The next dialogue needs to be learn at the side of our consolidated monetary statements and the associated notes thereto included elsewhere on this report, that are included by reference herein. Along with historic data, this dialogue contains forward-looking data that entails dangers and assumptions based mostly upon administration's present expectations. Our precise outcomes may differ materially from the outcomes referred to in any forward-looking statements. See "Cautionary Be aware Concerning Ahead-Wanting Statements" included elsewhere on this report. 27 Correction of Immaterial Errors - Throughout the preparation of theSeptember 30, 2020 condensed consolidated monetary statements, sure historic errors had been recognized referring to the accounting for capital leases underneath ASC Matters 840 and 842. The lease obligations underneath sure leases weren't recorded at their current values on the inception of the leases; as well as, the asset buyout costs weren't reassessed inDecember 2019 by the Firm, each of which resulted in an understatement of bills fromDecember 31, 2017 toDecember 31, 2019 and an overstatement of bills for the 9 months endedSeptember 30, 2020 . The errors weren't materials, both quantitatively or qualitatively, in any of the reported durations. Nevertheless, the corrections, if recorded within the three-month interval endedSeptember 30, 2020 would have been materials to such interval. Accordingly, the prior interval monetary statements had been corrected by revising such consolidated monetary statements for comparability. For theDecember 31, 2019 consolidated monetary statements included on this Type 10-Okay, the corrections are as follows:
A rise within the internet lack of
A rise in expenditure of
A rise in loss per share of
2019. · A rise in liabilities of$528,000 as ofDecember 31, 2019 .
A lower in retained earnings of
2019 and 2018, respectively. · A lower in whole belongings of$249,000 as ofDecember 31, 2019 . · The influence on money flows for the yr endedDecember 31, 2019 was:
A lower within the internet money move generated by the working actions of
· A lower in internet money flows utilized in investing actions of$102,000 . · A lower in internet money flows utilized in financing actions of$471,000 . Government Overview
We’re a world knowledge engineering firm. We function in three reporting segments: Digital Knowledge Options (DDS), Synodex and Agility.
The next desk units forth sure monetary knowledge for the 2 years endedDecember 31, 2020 and 2019: ({Dollars} in hundreds of thousands) Years Ended December 31, 2020 % of income 2019 % of income Revenues$ 58.2 100.0 %$ 55.9 100.0 % Direct working prices 38.4 66.0 % 37.3 66.7 %
Promoting and administrative bills 18.7 32.0 % 19.5 34.9 % Revenue (loss) from operations 1.1 2.0 % (0.9 ) (1.6 )% Different expense 0.1
0.1
Revenue (loss) earlier than provision for earnings taxes 1.0 (1.0 ) Provision for earnings taxes 0.4 1.1 Internet earnings (loss) 0.6 (2.1 ) 28 Outcomes of Operations
All percentages have been calculated utilizing rounded quantities.
Finish of yr
Revenues
Complete revenues had been
Revenues from the DDS phase had been$42.0 million and$41.3 million for the years endedDecember 31, 2020 and 2019, respectively, a rise of$0.7 million or roughly 2%. The rise was on account of greater quantity from one shopper, partially offset by decrease quantity from two shoppers of the DDS phase. Revenues from the Synodex phase had been$4.8 million and$3.9 million for the years endedDecember 31, 2020 and 2019, respectively, a rise of$0.9 million or roughly 23%. The rise was primarily on account of greater quantity from three shoppers, partially offset by decrease quantity from two shoppers. Revenues from the Agility phase had been$11.4 million and$10.7 million for the yr endedDecember 31, 2020 and 2019, respectively, a rise of$ 0.7 million or roughly 7%. The rise was attributable to greater revenues from subscriptions to our Agility media database. One shopper within the DDS phase generated roughly 14% and 16% of the Firm's whole revenues within the fiscal years endedDecember 31, 2020 and 2019, respectively. One other shopper within the DDS phase generated 10% of the Firm's whole revenues for the fiscal yr endedDecember 31, 2019 . No different shopper accounted for 10% or extra of whole revenues throughout these durations. Additional, in the years endedDecember 31, 2020 and 2019, revenues from non-US shoppers accounted for 54% and 55% of the Firm's revenues respectively. Direct Working Prices Direct working prices include direct payroll, occupancy prices, knowledge heart internet hosting charges, content material acquisition prices, depreciation and amortization, journey, telecommunications, pc providers and provides, realized acquire (loss) on ahead contracts, international forex remeasurement acquire (loss), and different direct bills which might be incurred in offering providers to our shoppers. Direct working prices had been$38.4 million and$37.3 million for the years endedDecember 31, 2020 and 2019, respectively, a rise of$1.1 million or roughly 3%. This enhance was primarily on account of a rise in labor associated prices of$2.1 million , and technology-related expenditures in connection with our BCP in response to the COVID-19 pandemic of$1.1 million . The rise was offset partially by reductions in occupancy and associated prices of$1.1 million , content material acquisition prices of$0.2 million , and a lower of$0.8 million on account of reversal of a one-time cost of$0.4 million made within the second quarter of 2019 for an evaluation of retroactive international social safety contributions