What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-28 compared with 2022-03-03 · 422 added, 316 removed, 762 unchanged (49% of the section changed)

2 unchanged sentences

Index to Consolidated Financial Statements

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

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

Consolidated Balance Sheets as of December 31, 2022 and 2021

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

Consolidated Statements of Loss and Comprehensive Loss for the Years Ended December 2022, 2021, and 2020

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the Years Ended December 31, 2022, 2021, and 2020

6 unchanged sentences

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”).

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of loss and comprehensive loss, convertible preferred stock and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2023 expressed an unqualified opinion.

Change in accounting principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2022 due to the adoption of Accounting Standards Update 2016-02:

Leases (Topic 842).

Basis for opinion

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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.

We are a public accounting firm registered with the 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.

1 unchanged sentence

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.

2 unchanged sentences

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

Critical audit matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

s/ GRANT THORNTON LLP

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San Francisco, California

March 3, 2022

February 28, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Grid Dynamics Holdings, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of Grid Dynamics

Holdings, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our report dated February 28, 2023 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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

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

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Mutual Mobile, Inc.

(“Mutual Mobile”), a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 1.3 and 0.1 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

As indicated in Management’s Report, Mutual Mobile was acquired during 2022.

Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of Mutual Mobile.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

s/ GRANT THORNTON LLP

San Francisco, California

February 28, 2023

GRID DYNAMICS HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

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Property and equipment, net 8,215 6,169

Operating lease right-of-use assets, net 7,694 —

Intangible assets, net 20,375 19,097

Deferred tax assets 2,731 5,609

Goodwill 45,514 35,958

Deferred tax assets 4,998 2,731

Other noncurrent assets 1,224 —

Total assets 411,146 256,719

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Accounts payable $ 3,897 $ 2,053

Accrued liabilities 1,150 628

Accrued compensation and benefits 13,065 10,562

Accrued income taxes 10,718 1,980

Other current liabilities 9,599 3,206

Operating lease liabilities, current 2,505 —

Accrued expenses and other current liabilities 8,525 10,749

Total current liabilities 38,710 25,344

Deferred tax liabilities 3,756 4,324

Operating lease liabilities, noncurrent 5,636 —

Total liabilities 48,102 29,668

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Additional paid-in capital 378,006 212,077

Retained earnings 15,093 22,793

Retained earnings/(accumulated deficit) ( 14,121 ) 15,093

Accumulated other comprehensive loss ( 848 ) ( 126 )

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GRID DYNAMICS HOLDINGS, INC.

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

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(In thousands, except per share data)

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Other income/(expenses), net 555 ( 2,502 ) 236

Income/(loss) before income taxes ( 2,452 ) ( 15,212 ) 15,449

Loss before income taxes ( 20,453 ) ( 2,452 ) ( 15,212 )

Provision/(benefit) for income taxes 8,761 5,248 ( 2,613 )

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

Net loss $ ( 29,214 ) $ ( 7,700 ) $ ( 12,599 )

Foreign currency translation adjustments, net of tax ( 722 ) ( 122 ) ( 4 )

Comprehensive income/(loss) $ ( 7,822 ) $ ( 12,603 ) $ 10,807

Earnings/(loss) per share

Comprehensive loss $ ( 29,936 ) $ ( 7,822 ) $ ( 12,603 )

Loss per share

Basic $ ( 0.42 ) $ ( 0.13 ) $ ( 0.28 )

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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

Balance at January 1, 2020 1,048 $ 9,187 21,644 $ 2 $ 18,650 $ 35,392 $ — $ 54,044

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

1 unchanged sentence

Conversion of preferred stock ( 1,048 ) ( 9,187 ) 1,048 1 9,187 — — 9,188

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

Consideration paid to Grid shareholders — — — — ( 123,865 ) — — ( 123,865 )

1 unchanged sentence

— — 28,088 2 204,323 — — 204,325

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

Exercise of stock options — — 18 — 99 — — 99

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Exchange of warrants into common stock — — 6,680 1 49,123 — — 49,124

— — 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

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

Issuance of common stock in 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 )

— — 2,060 — ( 49,296 ) — — ( 49,296 )

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

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

Preferred Stock Common Stock Additional

capital Retained

earnings Accumulated

Comprehensive

stockholders’

Shares Amount Shares Amount

Balance at January 1, 2022 — $ — 66,851 $ 7 $ 212,077 $ 15,093 $ (126) $ 227,051

Net loss — — — — — ( 29,214 ) — ( 29,214 )

Stock-based compensation — — — — 60,968 — — 60,968

Exercise of stock options — — 341 — 1,432 — — 1,432

Issuance of common stock in 2022 Offering, net of transaction costs of $ 253

— — 6,571 — 109,284 — — 109,284

Issuance of shares and payments of tax obligations resulted from net share settlement of vested stock awards — — 393 — ( 5,755 ) — — ( 5,755 )

Foreign currency translation adjustment, net of tax — — — — — — ( 722 ) ( 722 )

