful lives and recoverability of property and equipment, determination of fair value, useful lives and recoverability of intangible assets and goodwill, allowances for receivables, calculation of accrued liabilities, capitalization of internally developed software, stock-based compensation, contingent consideration payable, determination of provision for income taxes, deferred tax assets and liabilities and uncertain tax positions.

Cash and cash equivalents

The Company considers cash equivalents to be highly liquid investments with original maturities of three months or less.

Cash equivalents are stated at cost, which approximates fair value.

At times, cash deposits with banks may exceed federally insured limits.

receivable and allowance for doubtful accounts

receivable, less allowance for doubtful accounts, reflect the net realizable value of receivables and approximate fair value.

Accounts receivable and allowance for doubtful accounts

Accounts receivable, less allowance for doubtful accounts, reflect the net realizable value of receivables and approximate fair value.

The Company maintains an allowance against accounts receivable for the estimated probable losses on uncollectible accounts.

allowance is based upon historical loss experience, current economic conditions within the industries the Company serves as well

as determination of the specific risk related to certain customers.

Accounts receivable are charged off against the reserve when,

in management’s estimation, further collection efforts would not result in a reasonable likelihood of receipt.

The allowance

for doubtful accounts balance increased $ 0.4 million as of December 31, 2020 compared to December 31, 2019.

(in thousands)

Trade accounts receivable

Allowance for doubtful accounts

Total trade accounts receivable, net

the Company will not bill customers until the services have been completed.

From time-to-time, a service period may overlap with

a period-end and the unbilled receivables represent amounts for services performed through period-end, but not yet billed.

unbilled receivable represents the amount expected to be billed and collected for services performed through period-end in accordance

with contract terms.

The unbilled receivables balances were $ 1.8 million and $ 5.0 million as of December 31, 2020 and 2019, respectively.

and equipment

Property and equipment are stated at cost,

less accumulated depreciation and amortization.

Depreciation and amortization are computed using the straight-line method over

the estimated useful lives of the respective assets, generally 2 to 7 years.

Leasehold improvements and property under capital

leases are amortized over the shorter of estimated useful lives of the assets or the lease term.

Expenditures for repairs and maintenance

are expensed as incurred.

development costs

Company capitalizes costs incurred during the application development and implementation stages for computer software developed

or obtained for internal use that are specifically identifiable, have determinable lives and relate to probable future economic

The allowance is based upon historical loss experience, current economic conditions within the industries the Company serves as well as determination of the specific risk related to certain customers.

Accounts receivable are charged off against the reserve when, in management’s estimation, further collection efforts would not result in a reasonable likelihood of receipt.

Unbilled receivables

Generally, the Company will not bill customers until the services have been completed.

From time-to-time, a service period may overlap with a period-end and the unbilled receivables represent amounts for services performed through period-end, but not yet billed.

The unbilled receivable represents the amount expected to be billed and collected for services performed through period-end in accordance with contract terms.

Property and equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization.

Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets, generally two to twelve years .

Leasehold improvements and property under capital leases are amortized over the shorter of estimated useful lives of the assets or the lease term.

Expenditures for repairs and maintenance are expensed as incurred.

Software development costs

The Company capitalizes costs incurred during the application development and implementation stages for computer software developed or obtained for internal use that are specifically identifiable, have determinable lives and relate to probable future economic benefits.

Capitalized computer software costs are included in Property and equipment, net in the consolidated balance sheets.

Average useful life of such costs is two years .

the years ended December 31, 2020 and 2019, the Company capitalized $ 1.1 million and $ 1.0 million of internally developed software

costs, respectively.

The unamortized amount of internally developed software costs was $ 1.3 million as of December 31, 2020 and

$ 1.1 million as of December 31, 2019.

Amortization of internally developed software is recorded within research and development

and marketing expenses as the software is developed for purposes of supporting internal R&D, engineering, and marketing activities.

Costs associated with minor enhancements and maintenance or costs incurred during the preliminary project stage, and costs for

training, data conversion, and maintenance are expensed as incurred.

Management evaluates the useful lives of these assets on

an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability

of these assets.

Internally developed software did not have any impairment for the years ended December 31, 2020 and 2019.

The Company accounts for business combinations

under the acquisition method of accounting, in accordance with Accounting Standards Codification (“ASC”) Topic 805,

Business Combinations, recording any assets acquired and liabilities assumed based on their respective fair values.

of the fair value of purchase consideration over the fair value of the assets acquired less liabilities assumed is recorded as

The Company uses management estimates and industry data to assist in establishing the acquisition date fair values of

assets acquired, liabilities assumed, and contingent consideration granted, if any.

These estimates and valuations require the

Company to make significant assumptions, including projections of future events and operating performance.

represents the excess of purchase price over the fair value of the net assets of businesses acquired.

On an annual basis, the Company

makes a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than

its carrying amount, including goodwill.

If the Company determines that the fair value of the reporting unit is less than its carrying

amount, it will perform a quantitative analysis;

Amortization of internally developed software is recorded within Engineering, research, and development and Sales and marketing expenses in the consolidated statements of income/(loss) and comprehensive income/(loss) as the software is developed for purposes of supporting internal R&D, engineering, and marketing activities.

Costs associated with minor enhancements and maintenance or costs incurred during the preliminary project stage, and costs for training, data conversion, and maintenance are expensed as incurred.

Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Internally developed software did not have any impairment as of December 31, 2021 and 2020.

Business combinations

The Company accounts for business combinations under the acquisition method of accounting, in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, recording any assets acquired and liabilities assumed based on their respective fair values.

Any excess of the fair value of purchase consideration over the fair value of the assets acquired less liabilities assumed is recorded as goodwill.

The Company uses management estimates and industry data to assist in establishing the acquisition date fair values of assets acquired, liabilities assumed, and contingent consideration granted, if

These estimates and valuations require the Company to make significant assumptions, including projections of future events and operating performance.

Goodwill represents the excess of purchase price over the fair value of the net assets of businesses acquired.

On an annual basis, the Company makes a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill.

If the Company determines that the fair value of the reporting unit is less than its carrying amount, it will perform a quantitative analysis;

otherwise, no further evaluation is necessary.

For the quantitative impairment

assessment, the Company compares the fair value of the reporting unit to its carrying value, including goodwill.

uses the discounted cash flow method of the income approach and market approach to determine the fair value of the reporting unit.

If the fair value of the reporting unit exceeds the carrying value of the net assets assigned

to that unit, goodwill is not impaired and no further testing is performed.

If the carrying value of the net assets assigned to

the reporting unit exceeds the fair value of the reporting unit, then the Company will recognize a loss equal to the excess, limited

to the total amount of goodwill allocated to that reporting unit.

For the quantitative impairment assessment, the Company compares the fair value of the reporting unit to its carrying value, including goodwill.

The Company uses the discounted cash flow method of the income approach and market approach to determine the fair value of the reporting unit.

If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and no further testing is performed.

If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company will recognize a loss equal to the excess, limited to the total amount of goodwill allocated to that reporting unit.

Impairments, if any, are charged directly to earnings.

of December 31, 2020, the Company has a single reporting unit and determined there were no indicators of impairment.

intangible assets are stated at cost less accumulated amortization.

Amortization is computed on the straight-line basis over the

asset’s useful lives ranging between 2 and 10 years.

The Company recorded $ 0.1 million of amortization expense for the

year ended December 31, 2 020, $ 0.1 million of amortization expense for the year ended December 31, 2019, and $ 0.2 million for

the year ended December 31, 2018.

instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant

to the fair value measurement.

Assets and liabilities recorded at fair value are measured and classified in accordance with a

three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:

1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

2 — Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical

or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs

are observable in the market or can be derived from observable market data.

3 – Unobservable inputs that are supported by little or no market activities.

Where applicable, these models project

future cash flows and discount the future amounts to a present value using market-based observable inputs including interest

rate curves, foreign exchange rates, and credit ratings.

Concentrations

of credit risk and significant customers

instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable.

The Company’s cash is held with high-quality financial institutions.

Deposits held with banks may, at times, exceed the

amount of insurance provided on such deposits.

The Company also has cash deposited with commercial banks outside the United States,

including countries such as Russia and Ukraine, in which banking and other financial systems are less developed and regulated.

Bank deposits made by corporate entities in less developed markets such as these are not insured.

As of December 31, 2020, $ 0.7

million of total cash was held in Russia and $ 0.2 million was held in Ukraine.

As of December 31, 2019, $ 1.0 million of total

cash was held in Russia and $ 0.1 million was held in Ukraine.

In these regions, and particularly in Russia, a banking crisis,

bankruptcy or insolvency of banks that process or hold the Company’s funds, may result in the loss of the Company’s

deposits or adversely affect the Company’s ability to complete banking transactions, which could adversely affect the Company’s

business and financial condition.

The Company records its accounts receivable

and unbilled receivables at their face amounts less allowances.

Accounts receivable and unbilled receivables are generally dispersed

across the Company’s customers in proportion to their revenue.

Three customers individually exceeded 10 % of the Company’s

accounts receivable balance at December 31, 2020 and December 31, 2019.

Three customers individually exceeded 10 % of the unbilled

receivables at December 31, 2020 and two customers individually exceeded 10 % of the unbilled receivables balance at December 31,

Company has not experienced any losses on its cash and cash equivalents and minimal losses on its accounts receivable.

performs ongoing evaluations of its customers’ financial condition.

Two , three and three customers accounted

for greater than 10 % of revenue for the twelve months ended December 31, 2020, 2019 and 2018, respectively.

currency risks

The functional currency of the Company

and its subsidiaries is the U.S.

dollar with an exception of Daxx, recently acquired by the Company, whose functional currency

The Company generates most of its revenues in U.S.

The international subsidiaries convert the U.S.

to their respective local currencies to fund operations such as labor and materials required for the entity to operate.

The Company’s

international subsidiaries’ accounting records are denominated in their respective local currencies.

The Company is exposed

to foreign currency exchange rate changes that could impact remeasurement of foreign denominated monetary assets and liabilities

dollars with the remeasurement impact recorded to income.

The Company is also exposed to fluctuations in foreign currency

exchange rates related to cash outflows for expenditures in foreign currencies.

The net income/(loss) on foreign currency transactions

was $ 0.3 million, $(0.3) million, and $(0.2) million for the years ended December 31, 2020, 2019, and 2018, respectively.

has not entered into any foreign exchange forward contracts, derivatives, or similar financial instruments to hedge against the

risk of foreign exchange rate fluctuations.

Company accounts for a contract with a customer when 1) the parties to the contract have approved the contract and are committed

to performing their respective obligations, 2) the contract identifies each party’s rights regarding the goods or services

to be transferred, 3) the contract identifies the payment terms for the goods or services to be transferred, 4) the contract has

commercial substance, and 5) collection of substantially all consideration pursuant to the contract is probable.

Company derives its revenue from offering a suite of digital engineering and information technology (“IT”) consulting

services, including digital transformation strategy, emerging technology, lean labs and legacy system replatforming.

contracts, the Company uses master agreements to govern the overall relevant terms and conditions of the business arrangement

between the Company and its customers.

When the Company and a customer enter into a Master Services Agreement (“MSA”),

purchases are generally made by the customer via a statement of work (“SOW”) which explicitly references the MSA and

specifies the services to be delivered.

As of December 31, 2021, the Company has a single reporting unit and determined there were no indicators of impairment.

Intangible assets

Finite-lived intangible assets are stated at cost less accumulated amortization.

Amortization is computed either on the straight-line basis over the asset’s useful lives or declining balance method ranging between two and twelve years .

Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be fully recoverable.

If facts and circumstances indicate that the carrying value might not be recoverable, projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful lives is compared against their respective carrying amounts.

If an asset is found to be impaired, the impairment charge will be measured as the amount by which the carrying amount of an entity exceeds its fair value.

As of December 31, 2021, the Company determined there were no indicators of impairment.

Financial instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement.

Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:

• Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 — Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data.

• Level 3 – Unobservable inputs that are supported by little or no market activities.

Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings.

Revenue recognition

The Company accounts for a contract with a customer when 1) the parties to the contract have approved the contract and are committed to performing their respective obligations, 2) the contract identifies each party’s rights regarding the goods or services to be transferred, 3) the contract identifies the payment terms for the goods or services to be transferred, 4) the contract has commercial substance, and 5) collection of substantially all consideration pursuant to the contract is probable.

The Company derives its revenue from offering a suite of digital engineering and information technology (“IT”) consulting services, including digital transformation strategy, emerging technology, lean labs and legacy system replatforming.

For most contracts, the Company uses master agreements to govern the overall relevant terms and conditions of the business arrangement between the Company and its customers.

When the Company and a customer enter into a Master Services Agreement (“MSA”), purchases are generally made by the customer via a statement of work (“SOW”) which explicitly references the MSA and specifies the services to be delivered.

Fees for these contracts may be in the form of time-and-materials or fixed-fee arrangements.

The majority of the Company’s revenues are generated under time-and-material contracts which are billed using hourly rates

to determine the amounts to be charged directly to the customer.

Fees are billed and collected as stipulated in the contract,

and revenue is recognized as services are performed.

If there is an uncertainty about the receipt of payment for the services,

revenue is recognized to the extent that a significant reversal of revenue would not be probable.

services revenue is a single performance obligation earned through a series of distinct daily services and may include services

such as those described above.

The Company recognizes revenue for services over time as the customer simultaneously receives and

consumes the benefits as the Company performs IT consulting services.

For revenue contracts, the customer derives value from the

Company providing daily consulting services, and the value derived corresponds to the labor hours expended.

Therefore, the Company

measures the progress and recognizes revenue using an effort-based input method.

For fixed fee contracts, the Company recognizes

revenue as the work is performed, the monthly calculation of which is based upon actual labor hours incurred and level of effort

expended throughout the duration of the contract.

time-and-material contracts, the Company applies the variable consideration allocation exception.

Therefore, instead of allocating

the variable consideration to the entire performance obligation, the Company determined the variable consideration should be allocated

to each distinct service to which the variable consideration relates, which is providing the customer daily consulting services.

The majority of the Company’s revenues are generated under time-and-material contracts which are billed using hourly, daily or monthly rates to determine the amounts to be charged directly to the customer.

