HEALTHCARE TRIANGLE, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K) – Marketscreener.com

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03/08/2022 | 08:34am EST

 The following discussion summarizes the significant factors affecting the operating results, financial condition, liquidity, and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the related notes thereto, and the consolidated financial statements and the related notes thereto all included elsewhere in this report. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity, and capital resources, and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, and in the sections entitled "Special Note Regarding Forward-Looking Statements" and "Risk Factors" contained in the Company's final prospectus for its initial public offering filed with the Securities and Exchange Commission ('SEC").  

Overview

  Healthcare Triangle, Inc. is a leading healthcare information technology company focused on advancing innovative, industry-transforming solutions in the areas of cloud services, data science, professional and managed services for the Healthcare and Life Sciences industry.  The Company was formed on October 29, 2019, as a Nevada corporation and then converted into a Delaware corporation on April 24, 2020, to provide IT and data services to the Healthcare and Life Sciences ("HCLS") industry. The business commenced on January 1, 2020, after the Parent transferred its s Life Sciences business to us. As of December 31, 2021, we had a total of 77 full time employees, 272 sub-contractors, including 191 certified cloud engineers, 111 Epic Certified EHR experts and 23 MEDITECH Certified EHR experts. Many of the senior management team and the members of our board of directors hold advanced degrees and some are leading experts in software development, regulatory science, and market access. During the twelve months ended December 31, 2021, we generated revenues of approximately $35.1 million compared to revenue of $31.3 million for the twelve months ended December 31, 2020 which represents an increase of $3.9 million or 13% compared to the previous year.  Our approach leverages our proprietary technology platforms, extensive industry knowledge, and healthcare domain expertise to provide solutions and services that reinforce healthcare progress. Through our platform, solutions, and services, we support healthcare delivery organizations, healthcare insurance companies, pharmaceutical, and Life Sciences, biotech companies, and medical device manufacturers in their efforts to improve data management, develop analytical insights into their operations, and deliver measurable clinical, financial, and operational improvements.  We offer a comprehensive suite of software, solutions, platforms, and services that enables some of the world's leading healthcare and pharma organizations to deliver personalized healthcare, precision medicine, advances in drug discovery, development and efficacy, collaborative research and development, respond to real-world evidence, and accelerate their digital transformation. We combine our expertise in the healthcare technology domain, cloud technologies, DevOps and automation, data engineering, advanced analytics, AI/ML, IoT, security, compliance, and governance to deliver platforms and solutions that drive improved results in the complex workflows of Life Sciences, biotech, healthcare providers, and payers. Our differentiated solutions, enabled by our intellectual property and delivered as a service, provide advanced analytics, data science applications, and data aggregation in these highly regulated environments in a more compliant, secure, and cost-effective manner to our customers.  Our deep expertise in healthcare allows us to reinforce our clients' progress by accelerating their innovation. Our healthcare IT services include Electronic Health Records (EHR) and software implementation, optimization, extension to community partners, as well as application managed services, and backup and disaster recovery capabilities on public cloud. Our 24x7 managed services are used by hospitals and health systems, payers, Life Sciences, and biotech organizations in their effort to improve health outcomes and deliver deeper, more meaningful patient and consumer experiences. Through our services, our customers achieve a return on investment in their technology by delivering measurable improvements. Combined with our software and solutions, our services provide clients with an end-to-end partnership for their technology innovation.    40     Our Business Model  The majority of our revenue is generated by our full-time employees who provide software services and Managed Services and Support to our clients in the Healthcare and Life Sciences industry. Our software services include strategic advisory, implementation and development services and Managed Services and Support include post implementation support and cloud hosting. Our CloudEz and DataEz platforms became commercially available to deploy under solution delivery model in 2019 and Readabl.AI platform from last quarter of 2020. While these platforms are commercially available, we continue to develop and upgrade them on a regular basis.  We are in the early stages of marketing CloudEz, DataEz and Readabl.AI as our SaaS offerings on a subscription basis, which we expect will provide us with recurring revenues. We do not yet have enough information about our competition or customer acceptance of the proposed SaaS offerings to determine whether or not recurring subscription revenue will have a material impact on our revenue growth. Our SaaS offerings are commercially available from the first quarter of 2022.  