that was efficiently adjudicated. Direct working prices as share of whole revenues had been 66% and 67% for the years endedDecember 31, 2020 and 2019, respectively. Direct working prices for the DDS phase had been$28.5 million and$27.5 million for the years endedDecember 31, 2020 and 2019, respectively, a rise of$1.0 million or roughly 4%. This enhance was primarily on account of a rise in labor associated prices of$1.8 million , and technology-related expenditures in reference to our BCP in response to the COVID-19 pandemic of$1.1 million . The rise was offset partially by reductions in occupancy and associated prices of$1.0 million and a lower of$0.8 million on account of reversal of a one-time cost of$0.4 million made within the second quarter of 2019 for an evaluation of retroactive international social safety contributions that was efficiently adjudicated. Direct working prices for the DDS phase as a share of DDS phase revenues had been 68% and 67% for the years endedDecember 31, 2020 and
2019, respectively. 29 Direct working prices for the Synodex phase had been roughly$3.4 million and$3.2 million for the years endedDecember 31, 2020 and 2019, respectively, a rise of$0.2 million or 6%. The rise was principally on account of labor associated prices related to the rise in quantity. Direct working prices for the Synodex phase as a share of phase revenues had been 71% and 82% for the years endedDecember 31, 2020 and 2019, respectively. The lower in Direct working prices as a share of phase revenues in the course of the yr was primarily on account of greater income. Direct working prices for the Agility phase had been roughly$6.5 million and$6.6 million for the years endedDecember 31, 2020 and 2019, respectively, a lower of$0.1 million or 2%. This lower was primarily on account of a discount in content material acquisition prices. Direct working prices for the Agility phase as a share of Agility phase revenues had been 57% and 62% for the years endedDecember 31, 2020 and 2019, respectively. The lower in Direct working prices as a share of phase revenues in the course of the yr was primarily on account of greater income from subscriptions to our Agility clever knowledge platform and newswire merchandise.
Promoting and administration prices
Promoting and administrative bills include administration and administrative salaries, gross sales and advertising and marketing prices together with commissions, new providers analysis and associated software program improvement, third-party software program, promoting and commerce conferences, skilled charges and marketing consultant prices, and different administrative overhead prices. Promoting and administrative bills had been$18.7 million for the yr endedDecember 31, 2020 in comparison with$19.5 million for the yr endedDecember 31, 2019 , a lower of$0.8 million or 4%. This lower was primarily on account of decrease advertising and marketing, journey and occupancy bills of$0.3 million {and professional} charges of$0.5 million . Promoting and administrative bills as a share of whole revenues had been 32% and 35% for the years endedDecember 31, 2020 and 2019, respectively. The lower in promoting and administrative bills as share of revenues in the course of the yr was primarily on account of greater revenues and decrease promoting and administrative prices. Promoting and administrative bills for the DDS phase had been$12.4 million for the yr endedDecember 31, 2020 in comparison with$13.1 million for the yr endedDecember 31, 2019 , a lower of$0.7 million or 5%. This lower was primarily on account of decrease advertising and marketing, journey and occupancy bills of$0.2 million and skilled charges of$0.5 million . As a share of DDS revenues, DDS promoting and administrative bills had been 30% and 32% for the years endedDecember 31, 2020 and 2019, respectively. The lower in promoting and administrative bills as a share of revenues was on account of greater revenues and decrease promoting and administrative bills. Promoting and administrative bills for the Synodex phase was$0.9 million for the yr endedDecember 31, 2020 in comparison with$0.7 million for the yr endedDecember 31, 2019 , a rise of$0.2 million or 29%. This enhance was primarily on account of labor associated bills. Promoting and administrative bills for the Synodex phase as a share of Synodex phase revenues had been 19% and 18% for the years endedDecember 31, 2020 and 2019, respectively. Promoting and administrative bills for the Agility phase had been$5.4 million and$5.7 million for the years endedDecember 31, 2020 and 2019, respectively, a lower of$0.3 million or 5%. This lower was primarily on account of labor associated bills. Promoting and administrative bills for the Agility phase as a share of Agility phase revenues had been 47% and 53% for the years endedDecember 31, 2020 and 2019, respectively. The lower in promoting and administrative bills as a share of revenues was on account of greater revenues and decrease promoting and administrative bills. 30 Goodwill Impairment OnMarch 31, 2020 , we decided that adversarial adjustments in macroeconomic tendencies as a consequence of the persevering with COVID-19 pandemic constituted a triggering occasion underneath theMonetary Accounting Requirements Board's (the "FASB") Accounting Requirements Codification ("ASC") No. 350, "Intangibles -Goodwill and Different" and ASC No. 360, "Impairment or Disposal of Lengthy-Lived Property"). We accomplished our impairment evaluation procedures as ofMarch 31, 2020 . We decided that there was no impairment of long-lived belongings in any of the reporting models as of
March 31, 2020 .