Balance at December 31, 2022

— $ — 74,156 $ 7 $ 378,006 $ ( 14,121 ) $ ( 848 ) $ 363,044

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

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Cash flows from operating activities

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

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

Net loss $ ( 29,214 ) $ ( 7,700 ) $ ( 12,599 )

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

Depreciation and amortization 6,626 5,049 2,672

Impairment of goodwill — — 139

Operating lease right-of-use assets amortization expense 3,021 — —

Bad debt expense 132 45 398

Deferred income taxes ( 3,633 ) 2,611 ( 4,135 )

Debt issuance cost amortization 71 — —

Stock-based compensation 60,968 33,036 20,006

Change in fair value of warrants — 979 —

Changes in operating assets and liabilities:

Changes in assets and liabilities:

Accounts receivable ( 8,738 ) ( 18,676 ) ( 1,418 )

1 unchanged sentence

Prepaid income taxes ( 3,450 ) 237 ( 410 )

Deferred transaction costs — — ( 1,878 )

Prepaid expenses and other current assets ( 1,176 ) 373 ( 1,101 )

Prepaid expenses and other assets ( 3,371 ) ( 1,176 ) 373

Accounts payable 1,729 957 ( 49 )

Accrued liabilities 18 ( 1,579 ) ( 552 )

Accrued compensation and benefits 1,694 873 ( 255 )

Operating lease liabilities ( 2,574 ) — —

Accrued income taxes 8,525 532 ( 166 )

Other current liabilities 2,037 ( 143 ) ( 159 )

Accrued expenses and other current liabilities 982 2,055 ( 1,722 )

Net cash provided by operating activities 31,652 17,973 5,932

1 unchanged sentence

Purchase of property and equipment ( 6,069 ) ( 4,716 ) ( 2,252 )

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

( 30,650 ) ( 16,087 ) —

Purchase of investments ( 1,000 ) — —

Acquisition of business, net of cash acquired ( 9,254 ) ( 30,650 ) ( 16,087 )

Net cash used in investing activities ( 16,323 ) ( 35,366 ) ( 18,339 )

Cash flows from financing activities

Proceeds from issuance of Common Stock from 2022 and 2021 Offerings 109,537 78,311 —

Proceeds from debt 5,000 — —

Proceeds from exercise of warrants — 48,145 —

Cash received from ChaSerg — — 208,997

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

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

Payments of tax obligations resulted from net share settlement of vested stock awards ( 5,755 ) ( 49,296 ) —

Proceeds from exercises of stock options, net of shares withheld for taxes 1,432 ( 27,528 ) 99

Payment of contingent consideration related to previously acquired businesses ( 6,933 ) — —

Repayment of debt ( 5,000 ) — —

Debt issuance cost ( 270 ) — —

Equity issuance costs ( 253 ) ( 498 ) ( 2,264 )

Sales of common and preferred stock — — 14,904

Payments of dividends — — ( 2,000 )

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 — —

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

Net cash provided by financing activities 97,758 49,134 82,967

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Supplemental disclosure of non-cash activities

Accrued software implementation costs $ — $ — $ 227

Acquisition fair value of contingent consideration issued for acquisition of business $ 3,288 $ 4,986 $ 1,947

$ 4,986 $ 1,947 $ —

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

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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 most significant subcontractor as of December 31, 2022 is GD AM, LLC (“Affiliate”), third-party contractor located in Armenia.

During the years ended December 31, 2021 and 2020 the Company had a similar subcontractor that ceased its operations in the beginning of 2022.

The Affiliates exclusively support and perform services on behalf of the Company and its customers.

The Company has no ownership in the Affiliates.

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.

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

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

The net income of the Affiliates was $ 0.7 million, $ 0.6 million and $ 0.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Use of estimates

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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.

Significant estimates include determination of fair value, useful lives and recoverability of intangible assets and goodwill, 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.

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.

Cash equivalents are short-term highly liquid investments and deposits with original maturities of three months or less.

Cash equivalents are stated at cost, which approximates fair value due to their short-term nature.

Accounts receivable and allowance for credit losses

Accounts receivable, less allowance for credit losses, 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.

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.

The allowance is based upon historical loss experience, as adjusted for the current market conditions and forecasts about future economic conditions.

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.

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

Contract assets

The Company classifies its right to consideration in exchange for deliverables as either a receivable or a contract asset.

A trade receivable is a right to consideration that is unconditional (i.e., only the passage of time is required before payment is due).

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

Contract assets are recorded when services have been provided but the Company does not have an unconditional right to receive consideration.

Contract assets primarily relate to fixed-fee contracts.

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 .

Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets, generally two to 12 years.

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

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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 .

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.

Average useful life of such costs is two to three years .

Amortization of internally developed software is recorded within Engineering, research, and development and Sales and marketing expenses in the consolidated statements of loss and comprehensive 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.

Internally developed software did not have any impairment in the years ended December 31, 2022, 2021 and 2020.

Business combinations

1 unchanged sentence

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

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.

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Impairments, if any, are charged directly to earnings.