Fees are billed and collected as

stipulated in the contract, and revenue is recognized as services are performed.

If there is an uncertainty about the receipt of payment for the services, revenue is recognized to the extent that a significant reversal of revenue would not be probable.

Consulting services revenue is a single performance obligation earned through a series of distinct daily services and may include services such as those described above.

The Company recognizes revenue for services over time as the customer simultaneously receives and consumes the benefits as the Company performs IT consulting services.

For revenue contracts, the customer derives value from the Company providing daily consulting services, and the value derived corresponds to the labor hours expended.

Therefore, the Company measures the progress and recognizes revenue using an effort-based input method.

For fixed fee contracts, the Company recognizes revenue as the work is performed, the monthly calculation of which is based upon actual labor hours incurred and level of effort expended throughout the duration of the contract.

For time-and-material contracts, the Company applies the variable consideration allocation exception.

Therefore, instead of allocating the variable consideration to the entire performance obligation, the Company determined the variable consideration should be allocated to each distinct service to which the variable consideration relates, which is providing the customer daily consulting services.

The Company also offers volume discounts or early settlement discounts.

Volume discounts apply once the customer reaches certain

contractual spend thresholds.

Volume discounts apply once the customer reaches certain contractual spend thresholds.

Early settlement discounts are issued contingent upon the timing of the payment from the customer.

If the consideration promised in a contract includes a variable amount, the Company only includes estimated amounts of consideration

in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur

when the uncertainty associated with the variable consideration is resolved.

These estimates may require management to make subjective

judgments and to make estimates about the effects of matters inherently uncertain.

The determination of whether to constrain consideration

in the transaction price are based on information (historical, current and forecasted) that is reasonably available to the Company,

taking into consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement.

Although the Company believes that its approach in developing estimates and its reliance on certain judgments and underlying inputs

is reasonable, actual results may differ from management’s estimates, judgments and assumptions.

These estimates have historically

not been material to the consolidated financial statements.

Disaggregation

of Total Revenues:

The following table shows the disaggregation

of the Company’s revenues by contract type for the year ended December 31, 2020:

Contract Type, in thousands

Time-and-material

Total Revenues

performance obligation

606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations

that have not yet been satisfied as of December 31, 2020.

This disclosure is not required for:

with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive

for which the Company recognizes revenues based on the right to invoice for services performed,

consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer

a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for

which the criteria in ASC 606-10-32-40 have been met, or

consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.

of the Company’s contracts met one or more of these exemptions as of December 31, 2020.

of revenue primarily consists of compensation for professional staff generating revenues for the Company.

Compensation includes

salary, benefits, performance bonuses, retention bonuses, stock compensation expense, and travel expenses.

The Company allocates

a portion of depreciation and amortization to cost of revenue.

research and development

research, and development expenses primarily include compensation for professional staff performing research and development related

activities that are not directly attributable to generating revenues for the Company.

Research and development activities relate

to building and scaling the next generation ecommerce platform solutions for customers.

Research and development costs are expensed

Engineering, research, and development expenses also include depreciation and amortization costs, stock-based compensation

expenses and retention bonuses.

and marketing

and marketing expenses are those expenses associated with promoting and selling the Company’s services and include such

items as sales and marketing personnel salaries, benefits, stock compensation expenses, travel, advertising, depreciation and

amortization, retention bonuses, and other promotional activities.

and administrative

and administrative expenses include other operating items such as officers’ and administrative personnel salaries, benefits,

stock compensation expenses, legal and audit expenses, public company related expenses, insurance, facility costs, retention bonuses,

depreciation and amortization, including amortization of purchased intangibles, and operating lease expenses.

compensation expense

Stock-based compensation expense is measured

based on the grant-date fair value of the share-based awards.

If the consideration promised in a contract includes a variable amount, the Company only includes estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

These estimates may require management to make subjective judgments and to make estimates about the effects of matters inherently uncertain.

The determination of whether to constrain consideration in the transaction price are based on information (historical, current and forecasted) that is reasonably available to the Company, taking into consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement.

Although the Company believes that its approach in developing estimates and its reliance on certain judgments and underlying inputs is reasonable, actual results may differ from management’s estimates, judgments and assumptions.

These estimates have historically not been material to the consolidated financial statements.

Cost of revenue

Cost of revenue primarily consists of compensation for professional staff generating revenues for the Company.

Compensation includes salary, benefits, performance bonuses, retention bonuses, stock compensation expense, technology and travel expenses.

The Company allocates a portion of depreciation and amortization to cost of revenue.

Engineering, research and development

Engineering, research, and development expenses primarily include compensation for professional staff performing research and development related activities that are not directly attributable to generating revenues for the Company.

Research and development activities relate to building and scaling the next generation e-commerce platform solutions for customers.

Research and development costs are expensed as incurred.

Engineering, research, and development expenses also include depreciation and amortization costs, stock-based compensation expenses and performance and retention bonuses.

Sales and marketing

Sales and marketing expenses are those expenses associated with promoting and selling the Company’s services and include such items as sales and marketing personnel salaries, benefits, stock compensation expenses, travel, advertising, depreciation and amortization, performance and retention bonuses, and other promotional activities.

General and administrative

General and administrative expenses include other operating items such as officers’ and administrative personnel salaries, benefits, stock compensation expenses, legal, tax and audit expenses, public company related expenses, insurance, technology costs, facility costs, performance and retention bonuses, depreciation and amortization, including amortization of purchased intangibles, and operating lease expenses.

Stock-based compensation expense

Stock-based compensation expense is measured based on the grant-date fair value of the share-based awards.

Forfeitures are recognized as incurred.

The Company estimates stock

options grant-date fair value using the Black-Scholes-Merton option pricing model.

The model requires management to make a number

of key assumptions including expected volatility, expected term, risk-free interest rate, and expected dividends.

The Company evaluates

the assumptions used to value its share-based awards on each grant date.

The fair market value of Grid Dynamics stock is determined

based on the closing price on NASDAQ on the measurement date.

The Company amortizes the grant-date fair value of all share-based

compensation awards over the employee’s requisite service period for the entire award on a straight-line basis, which is

generally the vesting period.

For an award with graded vesting that is subject only to a service condition (e.g., time-based vesting),

the Company uses the straight-line attribution method under ASC 718 under which they recognize compensation cost on a straight-line

basis over the total requisite service period for the entire award (i.e., over the requisite service period of the last separately-vesting

tranche of the award).

Additionally, the Company applies the “floor” concept so that the amount of compensation cost

that is recognized as of any date is at least equal to the grant-date fair value of the vested portion of the award on that date.

That is, if the straight-line expense recognized to date is less than the grant date fair value of the award that is legally vested

at that date, the company will increase its recognized expense to at least equal the fair value of the vested amount.

Note 9 — Stock-based compensation for additional information.

Company follows the asset and liability method of accounting for income taxes.

Under this method, deferred income taxes are recognized

for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets

and liabilities.

The determination of the provision for income taxes requires significant judgment, the use of estimates and the

interpretation and application of complex tax laws.

The provision for income taxes reflects a combination of income earned and

taxed in the various U.S.

The Company estimates stock options grant-date fair value using the Black-Scholes-Merton option pricing model.

The model requires management to make a number of key assumptions including expected volatility, expected term, risk-free interest rate, and expected dividends.

The Company evaluates the assumptions used to value its share-based awards on each grant date.

The fair market value of Grid Dynamics stock is determined based on the closing price on NASDAQ

on the measurement date.

The Company amortizes the grant-date fair value of all share-based compensation awards over the employee’s requisite service period for the entire award on a straight-line basis, which is generally the vesting period.

For an award with graded vesting that is subject only to a service condition (e.g., time-based vesting), the Company uses the straight-line attribution method under ASC 718 under which they recognize compensation cost on a straight-line basis over the total requisite service period for the entire award (i.e., over the requisite service period of the last separately-vesting tranche of the award).

Additionally, the Company applies the “floor” concept so that the amount of compensation cost that is recognized as of any date is at least equal to the grant-date fair value of the vested portion of the award on that date.

That is, if the straight-line expense recognized to date is less than the grant date fair value of the award that is legally vested at that date, the company will increase its recognized expense to at least equal the fair value of the vested amount.

The Company made an accounting policy election to account for accounts for forfeitures when they occur.

Refer to Note 13 — Stock-based compensation for additional information.

Benefit plans

The Company maintains a 401(k) defined contribution savings and retirement plan for substantially all of its U.S.

Subject to ERISA regulations, an employee may elect to contribute an amount up to 90 % of compensation during each plan year.

The Company is not required to make contributions to the plan but can make discretionary contributions.

The Company has not made any contributions to the 401(k) plan for the years ended December 31, 2021, 2020, and 2019.

The Company follows the asset and liability method of accounting for income taxes.

Under this method, deferred income taxes are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets and liabilities.

The determination of the provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws.

The provision for income taxes reflects a combination of income earned and taxed in the various U.S.

federal and state, international and other jurisdictions.

Jurisdictional tax law changes, increases

or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or

valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax

assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion,

or all, of the deferred tax assets will not be realized.

Management considers all available evidence, both positive and negative,

in determining whether a valuation allowance is required.

Such evidence includes prior earnings history, the scheduled reversal

of deferred tax liabilities, projected future taxable income, carryback and carryforward periods of tax attributes, and tax planning

strategies that could potentially enhance the likelihood of realization of a deferred tax asset in making this assessment.

weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified.

Company evaluates for uncertain tax positions at each balance sheet date.

When it is more likely than not that a position will

be sustained upon examination by a tax authority that has full knowledge of all relevant information, the Company measures the

amount of tax benefit from the position and records the largest amount of tax benefit that is greater than 50 % likely of being

realized after settlement with a tax authority.

The Company’s policy for interest and/or penalties related to underpayments

of income taxes is to include interest and penalties in income tax expense.

Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

Management considers all available evidence, both positive and negative, in determining whether a valuation allowance is required.

Such evidence includes prior earnings history, the scheduled reversal of deferred tax liabilities, projected future taxable income, carryback and carryforward periods of tax attributes, and tax planning strategies that could potentially enhance the likelihood of realization of a deferred tax asset in making this assessment.

The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified.

The Company evaluates for uncertain tax positions at each balance sheet date.

When it is more likely than not that a position will be sustained upon examination by a tax authority that has full knowledge of all relevant information, the Company measures the amount of tax benefit from the position and records the largest amount of tax benefit that is greater than 50% likely of being realized after settlement with a tax authority.

The Company’s policy for interest and/or penalties related to underpayments of income taxes is to include interest and penalties in income tax expense.

Restructuring

Company initiated a restructuring plan focused on optimizing utilization.

For twelve months ended December 31, 2020, the Company

incurred and paid total restructuring expenses of $ 0.9 million, which mostly included employee termination costs.

is included as a component of general and administrative expenses in the consolidated financial statements.

Company accounts for earnings per share in accordance with ASC Topic 260, Earnings per Share.

Basic earnings per share is computed

by dividing net income by the weighted-average number of common shares outstanding during the period.

Diluted earnings per share

is computed using the weighted-average number of common and potential dilutive common shares outstanding during the period.

GAAP, companies are required to include certain option grants granted to employees and convertible preferred stock in the

diluted earnings per share calculation, except in cases where the effect of the inclusion of options and convertible preferred

stock would be antidilutive.

adopted accounting pronouncements

GAAP are established by the Financial Accounting Standards Board (the “FASB”), in the form of Accounting Standards

Updates (“ASUs”), to the FASB’s ASC.

The Company has elected not to opt out of the extended transition period

and thus when a standard is issued or revised and it has different application dates for public or private companies, the Company,

as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

The Company transitioned

to ASC Topic 606, Revenue From Contracts with Customers (“ASC 606”, the “New Standard”), from ASC

Topic 605, Revenue Recognition on January 1, 2019.

The New Standard was applied to all contracts that were not complete as of the

date of adoption, using the modified retrospective transition method.

The transition to ASC 606 represents a change in accounting

The Company’s consolidated financial statements reflect the adoption of ASC 606 beginning in 2019, while the Company’s

consolidated financial statements prior to 2019 were prepared under the guidance of ASC 605.

The new standard did not materially

affect the Company’s consolidated statements of income and comprehensive income, balance sheets, or cash flows, and prior

periods were not impacted as a result of the adoption of the standard.

The new standard resulted in insignificant changes to the

timing of recognition of revenues for certain volume discounts.

The Company elected to early adopt ASU

The Company initiated a restructuring plan focused on optimizing utilization during 2020.

For twelve months ended December 31, 2020, the Company incurred and paid total restructuring expenses of $ 0.9 million, which mostly included employee termination costs.

This amount is included as a component of General and administrative expenses in the consolidated financial statements.

The Company did not incur any restructuring expenses during the year ended December 31, 2021.

Earnings per share

The Company accounts for earnings per share in accordance with ASC Topic 260, Earnings per Share.

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period.

Diluted earnings per share is computed using the weighted-average number of common and potential dilutive common shares outstanding during the period.

GAAP, companies are required to include certain option grants granted to employees and convertible preferred stock in the diluted earnings per share calculation, except in cases where the effect of the inclusion of options and convertible preferred stock would be antidilutive.

Certain significant risks and uncertainties

The Company is subject to risks, including but not limited to customer concentration, concentrations of credit and foreign currency risks.

On February 24, 2022, Russian forces launched significant military action against Ukraine, and sustained conflict and disruption in the region is ongoing.

The conflict and related sanctions activity could have a material adverse effect upon the Company.

Refer to Note 19 — Subsequent events for additional information.

Additionally, the Company has been impacted by the recent coronavirus (“COVID-19”) pandemic.

The global pandemic of COVID-19 has negatively affected the U.S.

and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial market.

The COVID-19 pandemic has impacted the Company’s revenues and the Company’s business continues to be exposed to risks and uncertainties related to the pandemic.

The impact of the COVID-19 pandemic has been more pronounced with the Company’s retail customers, which depend on keeping their stores open.

Additionally, in situations where the Company’s customers encounter financial difficulties, there is a risk associated with the Company’s inability to collect money from customers.

