CREXENDO, INC. SAFE HARBOR
In addition to historical information, this Annual Report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual
results could differ materially from those projected in the forward-looking
statements as a result of a number of factors, risks and uncertainties,
including the risk factors set forth in Item 1A. above and the risk factors set
forth in this Annual Report. Generally, the words "anticipate", "expect",
"intend", "believe" and similar expressions identify forward-looking
statements. The forward-looking statements made in this Annual Report are made
as of the filing date of this Annual Report with the
Overview
Cloud Telecommunications Services - Our cloud telecommunications services transmit calls using IP or cloud technology, which converts voice signals into digital data packets for transmission over the Internet or cloud. Each of our calling plans provides a number of basic features typically offered by traditional telephone service providers, plus a wide range of enhanced features that we believe offer an attractive value proposition to our customers. This platform enables a user, via a single "identity" or telephone number, to access and utilize services and features regardless of how the user is connected to the Internet or cloud, whether it's from a desktop device or an application on a mobile device.
We generate recurring revenue from our cloud telecommunications services, broadband Internet services, managed IT services, software license sales, and infrastructure as a service. Our cloud telecommunications contracts typically have a thirty-six to sixty month term. We also charge other various contracted and non-contracted fees.
We generate product revenue, equipment financing revenue, and device as a service revenue from the sale and lease of our cloud telecommunications equipment. Revenues from the sale of equipment, including those from sales-type leases, are recognized at the time of sale or at the inception of the lease, as appropriate.
33
Table of Contents
Our Cloud Telecommunications service revenue increased 14% or
Software Solutions - Our software solutions segment derives revenues from three primary sources: software licenses, software maintenance support and professional services. Software and services may be sold separately or in bundled packages. Generally, contracts with customers contain multiple performance obligations, consisting of software and services. For bundled packages, the Company accounts for individual products and services separately if they are distinct - i.e. if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration is allocated between separate products and services in a bundle based on their relative stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the software licenses and professional services. For items that are not sold separately (e.g. additional features) the Company estimates stand-alone selling prices using the adjusted market assessment approach. When we provide a free trial period, we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services.
We generate software license revenue from the sale of perpetual software licenses, term-based software licenses that expire, and Software-as-a-Service ("SaaS") based software which are referred to as subscription arrangements. The Company does not recognize software revenue related to the renewal of subscription software licenses earlier than the beginning of the subscription period.
We generate subscription and maintenance support revenue from customer support and other supportive services. The Company offers warranties on its products. The warranty period for our licensed software is generally 90 days. Certain of the Company's warranties are considered to be assurance-type in nature and do not cover anything beyond ensuring that the product is functioning as intended. Based on the guidance in ASC 606, assurance-type warranties do not represent separate performance obligations. The Company also sells separately-priced maintenance service contracts, which qualify as service-type warranties and represent separate performance obligations. The Company does not typically allow and has no history of accepting material product returns. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. Subscription and maintenance support revenue is recognized ratably over the term of the customer support agreement, which is typically one year.
We generate professional services and other revenue from consulting, technical support, resident engineer services, design services and installation services. Revenue for professional services and other is recognized when the performance obligation is complete and the customer has accepted the performance obligation.
Our Software Solutions revenue increased 75%, or
Results of Consolidated Operations
The following discussion of financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto and other financial information included herein this Annual Report.
