What changed in this filing

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Item 9A. Controls and Procedures

2023-03-10 compared with 2022-03-11 · 169 added, 157 removed, 786 unchanged (29% of the section changed)

1 unchanged sentence

Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021, as required by the Rule 13a-15(b) under the Exchange Act.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022, as required by Rule 13a-15(b) under the Exchange Act.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022.

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Based on its evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2022.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which appears herein.

Changes in Internal Control Over Financial Reporting

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Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

A control system, no matter how well conceived and operated, can provide only reasonable, not

absolute, assurance that the objectives of the control system are met.

Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

42 unchanged sentences

We have audited the accompanying consolidated balance sheets of Information Services Group, Inc.

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income and comprehensive income, of stockholders’ equity and of cash flows for the years then ended, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income and comprehensive income, of stockholders’ equity and of cash flows for the years then ended, including the related notes and schedule of valuation and qualifying accounts for the years then ended appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

91 unchanged sentences

Interest expense

Foreign currency transaction gain (loss)

Foreign currency transaction gain

Income before taxes

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Comprehensive income:

Foreign currency translation, net of tax expense (benefit) of ($ 724 ) and $ 760 , respectively

Foreign currency translation loss, net of tax benefit of ($ 859 ), and ($ 724 ), respectively

Comprehensive income

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Balance December 31, 2020

Other comprehensive income

Other comprehensive loss

Treasury shares repurchased

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Issuance of common stock for RSUs vested

Accrued dividends on unvested shares

Cash dividends paid to shareholders ($ 0.09 per share)

Stock based compensation

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Proceeds from issuance of ESPP shares

Issuance of treasury shares

Issuance of common stock for RSUs vested

Issuance of common stock for Change 4 Growth acquisition

Accrued dividends on unvested shares

Cash dividends paid to shareholders

Cash dividends paid to shareholders ($ 0.15 per share)

Stock based compensation

9 unchanged sentences

Amortization of intangible assets

Deferred tax (benefit) expense from stock issuances

Write-off of deferred financing costs

Deferred tax benefit from stock issuances

Amortization of deferred financing costs

1 unchanged sentence

Change in fair value of contingent consideration

(Benefits) provisions for accounts receivable

Deferred tax provision (benefit)

Provisions (benefits) for accounts receivable

Deferred tax provision

Changes in operating assets and liabilities:

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Contract liabilities

Accrued expenses

Accrued expenses and other liabilities

Net cash provided by operating activities

Cash flows from investing activities

Change 4 Growth acquisition (Note 4)

Purchase of furniture, fixtures and equipment

Neuralify acquisition (Note 4)

Net cash used in investing activities

Cash flows from financing activities

Proceeds from revolving facility

Principal payments on borrowings

Proceeds from issuance of employee stock purchase plan shares

Debt financing costs

Payments related to tax withholding for stock-based compensation

4 unchanged sentences

Effect of exchange rate changes on cash

Net increase in cash, cash equivalents, and restricted cash

Net (decrease) increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents , and restricted cash, beginning of period

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allowance for doubtful accounts, useful lives of furniture, fixtures and equipment and definite lived intangible assets, depreciation expense, fair value assumptions in evaluating goodwill for impairment, income taxes and deferred tax asset valuation and the valuation of stock-based compensation.

On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.

Any future asset impairment charges, increase in allowance for doubtful accounts, or restructuring charges could be more likely if the negative effects of the COVID-19 pandemic continue and will be dependent on the severity and duration of this crisis.

To date, the Company has not observed any material impairments of its assets or a significant change in the fair value of assets due to the COVID-19 pandemic.

Business Combinations

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Acquisitions are accounted for using the purchase method of accounting and the purchase price is allocated to the net assets acquired based upon their estimated fair values at the date of acquisition.

The excess of the purchase price over the net assets are recorded as goodwill.

The excess of the purchase price over the net assets is recorded as goodwill.

Acquisition-related costs are expensed as incurred and recorded in selling, general and administrative expenses.

5 unchanged sentences

Restricted cash consists of cash and cash equivalents which the Company has committed for rent deposits and are not available for general corporate purposes.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

Accounts Receivable, Contract Assets and Allowance for Doubtful Accounts

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However, our actual experience may vary from these estimates.

If the financial condition of our clients were to deteriorate, resulting in their inability or unwillingness to pay their invoices, we may need to record additional allowances or write-offs in future periods.

If the financial condition of our clients were to deteriorate, resulting in their inability or unwillingness to pay their invoices, we

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

may need to record additional allowances or write-offs in future periods.

