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 prospectus. 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 theSecurities 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 onOctober 29, 2019 , as aNevada corporation and then converted into aDelaware corporation onApril 24, 2020 , to provide IT and data services to the Healthcare and Life Sciences ("HCLS") industry. The business commenced onJanuary 1, 2020 , after the Parent transferred its s Life Sciences business to us. As ofSeptember 30, 2021 , we had a total of 69 full time employees, 142 sub-contractors, including 67 certified cloud, 16 Epic Certified EHR experts and 14 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 nine months endedSeptember 30, 2021 , we generated revenues of approximately$26.1 million when compared to revenue of$22.3 million for the nine months endedSeptember 30, 2020 from the sale of our products and services which represents an increase of$3.7 million amounting to 17% increase when 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. 24 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 expected to become commercially available in 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. OnMay 5, 2020 , we 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 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 been notified by its lender that the Company's PPP loan will be forgiven in whole on account of fulfilling the eligibility criteria and therefore this amount has been recognized by us 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. 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. 25
Investment in business growth
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.
Adoption of subscription services
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, which are not yet commercially available, 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. Our SaaS offerings are expected to become available in the first quarter of 2022.
Blend of software solutions and 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. 26 Liquidity The current debt equity 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. The Company's current debt equity ratio, based on the nine months endedSeptember 30, 2021 financial statement is 1.98, compared to 0.38 for the financial year endedDecember 31, 2020 . 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. A debt to equity ratio below 1 means that a company doesn't have enough liquid assets to cover its short-term liabilities.
The Company has no inventory and therefore the quick ratio is the same as the current ratio.
Components of Results of Operations
Revenues
We provide our services and manage our business in the following operating segments:
• Software Services • Managed Services and Support • Platform Services 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 ratably over the life of the contract. Platform Services Platform Services from CloudEz, DataEz and Readabl.AI are offered as a solution delivery model and will be offered as Software as a Service (SaaS) which is a subscription model. Our SaaS offerings are expected to become available in
the first quarter of 2022. 27
The solution revenue delivery model contains a series of distinct and separately identifiable services that represent performance obligations that are met over time. During the periods presented, the company generated platform revenue only on the solution delivery model, which is one-time revenue.
Our SaaS agreements will be generally non-cancelable 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 ratably over the respective non-cancelable 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. 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. 28 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 near 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 revenues.
Depreciation charges
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 (expenses), net
Other net income (expense) consists of financial charges and gains or losses on foreign currencies.
Deferred revenue
Advance invoices to customers in excess of earned revenue are recorded as deferred revenue until the revenue recognition criteria are met.
Unbilled accounts receivable
Unbilled accounts receivable are a contractual asset related to the provision of our professional services for which the related billings will occur in a future period. Unbilled receivables are classified as receivables on the consolidated balance sheet.
Although we believe our approach to estimates and judgments regarding revenue recognition is reasonable, actual results could differ and we could be exposed to increases or decreases in revenue which could be material.
Provision for income taxes
Provision for income taxes consists of federal and state income taxes inthe 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.
Paycheque Protection Program
OnFebruary 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. 29 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. The Company has received communication from the bank for forgiveness of the loan, in whole on account of fulfilling the criteria and hence this amount has been considered under other income.