Results of Consolidated Operations (in thousands, except for per share amounts)
Year Ended December 31,
Consolidated 2022 2021
Service revenue $ 19,515 $ 17,102
Software solutions revenue 15,148 8,666
Product revenue 2,891 2,324
Total revenue 37,554 28,092
Loss before income taxes (36,175 ) (2,910 )
Income tax benefit 762 465
Net loss (35,413 ) (2,445 )
Basic earnings per common share
34
Table of Contents
For the three months ended
March 31, June 30, September 30, December 31,
Consolidated 2022 2022 2022 2022
Service revenue $ 4,398 $ 4,556 $ 4,473 $ 6,088
Software solutions
revenue 3,268 3,598 3,875 4,407
Product revenue 492 692 760 947
Total revenue 8,158 8,846 9,108 11,442
Loss before income taxes (1,421 ) (978 ) (728 ) (33,048 )
Income tax benefit 201 82 32 447
Net loss (1,220 ) (896 ) (696 ) (32,601 )
Basic earnings per common
share (1) $ (0.05 ) $ (0.04 ) $ (0.03 ) $ (1.33 )
Diluted earnings per
common share (1) $ (0.05 ) $ (0.04 ) $ (0.03 ) $ (1.33 )
For the three months ended
March 31, June 30, September 30, December 31,
Consolidated 2021 2021 2021 2021
Service revenue $ 4,139 $ 4,327 $ 4,325 $ 4,311
Software solutions
revenue - 1,012 3,784 3,870
Product revenue 368 440 701 815
Total revenue 4,507 5,779 8,810 8,996
Income/(loss) before
income taxes (839 ) (1,263 ) 12 (820 )
Income tax
benefit/(provision) 124 260 (137 ) 218
Net loss (715 ) (1,003 ) (125 ) (602 )
Basic earnings per common
share (1) $ (0.04 ) $ (0.05 ) $ (0.01 ) $ (0.03 )
Diluted earnings per
common share (1) $ (0.04 ) $ (0.05 ) $ (0.01 ) $ (0.03 )
-------
(1) Earnings per common share is computed independently for each of the quarters presented. Therefore, the sums of quarterly earnings per common share amounts do not necessarily equal the total for the twelve month periods presented.
35
Table of Contents
Year Ended
Total Revenue
Total revenue consists of service revenue, software solutions revenue and
product revenue. The following table reflects our total revenue for the year
ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Total revenue $ 37,554 $ 28,092 $ 9,462 34 %
The increase in total revenue for the year is mainly driven by an additional
Loss Before Income Taxes
The following table reflects our income/(loss) before income taxes for the year
ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Loss before income taxes $ (36,175 ) $ (2,910 ) $ (33,265 ) 1143%
The increase in loss before income tax is primarily due to an increase in
operating expenses of
Income Tax Benefit
The following table reflects our income tax benefit/(provision) for the year
ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Income tax benefit $ 762 $ 465 $ 297 64 %
We had pre-tax loss for the year ended
36
Table of Contents
Use of Non-GAAP Financial Measures
To evaluate our business, we consider and use non-generally accepted
accounting principles ("Non-GAAP") net income and Adjusted EBITDA as a
supplemental measure of operating performance. These measures include the same
adjustments that management takes into account when it reviews and assesses
operating performance on a period-to-period basis. We consider Non-GAAP net
income to be an important indicator of overall business performance because it
allows us to evaluate results without the effects of share-based compensation,
acquisition related expenses, changes in fair value of contingent consideration,
amortization of intangibles, and goodwill and long-lived asset impairment. We
define EBITDA as
In our
· EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future
requirements for capital expenditures or contractual commitments;
· they do not reflect changes in, or cash requirements for, our working
capital needs;
· they do not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments, on our debt that we
may incur;
· they do not reflect income taxes or the cash requirements for any tax
payments;
· although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will be replaced sometime in the future,
and EBITDA and Adjusted EBITDA do not reflect any cash requirements for
such replacements;
· while share-based compensation is a component of operating expense, the
impact on our financial statements compared to other companies can vary
significantly due to such factors as the assumed life of the options and
the assumed volatility of our common stock; and
· other companies may calculate EBITDA and Adjusted EBITDA differently than
we do, limiting their usefulness as comparative measures.