To the extent the provision relates to a client’s inability or unwillingness to make required payments, the provision is recorded as bad debt expense, which is classified within selling, general and administrative expense in the accompanying consolidated statement of comprehensive income.

2 unchanged sentences

Historically, the Company’s unbilled receivable reserves and write-offs have not been significant.

Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist primarily of prepaid expenses for insurance, conferences and deposits for facilities, programs and promotion items.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist primarily of prepaid expenses for insurance, conferences, deposits for facilities, programs, software and promotion items.

Furniture, Fixtures and Equipment, net

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There was no impairment of goodwill during the years ended December 31, 2022 and 2021, nor were any indicators identified in 2022 or 2021 that would suggest that it is more likely than not that the Company’s reporting unit is impaired.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

Long-Lived Assets

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If these or other factors indicate the carrying amount of the asset group, which is the lowest level for which identifiable cash flows exist that are separately identifiable from other cash flows, may not be recoverable, the Company determines whether impairment has occurred through the use of an undiscounted cash flow analysis.

If impairment has occurred, the Company recognizes a loss for the difference between the carrying amount and the fair value of the asset group.

If impairment

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

has occurred, the Company recognizes a loss for the difference between the carrying amount and the fair value of the asset group.

The fair value of the asset group is measured using market prices or, in the absence of market prices, an estimate of discounted cash flows.

4 unchanged sentences

Deferred issuance costs are classified as a direct deduction to the long-term debt in the accompanying consolidated balance sheet.

Amortization of debt issuance costs is included in interest expense and totaled $ 0.4 million for both years ended December 31, 2021 and 2020.

Amortization of debt issuance costs is included in interest expense and totaled $ 0.3 million and $ 0.4 million for the years ended December 31, 2022 and 2021, respectively.

Revenue Recognition

We recognize our revenues by applying the following five steps:

(1) identify the contract with the customer;

(2) identify the performance obligation(s) in the contract;

(3) determine the transaction price;

(4) allocate the transaction price to the performance obligation(s);

and (5) recognize revenue when (or as) the company satisfies the performance obligation(s).

(1) identifying the contract with the customer;

(2) identifying the performance obligation(s) in the contract;

(3) determining the transaction price;

(4) allocating the transaction price to the performance obligation(s);

and (5) recognizing revenue when (or as) the Company satisfies the performance obligation(s).

We principally derive revenues from fees for services generated on a project-by-project basis.

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These contracts can be fixed in fees or can be based on the level of savings achieved related to its communications costs.

Additionally, these contracts can also have a fixed component and a contingent component that is based on the savings generated by the

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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Additionally, these contracts can also have a fixed component and a contingent component that is based on the savings generated by the Company.

For network and software contingency contracts with termination for convenience clauses, revenue is recognized over time due to the existence of provisions for payment for progress incurred to date plus a reasonable profit margin.

1 unchanged sentence

We also enter into arrangements for the sale of automation software licenses and related delivery of consulting or implementation services at the same time or within close proximity to one another.

Such software-related performance obligations include the sale of on-premise software and software-as-a-service licenses, as well as other software-related services.

Revenue associated with the software performance obligation is primarily recognized at the point at which the software is installed or access is granted, while revenue associated with the implementation service performance obligation is recognized over the software implementation period as a percentage of hours incurred to date as compared to the total expected hours.

Such software-related performance obligations include the sale of on-

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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premise software, hybrid and software-as-a-service licenses, as well as other software-related services.

Revenue associated with the software performance obligation is primarily recognized at the point at which the software is installed or access is granted.

Revenue associated with events is recognized at the point of time at which the event occurs and is primarily comprised of sponsorships.

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These provisions typically prohibit us from performing a defined range of services that we might otherwise be willing to perform for potential clients.

These provisions are generally limited to six to twelve month s and usually apply only to specific employees or the specific project team.

These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

When we recognize revenues in advance of billing, those revenues are recorded as contract assets.

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Reimbursable expenditures totaled $ 0.8 million and $ 0.3 million for the years ended December 31, 2022 and 2021, respectively.

The decrease was attributable to pandemic-related travel restrictions that occurred throughout the majority of 2021 and 2020.

The increase was attributable to pandemic-related travel restrictions being lifted in 2022.

Direct Costs and Expenses for Advisors

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We grant restricted stock units with a fair value that is determined based on the closing price of our common stock on the date of grant.

Such grants generally vest ratably over a four - year period for employees and a three-year period for directors.

Such grants generally vest ratably over a two -to- four - year period for employees and a three-year period for directors.

Stock-based compensation expense is recognized ratably over the applicable service period.