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

As of December 31, 2022 and 2021, the Company had 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 .

Amortization is computed either on the straight-line basis over the asset’s useful lives or declining balance method ranging between two and 12 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.

1 unchanged sentence

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.

As of December 31, 2022 and 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.

4 unchanged sentences

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.

The Company determines if an arrangement is a lease or contains a lease at lease inception.

Assessment and classification of lease as either an operating or a financing is performed at the lease commencement date.

Operating lease liabilities and their corresponding right-of-use assets (“RoU Assets”) are initially measured based on the present value of future lease payments over the expected remaining lease term.

RoU Asset value is additionally adjusted by initial direct costs and incentives received.

Present value is calculated based in either interest rate implicit in lease agreement or, if not available, based on our incremental

borrowing rate.

Incremental borrowing rate reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

The Company typically only includes an initial lease term in its assessment of a lease arrangement.

Options to renew or terminate a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will exercise the renewal option.

RoU Assets are subject to periodic impairment tests.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

In accordance with ASC Topic 842, components of a lease should be split into three categories:

lease components, non-lease components, and non-components.

The fixed and in-substance fixed contract consideration (including any consideration related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.

The Company elected a practical expedient to account for lease and non-lease components together as a single lease component.

The Company also elected the short-term lease recognition exemption for all classes of lease assets with an original term of twelve months or less.

For transition, practical expedients were accepted to carry forward historical accounting for any expired or existing contracts that are or contain lease contracts and not to re-assess initial direct costs for any expired or existing leases.

Revenue recognition

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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.

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

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.

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.

4 unchanged sentences

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.

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

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.

26 unchanged sentences

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 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).

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 Topic 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).

For awards with performance conditions the compensation cost recognized is based on the actual or expected achievement of the performance condition.

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.

4 unchanged sentences

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.

Subject to ERISA regulations, an employee may elect to contribute an amount up to 90 % of compensation during each plan year not to exceed the annual maximum defined by the IRS.

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

3 unchanged sentences

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 provision for income taxes reflects a combination of

income earned and taxed in the various U.S.

federal and state, international and other jurisdictions.

9 unchanged sentences

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.

For the year 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.

The Company did not incur any restructuring expenses during the years ended December 31, 2022 and 2021, respectively.

Earnings per share

5 unchanged sentences

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.

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

As of December 31, 2022 and 2021 cash balances held in Ukraine and Russia combined equaled $ 0.8 million and $ 1.1 million, respectively.

Cash in these countries is used for the operational needs of the local entities and cash balances change with the expected operating needs of these entities.

Additionally the Company holds cash deposits in countries where the banking sector remains periodically unstable, banking and other financial systems generally do not meet the banking standards of more developed markets, and bank deposits made by corporate entities are not insured.

Such countries apart from Ukraine include Armenia, Moldova, and Mexico.

The Company places its cash with financial institutions considered stable in the region and conducts ongoing evaluations of the credit worthiness of the financial institutions with which it operates.

However, 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 trade receivable including billed and unbilled amounts at their face amounts less allowances.

Billed 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, 2022 and 2021:

As of December 31,

Accounts receivable 1 3

Billed receivable 2 1

Unbilled receivable 2 1

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

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

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

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Customer 2 10.6 % 11.0 % 11.8 %

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.

dollar includes EURO, British pounds, Mexican pesos, Moldovan leu and Indian rupees.

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

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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.

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.

2018-17, Consolidation (Topic 810):

Targeted Improvements to Related Party Guidance for Variable Interest Entities .

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.

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.

The Company will adopt according these changes according to the various timetables the FASB specifies.

In February 2016, the FASB issued ASU 2016-02 , Leases (Topic 842).

The standard supersedes previously existing lease guidance (“Topic 840”) and requires entities to recognize all leases, with the exception of leases with a term of twelve months or less, on the balance sheet as right-of-use assets (“RoU Assets”) and lease liabilities.

Disclosures should provide the information in the financial statements summarizing the amount, timing and cash flows arising from leasing.

The Company adopted Topic 842, effective January 1, 2022 using current period adjustment method.

Prior period amounts were not adjusted.

The adoption of Topic 842 on January 1, 2022 resulted in the recognition of RoU Assets for operating leases of $ 5.9 million and operating lease liabilities of $ 5.7 million.

The adoption of Topic 842 did not have an impact on the consolidated statement of loss and comprehensive loss, consolidated statement of changes in stockholders’ equity or the consolidated statement of cash flows.

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 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 .

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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 statements.

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

In March 2020, FASB issued ASU No.

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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.

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

Note 3 – Business combination

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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.

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.

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Note 4 — Acquisitions

Mutual Mobile — On December 23, 2022, the Company acquired 100 % of the equity interest of the software company Mutual Mobile Inc.

(“Mutual Mobile”).

Founded in 2009, Mutual Mobile is based in the United States and India, offers end-to-end design and development of next-generation applications, combining mobile, augmented/virtual/mixed reality, and cloud edge / IoT practices.