Impacts of the COVID-19 Pandemic

The COVID-19 pandemic has had, and is likely to continue to have, a severe and unprecedented impact on the world and on our business. Measures to prevent its spread, including government-imposed restrictions on large gatherings, closures of face-to-face events, "shelter in place" health orders and travel restrictions have had a significant effect on certain of our business operations. In response to these business disruptions, which include a transition to remote working, reducing certain of our discretionary expenditures and eliminating non-essential travel particularly with respect to COVID-19 impacted operation and complying with health and safety guidelines to protect employees, contractors, and customers.  The Company reported sequential growth in revenue in 2020; the healthcare revenue was lower in the second and third quarters of 2020 due to COVID-19 as many hospitals delayed investments in new projects or upgrade; however, the Company witnessed strong growth in Life Sciences revenue due to investments in research and development for drug discovery to address COVID-19 challenges and healthcare revenues have returned to pre-COVID-19 levels in the fourth quarter 2020. We have obtained necessary funding to manage our short-term working capital requirements. We have not altered any credit terms with our customers and the realization from the customers have generally been on time. We have been able to service our debt and other obligations on time. There has been no material impact on our operational liquidity and capital resources on account of COVID-19.  On May 5, 2020, the Company received a PPP loan pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") amounting to $1.5 million. The principal and interest on the PPP loans are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.  The Company has been notified by its lender that the Company's PPP loan is forgiven in whole on account of fulfilling the eligibility criteria and therefore this amount has been recognized by us as other income in financial year 2020.  On February 9, 2021, the Company received a PPP loan pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") amounting to $1.1 million. The principal and interest on the PPP loans are forgivable after eight weeks if the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over five years at an interest rate of 1%, with a deferral of payments for the first six months.  The Company has applied for waiver to its lender and waiting for approval after which this amount shall be recognized as other income.  Because of COVID-19, healthcare and Life Sciences organizations are accelerating research, rethinking patient care, and maintaining clinical and operational continuity during this unprecedented time for the global health system. COVID-19 has necessitated the adoption of digital communication channels and remote working technology within the Healthcare and Life Sciences industry at a rapid pace.  We believe our proprietary platforms and solutions address these challenges. Our business is focused on providing digital platform solutions to healthcare organizations and it is our mission to adequately address COVID-19 challenges for the benefit of our customers and society in general. As a result, consumers have better personal care, convenience, and value. We believe that COVID-19 is expected to drive increased utilization of technology during and after the pandemic, and such shift to a virtual approach creates a unique opportunity for our business to shape the new virtual-oriented experiences of businesses through our cloud technology and services.    41                                  Key Factors of Success  We believe that our future growth, success, and performance are dependent on many factors, including those mentioned below. While these factors present significant opportunities for us, they also represent the challenges that we must successfully address in order to grow our business and improve our results of operations.  

Investment in scaling the business

  We need to continuously invest in research and development to build new solutions, sales, and marketing to promote our solutions to new and existing customers in various geographies, and other operational and administrative functions in systems, controls and governance to support our expected growth and our transition to a public company. We anticipate that our employee strength will increase because of these investments.  

Adoption of our solutions by new and existing customers

We believe that our ability to increase our customer base will enable us to drive growth. Most of our customers initially deploy our solutions within a division or geography and may only initially deploy a limited set of our available solutions. Our future growth is dependent upon our existing customers' continued success and renewals of our solutions agreements, deployment of our solutions to additional divisions or geographies and the purchase of subscriptions to additional solutions. Our growth is also dependent on the adoption of our solutions by new customers. Our customers are large organizations who typically have long procurement cycles which may lead to declines in the pace of our new customer additions.  

Subscription services adoption

  The key factor to our success in generating substantial recurring subscription revenues in future will be our ability to successfully market and persuade new customers to adopt our SaaS offerings. We are in the early stages of marketing our SaaS offerings such as DataEz, CloudEz and Readabl.AI, and do not yet have enough information about our competition or customer acceptance to determine whether or not recurring subscription revenue from these offerings will have a material impact on our revenue growth.  

Mix of solutions and software services revenues.

  Another factor to our success is the ability to sell our solutions to the existing software services customers. During the initial period of deployment by a customer, we generally provide a greater number of services including advisory, implementation and training. At the same time, many of our customers have historically purchased our solutions after the deployment. Hence, the proportion of total revenues for a customer associated with software services is relatively high during the initial deployment period. While our software services help our customers achieve measurable improvements and make them stickier, they have lower gross margins than solution-based revenue. Over time, we expect the revenues to shift towards recurring and subscription-based revenues..                        Components of Results of Operations  Revenues 

We provide our services and manage our business under these operating segments:

   • Software Services     • Managed Services and Support     • Platform Services     42     Software Services  The Company earns revenue primarily through the sale of software services that is generated from providing strategic advisory, implementation, and development services. The Company enters into Statement of Work (SOW) which provides for service obligations that need to be fulfilled as agreed with the customer. The majority of our software services arrangements are billed on a time and materials basis and revenues are recognized over time based on time incurred and contractually agreed upon rates. Certain software services revenues are billed on a fixed fee basis and revenues are typically recognized over time as the services are delivered based on time incurred and customer acceptance. We recognize revenue when we have the right to invoice the customer using the allowable practical expedient under ASC 606-10-55-18 since the right to invoice the customer corresponds with the performance obligations completed.  

Managed Services and Support

Managed Services and Support include post implementation support and cloud hosting. Managed Services and Support are a distinct performance obligation. Revenue for Managed Services and Support is recognized rateably over the life of the contract.  Platform Services 

Platform Services from CloudEz, DataEz and Readabl.AI are offered as a solution delivery model till 2021. We have launched our platforms as Software as a Service (SaaS) on a subscription model.

The revenue from solutions delivery model contains a series of separately identifiable and distinct services that represent performance obligations that are satisfied over time. During the periods presented the company generated Platform revenue on solution delivery model only, which is non-recurring revenue.