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The Company extends credit to its customers based upon an evaluation of the customer’s financial condition and credit history and generally does not require collateral.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

Treasury Stock

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Treasury stock is recorded on the consolidated balance sheet at cost as a reduction of stockholders’ equity.

Shares are released from Treasury at original cost on a first-in, first-out basis, with any gain on the sale reflected as an adjustment to additional paid-in capital.

Losses are generally reflected as an adjustment to additional paid-in capital.

Shares are released from Treasury at original cost on a first-in, first-out basis, with any gain or loss on the sale reflected as an adjustment to additional paid-in capital.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

Foreign Currency Translation

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Contingent consideration (2)

(1) The current and noncurrent contingent consideration are included in “Accrued expenses and other current liabilities” and “Other liabilities,” respectively, as of December 31, 2022.

(2) Contingent consideration is included in “Accrued expenses and other current liabilities” as of December 31, 2021.

The current and noncurrent Contingent consideration is included in “Accrued expenses and other current liabilities” and “Other liabilities,” respectively, as of December 31, 2020.

The fair value measurement of this contingent consideration is classified within Level 3 of the fair value hierarchy and reflects the Company’s own assumptions in measuring fair values using the income approach .

The fair value measurement of contingent consideration is classified within Level 3 of the fair value hierarchy and reflects the Company’s own assumptions in measuring fair values using the income approach .

In developing these estimates, the Company considered certain performance projections, historical results and industry trends.

This amount was estimated through a valuation model that incorporated probability-weighted assumptions related to the achievement of these milestones and the likelihood of the Company making payments.

These cash outflow projections have then been discounted using a rate of 2.50 % .

These cash outflow projections have then been discounted using a rate of 2.5 % and 2.0 % for December 31, 2022, and 2021, respectively.

The following table represents the change in the contingent consideration liability during the years ended December 31, 2022 and 2021:

Beginning Balance

Payments of contingent consideration

Neuralify contingent consideration accrued

Neuralify earnout adjustment (1)

Neuralify earnout payment

Change 4 Growth contingent consideration accrued

Accretion of contingent consideration

Ending Balance

(1) Neuralify earnout adjustment relates to a change in the achievement of a certain milestone specific to the acquisition.

INFORMATION SERVICES GROUP, INC.

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(tabular amounts in thousands, except per share data)

The Company’s financial instruments include outstanding borrowings of $ 74.5 million at December 31, 2021 and $ 78.8 million at December 31, 2020, which are carried at amortized cost.

The Company’s financial instruments include outstanding borrowings of $ 79.2 million as of December 31, 2022 and $ 74.5 million as of December 31, 2021, which are carried at amortized cost.

The fair value of debt is classified within Level 3 of the fair value hierarchy.

The fair value of the Company’s outstanding borrowings is approximately $ 73.6 million and $ 77.7 million at December 31, 2021 and 2020, respectively.

The fair value of the Company’s outstanding borrowings was approximately $ 76.5 million and $ 73.6 million at December 31, 2022 and December 31, 2021, respectively.

The fair values of debt have been estimated using a discounted cash flow analysis based on the Company's incremental borrowing rate for similar borrowing arrangements.

The incremental borrowing rate used to discount future cash flows is 2.0 % and 2.5 % for December 31, 2021 and 2020, respectively.

The incremental borrowing rate used to discount future cash flows was 6.3 % and 2.0 % for December 31, 2022 and 2021, respectively.

The Company also considered recent transactions of peer group companies for similar instruments with comparable terms and maturities as well as an analysis of current market conditions and interest rates.

As of December 31, 2021 and 2020, there were no borrowings under the revolver.

The Company is currently in compliance with its financial covenants.

As of December 31, 2022 and 2021, there were $ 9.0 million and $ 0.0 million borrowings, respectively, under the revolver.

The Company was in compliance with its financial covenants under the 2020 Credit Agreement as of December 31, 2022.

We use the asset and liability method to account for income taxes, including recognition of deferred tax assets and liabilities for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax basis.

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As a smaller reporting company, this guidance is effective for fiscal years beginning after December 15, 2022.

The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.

The Company does not expect the adoption of this guidance to have a material impact on its financial statements.

NOTE 3—REVENUE

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A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The majority of our contracts have a single performance obligation as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, not distinct.

For contracts with multiple performance obligations, including our managed service (GovernX) implementation, software and implementation, and research and subscription contracts, the Company allocates the transaction price to each performance obligation using our best estimate of the standalone selling price, or SSP, of each distinct good or service in the contract.

For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using our best estimate of the standalone selling price, or SSP, of each distinct product or service in the contract.

The Company establishes SSP based on management’s estimated selling price or observable prices of products or services sold separately in comparable circumstances to similar clients.