The Company has taken several actions to deal with the COVID-19 pandemic.

These include enabling its employees to work from home, company-wide salary and compensation cuts, hiring freezes, and suspending all non-essential travel.

The ultimate impact and the extent to which the COVID-19 pandemic will continue to affect the business, results of operation and financial condition is difficult to predict and depends on numerous evolving factors outside of the Company’s control including:

the duration and scope of the pandemic;

government, social, business and other actions that have been and will be taken in response to the pandemic;

and the effect of the pandemic on short and long-term general economic conditions.

Concentrations of credit risk and significant customers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable.

The Company’s cash is held with high-quality financial institutions.

Deposits held with banks may, at times, exceed the amount of insurance provided on such deposits.

The Company also has cash deposited with commercial banks outside the United States, including countries such as Russia and Ukraine, in which banking and other financial systems are less developed and regulated.

Bank deposits made by corporate entities in less developed markets such as these are not insured.

As of December 31, 2021, $ 0.5 million and $ 0.6 million of total cash was held in Russia and Ukraine, respectively.

As of December 31, 2020, $ 0.7 million of total cash was held in Russia and $ 0.2 million was held in Ukraine.

In these regions, and particularly in Russia, a banking crisis, bankruptcy or insolvency of banks that process or hold the Company’s funds, may result in the loss of the Company’s deposits or adversely affect the Company’s ability to complete banking transactions, which could adversely affect the Company’s business and financial condition.

The Company records its accounts receivable and unbilled receivables at their face amounts less allowances.

Accounts receivable and unbilled receivables are generally dispersed across the Company’s customers in proportion to their revenue.

The following table shows number of customers exceeding 10% of the Company’s billed and unbilled receivable balances at December 31, 2021 and 2020:

As of December 31,

Accounts receivable 1 3

Unbilled receivable 1 3

The Company has not experienced any losses on its cash and cash equivalents and minimal losses on its accounts receivable.

The Company performs ongoing evaluations of its customers’ financial condition.

The following table shows the amount of revenue derived from each customer exceeding 10% of the Company’s revenue during the years ended December 31, 2021, 2020 and 2019:

For the years ended December 31,

2021 2020 2019

Customer 1 11.6 % 21.3 % 23.1 %

Customer 2 11.0 % 11.8 % 14.8 %

Customer 3 n/a n/a 13.0 %

Foreign currency risks

Grid Dynamics’ functional currency apart from the U.S.

dollar includes EURO, British pounds, Mexican pesos, Moldovan leu.

Grid Dynamics contracts with customers for payment in and generates predominantly all of its revenue in U.S.

dollars, except for Daxx and Tacit that generate revenue predominantly in EURO and British pounds.

The international subsidiaries convert the U.S.

dollars to their respective local currencies to fund operations such as labor and materials required for the entity to operate.

The Company’s international subsidiaries’ accounting records are denominated in their respective local currencies.

The Company is exposed to foreign currency exchange rate changes that could impact remeasurement of foreign denominated monetary assets and liabilities into U.S.

dollars with the remeasurement impact recorded to income.

The Company is also exposed to fluctuations in foreign currency exchange rates related to cash outflows for expenditures in foreign currencies.

The net income/(loss) on foreign currency transactions was $( 0.7 ) million, $ 0.3 million, and $( 0.3 ) million for the years ended December 31, 2021, 2020, and 2019, respectively.

The Company has not entered into any foreign exchange forward contracts, derivatives, or similar financial instruments to hedge against the risk of foreign exchange rate fluctuations.

Recently adopted accounting pronouncements

Changes to U.S.

GAAP are established by the Financial Accounting Standards Board (the “FASB”), in the form of Accounting Standards Updates (“ASUs”), to the FASB’s ASC.

The Company has elected not to opt out of the extended transition period and thus when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

The Company transitioned to ASC Topic 606, Revenue From Contracts with Customers (“ASC 606”, the “New Standard”), from ASC Topic 605, Revenue Recognition on January 1, 2019.

The New Standard was applied to all contracts that were not complete as of the date of adoption, using the modified retrospective transition method.

The transition to ASC 606 represents a change in accounting principle.

The Company’s consolidated financial statements reflect the adoption of ASC 606 beginning in 2019, while the Company’s consolidated financial statements prior to 2019 were prepared under the guidance of ASC 605.

The New Standard did not materially affect the Company’s consolidated statements of income/(loss) and comprehensive income/(loss), balance sheets, or cash flows, and prior periods were not impacted as a result of the adoption of the standard.

The New Standard resulted in insignificant changes to the timing of recognition of revenues for certain volume discounts.

The Company elected to early adopt ASU No.

2018-15, Intangibles, Goodwill, and Other - Internal Use Software (Subtopic 350-40):

Customer’s accounting for implementation

costs incurred in a Cloud Computing Arrangement that is a service contract as of January 1, 2019.

The amendments in this ASU

align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with

the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements

that include an internal-use software license).

Accordingly, the amendments require an entity (customer) in a hosting arrangement

that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an

asset related to the service contract and which costs to expense.

The adoption of the new standard did not materially affect the

Company’s consolidated statements of income and comprehensive income, balance sheets, or cash flows.

August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework — Changes to

the Disclosure Requirements for Fair Value Measurement , which amends ASC 820, Fair Value Measurement.

ASU 2018-13 modifies

the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures.

The accounting standard

update was effective beginning in the first quarter of fiscal year 2020, with removed and modified disclosures to be adopted on

a retrospective basis, and new disclosures to be adopted on a prospective basis.

The Company has determined that the adoption

of this guidance did not have a material effect on the consolidated financial statements.

Customer’s accounting for implementation costs incurred in a Cloud Computing Arrangement that is a service contract as of January 1, 2019.

The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense.

The adoption of the new standard did not materially affect the Company’s consolidated statements of income and comprehensive income, balance sheets, or cash flows.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement , which amends ASC 820, Fair Value Measurement.

ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures.

The accounting standard update was effective beginning in the first quarter of fiscal year 2020, with removed and modified disclosures to be adopted on a retrospective basis, and new disclosures to be adopted on a prospective basis.

The Company has determined that the adoption of this guidance did not have a material effect on the consolidated financial statements.

In October 2018, the FASB issued ASU No.

2 unchanged sentences

The new standard changes how entities evaluate decision-making under the variable interest entity guidance.

The new standard is

effective on January 1, 2020 and was applied on a modified retrospective basis through a cumulative-effect adjustment directly

to retained earnings of the adoption date.

The Company has determined that the adoption of this guidance did not have a material

effect on the consolidated financial statements.

issued accounting pronouncements

Company considered the applicability and impact of all ASUs.

ASUs not listed below were assessed and determined to be either not

applicable or are expected to have minimal impact on the consolidated financial statements.

The new standard is effective on January 1, 2020 and was applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings of the adoption date.

The Company has determined that the adoption of this guidance did not have a material effect on the consolidated financial statements.

In December 2019, the FASB issued Accounting Standard Update No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes.

The update is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020, and early adoption is permitted.

adopted the standard as of January 1, 2021 and has determined that the adoption of this guidance did not have a material effect on the consolidated financial statements.

Recently issued accounting pronouncements

The Company considered the applicability and impact of all ASUs.

ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the consolidated financial statements.

In February 2016, the FASB issued ASU No.

2016-02, Leases .

ASU 2016-02 requires lessees to put most leases on their balance sheet while recognizing expense in a manner similar to existing

ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a

right-to-use asset for the right to use the underlying asset for the lease term.

The standard allows for two methods of adoption

to recognize and measure leases:

retrospectively to each prior period presented in the financial statements with the cumulative

effect of initially applying the guidance recognized at the beginning of the earliest comparative period presented or retrospectively

at the beginning of the period of adoption with the cumulative effect of initially applying the guidance recognized at the beginning

of the period in which the guidance is first applied.

Both adoption methods include a number of optional practical expedients that

entities may elect to apply.

The Company will adopt the standard retrospectively at the beginning of the period of adoption with

the cumulative effect of initially applying the guidance recognized at the beginning of the period in which the guidance is first

The new accounting guidance is effective for the Company for fiscal periods beginning after December 15, 2021.

has not yet determined the impact that the adoption of this guidance will have on the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial

Instruments-Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments .

Topic 326 was subsequently

amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, ASU 2019-05, Financial

Instruments — Credit Losses (Topic 326):

Targeted Transition Relief, and clarified the guidance with the release of ASU

2020-02 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842).

These ASUs replace the current

incurred loss impairment methodology with a methodology that reflects expected credit losses measured at amortized cost and certain

other instruments, including loans, held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures.

ASU 2016-02 requires lessees to put most leases on their balance sheet while recognizing expense in a manner similar to existing accounting.

ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term.

The standard allows for two methods of adoption to recognize and measure leases:

retrospectively to each prior period presented in the financial statements with the cumulative effect of initially applying the guidance recognized at the beginning of the earliest comparative period presented or retrospectively at the beginning of the period of adoption with the cumulative effect of initially applying the guidance recognized at the beginning of the period in which the guidance is first applied.

Both adoption methods include a number of optional practical expedients that entities may elect to apply.

The Company is close to completion of implementing its transition plan, which includes making necessary changes to policies and processes, conducting detailed contract reviews, developing incremental borrowing rates, implementing a global lease accounting system, and assessing internal control impacts to comply with the new standard.

The Company will adopt this standard effective January 1, 2022 using the optional transition approach, which allows the Company to apply the provisions of the standard at the effective date without adjusting the comparable periods and carry forward disclosures under previously existing guidance for those periods presented within the Company’s financial statements.

The Company has elected to use the package of practical expedients permitted under the transition guidance within the new standard.

The Company has also elected the practical expedient that permits it to not separate lease and non-lease components.

While the Company is currently finalizing its assessment of the quantitative impact, the Company expects to recognize right-of-use assets ranging from $ 2.4 million to $ 3.0 million and lease liabilities ranging from $ 2.3 million to $ 2.9 million in its consolidated balance sheet upon adoption, principally related to its office space leases.

The Company does not expect the new guidance to have a material impact on its consolidated statement of income/(loss) and comprehensive income/(loss) or its consolidated statement of cash flows.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments .

Topic 326 was subsequently amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, ASU 2019-05, Financial Instruments — Credit Losses (Topic 326):

Targeted Transition Relief, and clarified the guidance with the release of ASU 2020-02 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842).

These ASUs replace the current incurred loss impairment methodology with a methodology that reflects expected credit losses measured at amortized cost and certain other instruments, including loans, held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures.

The update is effective for fiscal years beginning after December 15, 2022, and interim periods with fiscal years after December 15, 2022.

The Company has not yet determined the impact that the adoption of this guidance will have on the consolidated financial

In December 2019, the FASB issued Accounting Standard Update

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (ASU

2019-12), which simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplification

of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of

enactment of tax laws or rate changes.

The update is effective for fiscal years beginning after December 15, 2021, and interim

periods with fiscal years after December 15, 2022 on a prospective basis, and early adoption is permitted.

The Company has not

yet determined the impact that the adoption of this guidance will have on the consolidated financial statements.

March 2020, FASB issued ASU No.

The Company has not yet determined the impact that the adoption of this guidance will have on the consolidated financial statements.

In March 2020, FASB issued ASU No.

2020-03, Codification to Financial Instruments.

This ASU improves and clarifies various

financial instruments topics, including the current expected credit losses standard issued in 2016.

The ASU includes seven different

issues that describe the areas of improvement and the related amendments to U.S.

GAAP, intended to make the standards easier to

understand and apply by eliminating inconsistencies and providing clarifications.

The amendments related to Issue 1, Issue 2,

Issue 3, Issue 4, and Issue 5 were effective upon issuance of this update.

The new guidance did not have a material impact on

the consolidated financial statements.

The amendments related to Issue 6 and Issue 7 are effective for the Company the earlier

of January 1, 2023 or when the Company adopts ASU 2016-13, if early adopted.

The Company is currently evaluating the impact these

topics will have on the consolidated financial statements.

3 – Business combination

On March 5, 2020, ChaSerg consummated its business combination

with GDI pursuant to the Merger Agreement.

Immediately following the Business Combination, there were 50,833,619 shares of common

stock with a par value of $0.0001, and 11,346,500 warrants outstanding.

began operations in September 2006 to provide next-generation ecommerce platform solutions in the areas of search, analytics,

and release automation to Fortune 1000 companies.

Under ASC 805, Business Combinations, GDI was deemed the accounting acquirer,

and the Business Combination was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded

in accordance with U.S.

ChaSerg was treated as the “acquired” company for financial reporting purposes.

for accounting purposes, the Business Combination was treated as the equivalent of GDI issuing stock for the net assets of ChaSerg,

accompanied by a recapitalization.

The net assets of ChaSerg were stated at historical cost, with no goodwill or other intangible

assets recorded.

Reported shares and earnings per share available to holders of the Company’s common stock, prior to the

Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination

(approximately 1.685 GDH shares to 1.0 GDI share).

aggregate consideration for the Business Combination was $396.5 million, consisting of $130.0 million in cash and 27,006,251 shares

of ChaSerg’s common stock valued at $10.19 per share, less a post-Closing share adjustment amount of 857,143 shares which

were placed in escrow post-Closing.

The shares transferred at Closing included 4,313,917 options to purchase the Company’s

shares that were vested, outstanding and unexercised, which were determined using 1,739,932 vested options at Closing converted

at an exchange ratio of approximately 2.48.

Additionally, 364,094 options to purchase the Company’s common stock that were

unvested, outstanding and unexercised were assumed by the Company, which were determined using 146,865 unvested options at Closing

converted at an exchange ratio of approximately 2.48.

This ASU improves and clarifies various financial instruments topics, including the current expected credit losses standard issued in 2016.

The ASU includes seven different issues that describe the areas of improvement and the related amendments to U.S.

GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications.

The amendments related to Issue 1, Issue 2, Issue 3, Issue 4, and Issue 5 were effective upon issuance of this update.

The new guidance did not have a material impact on the consolidated financial statements.

The amendments related to Issue 6 and Issue 7 are effective for the Company the earlier of January 1, 2023 or when the Company adopts ASU 2016-13, if early adopted.

The Company is currently evaluating the impact these topics will have on the consolidated financial statements.