The acquisition of Mutual Mobile added approximately 180 employees to the Company’s headcount.

acquisition will accelerate Company’s strategic expansion into the India engineering market and further solidifies Grid Dynamics’ commitment to global growth.

The total purchase consideration is $ 16.1 million and consists of cash consideration of $ 12.8 million paid at closing, and fair value of the contingent consideration at the date of the acquisition of $ 3.3 million.

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

The contingent consideration is payable based on revenue and gross profit metrics to be achieved by Mutual Mobile 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.

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

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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.

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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.

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:

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as updated for any changes as of December 31, 2022 for Daxx, Tacit and Mutual Mobile:

Daxx Tacit Mutual Mobile

Current assets $ 4,527 $ 9,145 $ 4,982

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Goodwill 14,690 21,268 9,556

Other noncurrent assets — — 102

Total assets acquired $ 27,743 $ 43,792 $ 18,521

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Purchase price allocation $ 20,386 $ 37,617 $ 16,070

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.

Current assets acquired include cash and cash equivalents in the amount of $ 2.3 million, $ 3.0 million and $ 3.5 million for Daxx, Tacit and Mutual Mobile 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.

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 all 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 second half of 2021 the Company updated fair value of the 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.

For the acquisition of Mutual Mobile, the estimated fair values of the assets acquired and liabilities assumed are provisional and based on the information that was available as of the acquisition date.

The Company expects to complete the purchase price allocations as soon as practicable but no later than one year from the acquisition date.

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, 2022 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.

Daxx Tacit Mutual Mobile

Fair Value Useful Life Fair Value Useful Life Fair Value Useful Life

Customer relationships $ 4,234 8 years $ 11,737 12 years $ 3,453 8 years

Trade name 3,500 10 years 1,176 4 years 152 4 years

Non-compete agreements 440 2 years — — 144 2 years

Total identified intangible assets $ 8,174 $ 12,913 $ 3,749

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

Revenues generated by acquired companies during the period of one year starting from acquisition date and included in the Company’s consolidated statement of loss totaled $ 14.6 million, $ 44.9 million and $ 1.0 million during the years ended December 31, 2022, 2021 and 2020.

The following unaudited pro forma information presents the combined results of operations as if the acquisitions of Daxx, Tacit and Mutual Mobile had occurred at the beginning of the year preceding acquisition date.

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.

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.

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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.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

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.

Fair value of the contingent consideration liability is based on the Monte-Carlo model which is primarily based on forecasts 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.

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.

During the years ended December 31, 2022, 2021 and 2020 the Company completed three acquisitions under which the Company committed to make a cash earnout payment subject to attainment of specific performance targets.

The weighted average discount rates used to determine fair values of Daxx, Tacit and Mutual Mobile contingent considerations were 4.8 %, 13.5 % and 10.1 %, respectively.

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

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, 2022, 2021 and 2020 are as follows:

Contingent consideration payable as of December 31, 2019 $ —

Contingent consideration payable as of January 1, 2020 $ —

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

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

Acquisition date fair value of contingent consideration payable - Mutual Mobile 3,288

Payment of contingent consideration - Daxx ( 1,933 )

Payment of contingent consideration - Tacit ( 5,000 )

Contingent consideration payable as of December 31, 2022 $ 3,288

Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis

Estimates of fair value of financial instruments not carried at fair value on a recurring basis are generally subjective in nature, and are determined as of a specific point in time based on the characteristics of the financial instruments and relevant market information.

The Company’s financial assets and liabilities, are generally short-term in nature;

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

The following tables present the estimated fair values of the Company’s financial assets and liabilities not measured at fair value on a nonrecurring basis as of the dates indicated:

Fair Value Hierarchy

Balance Estimated Fair Value Level 1 Level 2 Level 3

December 31, 2022

Financial Assets:

Cash equivalents:

Money market funds $ 205,787 $ 205,787 $ 205,787 $ — $ —

December 31, 2021

Financial Assets:

Cash equivalents:

Money market funds $ 13,050 $ 13,050 $ 13,050 $ — $ —

Non-Marketable Securities Without Readily Determinable Fair Values

The Company holds investment in equity securities of a related party that do not have readily determinable fair values.

This investment is recorded at cost and is remeasured to fair value based on certain observable price changes or impairment events as they occur.

The carrying amount of the investment was $ 1.0 million as of December 31, 2022 and was classified as Other noncurrent assets in the Company’s consolidated balance sheets.

The Company did not hold investments in equity securities recorded at cost as of December 31, 2021.

Note 6 — Prepaid expenses and other current assets

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

The prepaid expenses and other current assets were as follows (in thousands):

As of December 31,

Prepaid expenses $ 3,323 $ 2,188

Guarantee deposits placed 2,295 345

Value added tax receivable 1,384 931

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Note 7 — Property and equipment, net

Property and equipment consist of the following:

Property and equipment, net consist of the following (in thousands):

(In Years) As of December 31,

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$ 11,679 $ 10,784

Machinery and automobiles 5 246 551

Furniture and fixtures 3 - 7

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Leasehold improvements 7 - 12

Machinery and automobiles 5 349 246

$ 15,341 $ 13,203

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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

Goodwill rollforward for the years ended December 31, 2022 and 2021 was as follows (in thousands):

Goodwill as of January 1, 2021 $ 14,690

Acquisition of Tacit 21,268

Goodwill as of December 31, 2021 $ 35,958

Acquisition of Mutual Mobile 9,556

Goodwill as of December 31, 2022 $ 45,514

There were no impairment losses of goodwill recognized as of December 31, 2022 and 2021.