  Our SaaS agreements will be generally non-cancellable during the term, although customers typically will have the right to terminate their agreements for cause in the event of material breach.  SaaS revenues will be recognized rateably over the respective non-cancellable subscription term because of the continuous transfer of control to the customer. Our subscription arrangements will be considered service contracts, and the customer will not have the right to take possession of the software Segment
wise revenue breakup.  Cost of Revenue  Cost of revenue consists primarily of employee-related costs associated with the rendering of our services, including salaries, benefits and stock-based compensation expense, the cost of subcontractors, travel costs, cloud hosting charges and allocated overhead the cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscription services due to the direct labor costs and costs of subcontractors. Our business and operational models are designed to be highly scalable and leverage variable costs to support revenue-generating activities.  While we may grow our headcount overtime to capitalize on our market opportunities, we believe our increased investment in automation, electronic health record integration capabilities, and economies of scale in our operating model, will position us to grow our platform solutions revenue at a greater
rate than our cost of revenue.    43     Operating Expenses  Research and Development  Research and development expense (majorly our investment in innovation) consists primarily of employee-related expenses, including salaries, benefits, incentives, employment taxes, severance, and equity compensation costs for our software developers, engineers, analysts, project managers, and other employees engaged in the development and enhancement of our cloud-based platform applications. Research and development expenses also include certain third-party consulting fees. Our research and development expense excludes any depreciation and amortization.  We expect to continue our focus on developing new product offerings and enhancing our existing product offerings. As a result, we expect our research and development expense to increase in absolute dollars, although it may vary from period to period as a percentage of revenue.  

Sales and Marketing

  Sales and marketing expense consists primarily of employee-related expenses, including salaries, benefits, commissions, travel, discretionary incentive compensation, employment taxes, severance, and equity compensation costs for our employees engaged in sales, sales support, business development, and marketing. Sales and marketing expense also includes operating expenses for marketing programs, research, trade shows, and brand messages, and public relations costs.  We expect our sales and marketing expenses to continue to increase in absolute dollar terms as we strategically invest to expand our business, although it may vary from period to period as a percentage of total revenues.  

General and Administrative

  Our general and administrative expenses consist primarily of employee-related expenses including salaries, benefits, discretionary incentive compensation, employment taxes, severance, and stock-based compensation expenses , for employees who are responsible for management information systems, administration, human resources, finance, legal, and executive management. The general and administrative expenses also include occupancy expenses (including rent, utilities, and facilities maintenance), professional fees, consulting fees, insurance, travel, contingent consideration, transaction costs, integration costs, and other expenses. Our general and administrative expenses exclude depreciation and amortization.  

In the nearest future, we expect our general and administrative expenses to continue to increase to support business growth. Over the long term, we expect general and administrative expenses to decrease as a percentage of revenue.

Depreciation and Amortization Expenses

  Our depreciation and amortization expense consists primarily of depreciation of fixed assets, amortization of Customer relationship and capitalized software development costs, and amortization of intangible assets. We expect our depreciation and amortization expense to increase as we expand our business organically and through acquisitions.  

Other Income (Expense), Net

Other income (expense), net consists of finance cost and gains or losses on foreign currency.

Deferred revenues

Advanced billings to clients in excess of revenue earned are recorded as deferred revenue until the revenue recognition criteria are met.

Unbilled accounts receivable

Unbilled accounts receivable is a contract asset related to the delivery of our professional services for which the related billings will occur in a future period. Unbilled receivables are classified as accounts receivable on the consolidated balance sheet.

   44    

Although we believe that our approach to estimates and judgments regarding revenue recognition is reasonable, actual results could differ and we may be exposed to increases or decreases in revenue that could be material.

Provision for Income Taxes

  Provision for income taxes consists of federal and state income taxes in the United States, including deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes.  

Pay check Protection Program

  On February 9, 2021, we received a PPP loan pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") amounting to $1.06 million. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.  The unforgiven portion of the PPP loan is payable over five years at an interest rate of 1%, with a deferral of payments for the first six months.  The Company has utilized the proceeds for purposes in line with the terms of the PPP.  

Results of Operations

  The following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenues for each of the periods indicated:                                                   Three Months Ended                                             Twelve Months Ended                                                     December 31,                                                   December 31,                                    2021         % Sales          2020         % Sales          2021          % of Sales          2020         % of Sales Revenue                       $  9,188,823         100 %    $  8,994,843          100 %   $  35,269,737          100 %      $ 31,338,936           100 % Cost of Revenue (exclusive of depreciation /amortization)                   6,919,638          75 %       6,590,291           73 %      24,748,429           70 %        22,753,067            73 % Research & Development           1,482,727          16 %         273,663            3 %       5,257,439           15 %         1,743,079             6 % Sales and Marketing              1,959,760          21 %       1,321,356           15 %       4,760,948           13 %         2,424,842             8 % General and Administrative       1,378,620          15 %         111,702            1 %       4,440,405           13 %         2,438,042             8 % Depreciation and Amortization                       788,275           9 %         199,627            2 %       1,421,565            4 %           803,194             3 % Other income ( PPP loan forgiveness)                            -            0 %      (1,512,758 )         17 %              -             0 %        (1,512,758 )           5 % Interest expense                    86,886           1 %          53,726            1 %         566,735            2 %            78,646             0 %
Income tax expense                  19,487           0 %          80,776   
        1 %          24,246            0 %           257,381             1 % Net income                    ($ 3,446,570 )       (38 %)   $  1,876,460           21 %   ($  5,950,030 )        (17 %)     $  2,353,443             8 %     45    

Three Months Ended December 31, 2021 and 2020

Revenue from operations

Three Months Ended Dec 31, 2021 and 2020

                           Three Months Ended                              December 31,                   Changes                          2021             2020          Amount        %    Revenue         $    9,188,823     $ 8,994,843     $ 193,980       2 %   Revenue increased by $0.19 million, or 2% to $9.1 million for the quarter ended December 31, 2021, as compared to $8.9 million for the quarter ended December 31, 2020. Revenue from Software Services has increased more than the decrease in the revenue from Platform Services which resulted in net increase in revenue. The Software Services are typically short-term engagements to provide software consulting and development services, which do not require continual third-party maintenance. Managed Services and Support such as IT cloud hosting and support call for services on a continuous basis and allow for strengthening of client relationships which can lead to additional engagements from the client. Therefore, the Company is determined to focus on increasing the Managed Services & Support and Platform Services revenue to enhance our relationship and long-term engagement with our customers. We have made additional investments in Sales & Marketing and Research & Development to grow Managed Services & Support and Platform Services revenue.  