Note 3 – Business combination

On March 5, 2020, ChaSerg consummated its business combination with GDI pursuant to the Merger Agreement.

Immediately following the Business Combination, there were 50.8 million shares of common stock with a par value of $ 0.0001 , and 11.3 million warrants outstanding.

GDI began operations in September 2006 to provide next-generation ecommerce platform solutions in the areas of search, analytics, and release automation to Fortune 1000 companies.

Under ASC 805, Business Combinations, GDI was deemed the accounting acquirer, and the Business Combination was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded in accordance with U.S.

ChaSerg was treated as the “acquired” company for financial

reporting purposes.

Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of GDI issuing stock for the net assets of ChaSerg, accompanied by a recapitalization.

The net assets of ChaSerg were stated at historical cost, with no goodwill or other intangible assets recorded.

Reported shares and earnings per share available to holders of the Company’s common stock, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination (approximately 1.685 GDH shares to 1.0 GDI share).

The following represents the aggregate consideration for the Business Combination:

(in thousands, except for share and per share amounts)

(in thousands, except for per share amounts)

Shares transferred at Closing 27,006

5 unchanged sentences

Closing merger consideration $ 396,459

connection with the Closing, 51,715 shares of common stock were redeemed at a price per share of approximately $ 10.21 .

9 for details of the Company’s common stock prior to and subsequent to the Business Combination.

connection with the Business Combination, the Company incurred direct and incremental costs of approximately $ 4.7 million, consisting

of legal and professional fees, of which $ 4.1 million were related to equity issuance costs and recorded to additional paid-in

capital as a reduction of proceeds and $ 0.6 million were recorded to general and administrative expenses.

connection with the Business Combination, all outstanding retention bonus obligations from a 2017 acquisition totaling $3,363,000

were accelerated and paid in full to Grid Dynamics’ personnel immediately prior to the Closing and were recorded in cost

of revenue and operating expenses in the consolidated financial statements.

Acquisition of Daxx Web Industries B.V.

On December 14, 2020, the Company completed

its acquisition of Daxx, a Netherlands-based software development and technology consulting company.

In addition to high-end software

development, Daxx provides consulting services spanning agile process reengineering, lean development, and DevOps.

expects to gain market share and realize synergies through the acquisition of Daxx.

The total purchase consideration is up to $23.3 million and

included cash consideration of approximately $18.4 million and contingent cash consideration of up to approximately $4.9 million.

The fair value of the contingent consideration at the date of the acquisition was determined to be approximately $1.9 million.

The contingent consideration is payable based on revenue and EBITDA metrics achieved by Daxx for 270 days following the date of

the acquisition (the “Earnout Period”) and is payable 60 days following the Earnout Period.

The Company recorded a

liability for the contingent consideration amount based the Company’s best estimate of the fair value of the expected payout.

The Company will continue to reassess the expected contingent consideration payable and changes to the fair value of the expected

payment will be reflected in the Company’s Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss).

The following table summarizes the estimated fair values of

the assets acquired and liabilities assumed at the date of acquisition:

(In thousands)

Cash & equivalents

Accounts receivable

Prepaid expenses and other

The shares transferred at Closing included 4.3 million options to purchase the Company’s shares that were vested, outstanding and unexercised, which were determined using 1.7 million vested options at Closing converted at an exchange ratio of approximately 2.48 .

Additionally, 0.4 million options to purchase the Company’s common stock that were unvested, outstanding and unexercised were assumed by the Company, which were determined using 0.1 million unvested options at Closing converted at an exchange ratio of approximately 2.48 .

In connection with the Closing, 0.1 million shares of common stock were redeemed at a price per share of approximately $ 10.21 .

See Note 12 for details of the Company’s common stock prior to and subsequent to the Business Combination.

In connection with the Business Combination, the Company incurred direct and incremental costs of approximately $ 4.7 million, consisting of legal and professional fees, of which $ 4.1 million were related to equity issuance costs and recorded to Additional paid-in capital as a reduction of proceeds and $ 0.6 million were recorded to General and administrative expenses.

In connection with the Business Combination, all outstanding retention bonus obligations from a 2017 acquisition totaling $ 3.4 million were accelerated and paid in full to Grid Dynamics’ personnel immediately prior to the Closing and were recorded in Cost of revenue and Operating expenses in the consolidated financial statements.

Note 4 — Acquisitions

Tacit — On May 29, 2021, the Company acquired 100 % of the equity interest of the global consultancy company Tacit Knowledge Inc.

Founded in 2002, Tacit is a global provider of digital commerce solutions, serving customers across the UK, North America, Continental Europe, and Asia.

The acquisition of Tacit added approximately 180 employees to the Company's headcount.

The acquisition will augment the Company's service offerings and will strengthen its competitive position within the market.

Additionally, the acquisition will also enable the Company to leverage near-shore capabilities with Tacit’s presence in Mexico.

The total purchase consideration is $ 37.6 million and consists of cash consideration of $ 33.6 million paid at closing, and fair value of the contingent consideration at the date of the acquisition of $ 4.0 million.

The maximum amount of potential contingent cash consideration is $ 5.0 million.

During the fourth quarter of 2021 the Company adjusted fair value of contingent consideration as of December 31, 2021 to its maximum amount and reflected the expense in its consolidated statement of income/(loss).

The contingent consideration is payable based on revenue and EBITDA metrics to be achieved by Tacit within 12 months.

The Company recorded a liability for the contingent consideration amount based on the Company’s best estimate of the fair value of the expected payout.

See Note 5 for further details on contingent consideration.

Daxx — On December 14, 2020, the Company completed its acquisition of Daxx Web Industries B.V.

(“Daxx”), a Netherlands-based software development and technology consulting company.

In addition to high-end software development, Daxx provides consulting services spanning agile process reengineering, lean development, and DevOps.

The Company expects to gain market share and realize synergies through the acquisition of Daxx.

The total purchase consideration is up to $ 23.3 million and included cash consideration of approximately $ 18.4 million and contingent consideration payable of up to $ 4.9 million.

The contingent consideration is payable based on revenue and EBITDA metrics achieved by Daxx for 270 days following the date of the acquisition.

The Company recorded a liability for the

contingent consideration amount based the Company’s best estimate of the fair value of the expected payout.

See Note 5 for further details on contingent consideration.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as updated for any changes as of December 31, 2021 for Daxx and Tacit:

Current assets $ 4,527 $ 9,145

Property, plant and equipment 352 466

Intangible assets 8,174 12,913

Accounts payable

Accrued expenses

Tax liabilities

Other current liability and unearned revenues

Net assets acquired

The fair value of identifiable intangible assets as of the date

of acquisition is as follows:

(In thousands)

Amortization method

Customer relationships

Straight-line

Daxx trade name

Straight-line

Non-compete agreements

Straight-line

Total identified intangible assets

As a result of the acquisition, the Company

recognized a total of $ 14.7 million of goodwill.

The purchase price was assigned to assets acquired and liabilities assumed based

on their estimated fair values as of the date of acquisition, and any excess was allocated to goodwill, as shown in the table above.

Goodwill represents the value the Company expects to achieve through the implementation of operational synergies and growth opportunities

as the Company expands its global reach.

The goodwill is not deductible for income tax purposes.

The Company used various valuation techniques

to determine fair value, with the primary techniques being discounted cash flow analysis, relief-from-royalty, and multi-period

excess earnings valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value

Under these valuation approaches, the Company is required to make estimates and assumptions about sales, operating margins,

growth and attrition rates, royalty rates and discount rates based on budgets, business projections, anticipated future cash flows,

and marketplace data.

The acquisition of Daxx was accounted for

using the acquisition method of accounting, and consequently, the results of operations for Daxx are reported in the consolidated

financial statements from the date of acquisition.

Daxx’s revenues were approximately $ 1.0 million from the date

of acquisition to December 31, 2020.

Daxx's results for the same period were insignificant to the Consolidated Statements of Income/(Loss)

and Comprehensive Income/(Loss).

The following unaudited pro forma information presents the combined

results of operations as if the acquisition of Daxx had occurred at the beginning of 2019.

Daxx’s pre-acquisition results

have been added to the Company’s historical results.

The pro forma results contained in the table below include adjustments

for amortization of acquired intangibles, depreciation expense, related to the financing and related income taxes.

Any potential

cost savings or other operational efficiencies that could result from the acquisition are not included in these pro forma results.

The 2019 and 2020 pro forma results include

transaction related expenses incurred by Daxx prior to the acquisition of $ 0.4 million including items such as consultant fees

and other deal costs;

transaction related expenses incurred by the Company of $ 0.5 million including fees paid to third parties

and other deal costs.

These pro forma results have been prepared for comparative purposes

only and are not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the

assumed dates, nor are they necessarily an indication of future operating results.

(In thousands, unaudited)

Net income/(loss)

Earnings/(loss) per share

5 — Property and Equipment, net

and equipment consist of the following:

Goodwill 14,690 21,268

Total assets acquired $ 27,743 $ 43,792

Accounts payable and accrued expenses ( 4,718 ) ( 3,675 )

Deferred taxes ( 2,639 ) ( 2,500 )

Total liabilities assumed $ ( 7,357 ) $ ( 6,175 )

Purchase price allocation $ 20,386 $ 37,617

Current assets acquired include cash and cash equivalents in the amount of $ 2.3 million and $ 3.0 million for Daxx and Tacit acquisitions, respectively.

The purchase price was assigned to assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition, and any excess was allocated to goodwill, as shown in the table above.

Goodwill represents the value the Company expects to achieve through the implementation of operational synergies and growth opportunities as the Company expands its global reach.

The goodwill for both acquisitions is not deductible for income tax purposes.

During the first quarter of 2021, the Company finalized the fair value of the assets acquired and liabilities assumed in the acquisition of Daxx with no additional adjustments recorded.

During the second half of 2021 the Company updated fair value of contingent consideration for Tacit at acquisition date that resulted in the increase of goodwill for $ 0.7 million.

During the fourth quarter of 2021, the Company finalized the fair value of the assets acquired and liabilities assumed in the acquisition of Tacit.

The estimated fair value, useful lives and amortization methods of identifiable intangible assets as of the date of acquisition updated for any changes during the year ended December 31, 2021 are as follows:

Tacit Fair Value Useful Life Amortization

Customer relationships $ 11,737 12 years Straight-line

Trade name 1,176 4 years Declining balance

Total Tacit identified intangible assets $ 12,913

Daxx Fair Value Useful Life Amortization

Customer relationships $ 4,234 8 years Straight-line

Trade name 3,500 10 years Straight-line

Non-compete agreements 440 2 years Straight-line

Total Daxx identified intangible assets $ 8,174

The Company used acquisition method of accounting for both acquisitions, and consequently, the results of operations for Daxx and Tacit are reported in the consolidated financial statements from the dates of acquisition.

Revenues of Daxx and Tacit from the date of acquisition to December 31, 2021 were $ 29.2 million and $ 16.7 million, respectively.

Out of that revenue $ 1.0 million was recognized during the year ended December 31, 2020.

The following unaudited pro forma information presents the combined results of operations as if the acquisitions of Daxx and Tacit had occurred at the beginning of 2020 and 2021, respectively.

Pre-acquisition results of businesses acquired have been added to the Company’s historical results.

The pro forma results contained in the table below include adjustments for

amortization of acquired intangibles, depreciation expense, related to the financing and related income taxes.

Any potential cost savings or other operational efficiencies that could result from the acquisition are not included in these pro forma results.

These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed dates, nor are they necessarily an indication of future operating results.

(Unaudited) 2021 2020

Revenue $ 219,312 $ 149,219

Net loss $ ( 5,910 ) $ ( 10,792 )

Diluted loss per share $ ( 0.10 ) $ ( 0.24 )

Note 5 — Fair value

The Company’s financial assets and liabilities, with the exceptions of contingent consideration payable described further herein, are all short term in nature;

therefore, the carrying value of these items approximates their fair value.

The Company measures contingent consideration payable at fair value on a recurring basis using significant inputs that are not observable in the market.

Fair value of the contingent consideration liability is based on the Monte-Carlo model which is primarily based on budgets and discounted cash flow analysis.

The Company believes its estimates and assumptions are reasonable, however, there is significant judgment involved.

Changes in the fair value of contingent consideration payable primarily result from changes in the timing and amount of specific milestone estimates and changes in probability assumptions with respect to the likelihood of achieving the various earnout criteria.

These changes could cause a material impact to, and volatility in the Company’s operating results.

During the years ended December 31, 2021 and 2020 the Company completed two acquisitions under which the Company committed to make a cash earnout payment subject to attainment of specific performance targets.

By the end of 2021 Daxx completed its earn-out period based on which the Company is obligated to make an earnout payment of $ 1.9 million in cash.

See Note 4 “Acquisitions” in the consolidated financial statements for additional information regarding business acquisitions.

The Company records contingent consideration payable in Other current liabilities in its consolidated balance sheet.

A reconciliation of the beginning and ending balances of Level 3 acquisition-related contingent consideration payable using significant unobservable inputs for the years ended December 31, 2021 and 2020 are as follows:

Contingent consideration payable as of December 31, 2019 $ —

Acquisition date fair value of contingent consideration payable - Daxx 1,947

Contingent consideration payable as of December 31, 2020 $ 1,947

Acquisition date fair value of contingent consideration payable - Tacit 4,000

Change in fair value of contingent consideration payable included in Other income/(expense) - Daxx ( 14 )

Change in fair value of contingent consideration payable included in Other income/(expense) - Tacit 1,000

Contingent consideration payable as of December 31, 2021 $ 6,933

Note 6 — Prepaid expenses and other current assets

The components of prepaid expenses and other current assets were as follows:

As of December 31,

in thousands)

Prepaid expenses 2,188 1,058

Value added tax receivable $ 931 $ 325

Prepaid insurance $ 921 $ 592

Other assets 463 386

Total prepaid expenses and other current assets $ 4,503 $ 2,361

Note 7 — Property and Equipment, net

Property and equipment consist of the following:

(In Years) As of December 31,

Computers and equipment 2 - 5

$ 10,784 $ 6,447

Machinery and automobiles 5 246 551

Furniture and fixtures 3 - 7

Software 3 - 5

Leasehold improvements 7 - 12

$ 13,203 $ 8,431

Accumulated depreciation and amortization ( 8,240 ) ( 5,622 )

$ 4,963 $ 2,809

Capitalized software development costs 2 - 3

$ 4,656 $ 3,531

Accumulated amortization ( 3,450 ) ( 2,245 )

$ 1,206 $ 1,286

Property and equipment, net $ 6,169 $ 4,095

Property and equipment depreciation and amortization expense

for the years ended December 31, 2020, 2019, and 2018 was $ 2.6 million, $ 2.2 million, and $ 1.1 million, respectively.