Intangible assets consist of the following:

Intangible assets consist of the following (in thousands):

(In Years) As of December 31,

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$ 19,424 $ 15,971

Tradename 4 - 10

Tradenames 4 - 10

Non-compete agreements 2 584 440

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Intangible assets amortization expense for the years ended December 31, 2022, 2021, and 2020 was $ 2.5 million, $ 2.0 million, $ 0.1 million, respectively.

Note 9 — Other current liabilities

The components of other current liabilities were as follows:

Based on the carrying value of the Company’s existing intangible assets as of December 31, 2022, the estimated amortization expense for the future years is as follows:

Years ending December 31, (in thousands) Amount

Thereafter 8,125

Total $ 20,375

Note 9 — Accrued expense and other current liabilities

The components of accrued expense and other current liabilities were as follows (in thousands):

As of December 31,

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Value added tax payable 1,345 1,274

Accrued expenses 1,302 741

Deferred revenue 1,124 409

Customer deposits 754 798

Other liabilities 712 594

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

Total accrued expense and other current liabilities $ 8,525 $ 10,749

As of December 31, 2022 and December 31, 2021 the Company had payable to its related party in the amount of $ 0.6 million in each of the respective years that was classified as Accrued expense and other current liabilities in unaudited condensed consolidated balance sheet.

Note 10 — Debt

Revolving Credit Facility — On March 15, 2022, the Company entered into a Credit Agreement (the “2022 Credit Agreement”) by and among the Company, as borrower, the guarantors party thereto from time to time, the lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent for the lenders (the “Agent”).

The 2022 Credit Agreement provided for a secured multicurrency revolving loan facility with an initial aggregate principal amount of up to $ 30.0 million, with a $ 10.0 million letter of credit sublimit.

The Company could increase the size of the revolving loan facility up to $ 50.0 million, subject to certain conditions and additional commitments from existing and/or new lenders.

The 2022 Credit Agreement matures March 15, 2025.

At the Company’s option, borrowings under the 2022 Credit Agreement accrued interest at a per annum rate based on either (i) the base rate plus a margin ranging from 1.0 % to 1.5 %, (ii) an adjusted term Secured Overnight Financing Rate (“SOFR”) or adjusted the Euro Interbank Offer Rate (“EURIBOR”) (based on one, three or six-month interest periods) plus a margin ranging from 2.0 % to 2.5 %, or (iii) an adjusted daily simple SOFR rate (or SONIA rate in the case of loans denominated in pounds sterling, or SARON rate in the case of loans denominated in Swiss francs), plus a margin ranging from 2.0 % to 2.5 %, in each case, with the applicable margin determined based on the Company’s consolidated total leverage ratio.

The Company was also obligated to pay other closing fees, administration fees, commitment fees and letter of credit fees customary for a credit facility of this size and type.

The Company’s obligations under the 2022 Credit Agreement were required to be guaranteed by certain of its domestic subsidiaries meeting materiality thresholds set forth in the 2022 Credit Agreement.

Such obligations, including the guaranties, are secured by substantially all of the personal property of the Company and the Company’s subsidiary guarantors.

The 2022 Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments and acquisitions, make certain restricted payments, dispose of assets, enter into certain transactions with affiliates, and enter into burdensome agreements, in each case, subject to limitations and exceptions set forth in the 2022 Credit Agreement.

The Company is also required to maintain compliance with a consolidated total leverage ratio, determined in accordance with the terms of the 2022 Credit Agreement.

As of December 31, 2022, the Company was in compliance with all covenants contained in the 2022 Credit Agreement.

Line of Credit — In October, 2017, the Company entered into a loan agreement for a revolving line of credit facility (the “Line of Credit”) with a borrowing capacity of $ 0.5 million.

The Line of Credit was 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 were subject to a variable interest rate, based on changes in the Prime Rate, as calculated published by the Wall Street Journal.

The Company closed the Line of Credit in March of 2022.

As of December 31, 2022 and December 31, 2021, respectively, the Company did not have any outstanding debt under the 2022 Credit Agreement and Line of Credit.

Note 11 — Leases

A major part of the Company's lease obligations is for office real estate.

The Company may also lease corporate apartments, cars and office equipment.

Payments on some of our leases may depend on index or rate, including Consumer Price Index.

Such payments are included in the calculation of lease liability and assets at the commencement dates, all future changes are accounted as variable payments similar to other variable payments, such as common area maintenance, property and other taxes, utilities and insurance that are based on the lessor’s cost.