Our top 5 customers accounted for 71% in quarter ended December 31, 2021 and 82% in during quarter ended December 31, 2020, respectively.

The following table has the breakdown of our revenues for the quarter ended December 31, 2021 and 2020 for each of our top 5 customers. Two of the top 5 customers in 2021 are not the same for 2020.

  Top Five Customers Revenue for three months ended December 31, 2021 and 2020  2021    Customer        Amount        % of Revenue Customer 1     $ 2,674,584             29 % Customer 2       1,383,185             15 % Customer 3       1,131,041             12 % Customer 4         775,905              8 % Customer 5     $   609,573              7 %   2020    Customer        Amount        % of Revenue Customer 1     $ 5,046,460             56 % Customer 2         622,762              7 % Customer 3         619,950              7 % Customer 4         584,754              7 % Customer 5     $   487,860              5 %     46     The following table provides details of Customer 1 revenue by operating segments:                                      Three Months Ended                                         December 31,                    Changes                                    2021            2020            Amount           % Software Services              $ 2,162,058     $   515,518     $  1,646,540        319 % Managed Services and Support       512,526       4,274,942       (3,762,416 )      (88 %) Platform Services                       -          256,000         (256,000 )     (100 %) Total Revenue                  $ 2,674,584     $ 5,046,460     $ (2,371,876 )      (47 %)   Revenue from Customer 1 decreased by $2.3 million, or 47% to $2.6 million for the quarter ended December 31, 2021, as compared to $5 million for the quarter ended December 31, 2020. Software services revenue increased by $1.6 million or 319% to $2.1 million for the quarter ended December 31, 2021, as compared to $0.5 million for the quarter ended December 31, 2020. Managed Services and Support revenue decreased by $3.7 million, or 88% to $0.5 million for the quarter ended December 31, 2021, as compared to $4.2 million for the quarter ended December 31, 2020. Revenue from Platform Services decreased by $0.2 million, or 100% to nil for the quarter ended December 31, 2021, as compared to $0.2 million for the quarter ended December 31, 2020.  

Cost of Revenue (exclusive of depreciation /amortization)

                                           Three Months Ended                                              December 31,                       Changes                                         2021             2020            Amount            %

Cost of Revenue (exclusive of depreciation /amortization) $ 6,919,638 $ 6,590,291 $ 329,347

               5 %   

Cost of revenue, excluding depreciation and amortization increased by $0.3 million, or 5%, to $6.9 million for the quarter ended December 31, 2021, as compared to $6.6 million for the quarter ended December 31, 2020..

Research and Development

                              Three Months Ended                                 December 31,                   Changes                              2021           2020          Amount          % Research & Development   $ 1,482,727     $ 273,663     $ 1,209,064       442 %   Research and Development expenses increased by $1.2 million, or 442% to $1.5 million for the quarter ended December 31, 2021, as compared to $0.3 million for the quarter ended December 31, 2020, this is primarily due to higher investments made to make our platforms available in the marketplace  Sales and Marketing                             Three Months Ended                               December 31,                  Changes                           2021            2020          Amount        % Sales and Marketing   $ 1,959,760     $ 1,321,355     $ 638,405       48 %   Sales and Marketing expenses increased by $0.6 million, or 48% to $1.9 million for the quarter ended December 31, 2021, as compared to $1.3 million for the quarter ended December 31, 2020, this is primarily due to additional investments in Sales and Marketing.    47     General and Administrative                                   Three Months Ended                                     December 31,                    Changes                                  2021           2020          Amount           % General and Administrative   $ 1,378,620     $ 111,701     $ 1,266,919       1,134 %  
General and Administrative expenses increased by $1.3 million, or 1134 % to $1.4 million for the quarter ended December 31, 2021, as compared to $0.1 million for the quarter ended December 31, 2020, this is primarily due increase in stock-based compensation expenses.  

Depreciation and amortization

                                     Three Months Ended                                       December 31,                 Changes                                    2021          2020         Amount        

%

Depreciation and amortization $ 788,275 $ 199,627 $ 588,648 295 %

Depreciation and amortization expenses increased by $0.6 million, or 295% to $0.8 million for the quarter ended December 31, 2021, as compared to $0.2 million for the quarter ended December 31, 2020.

 Interest expense                        Three Months Ended                          December 31,               Changes                       2021          2020        Amount       % Interest expense   $  86,886     $ 53,726     $ 33,160       62 %   Interest expenses increased by $0.03 million, or 62% to $0.08 million for the quarter ended December 31, 2021, as compared to $0.05 million for the quarter ended December 31, 2020, this is primarily due to interest on convertible note.  