We compensate for these limitations by relying primarily on our
37
Table of Contents
Reconciliation of Non-GAAP Financial Measures
In accordance with the requirements of Regulation G issued by the
Reconciliation of U.S. GAAP Net Income to Non-GAAP Net Income
(Unaudited)
Three Months Ended December 31, Year Ended December 31,
2022 2021 2022 2021
(In thousands) (In thousands)
U.S. GAAP net loss $ (32,601 ) $ (602 ) $ (35,413 ) $ (2,445 )
Share-based
compensation 1,612 478 4,374 1,628
Acquisition related
expenses 24 (28 ) 55 1,037
Change in fair value
of contigent
consideration - 126 - 126
Goodwill and
long-lived asset
impairment 32,678 - 32,678 -
Amortization of
intangible assets 786 618 2,435 1,391
Non-GAAP net income $ 2,499 $ 592 $ 4,129 $ 1,737
Non-GAAP net income
per common share:
Basic $ 0.10 $ 0.03 $ 0.18 $ 0.09
Diluted $ 0.09 $ 0.02 $ 0.16 $ 0.07
Weighted-average
common shares
outstanding:
Basic 24,423,030 21,792,137 22,939,514 20,275,691
Diluted 26,633,630 26,068,825 25,783,179 23,408,162
Reconciliation of U.S. GAAP Net Income to EBITDA to Adjusted EBITDA
(Unaudited)
Three Months Ended December 31, Year Ended December 31,
2022 2021 2022 2021
(In thousands) (In thousands)
U.S. GAAP net loss $ (32,601 ) $ (602 ) $ (35,413 ) $ (2,445 )
Depreciation and
amortization 885 695 2,747 1,626
Interest expense 21 20 78 84
Interest income and other
expense/(income) (1,576 ) 3 (1,295 ) 16
Goodwill and long-lived
asset impairment 32,678 - 32,678 -
Income tax benefit (447 ) (218 ) (762 ) (465 )
EBITDA (1,040 ) (102 ) (1,967 ) (1,184 )
Acquisition related
expenses 24 (28 ) 55 1,037
Change in fair value of
contingent consideration - 126 - 126
Share-based compensation 1,612 478 4,374 1,628
Adjusted EBITDA $ 596 $ 474 $ 2,462 $ 1,607
38
Table of Contents
Critical Accounting Policies and Estimates
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services and excludes any amounts collected on behalf of third parties. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. We recognize revenue for delivered elements only when we determine there are no uncertainties regarding customer acceptance. Changes in the allocation of the sales price between delivered and undelivered elements can impact the timing of revenue recognized but does not change the total revenue recognized on any agreement.
The consideration (including any discounts) is allocated between separate products and services in a bundle based on their relative stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the products and services. For items that are not sold separately (e.g. additional features) the Company estimates stand-alone selling prices using the adjusted market assessment approach. Professional services revenue includes activation fees and any professional installation services. Installation services are recognized as revenue when the services are completed. The Company generally allocates a portion of the activation fees to the desktop devices, which is recognized at the time of the installation or customer acceptance, and a portion to the service, which is recognized over the contract term using the straight-line method. Our telecommunications services contracts typically have a term of thirty-six to sixty months. When we provide a free trial period, we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services.
Goodwill
We have recorded goodwill related to various business acquisitions.
We test goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The estimated fair value of the reporting unit is determined using our market capitalization as of our annual impairment assessment date or more frequently if circumstances indicate the goodwill might be impaired. Items that could reasonably be expected to negatively affect key assumptions used in estimating fair value include but are not limited to: sustained decline in our stock price due to a decline in our financial performance due to the loss of key customers, loss of key personnel, emergence of new technologies or new competitors; and decline in overall market or economic conditions leading to a decline in our stock price.
The process of estimating the fair value of goodwill is subjective and required the Company to make estimates that may significantly impact the outcome of the analysis. A qualitative assessment considers events and circumstances such as macroeconomic conditions, industry and market conditions, cost factors and overall financial performance, as well as company specifications. If after performing this assessment, the Company concluded it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company performed the quantitative test.
Under the quantitative test, a goodwill impairment is identified by comparing the fair value of the reporting unit to the carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, goodwill is considered impaired and an impairment charge is recognized in an amount equal to the excess, not to exceed the carrying amount of goodwill.
The Company estimated the fair value of the reporting unit with an income approach using the discounted cash flow ("DCF") analysis and the Company also considered a market-based valuation methodology using comparable public company trading values and the Company's market capitalization. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, the discount rate and relevant comparable public company earnings multiples. The cash flows employed in the DCF analysis are based on the Company's best estimate of future sales, earnings and cash flows after considering factors such as general market conditions and recent operating performance. The discount rate utilized in the DCF analysis is based on the reporting unit's weighted-average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the Company's reporting unit.
39
Table of Contents
Impairment assessment inherently involves management judgments regarding a
number of assumptions described above. The reporting unit fair value also
depends on the future strength of the
Intangible Assets
Our intangible assets consist of customer relationships, developed technologies, trademark and trade names. The intangible assets are amortized following the patterns in which the economic benefits are consumed or straight-line over the estimated useful life. We periodically review the estimated useful lives of our intangible assets and review these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The determination of impairment is based on estimates of future undiscounted cash flows. If an intangible asset is considered to be impaired, the amount of the impairment will be equal to the excess of the carrying value over the fair value of the asset.