Our contracts may include promises to transfer multiple services and products to a client.

1 unchanged sentence

Contract Balances

The timing of revenue recognition, billings, and cash collections results in billed accounts receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities).

The timing of revenue recognition, billings and cash collections result in billed accounts receivables, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities).

Our clients are billed based on the type of arrangement.

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Generally, billing occurs subsequent to revenue recognition, resulting in contract assets.

However, we sometimes receive advances or deposits before revenue is recognized, resulting in contract liabilities.

Contract assets and liabilities are generally reported in the current assets and current liabilities sections of the consolidated balance sheet, at the end of each reporting period, based on the timing

However, we sometimes receive advances or deposits before

INFORMATION SERVICES GROUP, INC.

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(tabular amounts in thousands, except per share data)

of the satisfaction of the related performance obligation(s).

revenue is recognized, resulting in contract liabilities.

For multi-year software sales with annual invoicing, we perform a significant financing component calculation and recognize the associated interest income throughout the duration of the financing period.

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Contract liabilities

Revenue recognized for the year ended December 31, 2021 that was included in the contract liability balance at January 1, 2021 was $ 3.5 million and represented primarily revenue from our software and implementation contracts, managed services contracts, and research contracts.

Revenue recognized for the year ended December 31, 2022 that was included in the contract liability balance at January 1, 2022 was $ 6.7 million and represented primarily revenue from our fixed-fee and subscription contracts.

Remaining performance obligations

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NOTE 4 — ACQUISITION

Neuralify Acquisition

On July 8, 2020, a subsidiary of the Company executed an Asset Purchase Agreement with Neuralify, LLC (“the Agreement”), a firm focused on intelligent automation enablement solutions and services, and consummated the acquisition of substantially all of the assets and assumed certain liabilities of Neuralify, LLC.

The primary reason for the acquisition was to expand the capabilities of ISG’s pure-play automation service line, ISG Automation.

The purchase price was comprised of $ 2.3 million of cash consideration paid at closing and certain former equity holders of Neuralify, LLC will also have the right to receive additional consideration paid via earn-out payments during the next 18 months , if certain financial targets are met.

At the Agreement date, the Company estimated such earn-out payments would be up to $ 4.9 million.

The following table summarizes the consideration transferred to acquire Neuralify, LLC and the amounts of identified assets acquired, and liabilities assumed as of the Agreement date:

Agreemint Acquisition

On March 28, 2022, ISG executed an asset purchase agreement for the purchase of substantially all of the assets of Agreemint, which is an automated, platform-based contracting solution that will enhance the value of ISG GovernX and our other platform solutions now in development.

We determined the transaction to be an asset acquisition as substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset:

the software and related intellectual property rights.

The cash paid for the acquisition as of the balance sheet date is reflected in Cash flows from investing activities of the Statement of Cash Flows.

The related software acquired, which is capitalized within “Furniture, fixtures and equipment, net”, will be depreciated over four years when put into service at the end of the transition period underway to integrate the offering with our ISG GovernX cloud solution.

Change 4 Growth Acquisition

On October 31, 2022, a subsidiary of the Company executed an Asset Purchase Agreement with Change 4 Growth, LLC and consummated the acquisition of substantially all the assets, and assumed certain liabilities, of Change 4 Growth, LLC.

The purchase price was comprised of $ 3.8 million of cash consideration, $ 0.6 million of shares of ISG common stock issued promptly after closing and Change 4 Growth, LLC will also have the right to receive additional consideration paid via earn-out payments, if certain financial targets are met.

At the agreement date, the company estimated such earn-out payment would be $ 5.6 million.

The following table summarizes the preliminary consideration transferred to acquire Change 4 Growth, LLC and the amounts of identified assets acquired, and liabilities assumed as of the agreement date:

Accrued working capital adjustment

ISG common stock

Contingent consideration

Total allocable purchase price

The primary factors that drove the goodwill recognized, the majority of which is deductible for tax purposes, are the inclusion of legacy Neuralify workforce and know-how which expands the Company’s pure-play automation service line, ISG Automation.

Costs associated with this acquisition are included in the selling, general and administrative expenses in the Consolidated Statement of Income and Comprehensive Income and totaled $ 0.1 million during the year ended December 31, 2020.

This business combination was accounted for under the acquisition method of accounting, and as such, the aggregate purchase price was allocated on a preliminary basis to the assets acquired and liabilities assumed based on estimated fair values as of the closing date.

Based on the valuation and other factors as described above, the purchase price assigned to intangible assets and the amortization period were as follows:

INFORMATION SERVICES GROUP, INC.