6 — Intangible assets, net

assets consist of the following:

in thousands)

During the years ended December 31, 2021 and 2020, the Company capitalized $ 1.1 million and $ 1.1 million of internally developed software costs, respectively.

Property and equipment depreciation and amortization expense for the years ended December 31, 2021, 2020, and 2019 was $ 3.1 million, $ 2.6 million, and $ 2.2 million, respectively.

Note 8 — Goodwill and intangible assets, net

Goodwill rollforward for the years ended December 31, 2021 and 2020 was as follows:

Goodwill as of December 31, 2019 $ —

Acquisition of Daxx 14,690

Goodwill as of December 31, 2020 $ 14,690

Acquisition of Tacit 21,268

Goodwill as of December 31, 2021 $ 35,958

There were no impairment losses of goodwill recognized as of December 31, 2021 and 2020 .

Intangible assets consist of the following:

(In Years) As of December 31,

Customer relationships 8 - 12

$ 15,971 $ 4,234

Tradename 4 - 10

Non-compete agreements 2 440 440

$ 21,087 $ 8,174

Accumulated amortization ( 1,990 ) ( 49 )

Intangible assets, net $ 19,097 $ 8,125

Intangible assets amortization expense for the years ended December

31, 2020, 2019, and 2018 was $ 0 .1

million, $ 0.1 million, $ 0.2 million, respectively.

Technology was fully amortized and written off during the twelve months ending

December 31, 2020 due to its obsolescence.

7 — Other current liabilities

components of other current liabilities were as follows:

Intangible assets amortization expense for the years ended December 31, 2021, 2020, and 2019 was $ 2.0 million, $ 0.1 million, $ 0.1 million, respectively.

Note 9 — Other current liabilities

The components of other current liabilities were as follows:

As of December 31,

(In thousands)

Contingent consideration payable $ 6,933 $ 1,947

Value added tax payable 1,274 515

Customer deposits $ 798 731

Other liabilities 594 13

Contingent consideration payable

Total other current liabilities $ 9,599 $ 3,206

connection with the acquisition of Daxx on December 14, 2020, the Company recorded a contingent consideration payable, a post-closing

earn-out consideration, estimated based on fair value.

8 — Income taxes

before provision for income taxes consisted of the following:

Note 10 — Revenue

Disaggregation of revenues

The tables below present disaggregated revenues from contracts with clients by client location, industries and contract-types.

The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors.

The Company has a single reportable segment for the years ended December 31, 2021, 2020 and 2019.

The following table shows the disaggregation of the Company’s revenues by major customer location.

Revenues are attributed to geographic regions based upon billed client location.

Substantially all of the revenue in our North America region relates to operations in the United States.

For the years ended December 31,

2021 2020 2019

Customer Location (in thousands)

North America $ 168,524 $ 110,288 $ 118,326

Europe 42,479 995 —

Other 277 — —

Total Revenues $ 211,280 $ 111,283 $ 118,326

The following table shows the disaggregation of the Company’s revenues by main vertical markets for the years ended December 31, 2021, 2020 and 2019:

For the years ended December 31,

2021 2020 2019

Vertical (in thousands)

Tech, Media and Telecom $ 67,689 $ 45,362 $ 32,337

Retail 61,717 33,975 67,367

Finance 17,515 13,589 12,479

CPG/Manufacturing 43,461 14,202 4,850

Other 20,898 4,155 1,293

Total Revenues $ 211,280 $ 111,283 $ 118,326

The following table shows the disaggregation of the Company’s revenues by contract types for the years ended December 31, 2021, 2020 and 2019:

For the years ended December 31,

2021 2020 2019

Contract Type (in thousands)

Time-and-material $ 194,926 $ 105,578 $ 116,825

Fixed-fee 16,354 5,705 1,501

Total Revenues $ 211,280 $ 111,283 $ 118,326

Contract balances

A contract asset is a right to consideration that is conditional upon factors other than the passage of time.

A contract liability, or deferred revenue, consist of advance payments and billings in excess of revenues recognized.

As of December 31, 2021 and 2020 the Company did not have material contract assets or liabilities recognized in consolidated financial statements.

Remaining performance obligation

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 31, 2021.

This disclosure is not required for:

1) contracts with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive penalty,

2) contracts for which the Company recognizes revenues based on the right to invoice for services performed,

3) variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or

4) variable consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.

All of the Company’s contracts met one or more of these exemptions as of December 31, 2021.

Note 11 — Income taxes

Income before provision for income taxes consisted of the following:

For the years ended December 31,

2021 2020 2019

(in thousands)

United States $ ( 11,530 ) $ ( 18,084 ) $ 13,486

International 9,078 2,872 1,963

The federal and state income tax provision/(benefit) is summarized

Total income/(loss) before provision for income taxes $ ( 2,452 ) $ ( 15,212 ) $ 15,449

The federal and state income tax provision/(benefit) is summarized as follows:

For the years ended December 31,

2021 2020 2019

(in thousands)

Federal $ 71 $ 167 $ 3,799

State 80 97 599

International 2,164 1,199 669

Total current tax expense $ 2,315 $ 1,463 $ 5,067

Federal $ 2,752 $ ( 3,042 ) $ ( 375 )

State ( 59 ) ( 811 ) ( 50 )

International 240 ( 222 ) —

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Total tax expense/(benefit) $ 5,248 $ ( 2,613 ) $ 4,642

income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for

financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

tax effects of significant items comprising the Company’s deferred taxes as of December 31, 2020 and 2019 are as follows

(in thousands):

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

The tax effects of significant items comprising the Company’s deferred taxes as of December 31, 2021 and 2020 are as follows (in thousands):

As of December 31,

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Net operating loss 755 2,364

Credits 195 71

Total deferred tax assets $ 3,183 $ 5,693

2 unchanged sentences

Intangible assets $ ( 4,599 ) $ ( 2,093 )

Other foreign DTLs ( 24 ) —

Total deferred tax liabilities ( 4,776 ) ( 2,177 )

Net deferred taxes $ ( 1,593 ) $ 3,516

The Company assessed its ability to realize

the benefits of its domestic deferred tax assets (DTA) by evaluating all available positive and negative evidence, objective and

subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3)

estimates of future taxable income, and (4) the length of net operating loss (“NOL”) carryforward periods.

determined it is in a three-year cumulative taxable income position as of December 31, 2020 and expects to continue to be in a

taxable income position in the long-term foreseeable future.

After an evaluation of all available qualitative

and quantitative evidence, both positive and negative in nature, the Company concluded it is more likely than not that sufficient

future taxable income will be generated to realize the benefits of its DTAs prior to expiration.

As a result, the Company determined

that no valuation allowance was needed as of December 31, 2020.

operating losses and tax credit carryforwards as of December 31, 2020 are as follows:

Expiration years

The Company assessed its ability to realize the benefits of its domestic deferred tax assets (“DTA”) by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3) estimates of future taxable income, and (4) the length of net operating loss (“NOL”) carryforward periods.

The Company determined it is in a three-year cumulative taxable income position as of December 31, 2021 and expects to continue to be in a taxable income position in the long-term foreseeable future.

After an evaluation of all available qualitative and quantitative evidence, both positive and negative in nature, the Company concluded it is more likely than not that sufficient future taxable income will be generated to realize the benefits of its DTAs prior to expiration.

As a result, the Company determined that no valuation allowance was needed as of December 31, 2021.

Net operating losses and tax credit carryforwards as of December 31, 2021 are as follows:

Amount Expiration years

(in thousands)

Net operating losses, federal (Post December 31, 2017)

Do not expire

Net operating losses, federal (Pre January 1, 2018) $ 259 2023

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Tax credits, federal $ 186 2040 - 2041

effective tax rate of the Company’s provision/(benefit) for income taxes differs from the federal statutory rate as follows:

Tax credits, state $ 75 Does not expire

The effective tax rate of the Company differs from the federal statutory rate as follows:

For the years ended December 31,

2021 2020 2019

Statutory rate 21.00 % 21.00 % 21.00 %

State tax ( 0.37 ) % 3.86 % 2.53 %

Permanent items ( 10.77 ) % ( 2.81 ) % 3.17 %

Stock-based compensation deductions 114.37 % 16.80 % 1.19 %

R&D credits 3.80 % 0.10 % ( 0.70 ) %

Foreign rate differential ( 4.86 ) % ( 2.62 ) % 2.86 %

of December 31, 2020, the Company has approximately $ 0.7 million of unrecognized tax benefits.

Approximately all of the unrecognized

tax benefits, if recognized, would affect the effective tax rate.

A reconciliation of the amount of unrecognized tax benefits

is as follows:

GILTI ( 75.67 ) % ( 4.78 ) % —

Foreign intangible amortization ( 15.74 ) % — —

162M limitation ( 245.79 ) % ( 14.37 ) % —

Total ( 214.03 ) % 17.18 % 30.05 %

As of December 31, 2021, the Company has approximately $ 0.8 million of unrecognized tax benefits.

Approximately all of the unrecognized tax benefits, if recognized, would affect the effective tax rate.

A reconciliation of beginning to ending amounts of unrecognized tax benefits is as follows:

For the years ended December 31,

2021 2020 2019

(in thousands)

Balance at January 1, 2020

Increases related to prior year tax positions

Increases related to current year tax positions

Balance at December 31, 2020

tax benefits may change during the next twelve months for items that arise in the ordinary course of business.

The Company does

not anticipate a material change to its unrecognized tax benefits over the next twelve months.

Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense.

interest or penalties accrued as of December 31, 2020.

Company is subject to income taxes in U.S.

Unrecognized tax benefit as of January 1 $ 654 $ 357 $ 75

Changes related to prior year tax positions ( 50 ) 1 123

Changes related to current year tax positions 176 296 159

Unrecognized tax benefit as of December 31 $ 780 $ 654 $ 357

Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business.

The Company does not anticipate a material change to its unrecognized tax benefits over the next twelve months.

The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense.

There was no interest or penalties accrued as of December 31, 2021 and 2020.

The Company is subject to income taxes in U.S.

federal and various state, local and foreign jurisdictions.

The tax years ended from

December 2012 to December 2019 remain open to examination due to the carryover of unused net operating losses or tax credits.

In January 2018, the FASB released guidance on the accounting

for tax on the global intangible low-taxed income (“GILTI”) provisions of the Act.

The GILTI provisions impose a tax

on foreign income in excess of a deemed return on tangible assets of foreign corporations.

The guidance indicates that either accounting

for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period cost are both acceptable methods

subject to an accounting policy election.

The Company has elected to treat any potential GILTI inclusions as a period cost.

For Federal and states, tax years subsequent to 2017 remain open to examination due to the carryover of unused net operating losses or tax credits.

With respect to foreign jurisdictions, tax years 2014 and after remain open.

On March 27, 2020, the U.S.

President signed into law the CARES

Act, an economic stimulus package in response to the COVID-19 global pandemic.

The CARES Act contains several corporate income

tax provisions, including making remaining alternative minimum tax credits immediately refundable;

providing a 5-year carryback

of net operating loss carryforwards (“NOLs”) generated in tax years 2018, 2019, and 2020, and removing the 80% taxable

income limitation on utilization of those NOLs if carried back to prior tax years or utilized in tax years beginning before 2021;

and temporarily liberalizing the interest deductibility rules under Section 163(j) of the Tax Cuts and Jobs Act, by raising the

adjusted taxable income limitation from 30% to 50% for tax years 2019 and 2020 and giving taxpayers the election of using 2019

adjusted taxable income for purposes of computing 2020 interest deductibility.

The Company is still evaluating the impact but does

not currently expect the provisions of the CARES Act to have a material effect on the realizability of deferred income tax assets

or tax expense.

There is no material impact for the twelve months ended December 31, 2020.

As additional guidance is released,

the Company will evaluate whether there would need to be a change in the period when such guidance is issued.

The Company's

provision for income taxes does not include provisions for foreign withholding taxes associated with the repatriation of undistributed

earnings of certain foreign subsidiaries that we intend to reinvest indefinitely in our foreign subsidiaries.

27, 2020, the U.S.

president has signed into law the “Consolidated Appropriations Act, 2021” which includes further

COVID-19 economic relief and extension of certain expiring tax provisions.

The relief package was not materially impactful on

the Company’s tax positions.

California Assembly Bill 85 (AB 85) was

signed into law by Governor Gavin Newsom on June 29, 2020.

The legislation suspends the California Net Operating Loss deductions

for 2020, 2021, and 2022 for certain taxpayers and imposes a limitation of California Tax Credits utilization for 2020, 2021,

The legislation disallows the use of California Net Operating Loss deductions if the taxpayer recognizes business income

and its income subject to tax is greater than $ 1 million.

Additionally, business credits will only offset a maximum of $ 5 million

of California tax liability.

President signed into law the CARES Act, an economic stimulus package in response to the COVID-19 global pandemic.

The CARES Act contains several corporate income tax provisions, including making remaining alternative minimum tax credits immediately refundable;

providing a 5-year carryback of NOLs generated in tax years 2018, 2019, and 2020, and removing the 80% taxable income limitation on utilization of those NOLs if carried back to prior tax years or utilized in tax years beginning before 2021;

and temporarily liberalizing the interest deductibility rules under Section 163(j) of the Tax Cuts and Jobs Act, by raising the adjusted taxable income limitation from 30% to 50% for tax years 2019 and 2020 and giving taxpayers the election of using 2019 adjusted taxable income for purposes of computing 2020 interest deductibility.

The provisions of the CARES Act did not have a material effect on the realizability of deferred income tax assets or tax expense.