Amortizable intangible assets are amortized over the estimated useful lives as follows: Customer relationships 6 to 16 years Developed technologies 2 to 6 years Trademark and trade names 4 years
Valuation of Long-Lived Assets.
The Company reviews the carrying amount of long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Once an indicator of potential impairment has occurred,
the impairment test is based on whether the intent is to hold the asset for
continued use or to hold the asset for sale. If the intent is to hold the asset
for continued use, the impairment test first requires a comparison of projected
undiscounted future cash flows against the carrying amount of the asset group.
If the carrying value of the asset group exceeds the estimated undiscounted
future cash flows, the asset group would be deemed to be potentially impaired.
The impairment, if any, would be measured based on the amount by which the
carrying amount exceeds the fair value. Fair value is determined primarily using
the projected future undiscounted cash flows. Losses on long-lived assets to be
disposed of are determined in a similar manner, except that fair values are
reduced for the cost to dispose. We recognized impairment losses of
Deferred Taxes
Our provision for income taxes is comprised of a current and a deferred portion. The current income tax provision is calculated as the estimated taxes payable or refundable on tax returns for the current year. The deferred income tax provision is calculated for the estimated future tax effects attributable to temporary differences and carryforwards using expected tax rates in effect during the years in which the differences are expected to reverse or the carryforwards are expected to be realized.
We currently have net deferred tax assets consisting of net operating loss
carryforwards, tax credit carryforwards and deductible temporary differences.
Management periodically weighs the positive and negative evidence to determine
if it is more likely than not that some or all of the deferred tax assets will
be realized. As of
40
Table of Contents
Product Warranty
We provide for the estimated cost of product warranties at the time we recognize revenue. We evaluate our warranty obligations on a product group basis. Our standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period of time. We base our estimated warranty obligation upon warranty terms, ongoing product failure rates, and current period product shipments. If actual product failure rates, repair rates or any other post-sales support costs were to differ from our estimates, we would be required to make revisions to the estimated warranty liability. Warranty terms generally last for the duration that the customer has service. Some third-party equipment vendors offer extended warranties. These extended warranties are sold separately and provide services in addition to assurance that the product will function as expected, including updates and patches. The Company is arranging for these services to be provided by the third-party and is acting as an agent in the transaction and records revenue on a net basis at the time of sale.
Contingent Liabilities
Contingent liabilities require significant judgment in estimating potential payouts. Contingent considerations arising from business combinations and asset acquisitions require management to estimate future payouts based on forecasted results, which are highly sensitive to the estimates of discount rates and future revenues. These estimates can change significantly from period to period and are reviewed each reporting period to establish the fair value of the contingent liability.
Share-Based Compensation
We account for our share-based compensation awards using the fair-value method.
The grant date fair value was determined using the Black-Scholes-Merton pricing
model. The Black-Scholes-Merton valuation calculation requires us to make key
assumptions such as future stock price volatility, expected terms, risk-free
rates, and dividend yield. Our expected volatility is derived from our
volatility rate as a publicly traded company. The expected term is based on our
historical experience. The risk-free interest factor is based on the United
States Treasury yield curve in effect at the time of the grant for zero coupon
United States Treasury notes with maturities of approximately equal to each
grant's expected term. For the year ended
We develop an estimate of the number of share-based awards that will be forfeited due to employee turnover. We will continue to use judgment in evaluating the expected term, volatility, and forfeiture rate related to our own share-based awards on a prospective basis, and in incorporating these factors into the model. If our actual experience differs significantly from the assumptions used to compute our share-based compensation cost, or if different assumptions had been used, we may have recorded too much or too little share-based compensation cost.
For additional information on use of estimates, see summary of Significant Accounting Policies in the notes to the Consolidated Financial Statements.
Segment Operating Results
The Company has two operating segments, which consist of Cloud Telecommunications Services and Software Solutions. The information below is organized in accordance with our two reportable segments. Segment operating income is equal to segment net revenue less segment cost of service revenue, cost of software solution revenue, cost of product revenue, sales and marketing, research and development, and general and administrative expenses.