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 Nine Months Ended
September 30, September 30,
2021 % Sales 2020 % Sales 2021 % of Sales 2020 % of Sales
Revenue $ 8,078,348 100 % $ 7,360,560 100 % $ 26,080,914 100 % $ 22,344,093 100 %
Cost of Revenue (exclusive of
depreciation /amortization) 5,351,748 66 % 5,358,695 73 % 17,828,791 68 % 16,162,776 72 %
Research & Development 2,204,030 27 % 550,167 7 % 3,774,712 14 % 1,469,416 7 %
Sales and Marketing 1,328,399 16 % 476,650 6 % 2,801,188 11 % 1,103,486 5 %
General and Administrative 753,338 9 % 582,874 8 % 3,061,785 12 % 2,326,341 10 %
Depreciation and Amortization 211,328 3 % 200,864 3 % 633,290 2 % 603,567 3 %
Other income ( PPP loan
forgiveness) - 0 % - 0 % - 0 % - 0 %
Interest expense 220,634 3 % 1,161 0 % 479,849 2 % 24,920 0 %
Income tax expense 942 0 % 51,340 1 % 4,759 0 % 176,605 1 %
Net income ($ 1,992,071 ) (25 %) $ 138,808 2 % ($ 2,503,460 ) (10 %) $ 476,981 2 %
Three months ended
Operating income
Three Months Ended
September 30, Changes
2021 2020 Amount %
Revenue $ 8,078,348 $ 7,360,560 $ 717,788 10 %
Revenue increased by $0.7 million , or 10% to $8 million for the quarter ended
September 30, 2021 , as compared to $7.3 million for the quarter ended September
30, 2020 . Revenue from Managed Services and Support has increased more than the
decrease in the revenue from Software Services which resulted in net increase in
revenue. The Software Services are typically short-term engagements to provide
software consulting and development services, which do not require continual
third-party maintenance. Managed Services and Support such as IT cloud hosting
and support call for services on a continuous basis and allow for strengthening
of client relationships which can lead to additional engagements from the
client. Therefore, the Company is determined to focus on increasing the Managed
Services & Support and Platform Services revenue to enhance our relationship and
long-term engagement with our customers. We have made additional investments in
Sales & Marketing and Research & Development to grow Managed Services & Support
and Platform Services revenue. We expect this trend to continue and have a net
positive impact on overall results of the operations.
Our top 5 customers represented 79% during the closed quarter
30
The following table has the breakdown of our revenues for the quarter endedSeptember 30, 2021 and 2020 for each of our top 5 customers. Several of the top 5 customers in 2021 are not the same for 2020. However,F. Hoffmann-La Roche Ltd , a Swiss multinational healthcare company ("Customer 1") and Customer 5 held those positions for both Quarter endedSeptember 30, 2021 and 2020. Top Five Customers Revenue for three months endedSeptember 30, 2021 and 2020 2021 Customer Amount % of Revenue Customer 1$ 2,004,478 25 % Customer 2 1,630,000 20 % Customer 3 1,400,000 17 % Customer 4 753,991 9 % Customer 5$ 623,665 8 % 2020 Customer Amount % of Revenue Customer 1$ 4,448,401 60 % Customer 2 638,651 9 % Customer 3 628,437 9 % Customer 4 443,544 6 % Customer 5$ 295,366 4 % Significance of Customer 1 We have been engaged by Customer since 2017 in their cloud transformation projects pursuant to an IT Master Procurement Agreement ("MSA") effective as ofMay 1, 2017 between Customer 1 and the Parent. All of Parent's rights and obligations under the MSA were transferred to us under the Asset Transfer Agreement. Initially we started with their cloud assessment and expanded to their cloud transformation journey. Our revenues are consistently growing with this customer as we continue to grow in our Managed Services and Support. While we are dependent on Customer 1 for a majority of our revenues, our revenues are from multiple projects within various divisions of Customer 1. In addition, we are continuously adding new customers and growing other existing customers to reduce our dependency on Customer 1.
Conditions of customer agreements 1
The MSA establishes the terms and conditions under which we supply Customer 1 with our services on each project, including, but not limited to, Customer 1's intellectual property ownership rights, data privacy rights, representations and warranties and indemnification. The term of the MSA commences on the MSA Effective Date and continues until terminated by either party. Customer 1 may terminate the MSA for any reason with 30 days' notice and we may terminate the MSA for cause with 30 days' notice. The scope of work for each project and the compensation we receive is governed by a Statement of Work ("SOW"). Depending on the SOW, Customer 1 may terminate such SOW with either 30 days' or 24 hour notice.
The MSA and SOW Summaries are not complete descriptions of the provisions of the MSA and any particular SOW and are qualified in their entirety by reference to the MSA and the SOW Form, each filed as an attachment to the Declaration of registration of which this prospectus is a part.