The Company's provision for income taxes does not include provisions for foreign withholding taxes associated with the repatriation of undistributed earnings of certain foreign subsidiaries that we intend to reinvest indefinitely in our foreign subsidiaries.

On December 27, 2020, the U.S.

president has signed into law the “Consolidated Appropriations Act, 2021” which includes further COVID-19 economic relief and extension of certain expiring tax provisions.

The relief package was not materially impactful on the Company’s tax positions.

California Assembly Bill 85 (AB 85) was signed into law by Governor Gavin Newsom on June 29, 2020.

The legislation suspends the California Net Operating Loss deductions for 2020, 2021, and 2022 for certain taxpayers and imposes a limitation of California Tax Credits utilization for 2020, 2021, and 2022.

The legislation disallows the use of California Net Operating Loss deductions if the taxpayer recognizes business income and its income subject to tax is greater than $1.0 million.

Additionally, business credits will only offset a maximum of $5.0 million of California tax liability.

The Company has estimated its 2021 California state taxable income to be below $1.0 million.

this limitation does not impact the Company in 2020.

9 — Stockholders’ equity

following description summarizes the material terms and provisions of the securities that the Company has authorized.

Company is authorized to issue 110,000,000 shares of common stock.

At Closing the Company had issued 50,833,619 shares of common

As of December 31, 2020 the Company had 50,878,780 shares of common stock that were outstanding, of which:

a) 26,888,285

shares were issued to the stockholders of ChaSerg who did not redeem their shares, b) 1,200,000 shares legally issued and outstanding

to the ChaSerg Founders and underwriter subject to earnout provisions as discussed further below, c) 53,000 shares issued to the

Sponsor of ChaSerg at $10.00 per share as the result of a promissory note of $0.5 million converted to the Company’s common

stock, d) 19,490,295 shares issued to GDD International Holding Company, e) 2,094,850 shares issued to BGV Opportunity Fund, L.P.,

and f) 1,152,350 shares issued to former shareholders of GDI.

Additionally at Closing, there were 4,313,917 outstanding vested

options to purchase the Company’s common stock.

of December 31, 2019 GDI had 1,047,942 shares of no par value shares of preferred stock outstanding convertible on a 1:1 basis

with GDI’s common stock.

At the Closing, the preferred stock outstanding was converted into common stock of the Company,

par value $ 0.0001 per share.

Therefore, as of December 31, 2020 there was no preferred stock outstanding.

and underwriter shares subject to earnout provisions

the Closing, the Company had 1,200,000 shares of common stock issued and outstanding subject to earnout provisions (the “Earnout

The Earnout Shares are subject to transfer restrictions and the owners of the Earnout Shares cannot sell, transfer

or otherwise dispose of their respective shares until the respective earnout provisions have been achieved as described further

The Earnout Shares have full ownership rights including the right to vote and receive dividends and other distributions

Dividends and other distributions are not subject to forfeiture in accordance with the Amended and Restated Sponsor Share

Letter filed with the SEC on January 26, 2020.

The Earnout Shares vest and are no longer subject to the transfer restrictions

As such, this credit limitation does not impact the Company in 2021.

The American Rescue Plan Act of 2021 was signed into law on March 11, 2021, expanding on the definition of covered employees as defined under IRC §162(m).

The provisions under the expanded definition of covered employees have been considered and were determined not to be materially impactful on the Company’s tax positions.

Note 12 — Stockholders’ equity

The following description summarizes the material terms and provisions of the securities that the Company has authorized.

The Company is authorized to issue 110.0 million shares of common stock.

At Closing, March 5, 2020, the Company had issued 50.8 million shares of common stock.

On July 6, 2021, the Company concluded a follow-on public offering of 11.6 million shares of its common stock, which included 5.5 million shares offered by Grid Dynamics and 6.1 million shares offered by certain selling stockholders, at a price to the public of $ 15.03 per share.

These amounts included shares sold upon exercise in full of the underwriters' option to purchase additional shares.

Morgan Securities, LLC, William Blair & Company, L.L.C.

and Cowen and Company, LLC acted as joint book-running managers for the offering.

Needham & Company, LLC and Cantor Fitzgerald & Co.

acted as co-managers for the offering.

The net proceeds from this offering for the company, after deducting underwriting discounts and commissions and estimated offering expenses, were $ 78.3 million.

The Company did not receive any proceeds from the sale of the shares by the selling stockholders.

As of December 31, 2021 the Company had 66.9 million shares of common stock that were outstanding.

Additionally, there were 2.4 million outstanding vested options to purchase the Company’s common stock.

Preferred Stock

As of December 31, 2019 GDI had 1.0 million shares of no par value shares of preferred stock outstanding convertible on a 1 :1 basis with GDI’s common stock.

At the Closing, the preferred stock outstanding was converted into common stock of the Company, par value $ 0.0001 per share.

Therefore, as of December 31, 2020 and December 31, 2021 there was no preferred stock outstanding.

Founders and underwriter shares subject to earnout provisions

At the Closing, the Company had 1.2 million shares of common stock issued and outstanding subject to earnout provisions (the “Earnout Shares”).

The Earnout Shares are subject to transfer restrictions and the owners of the Earnout Shares cannot sell, transfer or otherwise dispose of their respective shares until the respective earnout provisions have been achieved as described further below.

The Earnout Shares have full ownership rights including the right to vote and receive dividends and other

distributions thereon.

Dividends and other distributions are not subject to forfeiture in accordance with the Amended and Restated Sponsor Share Letter filed with the SEC on January 26, 2020.

The Earnout Shares vesting conditions are as follows:

and 400,001 Earnout Shares vest if the closing price of the Company’s common stock on the principal exchange on which the securities are listed or quoted have been at or about $ 12.00 ;

and $ 15.00 per share, respectively, for 20 trading days (which need not be consecutive) over a thirty trading day period at any time.

Earnout Shares automatically vest upon and immediately prior to any of the following events:

Company engages in a “going private” transaction pursuant to Rule 13e-3 under the Exchange Act of 1934, as amended

(the “Exchange Act”), or otherwise cease to be subject to reporting obligations under Sections 13 or 15(d) of

the Exchange Act;

Company’s common stock ceases to be listed on a national securities exchange;

The Earnout Shares automatically vest upon and immediately prior to any of the following events:

1) The Company engages in a “going private” transaction pursuant to Rule 13e-3 under the Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise cease to be subject to reporting obligations under Sections 13 or 15(d) of the Exchange Act;

2) The Company’s common stock ceases to be listed on a national securities exchange;

3) The Company is amalgamated, merged, consolidated or reorganized with or into another company or person (an “Acquiror”) and as a result of such amalgamation, merger, consolidation or reorganization, fewer than 50.1% (whether by voting or economic rights) of the outstanding equity securities or other capital interests of the Acquiror or surviving or resulting entity is owned in the aggregate by the shareholders of the Company, directly or indirectly, immediately prior to such amalgamation, merger, consolidation or reorganization, excluding from such computation the interests of the Acquiror or any affiliate of the Acquiror;

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5) If a Schedule 13D or Schedule 13G report (or any successor schedules, form or report), each as promulgated pursuant to the Exchange Act, is filed with the SEC disclosing that any person or group (as the terms “person” and “group” are used in Section 13(d) or Section 14(d) of the Exchange Act and the rules and regulations promulgated thereunder) has become the beneficial owner (as the term “beneficial owner” is defined in Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of a percentage of shares of the outstanding Company common shares as shall be greater than the percentage of such shares that, at the date of such filing, is held by any other person or group that held more than 50% of the voting or economic power of Company immediately after the Closing.

Earnout Shares released for any event as noted above shall be subject to an equitable adjustment for share splits, share dividends,

reorganizations, combinations, recapitalizations and similar transactions affecting the common stock after the Closing.

Additionally,

each such price threshold shall be reduced by the amount of the aggregate cash or the fair market value of any securities or other

assets paid or payable by the Company to the holders of common stock, on a per share basis, as an extraordinary dividend or distribution

following the Closing;

provided that the declaration and payment of any such extraordinary dividend or distribution shall be subject

to all applicable Laws.

An “extraordinary dividend or distribution” means any dividend or distribution other than

a regularly-scheduled dividend or distribution.

As of December 31, 2020, none of the Earnout

Shares have vested.

On January 20, 2021, 399,999 Earnout Shares vested and are no longer subject to transfer restrictions.

2, 2021, 400,000 Earnout Shares vested and are no longer subject to transfer restrictions.

of December 31, 2020, there were a total of 11,346,500 warrants outstanding.

As part of its initial public offering (“IPO”),

ChaSerg issued 22,000,000 units including one share of common stock and one-half of one redeemable warrant.

Simultaneously with

its IPO, ChaSerg issued 640,000 private placement units to its sponsor underwriter, each consisting of one common share and one-half

of one redeemable warrant.

ChaSerg issued 53,000 units as a result of the conversion of a working capital sponsor loan consisting

of one common share and one-half of one redeemable warrant.

whole warrant entitles the holder to purchase one share of common stock at a price of $ 11.50 .

Warrants may only be exercised for

a whole number of shares for common stock.

The Earnout Shares released for any event as noted above shall be subject to an equitable adjustment for share splits, share dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the common stock after the Closing.

Additionally, each such price threshold shall be reduced by the amount of the aggregate cash or the fair market value of any securities or other assets paid or payable by the Company to the holders of common stock, on a per share basis, as an extraordinary dividend or distribution following the Closing;

provided that the declaration and payment of any such extraordinary dividend or distribution shall be subject to all applicable Laws.

An “extraordinary dividend or distribution” means any dividend or distribution other than a regularly-scheduled dividend or distribution.

All of the Earnout Shares vested and are no longer subject to transfer restrictions during the year ended December 31, 2021.

On April 12, 2021, the Staff of the SEC issued the “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “Staff Statement”).

The Staff Statement provided new guidance for all SPAC-related companies regarding the accounting and reporting for their warrants that could result in the warrants issued by SPACs being classified as a liability measured at fair value, with non-cash fair value adjustments reported in earnings at each reporting period.

The Company reviewed the accounting for both its public warrants and private warrants following the Staff Statement.

The Company determined that the accounting for its public warrants as equity was consistent with the Staff Statement.

The Company determined that its private warrants should be accounted for as liabilities but that the related accounting errors during the year ended December 31, 2020 were not material to the required financial statements and disclosures included in its annual report on Form 10-K filed on March 5, 2021.

The Company began accounting for the private warrants correctly in the beginning of 2021, as disclosed in its quarterly report on Form 10-Q filed on May 6, 2021.

As part of its initial public offering (“IPO”), ChaSerg issued 22.0 million units including one share of common stock and one-half of one redeemable warrant.

Simultaneously with its IPO, ChaSerg issued 0.6 million private placement units to its sponsor underwriter, each consisting of one common share and one-half of one redeemable warrant.

ChaSerg issued 0.1 million units as a result of the conversion of a working capital sponsor loan consisting of one common share and one-half of one redeemable warrant.

Each whole warrant entitles the holder to purchase one share of common stock at a price of $ 11.50 .

Warrants may only be exercised for a whole number of shares for common stock.

No fractional shares will be issued upon exercise of the warrants.

Each warrant is

currently exercisable and will expire March 5, 2025 (five years after the completion of the Business Combination), or earlier

upon redemption or liquidation.

Company may call the warrants for redemption at a price of $ 0.01 per warrant upon a minimum 30 days’ prior written notice

of redemption, if and only if, the reported last sale price of the Company’s common stock equals or exceeds $ 18.00 per share

for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption

to the warrant holders;

and if and only if, there is a current registration statement in effect with respect to the shares of

common stock underlying such warrants.

10 — Stock-based compensation

had previously adopted a stock plan in 2018 (the “2018 Stock Plan”).

Under the terms of the 2018 Stock Plan,

certain option grants were accelerated in full or by an additional 12 months as a result of the Business Combination.

Therefore, on the date of Closing, the acceleration of vesting for 2,568,523 stock options resulted in a stock compensation

charge and corresponding increase to additional paid-in capital of $ 2.5 million.

Additionally, at Closing, a percentage of

outstanding vested GDI stock options were settled in exchange for cash consideration, pursuant to the terms of the Merger

remaining portion of outstanding vested options totaling 1,739,932 and all unvested options totaling 146,865 were automatically

assumed and converted into options to purchase the Company’s common stock as of the Closing.

The number of each participant’s

assumed options and the exercise price were adjusted as provided in the Merger Agreement.

There was no incremental compensation

cost attributable to the incremental fair value of the modified options compared to the original options on the modification date.

The assumed stock options will continue to be subject to the same terms and conditions, including vesting schedule terms, in accordance

with the 2018 Stock Plan.

Exercise prices for 2018 Stock Plan options range between $ 3.51 and $ 3.54 per share.

The following table sets forth the activity for the 2018

Stock Plan, including the conversion of the vested and unvested options, for the year ended December 31, 2020:

Options Outstanding

Balance at December 31, 2019

Balance at March 31, 2020 (prior to exchange ratio conversion)

Converted vested balance

Converted unvested balance

Balance at March 6, 2020 (post to exchange ratio conversion)

Exercised in 2020

Forfeited/Cancelled in 2020

Options Outstanding as of December, 31, 2020

of December 31, 2020, 0.05 million shares were forfeited, and 0.03 million shares were exercised for the total proceeds of $ 0.1

The number of shares exercisable as of December 31, 2020 was 4.4 million with the average exercise price $ 3.54 per share.

The intrinsic value of the 4.6 million total outstanding shares of 2018 Plan Options as of December 31, 2020, was $ 41.7 million

with the remaining contractual term 8.02 years.

The total unrecognized compensation expenses related to 2018 Plan options as of

December 31, 2020 was $ 0.2 million, net of forfeitures, to be expensed on a straight-line basis over 2.68 years.

Equity Incentive Plan

March 5, 2020, our board of directors approved an equity incentive plan (the “2020 Plan”).

The 2020 Plan permits the

Company to grant a maximum aggregate amount of 16,300,000 Incentive Stock Options, Non-Statutory Stock Options (“NSOs”),

Restricted Stock, Restricted Stock Units (“RSUs”), Stock Appreciation Rights, Performance Units (“PSUs”),

and Performance Shares (“PSAs”) (collectively, the “Awards”) to employees, directors, and consultants

of the Company.