41
Table of Contents
Operating Results of our Cloud Telecommunications Services Segment (in thousands):
Year Ended December 31,
Cloud Telecommunications Services 2022 2021
Service revenue $ 19,515 $ 17,102
Product revenue 2,891 2,324
Total revenue 22,406 19,426
Operating expenses:
Cost of service revenue 6,711 5,104
Cost of product revenue 1,637 1,525
Selling and marketing 7,234 5,915
General and administrative 9,366 8,129
Research and development 1,266 1,396
Long-lived asset impairment 69 -
Total operating expenses 26,283 22,069
Operating loss (3,877 ) (2,643 )
Other expense (71 ) (70 )
Loss before tax benefit $ (3,948 ) $ (2,713 ) Quarterly Financial Information
For the three months ended
March 31, June 30, September 30, December 31,
Cloud Telecommunications 2022
Services 2022 2022 2022
Service revenue $ 4,398 $ 4,556 $ 4,473 $ 6,088
Product revenue 492 692 760 947
Total revenue 4,890 5,248 5,233 7,035
Operating expenses:
Cost of service revenue 1,436 1,438 1,375 2,462
Cost of product revenue 317 372 453 495
Selling and marketing 1,581 1,678 1,704 2,271
General and
administrative 2,306 1,993 2,056 3,011
Research and development 304 310 284 368
Long-lived asset
impairment - - - 69
Total operating expenses 5,944 5,791 5,872 8,676
Operating loss (1,054 ) (543 ) (639 ) (1,641 )
Other expense (18 ) (17 ) (17 ) (19 )
Loss before tax benefit $ (1,072 ) $ (560 ) $ (656 ) $ (1,660 )
42
Table of Contents
For the three months ended
March 31, June 30, September 30, December 31,
Cloud Telecommunications
Services 2021 2021 2021 2021
Service revenue $ 4,139 $ 4,327 $ 4,325 $ 4,311
Product revenue 368 440 701 815
Total revenue 4,507 4,767 5,026 5,126
Operating expenses:
Cost of service revenue 1,259 1,347 1,210 1,288
Cost of product revenue 225 286 461 553
Selling and marketing 1,279 1,508 1,487 1,641
General and
administrative 2,216 2,167 1,763 1,983
Research and development 350 388 358 300
Total operating expenses 5,329 5,696 5,279 5,765
Operating loss (822 ) (929 ) (253 ) (639 )
Other expense (17 ) (19 ) (22 ) (12 )
Loss before tax
benefit/(provision) $ (839 ) $ (948 ) $ (275 ) $ (651 )
Year Ended
Service Revenue
Cloud telecommunications service revenue consists primarily of fees collected
for cloud telecommunications services, professional services, interest from
sales-type leases, reselling broadband Internet services, managed IT service,
administrative fees, and website hosting services. The following table reflects
our service revenue for the year ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Service revenue $ 19,515 $ 17,102 $ 2,413 14 %
The increase in service revenue is due to an increase in organic
telecommunications services of
Product Revenue
Product revenue consists primarily of fees collected from the sale of desktop
phone devices, third-party equipment, and device as a service. The following
table reflects our product revenue for the year ended
43
Table of Contents
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Product revenue $ 2,891 $ 2,324 $ 567 24 %
Product revenue fluctuates from one period to the next based on timing of
installations. Our typical customer installation is complete within 30-60 days.