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(tabular amounts in thousands, except per share data)

Accounts receivable

Contract assets

The amount of recognized identifiable assets acquired and liabilities assumed as of the agreement date:

Accounts receivable and contract assets

Intangible assets

Accounts payable

Accounts payable and accrued expense

Contract liabilities

Net assets acquired

The Consolidated Statement of Income and Comprehensive Income includes the results of the Neuralify acquisition subsequent to the closing.

The primary factors that drove the goodwill recognized, the majority of which is deductible for tax purposes, were the inclusion of legacy Change 4 Growth workforce and associated organizational change management expertise to enhance and expand the offerings of the ISG Enterprise Change service line.

Costs associated with this acquisition are included in the selling, general and administrative expense in the Consolidated Statement of Income and Comprehensive Income and totaled $ 0.2 million during the year ended December 31, 2022.

Based on the valuation and other factors as described above, the purchase price assigned to intangible assets and the amortization period were as follows:

Purchase Price

Amortizable intangible assets:

Trademark and trade name

Customer relationships

Noncompete agreements

Total intangible assets

The Consolidated Statement of Income and Comprehensive Income includes revenue from the Change 4 Growth acquisition subsequent to the closing.

Had the acquisition occurred as of January 1, 2022, approximately $ 7.0 million of revenue would have been recognized.

NOTE 5—NET INCOME PER COMMON SHARE

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Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would share in the net income of the Company.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

The following tables set forth the computation of basic and diluted earnings per share:

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NOTE 6—ACCOUNTS RECEIVABLE AND CONTRACT ASSETS

Accounts receivable and contract assets, net of valuation allowance, consisted of the following:

Accounts receivable and contract assets, net of allowance, consisted of the following:

Years Ended December 31,

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Receivables from related parties

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

NOTE 7—FURNITURE, FIXTURES AND EQUIPMENT

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Years Ended December 31,

Estimated Useful Lives

Computer hardware, software and other office equipment

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Accumulated depreciation

Depreciation expense was $ 2.7 million for both the years ended December 31, 2021 and 2020.

Depreciation expense was $ 3.0 million and $ 2.7 million for both years ended December 31, 2022 and 2021, respectively.

NOTE 8—LEASES

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As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of the lease payments.

The Company leases its office space and office equipment under long-term operating lease agreements which expire at various dates through September 2025, some of which include options to extend the leases for up to 3 years , and some of which included options to terminate the leases within 1 year.

The Company leases its office space and office equipment under long-term operating lease agreements which expire at various dates through March 2027, some of which include options to extend the leases for up to 3 years , and some of which included options to terminate the leases within 1 year.

Under the operating leases, the Company pays certain operating expenses relating to the office equipment and leased property.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

The components of lease expense were as follows:

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Financing cash flows from finance leases

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

Supplemental balance sheet information related to leases was as follows:

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(2) Finance lease right-of-assets are included in “Furniture, fixtures and equipment, net”

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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Maturities of lease liabilities were as follows:

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Less imputed interest

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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NOTE 9—INTANGIBLE ASSETS

The carrying amount of intangible assets, net of accumulated amortization and impairment charges, as of December 31, 2022 and 2021 consisted of the following:

Estimated Useful Lives

Amortizable intangibles:

2 unchanged sentences

Trademark and trade names

Estimated Useful Lives

Amortizable intangibles:

2 unchanged sentences

Trademark and trade names

Amortization expense was $ 2.6 million and $ 3.5 million for the years ended December 31, 2021 and 2020, respectively.

The estimated future amortization expense subsequent to December 31, 2021, is as follows:

INFORMATION SERVICES GROUP, INC.

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(tabular amounts in thousands, except per share data)

Amortization expense was $ 2.3 million and $ 2.6 million for the years ended December 31, 2022 and 2021, respectively.

The estimated future amortization expense subsequent to December 31, 2022 is as follows:

NOTE 10—GOODWILL

The changes in the carrying amount of goodwill for the year ended December 31, 2021 and 2020 are as follows:

The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021 are as follows:

Balance as of January 1

Foreign currency impact

Net balance as of January 1

Balance as of January 1

Change 4 Growth acquisition

Foreign currency impact and adjustments

1 unchanged sentence

Foreign currency impact and adjustments

Net balance as of December 31

Balance as of December 31

NOTE 11—ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The components of accrued liabilities at December 31, 2021 and 2020 are as follows:

The components of accrued liabilities for the years ended December 31, 2022 and 2021 are as follows:

Accrued payroll, incentive, and vacation

2 unchanged sentences

Current operating lease liability

Accrued license expense

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

NOTE 12—FINANCING ARRANGEMENTS AND LONG-TERM DEBT

1 unchanged sentence

Senior secured credit facility

Revolver borrowings

Debt issuance costs

1 unchanged sentence

Long-term debt

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

Aggregate annual maturities of debt obligations by calendar year are as follows:

On March 10, 2020, the Company amended and restated its senior secured credit facility to include a $ 86.0 million term facility and to increase the revolving commitments per the revolving facility (the “2020 Credit Agreement”) from $ 30.0 million to $ 54.0 million.