31
The following table provides details of Customer 1 revenue by operating
segments:
Three Months Ended
September 30, Changes
2021 2020 Amount %
Software Services $ 1,164,970 $ 3,209,105 $ (2,044,135 ) (64 %)
Managed Services and Support 839,508 415,066 424,442 102 %
Platform Services - 824,230 (824,230 ) (100 %)
Total Revenue $ 2,004,478 $ 4,448,401 $ (2,443,923 ) (55 %)
Revenue from Customer 1 decreased by$2.4 million , or 55% to$2 million for the quarter endedSeptember 30, 2021 , as compared to$4.4 million for the quarter endedSeptember 30, 2020 . Software services revenue decreased by$2 million or 64% to$1.2 million for the quarter endedSeptember 30, 2021 , as compared to$3.2 million for the quarter endedSeptember 30, 2020 . Managed Services and Support revenue increased by$0.4 million , or 102% to$0.8 million for the quarter endedSeptember 30, 2021 , as compared to$0.4 million for the quarter endedSeptember 30, 2020 . Revenue from Platform Services decreased by$0.8 million , or 100% to nil for the quarter endedSeptember 30, 2021 , as compared to$0.8 million for the quarter endedSeptember 30, 2020 .
Cost of income (excluding depreciation / amortization)
Three Months Ended
September 30, Changes
2021 2020 Amount %
Cost of Revenue (exclusive of
depreciation /amortization) $ 5,351,748 $ 5,358,695 $ (6,947 ) 0 %
The cost of operating income, excluding depreciation and amortization, decreased by
Research and development
Three Months Ended
September 30, Changes
2021 2020 Amount %
research
Research & Development costs increase by
for the quarter ended
Sales and Marketing
Three Months Ended
September 30, Changes
2021 2020 Amount %
Sales and Marketing $ 1,328,399 $ 476,650 $ 851,749 179 %
Sales and Marketing expenses increased by $0.8 million , or 179% to $1.3 million
for the quarter ended September 30, 2021 , as compared to $0.5 million for the
quarter ended September 30, 2020 , this is primarily due to additional
investments in Sales and Marketing.
32
General and Administrative
Three Months Ended
September 30, Changes
2021 2020 Amount %
General and Administrative $ 753,338 $ 582,874 $ 170,464 29 %
General and Administrative expenses increased by $0.2 million , or 29 % to $0.8
million for the quarter ended September 30, 2021 , as compared to $0.6 million
for the quarter ended September 30, 2020 , this is primarily due to increase in
stock-based compensation expenses.
Depreciation and amortization
Three Months Ended
September 30, Changes
2021 2020 Amount %
Depreciation and amortization
Depreciation and amortization expenses increased by$0.01 million , or 5% to$0.2 million for the quarter endedSeptember 30, 2021 , as compared to$0.2 million for the quarter endedSeptember 30, 2020 .
Interest charges
Three Months Ended
September 30, Changes
2021 2020 Amount %
Interest charges
Interest expenses increased by$0.2 million , or 18903% to$0.2 million for the quarter endedSeptember 30, 2021 , as compared to$0.01 million for the quarter endedSeptember 30, 2020 , this is primarily due to interest on convertible
note. 33 Provision for Income Taxes
Three Months Ended
September 30, Changes
2021 2020 Amount %
Income tax expense $ 942 $ 51,340 $ (50,398 ) (98 %)
Income tax expenses decreased by$0.05 million , or 98% to$0.01 million for the quarter endedSeptember 30, 2021 , as compared to$0.05 million for the quarter endedSeptember 30, 2020 , this is primarily due to lower income before tax for nine months endedSeptember 30, 2021 .
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
September 30, Changes
2021 2020 Amount %
Software Services $ 2,307,055 $ 2,560,460 $ (253,405 ) (10 %)
Managed Services and Support 4,673,173 3,975,870 697,303 18 %
Platform Services 1,098,120 824,230 273,890 33 %
Revenue $ 8,078,348 $ 7,360,560 $ 717,788 10 %
Revenue from Software Services decreased by $0.2 million , or 10% to $2.3 million
for the quarter ended September 30, 2021 , as compared to $2.5 million for the
quarter ended September 30, 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 quarter
ended September 30, 2021 , dropped to 26 from 32 for the quarter ended September
30, 2020 . Revenue from Managed Services and Support increased by $0.7 million ,
or 18% to $4.7 million for the quarter ended September 30, 2021 , as compared to
$4 million for the quarter ended September 30, 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
Managed Services and Support include Cloud hosting revenue of $0.4 million and
$2.4 million for the quarter ended September 30, 2021 , and 2020, respectively.