However, larger enterprise customers can take multiple months, depending on size
and the number of locations. Product revenue is recognized when products have
been installed and services commence. Additionally, product revenue can
fluctuate due to the allocation of discounts or sales promotions across the
performance obligations. Our
Backlog
Backlog represents the total contract value of all contracts signed, less
revenue recognized from those contracts as of
Cloud Telecommunications Services backlog as of
Cost of Service Revenue
Cost of service revenue consists primarily of fees we pay to third-party
telecommunications carriers, broadband Internet providers, software providers,
costs related to installations, customer support salaries and benefits, and
share-based compensation. The following table reflects our cost of service
revenue for the year ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Cost of service revenue $ 6,711 $ 5,104 $ 1,607 31 %
The increase in cost of service revenue was primarily due to an increase in
salaries, wages and benefits of
44
Table of Contents
Cost of Product Revenue
Cost of product revenue consists of the costs associated with desktop phone
devices and third-party equipment. The following table reflects our cost of
product revenue for the year ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Cost of product revenue $ 1,637 $ 1,525 $ 112 7 %
The increase is primarily related to the increase in product revenue and an
increase in device costs, and additional cost of product revenue of
Selling and Marketing
Selling and marketing expenses consist primarily of direct and channel sales
representative salaries and benefits, share-based compensation, partner channel
commissions, amortization of costs to acquire contracts, travel expenses, lead
generation services, trade shows, internal and third-party marketing costs, the
production of marketing materials, and sales support software. The following
table reflects our selling and marketing expenses for the year ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Selling and marketing $ 7,234 $ 5,915 $ 1,319 22 %
The increase in selling and marketing expense is due to an increase in salaries,
wages and benefits of
General and Administrative
General and administrative expenses consist of salaries, benefits and stock
compensation for executives, administrative personnel, legal, rent, equipment,
accounting and other professional services, investor relations, depreciation,
amortization of intangibles, and other administrative corporate expenses. The
following table reflects our general and administrative expenses for the year
ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
General and administrative $ 9,366 $ 8,129 $ 1,237 15 %
45
Table of Contents
The increase in general and administrative expenses is primarily due to
an increase in administrative salaries, wages and benefits of
Research and Development
Research and development expenses primarily consist of salaries and benefits,
share-based compensation, and outsourced engineering services related to the
development of new cloud telecommunications features and products. The following
table reflects our research and development expenses for the year ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Research and development $ 1,266 $ 1,396 $ (130 ) -9 %
The decrease in research and development expenses is primarily related to a
decrease in costs for maintenance on our mobile applications and other
development costs of
Other Expense
Other expense primarily relates to interest expense and net foreign exchange
gains or losses, offset by credit card cash back rewards. The following table
reflects our other expense for the year ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Other expense $ (71 ) $ (70 ) $ (1 ) 1 %
Operating Results of our Software Solutions Segment (in thousands):
Year Ended December 31,
Software Solutions 2022 2021
Software solutions revenue $ 15,148 $ 8,666
Operating expenses:
Cost of software solutions revenue 5,336 4,031
Selling and marketing 4,491 2,345
General and administrative 3,538 2,457
Research and development 2,689 -
Goodwill impairment 32,609 -
Total operating expenses 48,663 8,833
Operating loss (33,515 ) (167 )
Other income/(expense) 1,288 (30 )
Loss before tax benefit $ (32,227 ) $ (197 )
46
Table of Contents
Quarterly Financial Information
For the three months ended
March 31, June 30, September 30, December 31,
Software Solutions 2022 2022 2022 2022
Software solutions
revenue $ 3,268 $ 3,598 $ 3,875 $ 4,407
Operating expenses:
Cost of software
solutions revenue 1,661 1,131 1,141 1,403
Selling and marketing 1,003 1,093 1,028 1,367
General and
administrative 943 764 744 1,087
Research and development - 919 867 903
Goodwill impairment - - - 32,609
Total operating expenses 3,607 3,907 3,780 37,369
Operating income/(loss) (339 ) (309 ) 95 (32,962 )
Other income/(expense) (10 ) (109 ) (167 ) 1,574
Loss before tax benefit $ (349 ) $ (418 ) $ (72 ) $ (31,388 )
For the three months ended
Software Solutions March 31, June 30, September 30, December 31,
2021 2021 2021 2021
Software solutions
revenue $ - $ 1,012 $ 3,784 $ 3,870
Operating expenses:
Cost of software
solutions revenue - 526 1,675 1,830
Selling and marketing - 389 798 1,158
General and
administrative - 412 1,005 1,040
Research and
development - - - -
Total operating
expenses - 1,327 3,478 4,028
Operating income/(loss) - (315 ) 306 (158 )
Other expense - - (19 ) (11 )
Income/(loss) before
tax benefit/(provision) $ - $ (315 ) $ 287 $ (169 )
47
Table of Contents
Year Ended
Software Solutions Revenue
Software solutions revenue consists primarily of software license fees,
subscription maintenance and support, and professional services. Software
licenses are billed by the number of concurrent sessions a Partner has purchased
or subscribes to. Subscription maintenance and support is ongoing and provides
for software updates and improvements, support for add-on modules, bug fixes,