On March 10, 2020, the Company amended and restated its senior secured credit facility to include an $ 86.0 million term facility and to increase the revolving commitments per the revolving facility (the “2020 Credit Agreement”) from $ 30.0 million to $ 54.0 million.

The material terms under the 2020 Credit Agreement are as follows:

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● The Company’s direct and indirect existing and future wholly owned domestic subsidiaries serve as guarantors to the Company’s obligations under the senior secured facility.

● At the Company’s option, the credit facility bears interest at a rate per annum equal to either (i) the “Base Rate” (which is the highest of (a) the rate publicly announced from time to time by the administrative agent as its “prime rate”, (b) the Federal Funds Rate plus 0.5 % per annum and (c) the Eurodollar Rate , plus 1.0 % ), plus the applicable margin (as defined below) or (ii) Eurodollar Rate (adjusted for maximum reserves) as determined by the Administrative Agent, plus the applicable margin.

● At the Company’s option, the credit facility bears interest at a rate per annum equal to either (i) the “Base Rate” (which is the highest of (a) the rate publicly announced from time to time by the administrative agent as its “prime rate”, (b) the Federal Funds Rate plus 0.5 % per annum and (c) the Eurodollar Rate , plus 1.0 % ), plus the applicable margin or (ii) Eurodollar Rate (adjusted for maximum reserves) as determined by the Administrative Agent (as defined in the 2020 Credit Agreement), plus the applicable margin.

The applicable margin is adjusted quarterly based upon the Company’s quarterly leverage ratio.

● The term loan is repayable in nineteen consecutive quarterly installments of $ 1,075,000 each that commenced on June 30, 2020 and a final payment of the outstanding principal amount of the term loan on the Maturity Date.

● The term loan is repayable in nineteen consecutive quarterly installments of $ 1,075,000 that commenced on June 30, 2020 and a final payment of the outstanding principal amount of the term loan on the Maturity Date.

● Mandatory repayments of term loans shall be required from (subject to agreed exceptions) (i) 100 % of the proceeds from asset sales by the Company and its subsidiaries, (ii) 100 % of the net proceeds from issuances of debt and equity by the Company and its subsidiaries and (iii) 100 % of the net proceeds from insurance recovery and condemnation events of the Company and its subsidiaries.

● The senior secured credit facility contains a number of covenants that, among other things, place restrictions on matters customarily restricted in senior secured credit facilities, including restrictions on indebtedness (including guarantee obligations), liens, fundamental changes, sales or disposition of property or assets, investments (including loans, advances, guarantees and acquisitions), transactions with affiliates, dividends and other payments in respect of capital stock, optional payments and modifications of other material debt instruments, negative pledges and agreements restricting subsidiary distributions and changes in line of business.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

distributions and changes in line of business.

In addition, the Company is required to comply with a total leverage ratio and fixed charge coverage ratio.

● The senior secured credit facility contains customary events of default, including cross-default to other material agreements, judgment default and change of control.

The Company’s financial statements include outstanding borrowings of $ 74.5 million and $ 78.8 million at December 31, 2021 and December 31, 2020, respectively, which are carried at amortized cost.

The Company’s financial statements include outstanding borrowings of $ 79.2 million and $ 74.5 million as of December 31, 2022 and December 31, 2021, respectively, which are carried at amortized cost.

The fair value of debt is classified within Level 3 of the fair value hierarchy.

The fair value of the Company's outstanding borrowings is approximately $ 73.6 million and $ 77.7 million at December 31, 2021 and December 31, 2020, respectively.

The fair value of the Company's outstanding borrowings was approximately $ 76.5 million and $ 73.6 million at December 31, 2022 and December 31, 2021, respectively.

The fair values of debt have been estimated using a discounted cash flow analysis based on the Company's incremental borrowing rate for similar borrowing arrangements.

The incremental borrowing rate used to discount future cash flows is 2.0 % and 2.5 % for December 31, 2021 and 2020, respectively.

The Company also considered recent transactions of peer group

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

companies for similar instruments with comparable terms and maturities as well as an analysis of current market conditions and interest rates.

As of December 31, 2021 and 2020, there were no borrowings under the revolver.