Revenue from Platform Services increased by $0.3 million , or 33% to $1.1 million
for the quarter ended September 30, 2021 , as compared to $0.8 million for the
quarter ended September 30, 2020 . Revenue from Platform Services increased due
to increase in the number of customers to 3 for the quarters ended September 30,
2021 as compared to 1 for the quarter ended September 30, 2020 .
Factors Affecting Software Services, Managed Services, 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. 34
Our CloudEz and DataEz platforms are growing in popularity, which has resulted in increased revenues from managed services and support. We made additional investments in sales and marketing and research and development to increase revenues from managed services and platform support and services. We expect this trend to continue and have a net positive impact on overall operating results.
Cost of Revenue
Three Months Ended
September 30, Changes
2021 2020 Amount %
Software Services $ 1,704,616 $ 2,033,409 $ (328,793 ) (16 %)
Managed Services and Support 3,207,548 2,756,936 450,612
16 % Platform Services 439,584 568,350 (128,766 ) (23 %) Cost of Revenue$ 5,351,748 $ 5,358,695 $ (6,947 ) 0 %
Cost of Revenue from Software Services decreased by$0.3 million , or 16% to$1.7 million for the quarter endedSeptember 30, 2021 , as compared to$2 million for the quarter endedSeptember 30, 2020 . The drop in cost of Software Services is due to lower Software Services revenue. Cost of Revenue from Managed Services and Support increased by$0.5 million , or 16% to$3.2 million for the quarter endedSeptember 30, 2021 , as compared to$2.7 million for the quarter endedSeptember 30, 2020 . The increase is on account of increase in the Managed Services and Support revenue driven by higher adoption of cloud hosting. Cost of Revenue from Platform Services decreased by$0.1 million , or 23% to$0.4 million for the quarter endedSeptember 30, 2021 , as compared to$0.5 million for the quarter endedSeptember 30, 2020 .
Segment operating profits by segment to be presented are as follows:
Three Months Ended
September 30, Changes
2021 2020 Amount %
Software Services $ 80,775 $ 158,482 $ (77,707 ) (49 %)
Managed Services and Support 1,465,626 1,218,935 246,691 20 % Platform Services (1,545,495 ) (294,288 ) (1,251,207 ) (425 %) Total segment operating profit 906 1,083,129 (1,082,223 ) (100 %) Less: unallocated costs 1,771,401 891,820 879,581 99 % Income from operations (1,770,495 ) 191,309 (1,961,804 ) (1025 %) Interest expense 220,634 1,161 219,473 18903 % Net income (loss) before income tax expenses$ (1,991,129 ) $ 190,148 $
(2,181,277) (1,147%)
Operating profit from Software Services decreased by$0.1 million , or 49% to$0.08 million for the quarter endedSeptember 30, 2021 , as compared to$0.2 million for the quarter endedSeptember 30, 2020 , mainly due to reduction in the Software Services revenue. Operating profit from Managed Services and Support increased by$0.2 million , or 20% to$1.5 million for the quarter endedSeptember 30, 2021 , as compared to$1.2 million for the quarter endedSeptember 30, 2020 , mainly due to increase in revenue. Operating loss from Platform Services increased by$1.2 million , or 425% to$(1.5) million for the quarter endedSeptember 30, 2021 , as compared to($0.3) million for the quarter endedSeptember 30, 2020 due to increase in cost from Platform Services. 35
Nine months ended
Operating income
Nine Months Ended September 30, Changes
2021 2020 Amount %
Revenue $ 26,080,914 $ 22,344,093 $ 3,736,821 17 %
Revenue increased by $3.7 million , or 17% to $26 million for the nine months
ended September 30, 2021 , as compared to $22.3 million for the nine months ended
September 30, 2020 . Revenue from Managed Services and Support has increased more
than the decrease in the revenue from Software Services which resulted in net
increase in revenue. The Software Services are typically short-term engagements
to provide software consulting and development services, which do not require
continual third-party maintenance. Managed Services and Support such as IT cloud
hosting and support call for services on a continuous basis and allow for
strengthening of client relationships which can lead to additional engagements
from the client. Therefore, the Company is determined to focus on increasing the
Managed Services & Support and Platform Services revenue to enhance our
relationship and long-term engagement with our customers. We have made
additional investments in Sales & Marketing and Research & Development to grow
Managed Services & Support and Platform Services revenue. We expect this trend
to continue and have a net positive impact on overall results of the
operations.