and other general maintenance items. Professional services and other revenues
consist of professional services such as the installation of software and
integration of other modules, training and implementation as well as custom
mobile branding. The following table reflects our service revenue for the year
ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Software solutions revenue $ 15,148 $ 8,666 $ 6,482 75 %
The increase in software solutions revenue is primarily related to comparing
twelve months of operating activity for the year ended
Cost of Software Solutions Revenue
Cost of software solutions revenue consists primarily of salaries and benefits,
amortization expense related to the technology, cost of Data Center hosting,
third-party software modules and outsourced services required to install and
support software solutions. The following table reflects our cost of service
revenue for the year ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Cost of software solutions
revenue $ 5,336 $ 4,031 $ 1,305 32 %
The increase in cost of software solutions revenue is primarily related to
comparing twelve months of operating activity for the year ended
Backlog
Backlog represents the total contract value of all contracts signed, less
revenue recognized from those contracts as of
Software Solutions backlog as of
48
Table of Contents
Selling and Marketing
Selling and marketing expenses consist primarily of sales and marketing salaries
and benefits, commissions, share-based compensation, travel expenses, lead
generation services, trade shows, third-party marketing services, the production
of marketing materials, and sales support software. The following table reflects
our selling and marketing expenses for the year ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Selling and marketing $ 4,491 $ 2,345 $ 2,146 92 %
The increase in selling and marketing expenses is primarily related to comparing
twelve months of operating activity for the year ended
General and Administrative
General and administrative expenses consist of salaries and benefits for
executives, administrative personnel, amortization of intangible asset related
to customer lists, legal, rent, equipment, accounting and other professional
services, and other administrative corporate expenses. The following table
reflects our general and administrative expenses for the year ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
General and administrative $ 3,538 $ 2,457 $ 1,081 44 %
The increase in general and administrative expenses is primarily related to
comparing twelve months of operating activity for the year ended
Research and Development
Research and development expenses primarily consists of salaries, wages and
benefits, share-based compensation, and outsourcing engineering services related
to the development of our software solutions. The following table reflects our
research and development expense for the year end
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Research and development $ 2,689 $ - $ 2,689 -
49
Table of Contents
The increase in research and development expenses is primarily related to the reclassification of research and development expenses out of cost of service revenue and general and administrative expenses after carefully reviewing operating expenses that qualify as research and development operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of our ability to access sufficient cash flows to meet
the short-term and long-term cash requirements of our business operations. We
finance our operations primarily through services, software solutions, and
product sales to our customers. As of
On
Operating Activities
Cash provided by or used in operating activities is driven by our net loss,
adjustments to reconcile to net cash provided by or used in operating
activities, the timing of customer collections, as well as the amount and timing
of disbursements to our vendors, the amount of cash we invest in personnel,
marketing, and infrastructure costs to support the anticipated growth of our
business. The following table reflects our net cash provided by/(used in)
operating activities for the year ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Net cash used in operating
activities $ (411 ) $ (1,006 ) $ 595 -59 %
The net cash used in operations was primarily driven by our net loss for the
year ended
Investing Activities Cash provided by or used in investing activities is driven by the purchase of property and equipment, business combinations, and asset acquisitions. The following table reflects our net cash provided by/(used in) investing activities for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 : Year Ended December 31, 2022 2021 Dollar Change Percent Change Net cash used in investing activities$ (1,703 ) $ (9,867 ) $ 8,164 -83 % 50 Table of Contents
During the year ended
During the year ended
Financing Activities
Cash provided by or used in financing activities is driven by the proceeds from
the exercise of options, taxes paid on the net settlement of stock options and
RSUs, payment of contingent consideration, proceeds from finance leases and
notes payable, repayments made on finance leases and notes payable, proceeds and
repayments on line of credit, and proceeds from the issuance of common stock in
connection with an offering. The following table reflects our net cash provided
by financing activities for the year ended
Year Ended December 31,
2022 2021 Dollar Change Percent Change
Net cash provided by/(used
in) financing activities $ (54 ) $ 650 $ (704 ) -108 %
Net cash used in financing activities in the year ended
Net cash provided by financing activities in the year ended
OFF BALANCE SHEET ARRANGEMENTS
As of
RELATED PARTY TRANSACTIONS
None
51
Table of Contents
RECENT ACCOUNTING PRONOUNCEMENTS
For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements, see Note 1 to the consolidated financial statements, which is incorporated by reference herein.
© Edgar Online, source