The Company’s leases have remaining lease terms ranging from 0.9 to 5.3 years .

Certain lease agreements may include the option to extend or terminate before the end of the contractual term and are often non-cancelable or cancellable only by the payment of penalties.

The Company includes these options in the lease term when it is reasonably certain that they will be exercised.

As of December 31, 2022, the Company had no finance leases.

Operating lease expense is recorded on a straight-line basis over the lease term and lease costs were as follows (in thousands):

For the year ended

December 31, 2022

Operating lease cost $ 3,268

Variable lease cost 43

Short-term lease cost 513

Total lease cost $ 3,824

Lease expense under operating lease agreements for the year ended December 31, 2021 and December 31, 2020 was $ 4.2 million in both periods.

Supplemental information related to operating lease transactions is as follows (in thousands):

For the year ended

December 31, 2022

Lease liability payments $ 2,888

Lease right-of-use assets obtained in exchange for liabilities $ 4,468

Non-cash net decrease in lease assets due to lease modifications $ ( 1,015 )

Non-cash net decrease in lease liability due to lease modifications $ 1,015

Weighted average remaining lease term and discount rate as of December 31, 2022 is as follows:

As of December 31, 2022

Weighted average remaining lease term, in years 3.77

Weighted average discount rate 5.0 %

As of December 31, 2022, operating lease liabilities will mature as follows (in thousands):

Years ending (in thousands) Lease Payments

Thereafter 86

Total lease payments 9,055

imputed interest ( 915 )

Total $ 8,140

There were no material lease agreements signed with related parties as of December 31, 2022.

As of December 31, 2022, the Company had committed to payments of $ 0.3 million related to operating lease agreement that had not yet commenced as of December 31, 2022.

These operating lease will commence in 2023 with lease term of two years .

The Company does not have any material finance lease agreements that had not yet commenced.

Note 12 — Revenue

Disaggregation of revenues

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

The tables below present disaggregated revenues from contracts with customers by customer 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.

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Vertical (in thousands)

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

Retail $ 99,681 $ 61,717 $ 33,975

Finance 17,515 13,589 12,479

Tech, Media and Telecom 98,334 67,689 45,362

CPG/Manufacturing 61,216 43,461 14,202

Finance 21,893 17,515 13,589

Other 29,358 20,898 4,155

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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.

As of December 31, 2022 and 2021 the Company did not have material contract assets.

Contract liabilities were $ 1.1 million and $ 0.4 million as of December 31, 2022 and 2021, respectively.

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.

ASC Topic 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, 2022.

This disclosure is not required for:

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All of the Company’s contracts met one or more of these exemptions as of December 31, 2022.

For the years ended December 31, 2022, 2021, and 2020 the Company recorded revenue from its related parties of $ 6.8 million, $ 4.3 million and $ 0.1 million respectfully.

As of December 31, 2022 and 2021 accounts receivable from related parties were $ 0.9 million and $ 0.6 million, respectively.

Note 13 — Income taxes

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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):

The tax effects of significant items comprising the Company’s deferred taxes as of December 31, 2022 and 2021 are as follows:

As of December 31,

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Deferred tax assets

Accrued compensation $ 818 $ 545

Allowance for bad debt 74 105

State tax accrual 13 13

Stock-based compensation $ 4,004 $ 1,328

Capitalized R&D 1,056 —

Accrued compensation 931 818

Lease liability 465 —

Net operating loss 401 755

State tax accrual 243 13

Allowance for bad debt 105 74

Credits — 195

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Deferred tax liabilities

Fixed asset basis $ ( 153 ) $ ( 84 )

Intangible assets $ ( 5,207 ) $ ( 4,599 )

Lease right-of-use assets ( 465 ) —

Fixed asset basis ( 291 ) ( 153 )

Other foreign DTLs — ( 24 )

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(in thousands)

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

Net operating losses, federal $ 1,466 N/A

Net operating losses, state $ 1,487 2034

Tax credits, federal $ 186 2040 - 2041

Tax credits, state $ 75 Does not expire

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

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State tax ( 7.5 ) ( 0.4 ) 3.8

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 ) %

Permanent and other items ( 1.0 ) ( 10.8 ) ( 2.8 )

Stock-based compensation 4.4 114.4 16.8

Tax credits 13.9 3.8 0.1

Foreign rate differential ( 11.9 ) ( 4.9 ) ( 2.6 )

GILTI ( 75.67 ) % ( 4.78 ) % —

Foreign inclusion adjustments ( 10.8 ) ( 75.7 ) ( 4.8 )

Foreign intangible amortization ( 2.3 ) ( 15.7 ) —

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With respect to foreign jurisdictions, tax years 2015 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 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.

As part of the 2017 Tax Cuts and Jobs Act, Section 174 was amended to require that specified research and experimental (SR&E) expenditures be capitalized and amortized but delayed the effective date of this amendment to tax years beginning

January 1st, 2022 or later.

The amortization period is 5 years for domestic research expenditures and 15 years for foreign research expenditures using a mid-year convention.