Our top 5 customers represented 75% of sales during the nine months ended
The following table has the breakdown of our revenues for the nine months endedSeptember 30, 2021 and 2020 for each of our top 5 customers. Several of the top 5 customers in 2021 are not the same for 2020. However, Customer 1 and Customer 5 held those positions for both nine months endedSeptember 30, 2021 and 2020.
Sales of the top five customers for the nine months ended
Customer Amount % of Revenue Customer 1$ 11,295,093 44 % Customer 2 2,604,726 10 % Customer 3 2,131,360 8 % Customer 4 1,799,010 7 % Customer 5$ 1,630,000 6 %
Sales of the top five customers for the nine months ended
Customer Amount % of Revenue Customer 1$ 12,912,514 58 % Customer 2 1,798,496 8 % Customer 3 1,445,472 6 % Customer 4 1,032,207 5 % Customer 5$ 768,345 3 % 36 The following table provides details of Customer 1 revenue by operating segments: Nine Months Ended September 30, Changes 2021 2020 Amount % Software Services$ 2,616,402 $ 2,017,745 $ 598,657 30 % Managed Services and Support 8,161,437 8,580,934 (419,497 ) (5 %) Platform Services 517,254 2,313,835 (1,796,581 ) (78 %) Total Revenue$ 11,295,093 $ 12,912,514 $ (1,617,421 ) (13 %)
Revenue from Customer 1 decreased by$1.6 million , or 13% to$11.3 million for the nine months endedSeptember 30, 2021 , as compared to$12.9 million for the nine months endedSeptember 30, 2020 . Software Services revenue increased by$0.6 million or 30% to$2.6 million for the nine months endedSeptember 30, 2021 , as compared to$2 million for the nine months endedSeptember 30, 2020 . Managed Services and Support revenue decreased by$0.4 million , or 5% to$8.2 million for the nine months endedSeptember 30, 2021 , as compared to$8.6 million for the nine months endedSeptember 30, 2020 . Revenue from Platform Services decreased by$1.8 million , or 78% to$0.5 million for the nine months endedSeptember 30, 2021 , as compared to$2.3 million for the nine months endedSeptember 30, 2020 .
Cost of income (excluding depreciation / amortization)
Nine Months Ended
September 30, Changes
2021 2020 Amount %
Cost of income (excluding depreciation / amortization)
10 % Cost of revenue, excluding depreciation and amortization increased by$1.7 million , or 10%, to$17.8 million for the nine months endedSeptember 30, 2021 , as compared to$16.1 million for the nine months endedSeptember 30, 2020 . The increase was primarily due to increase in Managed Services and Support cost for nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 2020 . Research and Development Nine Months Ended September 30, Changes 2021 2020 Amount % Research & Development$ 3,774,712 $ 1,469,416 $ 2,305,296 157 %
Research & Development costs increase by
37
Sales and Marketing
Nine Months Ended
September 30, Changes
2021 2020 Amount %
Sales and Marketing $ 2,801,188 $ 1,103,486 $ 1,697,702 154 %
Sales and Marketing expenses increased by $1.6 million , or 154% to $2.8 million
for the, the nine months ended September 30, 2021 , as compared to $1.1 million
for the nine months ended September 30, 2020 , this is primarily due to
additional investments in Sales and Marketing.