Certain
Revenue Taxes We recorded a provision for earnings taxes of roughly$0.4 million and$1.1 million for the years endedDecember 31, 2020 and 2019, respectively. Tax-related costs primarily consisted of a provision for international taxes recorded in accordance with the native tax rules by our international subsidiaries. Efficient earnings tax charges are disproportionate primarily on account of the valuation allowance recorded on the deferred taxes on theU.S. and Canadian entities. See Be aware 4, "Revenue Taxes" of the notes to the consolidated monetary statements for extra data. The reconciliation of theU.S. statutory charge with the Firm's efficient tax charge for the years endedDecember 31, 2020 and 2019 are summarized within the desk under: 2020 2019
Federal earnings tax expense (profit) at statutory charge 21.0 % (21.0 )% Impact of: Change in valuation allowance 137.7
22.4
Improve in unrecognized tax advantages (ASC 740) 31.5
55.1
Tax results of international operations 57.7
59.7
Everlasting variations in actions overseas – alternate good points and losses
(1.3 ) (12.2 ) Deemed curiosity (2.1 )
–
State earnings tax internet of federal profit (4.3 )
1.3
Overseas charge differential (8.6 )
0.8
Impact of share based mostly compensation (10.9 )
- Return to provision true up (10.8 ) (2.6 ) Change in charges (172.7 ) - Withholding tax 1.5 6.0 Different (0.3 ) (7.3 ) Efficient tax charge 38.4 % 102.2 % Regardless of entry to abroad earnings and the ensuing toll cost, we intend to indefinitely reinvest earnings and earnings in our international subsidiaries on account of the international jurisdiction withholding taxes that we must incur on the precise remittances. Unremitted international earnings and earnings amounted to roughly$47.0 million atDecember 31, 2020 . If such international earnings and earnings are repatriated sooner or later, or are not deemed to be indefinitely reinvested, we must accrue the relevant quantity of international jurisdiction withholding taxes related to such remittances. 31 We now have a valuation allowance on all of ourU.S. deferred tax belongings on account of constant losses incurred by ourU.S. entity. As well as, we even have a valuation allowance on the deferred tax belongings of our Canadian subsidiaries. Our Canadian subsidiaries even have analysis and improvement credit out there to cut back taxable earnings in future years, which can be carried ahead indefinitely. The potential advantages from these balances haven't been acknowledged for monetary assertion functions. Tax Assessments InSeptember 2015 , our Indian subsidiary was topic to an inquiry by theService Tax Division inIndia concerning the classification of providers supplied by this subsidiary, asserting that the providers supplied by this subsidiary fall underneath the class of on-line data and database entry or retrieval providers (OID Providers), and never underneath the class of enterprise help providers (BS Providers) which might be exempt from service tax as traditionally indicated within the subsidiary's service tax filings. We disagree with theService Tax Division's place. InNovember 2019 , the Commissioner of Central Tax, GST & Central Excise issued an order confirming theService Tax Division's place. We're vigorously contesting this order in an enchantment to the Customs,Excise and Service Tax Appellate Tribunal . Within the occasion theService Tax Division is finally profitable in proving that the providers fall underneath the class of OID Providers, the revenues earned by our Indian subsidiary for the intervalJuly 2012 by means ofNovember 2016 could be topic to a service tax of between 12.36% and 15%, and this subsidiary might also be liable to pay curiosity and penalties. The income of our Indian subsidiary throughout this era was roughly$64.0 million . In accordance with new guidelines promulgated by theService Tax Division , as ofDecember 1, 2016 service tax is not relevant to OID or BS Providers. Primarily based on our counsel's evaluation, we've got not recorded any tax legal responsibility for this case. In a separate motion referring to service tax refunds, inOctober 2016 , our Indian subsidiary acquired notices from theIndian Service Tax Division inIndia searching for to reverse service tax refunds of roughly$160,000 beforehand granted to our Indian subsidiary for 3 quarters in 2014, asserting that the providers supplied by this subsidiary fall underneath the class of OID Providers and never BS Providers. The enchantment was decided in favor of theService Tax Division . We disagree with the idea of this choice and are contesting it vigorously. We anticipate delays in our Indian subsidiary receiving additional service tax refunds till this matter is adjudicated with finality, and at present have service tax credit of roughly$1.0 million recorded as a receivable. Primarily based on our counsel's evaluation, we've got not recorded any tax