The Company is currently in compliance with its financial covenants.

The incremental borrowing rate used to discount future cash flows was 6.3 % and 2.0 % as of December 31, 2022 and December 31, 2021, respectively.

As of December 31, 2022 and December 31, 2021 there were $ 9.0 million and $ 0.0 million borrowings, respectively, under the revolver.

The Company was in compliance with its financial covenants under the 2020 Credit Agreement as of December 31, 2022.

Refer to Note 18 – Subsequent Event for additional information regarding the Company’s 2020 Credit Agreement.

NOTE 13—COMMITMENTS AND CONTINGENCIES

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All material liabilities of which management is aware are properly reflected in the financial statements at December 31, 2022 and 2021.

Neuralify Contingent Consideration

As of December 31, 2021, the Company has recorded a liability of $ 2.4 million representing the estimated fair value of contingent consideration related to the acquisition of Neuralify, all of which is classified as current and included in accrued expenses on the consolidated balance sheet.

Change 4 Growth Contingent Consideration

As of December 31, 2022, the Company has recorded a liability of $ 5.6 million representing the estimated fair value of contingent consideration related to the acquisition of Change 4 Growth, of which $ 1.5 million was classified as current and included in accrued expenses on the consolidated balance sheet.

NOTE 14—RELATED PARTY TRANSACTIONS

From time to time, the Company may have receivables and payables with employees and shareholders.

The Company had outstanding receivables from related parties, including shareholders, totaling $ 0.2 million and $ 0.1 million for December 31, 2021 and 2020, respectively, and no outstanding payables.

The Company had outstanding receivables from related parties, including shareholders, totaling $ 0.3 million and $ 0.2 million as of December 31, 2022 and 2021, respectively, and no outstanding payables.

These transactions related to personal withholding taxes paid on behalf of expatriate employees.

NOTE 15—INCOME TAXES

The components of income before income taxes for the years ended December 31, 2021 and 2020 consists of the following:

The components of income before income taxes for the years ended December 31, 2022 and 2021 consist of the following:

Years Ended December 31,

Total income before income taxes

The components of the 2021 and 2020 income tax provision are as follows:

INFORMATION SERVICES GROUP, INC.

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(tabular amounts in thousands, except per share data)

The components of the 2022 and 2021 income tax provision are as follows:

Years Ended December 31,

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Total noncurrent deferred tax liability

Net noncurrent deferred tax liability

Net deferred tax liability

Net noncurrent deferred tax assets/(liability)

Net deferred tax assets/(liability)

A valuation allowance was established at December 31, 2022 and 2021 due to estimates of future utilization of net operating loss carryovers in the U.S.

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The valuation allowance at December 31, 2022 and 2021 also includes a full valuation for the Company’s foreign tax credit carryovers and foreign taxes on its controlled foreign corporations.

As of December 31, 2021, the Company has foreign net operating loss (NOL) carryforwards of approximately $ 11.2 million.

As of December 31, 2022, the Company had foreign net operating loss (NOL) carryforwards of approximately $ 10.3 million.

If not utilized, these NOL carryforwards begin to expire in 2023.

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Tax positions that previously failed to meet the more likely than not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met.

Previously recognized tax positions that no longer meet the more likely than not recognition threshold should be derecognized in the first subsequent financial reporting

Previously recognized tax positions that no longer meet the more likely than not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

It is the Company’s policy to accrue for interest and penalties related to its uncertain tax positions within income tax expense.

INFORMATION SERVICES GROUP, INC.

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period in which that threshold is no longer met.

It is the Company’s policy to accrue for interest and penalties related to its uncertain tax positions within income tax expense.

A tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period is as follows:

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At the 2020 Annual Meeting, our stockholders approved an amendment to the Incentive Plan to increase the number of shares of common stock available for issuance under the Incentive Plan by 5,500,000 shares (the “Incentive Plan Amendment”).

As of December 31, 2021, there were 3,936,086 and 1,038,513 shares available for grant under the amended and restated Incentive Plan and ESPP, respectively.

As of December 31, 2022, there were 3,085,373 and 847,124 shares available for grant under the Incentive Plan and ESPP, respectively.

The Company recognized $ 7.5 million and $ 6.5 million in employee stock-based compensation expense during the years ended December 31, 2022 and 2021, respectively.

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Dividends accrue and will be paid if and when the restricted shares vest.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

The Company also granted RSUs to specific employees which have the following characteristics:

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Provided the employee continues to be employed through specific date set forth in the award, the RSUs will vest on such date if specific financial performance is met, otherwise the RSUs will be forfeited.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

Time-Based RSU Vesting:

So long as the employee continues to be employed through the fourth anniversary of the grant date, the RSUs will become 100 % vested on such date.