Our board of directors or any committee appointed by the board has the authority to grant Awards.

As of December

31, 2020, our board of directors granted 2,087,000 NSOs, 3,053,969 RSUs, and 574,188 target PSUs at a maximum payout at 300 %.

The following table represent the number of shares available for grants from 2020 Equity Incentive Plan:

Available for grant

Available, March 5, 2020

Options granted

( 2,087,000 )

( 3,053,969 )

PSU granted (253% target achieved)

Each warrant is currently exercisable and will expire March 5, 2025 (five years after the completion of the Business Combination), or earlier upon redemption or liquidation.

The Company may call the warrants for redemption at a price of $ 0.01 per warrant upon a minimum 30 days’ prior written notice of redemption, if and only if, the reported last sale price of the Company’s common stock equals or exceeds $ 18.00 per share for any 20 trading days within a 30 -trading day period ending three business days before the Company sends the notice of redemption to the warrant holders;

and if and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants.

From July 23, 2021 to July 26, 2021, 1.4 million public warrants were exercised with cash proceeds of $ 16.4 million.

On July 28, 2021, the Company announced the redemption of its 2.8 million then outstanding public warrants.

Any public warrants not exercised prior to 5:00 p.m., New York City time, on August 30, 2021 were redeemed at that time for $ 0.01 per warrant.

The public warrants were exercisable at a price of $ 11.50 per share.

Of the total of 2.8 million warrants outstanding on July 28, 2021, 2.8 million were exercised and cash proceeds generated from these exercised warrants were approximately $ 31.7 million.

Pursuant to the terms of the agreements governing the rights of the holders of the public warrants, the Company redeemed the remaining unexercised and outstanding 19,744 public warrants on August 30, 2021 for a redemption price of $ 0.01 per public warrant.

As of December 31, 2021, there were no outstanding private or public warrants.

Note 13 — Stock-based compensation

Stock-Based Compensation Expense

Employee stock-based compensation cost recognized in the consolidated statements of income/(loss) and comprehensive income/(loss) was as follows:

Twelve months ended December 31,

2021 2020 2019

Options forfeited

RSU forfeited

Available for grant, December 31, 2020

total of 2,087,000 NSOs shares granted during 2020 from 2020 Equity Incentive Plan with weighted average exercise price $ 8.37

are subject to the following time-based vesting conditions:

(in thousands)

Cost of revenue $ 664 $ 840 $ 148

Engineering, research, and development 2,980 2,419 175

Sales and marketing 3,606 3,532 53

General and administrative 25,786 13,215 2,065

Total stock-based compensation $ 33,036 $ 20,006 $ 2,441

Stock-based compensation costs recognized for the year ended December 31, 2020 included $ 2.5 million of compensation expense related to the acceleration of vesting of awards under the 2018 Stock Plan.

Additional $ 3.4 million of stock-based compensation cost recognized for the year ended December 31, 2021, in connection to partial vesting and early release of 2021 PSU otherwise would have been recognized in the first quarter of 2022.

2018 Stock Plan - Effective November 12, 2018, GDI adopted 2018 Stock Option Plan.

Under the terms of the 2018 Stock Plan, certain options are subject to accelerated vesting in full or by an additional 12 months as a result of business combinations.

The Company is no longer issuing any awards under the 2018 Plan.

All of the awards issued pursuant to the 2018 Plan expire 10 years from the date of grant.

2020 Equity Incentive Plan - Effective March 5, 2020, our Board of Directors approved an equity incentive plan (the “2020 Plan”).

The 2020 Plan permits the Company to grant a maximum aggregate amount of 16.3 million Incentive Stock Options,

Non-Statutory Stock Options (“NSOs”), Restricted Stock, Restricted Stock Units (“RSUs”), Stock Appreciation Rights, Performance Units (“PSUs”), and Performance Shares (“PSAs”) (collectively, the “Awards”) to employees, directors, and consultants of the Company.

Our Board of Directors or any committee appointed by The Board has the authority to grant Awards.

NSOs and RSUs issued under the 2020 Plan have the following vesting conditions:

one-fourth of the NSOs will vest on one year after the grant date;

and thereafter one-sixteenth of the NSOs will vest each subsequent three-month anniversary.

The NSOs have a ten-year exercise

term, and once the NSOs are vested, the recipients have the right to purchase the Company’s stock at a fixed exercise price.

The grant date fair value of each NSO was estimated on the date

of grant using the Black-Scholes option pricing model.

The key assumptions for 2020 grants are provided in the following table.

The Company made an accounting policy election to account for accounts for forfeitures when they occur.

RSUs granted to the Board in lieu of the quarterly payments vest immediately.

PSUs are normally capped at 300 % maximum payout and have the following performance goals:

1) Year-over-year growth in Non-Retail revenue for the Performance Period, which is Fiscal Year 2021, expressed as a percentage increase over the fiscal year 2020 Non-Retail revenue (“Revenue Growth”), and

2) Contribution Margin for the Performance Period as a percentage of Non-Retail revenue for the Performance Period.

Fifty percent ( 50 %) of the target number of performance shares granted will vest (if at all) based on the extent of achievement of Revenue Growth for the Performance Period and the remaining fifty percent ( 50 %) of the target number of performance shares granted will vest (if at all) based on the extent of achievement of the Contribution Margin.

As of December 31, 2021, 10.3 million shares of stock remained available for issuance under 2020 Plan.

All of the awards issued pursuant to the 2020 Plan expire 10 years from the date of grant.

Stock Options

The grant date fair value of each NSO issued under both plans was estimated on the date of grant using the Black-Scholes option pricing model.

The key assumptions for the years ended December 31, 2021 and 2020 are provided in the following table.

For the years ended December 31,

Dividend yield 0 % 0 %

5 unchanged sentences

$ 14.40 -$ 29.07

Company used a zero percent dividend yield assumption for all Black-Scholes stock option-pricing calculations.

Since the Company’s

shares were not publicly traded prior to the Closing and its shares were rarely traded privately, expected volatility is estimated

based on the average historical volatility of similar entities with publicly traded shares.

The risk-free rate for the expected

term of the options is based on the U.S.

$ 6.86 -$ 11.89

The Company used a zero percent dividend yield assumption for all Black-Scholes stock option-pricing calculations.

Since the Company’s shares were not publicly traded prior to the Closing and its shares were rarely traded privately, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares.

The risk-free rate for the expected term of the options is based on the U.S.

Treasury yield curve at the date of grant.

Expected term is estimated using the simplified

method, which takes into account vesting and contractual term.

The simplified method is being used to calculate expected term

instead of historical experience due to a lack of relevant historical data resulting from changes in option vesting schedules

and changes in the pool of employees receiving option grants.

The following table summarizes option activity for year 2020:

Expected term is estimated using the simplified method, which takes into account vesting and contractual term.

The simplified method is being used to calculate expected term instead of historical experience due to a lack of relevant historical data resulting from changes in option vesting schedules and changes in the pool of employees receiving option grants.

On March 5, 2020 the Company accelerated vesting of certain options due to completion of Business Combination.

It resulted in recognition of additional expenses of $ 2.5 million.

Additionally part of options was modified and settled in cash pursuant to the terms of the Merger Agreement.

The remaining portion of outstanding vested and unvested options were automatically assumed and converted into options to purchase the Company’s common stock as of the Closing.

Refer to Note 3 for details.

The following table presents details on conversion of the vested and unvested options:

Number of Options

Options outstanding as of December 31, 2019 2,734,327

Options converted to cash at Closing ( 828,590 )

Options forfeited ( 18,940 )

Options outstanding as of March 5, 2020 1,886,797

Options outstanding converted as of March 5, 2020 4,678,011

The following table sets forth the activity for the 2018 Stock Plan for the years ended December 31, 2021 and 2020 after conversion:

Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value Weighted Average Contractual Term

Options outstanding converted as of March 5, 2020 4,678,011 $ 3.54

Options exercised ( 28,057 ) $ 3.54

Options forfeited ( 50,164 ) $ 3.54

Options outstanding as of December 31, 2020 4,599,790 $ 3.54 $ 41,674

Options exercised ( 2,668,191 ) $ 3.54

Options forfeited ( 15,498 ) $ 3.54

Options outstanding as of December 31, 2021 1,916,101 $ 3.54 $ 65,971 6.97

Options vested and exercisable as of December 31, 2021 1,791,612 $ 3.54 $ 61,685 6.97

The total unrecognized compensation expenses related to 2018 Plan options as of December 31, 2021 was $ 0.1 million, net of forfeitures, to be expensed on a straight-line basis over 1.68 years.

The following table summarizes option activity for for the years ended December 31, 2021 and 2020 under the 2020 Plan:

Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value Weighted Average Contractual Term

Options outstanding as of December 31, 2019 — $ — $ —

Options granted 2,087,000 $ 8.37

1 unchanged sentence

Options outstanding as of December 31, 2020 1,942,400 $ 8.38 8,200

(1) Represents

the weighted average exercise price

(2) Represents

weighted average remaining contractual term

of the 2020 NSO grants are vested as of December 31, 2020.

The aggregated fair value of 2.1 million NSOs granted during the twelve

months ended December 31, 2020 was $ 6.9 million or $ 3.28 per share.

The intrinsic value of the 1.9 million total outstanding shares

of 2020 Plan Options as of December 31, 2020, was $ 8.2 million.

The total unrecognized compensation expenses related to 2020 Stock

Plan options as of December 31, 2020 was $ 5.3 million, net of forfeitures, to be expensed on a straight-line basis over the remaining

total 3.1 million RSUs granted as of December 31, 2020 were granted at the average fair market value of the Company’s stock

of $ 8.22 on the date of the grant.

The RSUs granted to employees generally are subject to the following time-based vesting conditions:

one-fourth vest on the first anniversary of the grant;

and thereafter one-sixteenth of the RSUs will vest each subsequent three-month

Options granted 766,250 $ 21.61

Options exercised ( 112,087 ) $ 8.20

Options forfeited ( 371,876 ) $ 8.88

Options outstanding as of December 31, 2021 2,224,687 $ 12.86 55,856 8.53

Options vested and exercisable as of December 31, 2021 596,811 $ 8.32 17,694 8.03

The total unrecognized compensation expenses related to 2020 Stock Plan options as of December 31, 2021 was $ 8.7 million, net of forfeitures, to be expensed on a straight-line basis over the remaining 2.89 years.

Restricted Stock Units

RSUs granted do not participate in earnings, dividends, and do not have voting rights until vested.

to the Board in lieu of the quarterly payments vest immediately.

As of December 31, 2020, 28,300 shares of RSUs were released

to the board for a total value of $ 0.2 million.

aggregated fair value of RSUs granted during the twelve months ended December 31, 2020 was $ 25.1 million.

The total unrecognized

compensation expenses related to 2020 Stock Plan RSUs as of December 31, 2020 was $ 19.8 million to be expensed on a straight-line

basis over 3.15 years.

May 4, 2020, the Company granted 574,188 Performance Stock target shares under the 2020 Stock Plan with the maximum payout capped

The performance goals for these grants consist of:

1) Year-over-year

growth in Non-Retail revenue for the Performance Period, which is Fiscal Year 2020, expressed as a percentage increase over the

fiscal year 2019 Non-Retail revenue (“Revenue Growth”), and

2) Contribution

Margin for the Performance Period as a percentage of Non-Retail revenue for the Performance Period.

percent (50%) of the target number of performance shares granted will vest (if at all) based on the extent of achievement of Revenue

Growth for the Performance Period and the remaining fifty percent (50%) of the target number of performance shares granted will

vest (if at all) based on the extent of achievement of the Contribution Margin.

shares will be certified and vested no later than March 1, 2021 with the payout shortly after.

As of December 31, 2020, the Company

assessed the vesting of the Performance Share Units as probable.

Stock-based compensation expense related to Performance Stock

Units was $ 9.2 million in the twelve months ended December 31, 2020.

The unrecognized expense for PSUs as of December 31, 2020,

was $ 2.3 million.

The vesting of the PSUs was certified by the Board of Directors

for release on February 12, 2021.

Approximately 0.7 million shares were issued upon vesting of the PSUs and 0.75 million shares

were withheld to cover $ 10.7 million in tax obligations.

Compensation Expense

Company classifies awards issued under the stock-based compensation plans as equity.

Total compensation expense for the twelve

months ended December 31, 2020 was $20.0 million, which included $2.5 million of compensation expense related to the acceleration

of vesting of awards under the 2018 Stock Plan.

Total compensation expense for the twelve months ended December 31, 2019 and 2018

was $2.4 million and $1.8 million respectively.

Employee stock-based compensation recognized was as follows (in thousands):

months ended December 31,

The following table summarizes activity of the Company's RSUs for the years ended December 31, 2021 and 2020:

Number of Shares Weighted Average Grant Date Fair Value

Unvested awards as of December 31, 2019 — $ —

Awards granted 3,053,969 $ 8.22

Awards vested and released ( 28,300 ) $ 7.07

Awards forfeited ( 30,000 ) $ 8.26

Unvested awards as of December 31, 2020 2,995,669 $ 8.38

Awards granted 61,539 $ 24.35

Awards vested and released ( 1,272,136 ) $ 8.32

Awards forfeited ( 291,157 ) $ 8.14

Unvested awards as of December 31, 2021 1,493,915 $ 8.82

The total unrecognized compensation expenses related to 2020 Stock Plan RSUs as of December 31, 2021 was $ 12.7 million to be expensed on a straight-line basis over 2.21 years.

Performance Stock Units

The following table summarizes activity of the Company's PSUs for the years ended December 31, 2021 and 2020:

Number of Shares Weighted Average Grant Date Fair Value

Unvested awards as of December 31, 2019 — $ —

Awards granted 1,452,696 $ 7.92

Unvested awards as of December 31, 2020 1,452,696 $ 7.92

Awards granted 1,478,765 $ 15.68

Awards vested ( 2,787,001 ) $ 11.64

Awards forfeited ( 32,375 ) $ 15.61

Unvested awards as of December 31, 2021 112,085 $ 15.69

The vesting of the PSUs with the performance factors based on 2020 results was certified by the Board of Directors for release on February 12, 2021.