Provision for Income Taxes

                         Three Months Ended                            December 31,                Changes                         2021          2020        Amount         % Income tax expense   $  19,487     $ 80,776     $ (61,289 )     (76 %)  
Income tax expenses decreased by $0.06 million, or 76% to $0.02 million for the quarter ended December 31, 2021, as compared to $0.08 million for the quarter ended December 31, 2020, this is primarily due to lower income before tax for period ended December 31, 2021.    48    

Revenue, Cost of Revenue and Operating Profit by Operating Segment

  We currently provide our services and manage our business under three operating segments which are Software Services, Managed Services and Support and Platform Services.                                      Three Months Ended                                        December 31,                    Changes                                    2021            2020           Amount          % Software Services              $ 4,181,248     $ 3,176,869     $ 1,004,379        32 % Managed Services and Support     4,799,741       4,884,695         (84,954 )      (2 %) Platform Services                  207,834         933,279        (725,445 )     (78 %) Revenue                        $ 9,188,823     $ 8,994,843     $   193,980         2 %   Revenue from Software Services increased by $1 million, or 32% to $4.1 million for the quarter ended December 31, 2021, as compared to $3.1 million for the quarter ended December 31, 2020. Income from Software services increased on account of acquisition of Devcool Inc. The total customers serviced during the quarter ended December 31, 2021, increased to 37 from 22 for the quarter ended December 31, 2020. Revenue from Managed Services and Support decreased by $0.1 million, or 2% to $4.8 million for the quarter ended December 31, 2021, as compared to $4.8 million for the quarter ended December 31, 2021. The reduction in Managed Services and Support revenue is on account of reduction in Cloud hosting revenue. Revenue from Platform Services decreased by $0.7 million, or 78% to $0.2 million for the quarter ended December 31, 2021, as compared to $0.9 million for the quarter ended December 31, 2020. Revenue from Platform Services decreased due to decrease in the number of customers to 1 for the quarters ended December 31, 2021 as compared to 3 for the quarter ended December 31, 2020.

Factors affecting revenues of Software Services, Managed Services and Support and Platform Services

  Our strategy is to achieve meaningful long-term revenue growth through sales of Managed Services and Support and Platform Services to existing and new clients within our target market. In order to increase our cross-selling opportunity between our operating segments and realize long time revenue growth, our focus has shifted more towards Managed Services and Support and Platform Services which is of recurring nature when compared to Software Services segment which is of non-recurring nature. This also helps in retaining existing customers by leveraging our Managed Services and Support and Platform Services as a growth agent. This renewed focus on driving demand for subscription and platform-based model will help us in expanding our customer base and enhance customer retention which is a challenge for our existing Software Services segment. Software Services contracts are driven by Time and Material and on site employees delivering services at customers location. This has been impacted due to COVID-19 restrictions in employee's travel.  Our CloudEz, DataEz and Readabl.ai platforms are getting more traction, and this will lead to increase in revenue from platform services. We have made additional investments in Sales & Marketing and Research & Development to grow Managed Services & Support and Platform Services revenue. We expect this trend to continue and have a net positive impact on overall results of operations.  Cost of Revenue                                    Three Months Ended December 31,              Changes                                       2021                 2020           Amount         % Software Services              $      3,106,019       $  2,669,455     $  436,564        16 % Managed Services and Support          3,684,447          4,078,814       (394,367 )     (10 %) Platform Services                       129,172           (157,978 )      287,150       182 % Cost of Revenue                $      6,919,638       $  6,590,291     $  329,347         5 %  
Cost of Revenue from Software Services increased by $0.4 million, or 16% to $3.1 million for the quarter ended December 31, 2021, as compared to $2.6 million for the quarter ended December 31, 2020. The increase in cost of Software Services is due to higher Software Services revenue. Cost of Revenue from Managed Services and Support decreased by $0.4 million, or 10% to $3.6 million for the quarter ended December 31, 2021, as compared to $4.0 million for the quarter ended December 31, 2020. The decrease is on account of decrease in the Managed Services and Support revenue. Cost of Revenue from Platform Services increased by $0.3 million, or 182% to $0.1 million for the quarter ended December 31, 2021, as compared to $(0.1) million for the quarter ended December 31, 2020.    49    

Segment operating profits by reportable segment were as follows:

                                           Three Months Ended                                              December 31,                          Changes                                          2021             2020             Amount              % Software Services                   $    699,797      $   (91,259 )    $    791,056             867 %
Managed Services and Support           1,115,294          805,880           309,413              38 % Platform Services                     (1,404,065 )        817,594        (2,221,658 )          (272 %) Total segment operating profit           411,026        1,532,215        (1,121,189 )           (73 %) Less: unallocated costs                3,751,223         (478,749 )       4,229,971             884 % Income from operations                (3,340,197 )      2,010,964        (5,351,160 )          (266 %) Interest expense                          86,886           53,726            33,160              62 % Net income (loss) before income tax expenses                        $ (3,427,083 )    $ 1,957,238      $ 

(5,384,320 ) (275 %)

Operating profit from Software Services increased by $0.8 million, or 867% to $0.7 million for the quarter ended December 31, 2021, as compared to $(0.1) million for the quarter ended December 31, 2020. Operating profit from Managed Services and Support increased by $0.3 million, or 38% to $1.1 million for the quarter ended December 31, 2021, as compared to $0.8 million for the quarter ended December 31, 2020. Operating loss from Platform Services increased by $(2.2) million, or 272% to $(1.4) million for the quarter ended December 31, 2021, as compared to $0.8 million for the quarter ended December 31, 2020 due to decrease in revenue from Platform Services.  