General and Administrative
Nine Months Ended
September 30, Changes
2021 2020 Amount %
General and Administrative $ 3,061,785 $ 2,326,341 $ 735,444 32 %
General and Administrative expenses increased by$0.7 million , or 32 % to$ 3.0 million for the nine months endedSeptember 30, 2021 , as compared to$2.3 million for the nine months endedSeptember 30, 2020 , this is primarily due to increase in stock-based compensation expenses.
Depreciation and amortization
Nine Months Ended
September 30, Changes
2021 2020 Amount %
Depreciation and amortization
Depreciation charges increased by
Interest charges
Nine Months Ended
September 30, Changes
2021 2020 Amount %
Interest charges
Interest expenses increased by$0.4 million , or 1826% to$0.5 million for the nine months endedSeptember 30, 2021 , as compared to$0.02 million for the nine months endedSeptember 30, 2020 , this is primarily due to interest on convertible note. 38 Provision for Income Taxes Nine Months Ended September 30, Changes 2021 2020 Amount %
Income tax expense
Income tax expenses decreased by$0.2 million , or 97% to$0.01 million for the nine months endedSeptember 30, 2021 , as compared to$0.2 million for the nine months endedSeptember 30, 2020 , this is primarily due to lower income before tax for nine months endedSeptember 30, 2021 .
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.
Nine Months Ended
September 30, Changes
2021 2020 Amount %
Software Services $ 8,248,478 $ 9,715,209 $ (1,466,731 ) (15 %)
Managed Services and Support 14,203,583 10,315,049 3,888,534 38 %
Platform Services 3,628,853 2,313,835 1,315,018 57 %
Revenue $ 26,080,914 $ 22,344,093 $ 3,736,821 17 %
Revenue from Software Services decreased by $1.5 million , or 15% to $8.2 million
for the nine months ended September 30, 2021 , as compared to $9.7 million for
the nine months ended September 30, 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 nine
months ended September 30, 2021 , reduced to 26 from 32 for the nine months ended
September 30, 2020 . Revenue from Managed Services and Support increased by $3.9
million , or 38% to $14.2 million for the nine months ended September 30, 2021 ,
as compared to $10.3 million for the nine months ended September 30, 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 Managed Services and Support include Cloud hosting revenue of $7.3 million
and $6.8 million for the nine months ended September 30, 2021 , and 2020,
respectively. Revenue from Platform Services increased by $1.3 million , or 57%
to $3.6 million for the nine months ended September 30, 2021 , as compared to
$2.3 million for the nine months ended September 30, 2020 . Revenue from Platform
Services increased due to increase in the number of customers to 3 for the nine
months ended September 30, 2021 as compared to 1 for the nine months ended
September 30, 2020 .
Factors Affecting Software Services, Managed Services, 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. 39
Our CloudEz and DataEz platforms are growing in popularity, which has resulted in increased revenues from managed services and support. We made additional investments in sales and marketing and research and development to increase revenues from managed services and platform support and services. We expect this trend to continue and have a net positive impact on the overall results of operations.