If an employee’s employment is terminated (i) at any time during the vesting period due to the employee’s death, disability or retirement prior to the applicable vesting date or (ii) without cause by the Company after 50 % of the relevant period has elapsed, then the RSUs will vest pro rata based on the period of time worked relative to such period.

So long as the employee continues to be employed through the anniversary of the grant date, the RSUs will become 100 % vested on such date.

If an employee’s employment is terminated (i) at any time during the vesting period due to the employee’s death, disability or retirement prior to the applicable vesting date or (ii) so long as the employee continues to be employed through the vesting dates detailed in the award agreement, the RSUs will become vested according to the agreement.

However, no shares will be distributed until the applicable pro rata vesting date (and, in the case of the Performance-Based RSUs, only if and to the extent that the performance target is achieved).

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As of December 31, 2022, there was $ 10.3 million of unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of 2.1 years.

There were 3.9 million shares available for issuance at December 31, 2022 under the Incentive Plan.

Employee Stock Purchase Plan

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The ESPP, which is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code, is implemented utilizing three -month offerings with purchases occurring at three -month intervals.

The ESPP administration is overseen by the Company’s Compensation Committee.

The ESPP administration is overseen by the Compensation Committee of the Company’s Board of Directors.

Employees are eligible to participate if they are employed by the Company for at least 20 hours per week and more than five months in a calendar year.

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Employees may end their participation in an offering at any time during the offering period, and participation ends automatically upon termination of employment.

The Compensation Committee may at any time amend or terminate the ESPP, except that no such amendment or termination

The Compensation Committee may at any time amend or terminate the ESPP, except that no such amendment or termination may adversely affect shares previously granted under the ESPP.

The Company may issue new shares for the ESPP using treasury shares or newly issued shares.

INFORMATION SERVICES GROUP, INC.

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may adversely affect shares previously granted under the ESPP.

The Company may issue new shares for the ESPP using treasury shares or newly issued shares.

For the year ended December 31, 2022, the Company issued 191,389 shares for the ESPP.

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The Company does not measure or monitor gross profit or operating income by geography or any other measure or metric, other than consolidated, for the purposes of making operating decisions or allocating resources.

INFORMATION SERVICES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(tabular amounts in thousands, except per share data)

NOTE 18 — RESTRUCTURING CHARGES

2020 Restructuring Plan

In the third and fourth quarters of 2020, the Company took restructuring actions to lower our operating expenses structurally and permanently relative to revenue and to accelerate the transformation of our business (the “Restructuring Plan”).

Most of these actions are based on our recent experience and learning in the COVID-19 pandemic and a resulting review of our operations, which continues to address certain operating expenses such as occupancy expense and salaries and related expenses.

A summary of the activity affecting the Company's accrued contractual termination benefit liability for the year ended December 31, 2021 is as follows:

Restructuring Plan

Balance at January 1, 2020

Amounts accrued

Amounts paid/incurred

Balance at December 31, 2021

The $ 2.3 million of net restructuring charges was primarily related to contractual termination benefits, and was recorded in selling, general and administrative expenses.

NOTE 18—SUBSEQUENT EVENT

On February 22, 2023, the Company amended the credit agreement the firm originally entered on March 10, 2020.

The amended agreement includes the conversion of the term loan to a $ 140.0 million all-revolver credit facility at more favorable terms, which eliminates mandatory principal payments and extends the agreement’s maturity to February 2028.

EXHIBIT INDEX

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001-33287), and incorporated herein by reference).

Retirement Agreement dated as of June 10, 2021, between the Company and David E.

Change in Control Agreement dated as of January 7, 2011, between the Company and Michael P.

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001-33287), and incorporated herein by reference).

Amended and Restated Credit Agreement, dated as of March 10, 2020, among Information Services Group, Inc., various lenders and Bank of America, N.A., as Administrative Agent (previously filed as Exhibit 10.22 to the Registrant’s Form 10-K filed with the SEC on March 11, 2020 (Commission File Number:

001-33287), and incorporated herein by reference).

Amendment No.

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001-33287), and incorporated herein by reference).

Third Amended and Restated Credit Agreement, dated as of February 22, 2023 among Information Services Group, Inc., various lenders and Bank of America, N.A., as Administrative Agent (previously filed as Exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on February 23, 2023 (Commission File Number:

001-33287), and incorporated herein by reference).

Computation of Earnings Per Share (included in Consolidated Statement of Comprehensive Income to the Consolidated Financial Statements included in Part II—Item 8 herein).

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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 9A. Controls and Procedures