Twelve Months Ended December 31, 2021 and 2020

Revenue from operations

                   Twelve Months Ended                       December 31,                   Changes                  2021             2020           Amount         % Revenue     $ 35,269,737     $ 31,338,936     $ 3,930,801       13 %   Revenue increased by $3.9 million, or 13% to $35.2 million for the twelve months ended December 31, 2021, as compared to $31.3 million for the twelve months ended December 31, 2020. Revenue from Managed Services and Support has increased more than the decrease in the revenue from Software Services which resulted in net increase in revenue. The Software Services are typically short-term engagements to provide software consulting and development services, which do not require continual third-party maintenance. Managed Services and Support such as IT cloud hosting and support call for services on a continuous basis and allow for strengthening of client relationships which can lead to additional engagements from the client. Therefore, the Company is determined to focus on increasing the Managed Services & Support and Platform Services revenue to enhance our relationship and long-term engagement with our customers. We have made additional investments in Sales & Marketing and Research & Development to grow Managed Services & Support and Platform Services revenue. We expect this trend to continue and have a net positive impact on overall results of the
operations.    50    

Our top 5 customers accounted for 66% of revenue during the twelve months ended December 31, 2021 and 79% during the twelve months ended December 31, 2020, respectively.

The following table has the breakdown of our revenues for the twelve months ended December 31, 2021 and 2020 for each of our top 5 customers. Several of the top 5 customers in 2021 are not the same for 2020. However, Customer 1 held those positions for both twelve months ended December 31, 2021 and 2020.

Top Five Customers’ Revenue for Twelve months ended December 31, 2021

   Customer         Amount        % of Revenue Customer 1     $ 12,678,277             36 % Customer 2        3,214,299              9 % Customer 3        2,907,265              8 % Customer 4        2,674,584              8 % Customer 5     $  1,799,010              5 %  

Top Five Customers’ Revenue for Twelve months ended December 31, 2020

   Customer         Amount        % of Revenue Customer 1     $ 17,958,974             57 % Customer 2        2,383,250              8 % Customer 3        1,827,752              6 % Customer 4        1,520,067              5 % Customer 5     $  1,033,142              3 %   The following table provides details of Customer 1 revenue by operating segments:                                         Twelve Months Ended December 31,                   Changes                                            2021                 2020              Amount              % Software Services                   $      1,642,462       $   2,533,263      $   (890,801 )           (35 %)
Managed Services and Support               9,261,569          12,855,875   
    (3,594,306 )           (28 %) Platform Services                          1,774,246           2,569,835          (795,589 )           (31 %) Total Revenue                       $     12,678,277       $  17,958,974      $ (5,280,696 )           (29 %)  
Revenue from Customer 1 decreased by $5.2 million, or 29% to $12.6 million for the twelve months ended December 31, 2021, as compared to $17.9 million for the twelve months ended December 31, 2020. Software Services revenue decreased by $0.8 million or 35% to $1.6 million for the twelve months ended December 31, 2021, as compared to $2.5 million for the twelve months ended December 31, 2020. Managed Services and Support revenue decreased by $3.5 million, or 28% to $9.2 million for the twelve months ended December 31, 2021, as compared to $12.8 million for the twelve months ended December 31, 2020. Revenue from Platform Services decreased by $0.8 million, or 31% to $1.7 million for the twelve months ended December 31, 2021, as compared to $2.5 million for the twelve months
ended December 31, 2020.    51    

Cost of Revenue (exclusive of depreciation /amortization)

                                           Twelve Months Ended                                               December 31,                         Changes                                          2021              2020            Amount             %

Cost of Revenue (exclusive of depreciation /amortization) $ 24,748,429 $ 22,753,067 $ 1,995,362

               9 %   Cost of revenue, excluding depreciation and amortization increased by $1.9 million, or 9%, to $24.7 million for the twelve months ended December 31, 2021, as compared to $22.8 million for the twelve months ended December 31, 2020. The increase was primarily due to increase in Software Services cost for twelve months ended December 31, 2021, as compared to the twelve months ended December 31, 2020.   Research and Development                                Twelve Months Ended                                   December 31,                   Changes                              2021            2020           Amount          % Research & Development   $ 5,257,439     $ 1,743,079     $ 3,514,360       202 %   Research and Development expenses increased by $3.5 million, or 202% to $5.2 million for the twelve months ended December 31, 2021, as compared to $1.7 million for the twelve months ended December 31, 2020, this is primarily due to additional investments in making our Platforms SaaS ready to list in the marketplace.  Sales and Marketing                             Twelve Months Ended                                December 31,                  Changes                           2021            2020           Amount         % Sales and Marketing   $ 4,760,948     $ 2,424,842     $ 2,336,106       96 %   Sales and Marketing expenses increased by $2.3 million, or 96% to $4.7 million for the twelve months ended December 31, 2021, as compared to $2.4 million for the twelve months ended December 31, 2020, this is primarily due to additional investments in Sales and Marketing.  General and Administrative                                    Twelve Months Ended                                       December 31,                  Changes                                  2021            2020           Amount         % General and Administrative   $ 4,440,405     $ 2,438,042     $ 2,002,363       82 %   General and Administrative expenses increased by $2 million, or 82 % to $4.4 million for the twelve months ended December 31, 2021, as compared to $2.4 million for the twelve months ended December 31, 2020; this is primarily due to stock-based compensation expenses of $1.2 million.    52    