The Company evaluated its R&D expenses both in the US and foreign jurisdictions and determined there were approximately $ 4.4 million of expenses worldwide subject to capitalization and treated as a temporary adjustment.

The President signed the CHIPS and Science Act and Inflation Reduction Act (“IRA”) into law on August 9 and 16, 2022, respectively.

The IRA provides funding for climate and energy provisions.

The new law includes a corporate alternative minimum tax, a stock buyback tax, and increased IRS enforcement funding.

The CHIPS Act includes funding for the semiconductor industry in the US.

Both the Inflation Reduction Act and the CHIPS and Science Act were enacted in 2022.

Both CHIPS Act and IRA were 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.

The legislation suspended 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 disallowed 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.

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.

On February 9, 2022, Governor Gavin Newsom signed Senate Bill 113 (SB 113) into law, bringing an early end to California’s 2020-2022 NOLs deduction suspension, thus, allowing taxpayers to deduct NOLs on 2022 tax return.

SB 113 also removed the $5.0 million business tax credit cap and updated the elective pass-through entity tax credit.

As such, the Company utilized the California net operating loss generated in prior periods to offset California taxable income in 2022.

Note 14 — Stockholders’ equity

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At Closing, March 5, 2020, the Company had issued 50.8 million shares of common stock.

On September 12, 2022, the Company concluded a follow-on public offering of 6.6 million shares of its common stock.

These amounts included shares sold upon exercise in full of the underwriters' option to purchase additional shares at a price of $ 17.5 per share.

Morgan Securities, LLC and William Blair & 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 were $ 109.5 million.

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.

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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.

Therefore, as of December 31, 2020, 2021 and 2022 there was no preferred stock outstanding, respectively.

Founders and underwriter shares subject to earnout provisions

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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.

All of the Earnout Shares vested and are no longer subject to transfer restrictions during the years ended December 31, 2022 and 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”).

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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.

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.

Each whole warrant entitled the holder to purchase one share of common stock at a price of $ 11.50 .

Each warrant was currently exercisable and was set to expire on March 5, 2025 (five years after the completion of the Business Combination), or earlier upon redemption or liquidation.

The Company was set to 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 had equaled or exceeded $ 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 was 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.

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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.

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 0.02 million public warrants on August 30, 2021 for a redemption price of $ 0.01 per public warrant.

As of December 31, 2022 and 2021, there were no outstanding private or public warrants.

Note 15 — 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:

Employee stock-based compensation cost recognized in the consolidated statements of loss and comprehensive loss was as follows:

Twelve months ended December 31,

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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.

Additional $ 3.4 million of stock-based compensation cost was recognized for the year ended December 31, 2021, in connection to partial vesting and early release of 2021 PSU that would otherwise have been recognized in the first quarter of 2022.

2018 Stock Plan - Effective November 12, 2018, GDI adopted 2018 Stock Option Plan.

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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.

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.

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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.

1) Year-over-year growth in specified revenue for the Performance Period, expressed as a percentage increase over the previous fiscal year revenue (“Revenue Growth”), and

2) Contribution Margin for the Performance Period as a percentage of specified 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.

As of December 31, 2022, 7.1 million shares of stock remained available for grant 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 grant date fair value of each NSO issued under both plans was estimated on the date of grant using the Black-Scholes-Merton option pricing model.

The key assumptions for the years ended December 31, 2022 and 2021 are provided in the following table.

For the years ended December 31,

2022 2021 2020

Dividend yield — % — % — %

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0.81 %- 1.33 %

0.31 %- 0.80 %

Expected term in years 6.11 6.11 6.11

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$ 14.40 -$ 29.07

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.

$ 6.86 -$ 11.89

The Company used a zero percent dividend yield assumption for all Black-Scholes-Merton stock option-pricing calculations.

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.

Treasury yield 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.

On March 5, 2020 the Company accelerated vesting of certain options due to completion of Business Combination.

The simplified method is being used to calculate expected term instead of actual data due to a lack of relevant historical data.

On March 5, 2020 the Company accelerated vesting of certain options due to completion of the Business Combination.

It resulted in recognition of additional expenses of $ 2.5 million.

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The following table sets forth the activity for the 2018 Stock Plan for the years ended December 31, 2022 and 2021 after conversion:

Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value Weighted Average Contractual Term

Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value, thousands Weighted Average Contractual Term

Options outstanding converted as of March 5, 2020 4,678,011 $ 3.54

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Options outstanding as of December 31, 2021 1,916,101 $ 3.54 $ 65,971

Options exercised ( 286,842 ) $ 3.54

Options forfeited ( 30,448 ) $ 3.54

Options outstanding as of December 31, 2022 1,598,811 $ 3.54 $ 12,279 6.04

Options vested and exercisable as of December 31, 2022 1,551,925 $ 3.54 $ 11,919 6.02

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The following table summarizes option activity for for the years ended December 31, 2022, 2021 and 2020 under the 2020 Plan:

Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value Weighted Average Contractual Term

Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value, thousands Weighted Average Contractual Term