Cost of Revenue
Nine Months Ended
September 30, Changes
2021 2020 Amount %
Software Services $ 5,925,652 $ 7,054,549 $ (1,128,897 ) (16 %)
Managed Services and Support 10,409,624 7,645,808 2,763,816 36 %
Platform Services 1,493,515 1,462,419 31,096 2 %
Cost of Revenue $ 17,828,791 $ 16,162,776 $ 1,666,015 10 %
Cost of Revenue from Software Services decreased by$1.1 million , or 16% to$5.9 million for the nine months endedSeptember 30, 2021 , as compared to$7.1 million for the nine months endedSeptember 30, 2020 . The drop in cost of Software Services is due to lower Software Services revenue. Cost of Revenue from Managed Services and Support increased by$2.7 million , or 36% to$10.4 million for the nine months endedSeptember 30, 2021 , as compared to$7.6 million for the nine months endedSeptember 30, 2020 . The increase is on account of increase in the Managed Services and Support revenue driven by higher adoption of cloud hosting. Cost of Revenue from Platform Services increased by$0.03 million , or 2% to$1.4 million for the nine months endedSeptember 30, 2021 , as compared to$1.4 million for the nine months endedSeptember 30, 2020 . Nine Months Ended September 30, Changes 2021 2020 Amount % Software Services$ 1,069,703 $ 1,369,035 $ (299,332 ) (22 %) Managed Services and Support 3,793,958 2,669,241 1,124,717 42 % Platform Services (1,639,374 ) (618,000 )
(1,021,374) (165%) Total segment operating income 3,224,287 3,420,276 (195,989)
(6 %) Less: unallocated costs 5,243,139 2,741,769 2,501,370 91 % Income from operations (2,018,852 ) 678,507 (2,697,359 ) (398 %) Interest expense 479,849 24,920 454,929 1826 % Net income (loss) before income tax expenses$ (2,498,701 ) $ 653,587 $
(3,152,288) (482%)
Operating profit from Software Services decreased by$0.3 million , or 22% to$1.1 million for the nine months endedSeptember 30, 2021 , as compared to$1.4 million for the nine months endedSeptember 30, 2020 , mainly due to reduction in the Software Services revenue. Operating profit from Managed Services and Support increased by$1.1 million , or 42% to$ 3.8 million for the nine months endedSeptember 30, 2021 , as compared to$2.7 million for the nine months endedSeptember 30, 2020 , mainly due to increase in Managed Services and Support revenue. Operating loss from Platform Services increased by$1 million , or 165% to$(1.6) million for the nine months endedSeptember 30, 2021 , as compared to$(0.6) million for the nine months endedSeptember 30, 2020 due to increase
in cost from Platform Services. 40
Liquidity and capital resources
As of December As of September As of September
31, 2020 30, 2021 30, 2020
Cash and cash equivalents $ 1,402,700 $ 1,148,429 $ 174,955
Short-term investments - - -
Total cash, cash equivalents and
short-term investments $ 1,402,700 $ 1,148,429 $ 174,955
As of December As of September As of September
31, 2020 30, 2021 30, 2020
Cash flows provided by operating
activities $ (734,673 ) $ (3,877,388 ) $ (2,001,889 )
Cash flows used in investing
activities (477,457 ) 50,354 18,617
Cash flows provided by financing
activities 1,640,000 3,673,470 1,183,395
Net increase in cash and cash
equivalents $ 427,870 $
(254,271)
From
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 at least 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.
Sources of liquidity
As ofSeptember 30, 2021 , our principal sources of liquidity consisted of cash and cash equivalents of$1.1 million which was mainly on account of raising debt to the extent of$2.6 million during the period. We believe that our cash and cash equivalents as ofSeptember 30, 2021 , and the future operating cash flows of the entity will provide adequate resources to fund ongoing cash requirements for the next twelve months. If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations during the next twelve months, we may be required to obtain additional sources of funds through additional operational improvements, capital market transactions, asset sales or financing from third parties, a combination thereof or otherwise. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms.
Operating activities
Net cash used in operating activities was$(3.9) million for the nine months endedSeptember 30, 2021 , and net cash used from operations was$ (2.0) million for the nine months endedSeptember 30, 2020 .
Investment activities
The net cash used in investing activities was
Financing Activities Cash flows from financing activities was$3.7 million for the nine months endedSeptember 30, 2021 and$1.2 million for the nine months endedSeptember 30, 2020 . During the year 2020, we raised an aggregate amount of$1.6 million by issuing convertible promissory notes to various investors in a private exempted offering. In addition, we raised approximately$1.7 million onJanuary 13, 2021 and$0.9 million onFebruary 10, 2021 by issuing convertible promissory notes to various investors in a private exempted offering and PPP loan of$1.1 million for the nine months endedSeptember 30, 2021 . Total principal amount of convertible promissory notes issued is$4.2 million . These notes carry an interest rate of 10% per annum payable quarterly. 41
Off-balance sheet provisions
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 ofSeptember 30, 2021 .
© Edgar online, source
){kind=link}