Depreciation and amortization

                                      Twelve Months Ended                                         December 31,                Changes                                     2021           2020         Amount      

%

Depreciation and amortization $ 1,421,565 $ 803,194 $ 618,371

77 %

Depreciation and amortization expenses increased by $0.6 million, or 77% to $1.4 million for the twelve months ended December 31, 2021, as compared to $0.80 million for the twelve months ended December 31, 2020 this is mainly on account amortization from acquisition of Devcool Inc.  Interest expense                        Twelve Months Ended                           December 31,                Changes                        2021          2020        Amount         % Interest expense   $  566,735     $ 78,646     $ 488,089       621 %  

Interest expenses increased by $0.48 million, or 621% to $0.5 million for the twelve months ended December 31, 2021, as compared to $0.07 million for the twelve months ended December 31, 2020, this is primarily due to interest on convertible note.

Provision for Income Taxes

                         Twelve Months Ended                             December 31,                 Changes                         2021          2020          Amount         % Income tax expense   $  24,246     $ 257,381     $ (233,135 )     (91 %)  
Income tax expenses decreased by $0.2 million, or 91% to $0.02 million for the twelve months ended December 31, 2021, as compared to $0.25 million for the twelve months ended December 31, 2020, this is primarily due to lower income before tax for twelve months ended December 31, 2021.  

Revenue, Cost of Revenue and Operating Profit by Operating Segment

                                      Twelve Months Ended                                          December 31,                    Changes                                     2021             2020           Amount          % Software Services              $ 12,429,726     $ 12,892,078     $  (462,352 )     (4 %) Managed Services and Support     19,003,324       15,199,744       3,803,580       25 % Platform Services                 3,836,687        3,247,114         589,573       18 % Revenue                        $ 35,269,737     $ 31,338,936     $ 3,930,801       13 %   We currently provide our services and manage our business under three operating segments which are Software Services, Managed Services and Support and Platform Services.    53     Revenue from Software Services decreased by $0.5 million, or 4% to $12.4 million for the twelve months ended December 31, 2021, as compared to $12.8 million for the twelve months ended December 31, 2020. We faced delays in closing deals in the Software Services segment as customers optimized the cost of supporting legacy systems during the pandemic. The total customers serviced during the twelve months ended December 31, 2021, increased to 48 from 40 for the twelve months ended December 31, 2020. Revenue from Managed Services and Support increased by $3.8 million, or 25% to $19 million for the twelve months ended December 31, 2021, as compared to $15.1 million for the twelve months ended December 31, 2020. The growth in Managed Services and Support revenue reflected our existing customers' continued adoption and acceleration in the demand for cloud technology. Revenue from Platform Services increased by $0.6 million, or 18% to $3.8 million for the twelve months ended December 31, 2021, as compared to $3.2 million for the twelve months ended December 31, 2020. Revenue from Platform Services increased due to increase in the number of customers to 4 for the twelve months ended December 31, 2021 as compared to 1 for the twelve months ended December 31, 2020.  

Factors affecting revenues of Software Services, Managed Services and Support and Platform Services

  Our strategy is to achieve meaningful long-term revenue growth through sales of Managed Services and Support and Platform Services to existing and new clients within our target market. In order to increase our cross-selling opportunity between our operating segments and realize long time revenue growth, our focus has shifted more towards Managed Services and Support and Platform Services which is of recurring nature when compared to Software Services segment which is of non-recurring nature. This also helps in retaining existing customers by leveraging our Managed Services and Support and Platform Services as a growth agent. This renewed focus on driving demand for subscription and platform-based model will help us in expanding our customer base and enhance customer retention which is a challenge for our existing Software Services segment. Software Services contracts are driven by Time and Material and on site employees delivering services at customers location. This has been impacted due to COVID-19 restrictions in employee's travel.  Our CloudEz, DataEz and Readabl.ai platforms are getting more traction, and this will lead to increase in revenue from platform services. We have made additional investments in Sales & Marketing and Research & Development to grow Managed Services & Support and Platform Services revenue. We expect this trend to continue and have a net positive impact on overall results of operations.  Cost of Revenue                                    Twelve Months Ended December 31,              Changes                                       2021                 2020            Amount          % Software Services              $      9,031,671       $   9,724,004     $  (692,333 )     (7 %) Managed Services and Support         14,094,072          11,724,623       2,369,449       20 % Platform Services                     1,622,686           1,304,440         318,246       24 % Cost of Revenue                $     24,748,429       $  22,753,067     $ 1,995,362        9 %  
Cost of Revenue from Software Services decreased by $0.7 million, or 7% to $9 million for the twelve months ended December 31, 2021, as compared to $9.7 million for the twelve months ended December 31, 2020. The reduction in cost of Software Services is due to lower Software Services revenue. Cost of Revenue from Managed Services and Support increased by $2.3 million, or 20% to $14 million for the twelve months ended December 31, 2021, as compared to $11.7 million for the twelve months ended December 31, 2020. The increase is on account of the increase in the Managed Services and Support revenue driven by higher adoption of cloud hosting. Cost of Revenue from Platform Services increased by $0.3 million, or 24% to $1.6 million for the twelve months ended December 31, 2021, as compared to $1.3 million for the twelve months ended
December 31, 2020.    54    