Options outstanding as of January 1, 2020 — $ — —

Options granted 2,087,000 $ 8.37

Options forfeited ( 144,600 ) $ 8.13

Options outstanding as of December 31, 2020 1,942,400 $ 8.38 $ 8,200

Options granted 766,250 $ 21.61

Options exercised ( 112,087 ) $ 8.20

Options forfeited ( 371,876 ) $ 8.88

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Number of Shares Weighted Average Grant Date Fair Value

Unvested awards as of December 31, 2019 — $ —

Unvested awards as of January 1, 2020 — $ —

Awards granted 3,053,969 $ 8.22

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Unvested awards as of December 31, 2021 1,493,915 $ 8.82

Awards granted 1,414,925 $ 14.05

Awards vested and released ( 662,872 ) $ 9.26

Unvested awards as of December 31, 2022 2,245,968 $ 11.99

The total unrecognized compensation expenses related to 2020 Stock Plan RSUs as of December 31, 2022 was $ 20.1 million to be expensed on a straight-line basis over 1.31 years.

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Number of Shares Weighted Average Grant Date Fair Value

Unvested awards as of December 31, 2019 — $ —

Unvested awards as of January 1, 2020 — $ —

Awards granted 1,452,696 $ 7.92

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Unvested awards as of December 31, 2021 112,085 $ 15.69

Awards granted 518,938 $ 39.41

Awards vested ( 112,085 ) $ 15.69

Unvested awards as of December 31, 2022 518,938 $ 39.41

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.

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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 Board certified the achievement of 2021 PSUs with 271 % performance factor and the remaining shares were released on February 25, 2022.

Approximately 0.06 million shares were issued and 0.05 million shares were withheld to cover $ 0.8 million in tax obligations.

As of December 31, 2022 achievement of 2022 PSUs goals was estimated probable with 256 % performance factor.

Refer to Note 19 for details.

The Company recognized $ 45.0 million compensation expense related to 2022 PSUs was recognized during the year ended December 31, 2022.

The total unrecognized compensation expenses related to 2022 PSUs as of December 31, 2022 was $ 7.4 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, 2022, 2021 and 2020 was as follows:

For the years ended December 31,

2022 2021 2020

(in thousands)

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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.

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.

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(in thousands, except per share data)

Numerator for basic earnings per share

Net income/(loss)

$ ( 7,700 ) $ ( 12,599 ) $ 10,807

Income attributable to preferred shareholders — — ( 377 )

Net income/(loss) available to common shareholders $ ( 7,700 ) $ ( 12,599 ) $ 10,430

Denominator for basic earnings per share

Weighted-average shares outstanding – basic 58,662 44,737 21,118

Basic earnings/(loss) per share $ ( 0.13 ) $ ( 0.28 ) $ 0.49

Numerator for diluted earnings per share

Net income available to common shareholders $ ( 7,700 ) $ ( 12,599 ) $ 10,430

Denominator for diluted earnings per share

Basic weighted-average common shares outstanding

58,662 44,737 21,118

Dilutive impact of options in the money — — 4

Weighted-average shares outstanding for diluted earnings per share 58,662 44,737 21,122

Diluted earnings/(loss) per share $ ( 0.13 ) $ ( 0.28 ) $ 0.49

Numerator for basic and diluted loss per share

Net loss $ ( 29,214 ) $ ( 7,700 ) $ ( 12,599 )

Denominator for basic and diluted loss per share

Weighted-average shares outstanding – basic and diluted 69,197 58,662 44,737

Net loss per share

Basic $ ( 0.42 ) $ ( 0.13 ) $ ( 0.28 )

Diluted $ ( 0.42 ) $ ( 0.13 ) $ ( 0.28 )

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.

share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

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

2022 2021 2020

(in thousands)

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Note 17 — Segment and geographic information

In accordance with ASC 280, Segment Reporting , the Company has determined it has one operating segment and one reportable segment.

In accordance with ASC Topic 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.

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the nature of services, the type or class of customer for which they provide their services, and the methods used to provide their services.

Geographic Information

Significant portion of the Company’s revenues is generated within North America.

Refer to Note 12 (“Revenue”) for details.

Long-lived assets include property and equipment, net of accumulated depreciation and amortization and is summarized as follows (in thousands):

Long-lived assets include property and equipment, net of accumulated depreciation and amortization.

Physical locations and values of the Company’s long-lived assets are summarized below:

As of December 31,

Long-lived assets, net of accumulated depreciation and amortization 2021 2020

( in thousands)

Ukraine $ 2,468 $ 2,267

Russia 1,920 1,023

United States 1,317 715

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Poland 989 313

Moldova 605 305

Armenia 445 —

Other 733 2,136

Total $ 8,215 $ 6,169

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 18 — 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

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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.

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.

The vesting of PSUs with the performance factors based on 2022 results was certified by the Board of Directors for release on February 21, 2023.

Approximately 0.7 million shares were issued upon vesting of 2022 PSUs and 0.7 million shares were withheld to cover $ 8.0 million in tax obligations.

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