Approximately 0.7 million shares were issued upon vesting of the PSUs and 0.8 million shares were withheld to cover $ 10.8 million in tax obligations.

The vesting of the PSUs granted for 2021 performance was partially certified by the Board of Directors with 250 % performance factor for release on December 10, 2021.

Approximately 0.7 million shares were issued upon vesting of the PSUs and 0.7 million shares were withheld to cover $ 25.4 million in tax obligations.

The total unrecognized compensation expenses related to 2020 Stock Plan PSUs as of December 31, 2021 was $ 0.3 million to be expensed on over 0.16 years.

The fair value of vested RSUs and PSUs issued under the 2020 Plan (measured at the vesting date) for the years ended December 31, 2021 and 2020 was as follows:

For the years ended December 31,

(in thousands)

Cost of revenue

Engineering, research, and development

Sales and marketing

General and administrative

Total stock-based compensation

of December 31, 2020, there was approximately $ 27.6 million of stock-based compensation expenses to be recognized over the remaining

11 — Earnings per share

Company computed earnings per share (“EPS”) in conformity with the two-class method required for participating securities.

Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable

to common stockholders.

The Company allocated income between its common and preferred shareholders only for the periods the preferred

stock was outstanding, which was January 1, 2020 to March 4, 2020 and May 6, 2019 to December 31, 2019.

There was no preferred

stock outstanding March 5, 2020 to December 31, 2020 and January 1, 2019 to May 6, 2019.

As the Company was in a net loss position

for the twelve months ended December 31, 2020, the net loss was allocated entirely to common shareholders.

participating securities are excluded from basic weighted-average number of common shares outstanding.

Diluted EPS is computed

by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding during

the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially

dilutive securities had been issued.

Potentially dilutive securities include outstanding stock options, restricted stock units,

performance stock units, and convertible preferred securities.

The dilutive effect of potentially dilutive securities is reflected

in diluted EPS in order of dilution and by application of the treasury stock method and the if-converted method for stock-based

compensation and convertible preferred securities, respectively.

following table sets forth the computation of basic and diluted EPS of common stock as follows:

RSUs $ 25,702 $ 207

PSUs 72,615 —

Note 14 — Earnings per share

The Company computed earnings per share (“EPS”) in conformity with the two-class method required for participating securities.

Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders.

The Company allocated income between its common and preferred shareholders only for the periods the preferred stock was outstanding, which was January 1, 2020 to March 4, 2020 and May 6, 2019 to December 31, 2019.

There was no preferred stock outstanding March 5, 2020 to December 31, 2020 and January 1, 2019 to May 6, 2019.

As the Company was in a net loss position for the year ended December 31, 2020, the net loss was allocated entirely to common shareholders.

All participating securities are excluded from basic weighted-average number of common shares outstanding.

Diluted EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued.

Potentially dilutive securities include outstanding stock options, restricted stock units, performance stock units, and convertible preferred securities.

The dilutive effect of potentially dilutive securities is reflected in diluted EPS in order of dilution and by application of the treasury stock method and the if-converted method for stock-based compensation and convertible preferred securities, respectively.

The following table sets forth the computation of basic and diluted EPS of common stock as follows:

For the years ended December 31,

2021 2020 2019

(in thousands, except per share data)

1 unchanged sentence

Net income/(loss)

$ ( 7,700 ) $ ( 12,599 ) $ 10,807

Income attributable to preferred shareholders — — ( 377 )

7 unchanged sentences

Basic weighted-average common shares outstanding

58,662 44,737 21,118

Dilutive impact of options in the money — — 4

1 unchanged sentence

Diluted earnings/(loss) per share $ ( 0.13 ) $ ( 0.28 ) $ 0.49

denominator used in the calculation of basic and diluted EPS has been retrospectively adjusted for the recapitalization of the

Company’s shares as a result of the Business Combination as further described in Note

The following potential common shares, presented based on amounts outstanding at each period end and adjusted for the

stock split as a result of the transaction, were excluded from the calculation of diluted net loss per share attributable to common

stockholders for the periods indicated because including them would have had an anti-dilutive effect:

For the twelve months ended

The denominator used in the calculation of basic and diluted EPS has been retrospectively adjusted for the recapitalization of the Company’s shares as a result of the Business Combination as further described in Note 3.

The following potential dilutive common shares, presented based on weighted average potential shares outstanding during each period and adjusted for the stock split as a result of the transaction, were excluded from the calculation of diluted net loss per

share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

For the years ended December 31,

Potential common shares 2021 2020 2019

5 unchanged sentences

Warrants to purchase common stock 3,657 9,326 —

12 — Segment and geographic information

accordance with ASC 280, Segment Reporting , the Company has determined it has one operating segment and one reportable

The chief operating decision maker assesses the Company’s performance and allocates resources based on the Company’s

consolidated financial information.

The Company’s business activities have similar economic characteristics and are similar

in all of the following areas:

the nature of services, the type or class of customer for which they provide their services, and

the methods used to provide their services.

of t he Company’s revenues are generated within

the United States.

Long-lived assets include property and equipment, net of accumulated depreciation and amortization and is summarized

as follows (in thousands):

Total 12,894 17,381 5,962

Note 15 — Segment and geographic information

In accordance with ASC 280, Segment Reporting , the Company has determined it has one operating segment and one reportable segment.

The chief operating decision maker assesses the Company’s performance and allocates resources based on the Company’s consolidated financial information.

The Company’s business activities have similar economic characteristics and are similar in all of the following areas:

the nature of services, the type or class of customer for which they provide their services, and the methods used to provide their services.

Significant portion of the Company’s revenues is generated within North America.

Refer to Note 10 (“Revenue”) for details.

Long-lived assets include property and equipment, net of accumulated depreciation and amortization and is summarized as follows (in thousands):

As of December 31,

Long-lived assets, net of accumulated depreciation

and amortization

Long-lived assets, net of accumulated depreciation and amortization 2021 2020

( in thousands)

Ukraine $ 2,267 $ 1,340

Russia 1,920 1,023

United States 715 712

13 — Related party transactions

One of the Company’s minority shareholders is a member

of the Board of Directors of one of the Company’s customers.

Total revenue recorded from the related party for the years

ended December 31, 2020 and 2019 was approximately $ 0.1 million and $ 1.0 million, respectively.

Accounts receivable from the related

party was $ 0.0 million and $ 0.5 million as of December 31, 2020 and 2019, respectively.

Revenue and accounts receivable from the

related party were not material in the year ended December 31, 2018.

On November 28, 2018, the Company’s Board of Directors

declared a dividend of $ 0.17 per common share, or $ 2.0 million, to the Company’s sole shareholder ASL.

The dividend was paid

discussed further in Note 2, the Company provides services to its customers utilizing personnel from GD-Ukraine.

GD-Ukraine performs

services and support exclusively on behalf of the Company and its customers, however, the Company has no ownership in the sub-contractor.

GD-Ukraine’s equity holder is an employee of the Company.

14 — Benefit plans

Company maintains a 401(k) defined contribution savings and retirement plan for substantially all of its U.S.

to Code limitations, an employee may elect to contribute an amount up to 60 % of compensation during each plan year.

is not required to make contributions to the plan but can make discretionary contributions.

The Company has not made any contributions

to the 401(k) plan for the years ended December 31, 2020, 2019, and 2018.

15 — Commitments and contingencies

The Company leases its vehicles and facilities

under non-cancelable operating leases expiring between January 2021 and January 2024.

Rent expense related to the Company’s

operating leases was approximately $ 4.2 , $ 4.8 million, and $ 3.8 million for the year ended December 31, 2020, 2019, and 2018, respectively.

minimum payments under non-cancelable leases are as follows:

Years ending December 31, (in thousands)

subscription services agreement

Company entered into a software subscription services agreement (the “SSA”) effective as of June 1, 2019.

is non-cancelable for a term of five years from the effective date and renewable at the election of the Company.

Payments under

the terms of the SSA are due quarterly in advance.

Serbia 433 492

Poland 313 528

Total $ 6,169 $ 4,095

Note 16 — Related parties transactions

Several of the Company’s minority shareholders are also members of the Board of Directors of some of the Company’s customers.

Total revenue recorded from the related parties for the year ended December 31, 2021, and 2020 and 2019 was approximately $ 4.3 million, $ 0.1 million, and $ 1.0 million, respectively.

Accounts receivable from the related parties was $ 0.6 million and $ 0.5 million as of December 31, 2021 and 2019, respectively.

There was no accounts receivable from related party as of December 31, 2020.

As of December 31, 2021 the Company had payables to one of its related parties in the amount of $ 0.6 million that was classified as Other current liabilities in consolidated balance sheet.

As discussed further in Note 2, the Company provides services to its customers utilizing personnel from the Affiliate.

The Affiliate performs services and support exclusively on behalf of the Company and its customers, however, the Company has no ownership in the Affiliate.

The Affiliate's equity holder is an employee of the Company.

Note 17 — Commitments and contingencies

Operating leases

The Company leases its vehicles and facilities under non-cancelable operating leases expiring between January, 2022 and July, 2026.

Rent expense related to the Company’s operating leases was approximately $ 4.2 million, $ 4.2 million, and $ 4.8 million for the year ended December 31, 2021, 2020, and 2019, respectively.

Future minimum payments under non-cancelable leases are as follows:

Years ending December 31, (in thousands) Lease Payments

Total $ 3,667

Software subscription services agreement

The Company entered into a software subscription services agreement (the “SSA”) effective as of June 1, 2019.

The SSA is non-cancelable for a term of 5 years from the effective date and renewable at the election of the Company.

Payments under the terms of the SSA are due quarterly in advance.

Total future minimum payments under the non-cancelable SSA are as follows:

ending December 31, (in thousands)

Company is subject to legal proceedings and claims that arise in the ordinary course of its business.

Management evaluates each

claim and provides for potential loss when the claim is probable to be paid and reasonably estimable.

While adverse decisions

in certain of these litigation matters, claims and administrative proceedings could have a material effect on a particular period’s

results of operations, subject to the uncertainties inherent in estimating future costs for contingent liabilities, management

believes that any future accruals with respect to these currently known contingencies would not have a material effect on the

financial condition, liquidity or cash flows of the Company.

There are no amounts required to be reflected in these consolidated

financial statements related to contingencies.

16 — Line of credit

October 2017, the Company entered into a loan agreement for a revolving line of credit facility (“Line of Credit”)

with a borrowing capacity of $ 0.5 million.

The Line of Credit is secured by substantially all of the Company’s assets and

was secured in order to provide credit support for a letter of credit facility and balances under the Company’s credit cards.

under the Line of Credit are subject to a variable interest rate, based on changes in the Prime Rate, as calculated published

by the Wall Street Journal.

Years ending December 31, (in thousands) Subscription Payments

The Company is subject to legal proceedings and claims that arise in the ordinary course of its business.

Management evaluates each claim and provides for potential loss when the claim is probable to be paid and reasonably estimable.

While adverse decisions in certain of these litigation matters, claims and administrative proceedings could have a material effect on a particular period’s results of operations, subject to the uncertainties inherent in estimating future costs for contingent liabilities, management believes that any future accruals with respect to these currently known contingencies would not have a material effect on the financial condition, liquidity or cash flows of the Company.

There are no amounts required to be reflected in these consolidated financial statements related to contingencies.

Note 18 — Line of credit

In October 2017, the Company entered into a loan agreement for a revolving line of credit facility (“Line of Credit”) with a borrowing capacity of $ 0.5 million.

The Line of Credit is secured by substantially all of the Company’s assets and was secured in order to provide credit support for a letter of credit facility and balances under the Company’s credit cards.

Borrowings under the Line of Credit are subject to a variable interest rate, based on changes in the Prime Rate, as calculated published by the Wall Street Journal.

There were no borrowings on the Line of Credit as of December 31, 2021 and 2020.

17 — Subsequent events

The vesting of the PSUs was certified by

the Board of Directors for release on February 12, 2021.

Approximately 0.7 million shares were issued upon vesting of the PSUs

and 0.75 million shares were withheld to cover $ 10.7 million in tax obligations.

On February 17, 2021, GDH, and

Riverview Group LLC, an affiliate of Millennium Management LLC (“Holder”), a holder of 6,383,269 the

Company’s outstanding publicly traded warrants (the “Public Warrants”) entered into a Warrant Exchange

Agreement (the “Exchange Agreement”).

The Public Warrants were previously issued pursuant to the Company’s

public offering registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a

prospectus dated October 4, 2018.

Pursuant to the Exchange Agreement, the Holder agreed to exchange each of its Public

Warrants for 0.3480 shares of the Company’s common stock, i.e., 2,221,378 shares (the “Shares”).

transaction is exempt from registration under Section 3(a)(9) of the Securities Act, as no commission or other remuneration

will be paid or given directly or indirectly for soliciting such transactions.

Management of the Company evaluated its December 31, 2020 consolidated

financial statements for subsequent events through March 5, 2021, the date the financial statements were available to be issued.

Note 19 — Subsequent events

On February 24, 2022, Russian forces launched significant military action against Ukraine, and sustained conflict and disruption in the region is possible.

The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions by Canada, the United Kingdom, the European Union, the U.S.

and other countries and organizations against officials, individuals, regions, and industries in Russia and Ukraine, and actions take by Russia in response to such sanctions, and each country’s potential response to such sanctions, tensions, and military actions could have a material effect on the Company’s operations.

For example, in response to increased sanctions, Russia could attempt to take control of assets in Russia

or Ukraine of companies registered in the United States, such as the Company.

Any such material adverse effect from the conflict and enhanced sanctions activity may disrupt the Company’s delivery of services, impair the Company's ability to complete financial or banking transactions, cause the Company to shift all or portions of its work occurring in the region to other countries, and may restrict the Company’s ability to engage in certain projects in the region or involving certain customers in the region.

The Company has a significant number of personnel in Ukraine and Russia.

The Company has no way to predict the progress or outcome of the situation, as the conflict and government reactions are rapidly developing and beyond the Company’s control.

Prolonged unrest, military activities, or broad-based sanctions, should they be implemented, could have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data