Segment operating profits by reportable segment were as follows:

                                          Twelve Months Ended December 31,                   Changes                                             2021                 2020             Amount              % Software Services                   $       1,769,499       $  1,277,775      $    491,724             (38 %)
Managed Services and Support                4,909,252          3,475,121         1,434,131              41 % Platform Services                          (3,043,439 )          199,594        (3,243,033 )         (1625 %) Total segment operating profit              3,635,312          4,952,490        (1,317,178 )           (27 %) Less: unallocated costs                     8,994,361          2,263,021         6,731,340             297 % Income from operations                     (5,359,050 )        2,689,469        (8,048,519 )          (299 %) Interest expense                              566,736             78,646           488,090             621 % Net income (loss) before income tax expenses                        $      (5,925,784 )     $  2,610,824   

$ (8,536,608 ) (327 %)

   Operating profit from Software Services decreased by $0.5 million, or 38% to $1.8 million for the twelve months ended December 31, 2021, as compared to $1.3 million for the twelve months ended December 31, 2020, mainly due to reduction in the Software Services revenue. Operating profit from Managed Services and Support increased by $1.4 million, or 41% to $4.9 million for the twelve months ended December 31, 2021, as compared to $3.4 million for the twelve months ended December 31, 2020, mainly due to increase in Managed Services and Support revenue. Operating loss from Platform Services increased by $3.2 million, or 1625% to $(3) million for the twelve months ended December 31, 2021, as compared to $0.2 million for the twelve months ended December 31, 2020 due to increase in cost from Platform Services.  

Liquidity and Capital Resources

                                                         As of                 As of                                                      December 31,          December 31,                                                          2021                  2020 Cash and cash equivalents                           $  1,769,554          $  1,402,700 Total cash, cash equivalents and short-term investments                                         $  1,769,554          $  1,402,700                                                     As of            As of                                                December 31,     December 31,                                                    2021             2020
Cash flows used in operating activities       $ (7,293,296 )   $   (734,675 ) Cash flows used in investing activities         (7,628,761 )       (477,457 ) Cash flows provided by financing activities     15,288,911        1,640,000 Net increase in cash and cash equivalents     $    366,854     $    427,868

As of December 31, 2021, our principal sources of liquidity for working capital purposes were cash, cash equivalents and short-term investments totalling $1.7 million.

  We have financed our operations primarily through financing activity and operating cash flows. We believe our existing cash, cash equivalents and short-term investments generated from operations will be sufficient to meet our working capital over the next 12 months. Our future capital requirements will depend on many factors including our growth rate, subscription renewal activity, the expansion of sales and marketing activities and the ongoing investments
in platform development.  Liquidity  The current ratio measures a company's ability to pay off its current liabilities (payable within one year) with its total current assets such as cash, accounts receivable, and inventories. The higher the ratio, the better the company's liquidity position. A good current ratio is between 1.2 to 2, which means that a business has 2 times more current assets than liabilities to covers its debts. The Company's current ratio, based on the twelve months ended December 31, 2021 financial statement is 1.9, compared to 1.2 for the financial year ended December 31, 2020.    55    

The Company’s current debt equity ratio, based on the twelve months ended December 31, 2021 financial statement is 0.22, compared to 0.38 for the financial year ended December 31, 2020. A debt-to-equity ratio below 1 means that a company has lower exposure to debts than equity.

The Company does not have inventory and hence the quick ratio is the same as current ratio

  Sources of Liquidity  As of December 31, 2021, our principal sources of liquidity consisted of cash and cash equivalents of $1.7 million. We believe that our cash and cash equivalents as of December 31, 2021, and the future operating cash flows of the entity will provide adequate resources to fund ongoing cash requirements for the next twelve months. If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations during the next twelve months, we may be required to obtain additional sources of funds through additional operational improvements, capital market transactions, asset sales or financing from third parties, a combination thereof or otherwise. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms.  

Operating Activities

  Net cash used in operating activities was $(7.3) million for the twelve months ended December 31, 2021, and net cash used from operations was $(0.7) million for the twelve months ended December 31, 2020.  

Investing Activities

  Net cash used in investing activities was $7.6 million for the twelve months ended December 31, 2021, and $0.5 million for the twelve months ended December 31, 2020. The Devcool acquisition entailed an upfront cash payment of $4.5 million.  

Financing Activities

  Cash flows from financing activities was $15.3 million for the twelve months ended December 31, 2021 and $1.6 million for the twelve months ended December 31, 2020. During the year 2020, we raised an aggregate amount of $2.6 million by issuing convertible promissory notes to various investors in a private exempted offering and $13 million through an IPO offering. Total principal amount of convertible promissory notes issued is $4.2 million. These notes carry an interest rate of 10% per annum payable quarterly.  

In addition, we received a PPP loan of $1.1 million for the twelve months ended December 31, 2021.

Off-Balance Sheet Arrangements

  We do not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes as defined by Item 303(a)(4) of SEC Regulation S-K, as of December 31, 2021.  

56

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Managers and Directors

Suresh Venkatachari Chairman & Chief Executive Officer
Keith T. Ryan President & Managing Principal
Kim Holland Chief Financial Officer
Sudish Mogli Chief Technology Officer
Vivek Prakash Independent Director

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