legal responsibility for this case. Internet Revenue (Loss) We had a internet earnings of$0.6 million in the course of the yr endedDecember 31, 2020 , in comparison with a internet lack of$2.1 million in the course of the yr endedDecember 31, 2019 . The$2.7 million enchancment was attributable to greater revenues of$2.3 million , and a lower in tax provision of$0.7 million , partially offset by greater working bills of$0.3 million . Internet earnings for the DDS phase was$0.3 million for the yr endedDecember 31, 2020 , in comparison with a internet lack of$0.5 million for the yr endedDecember 31, 2019 . The$0.8 million enchancment was attributable to greater revenues of$0.7 million and a lower in tax provisions of$0.4 million , partially offset by greater working bills of$0.3 million . Internet earnings for the Synodex phase was$0.5 million for the yr endedDecember 31, 2020 , in comparison with breakeven for the yr endedDecember 31, 2019 . The$0.5 million enhance was primarily attributable to the upper revenues of$0.9 million offset partially by greater working bills of$0.4 million . Internet loss for the Agility phase was$0.2 million for the yr endedDecember 31, 2020 , in comparison with a internet lack of$1.6 million for the yr endedDecember 31, 2019 . The$1.4 million enchancment was the results of greater revenues of$0.7 million , reductions in working bills of$0.4 million and a tax profit
of$0.3 million . 32
Liquidity and capital sources
Chosen measures of liquidity and capital sources, expressed in hundreds, are as follows: December 31, 2020 2019 Money and money equivalents$ 17,573 $ 10,874 Working capital 13,515 8,250
OnDecember 31, 2020 , we had money and money equivalents of$17.6 million , of which$10.2 million was held by our international subsidiaries, and$7.4 million was held inamerica . Regardless of the passage of the brand new tax legislation underneath which we could repatriate funds from abroad after paying the toll cost, it's our intent, as ofDecember 31, 2020 , to completely reinvest the abroad funds in our international subsidiaries on account of the withholding tax that we must incur on the precise remittances. We now have used, and plan to make use of, our money and money equivalents for (i) investments within the Agility phase; (ii) the growth of our different operations; (iii) expertise innovation; (iv) product administration and strategic advertising and marketing; (v) normal company functions, together with working capital; and (vi) potential enterprise acquisitions. As ofDecember 31, 2020 , we had working capital of roughly$13.5 million , as in comparison with working capital of roughly$8.3 million as ofDecember 31, 2019 . OnCould 4, 2020 , we acquired mortgage proceeds of$579,700 underneath the Paycheck Safety Program (PPP), which was established as a part of the Coronavirus Help, Reduction and Financial Safety Act. The loans and accrued curiosity are forgivable, so long as the borrower makes use of the mortgage proceeds for eligible functions, together with payroll, advantages, lease and utilities, and maintains its payroll ranges. The unforgiven portion of the mortgage is payable over two years at an rate of interest of 1% per yr, with a deferral of funds till the date that theSmall Enterprise Administration remits the borrower's mortgage forgiveness quantity to the lender. OnJanuary 29, 2021 , we filed our mortgage forgiveness software for 100% of the accredited mortgage underneath the PPP.
Proceeds from the train of inventory choices for the monetary yr ended
We had no important commitments for capital expenditures within the
We consider that our current money and money equivalents and money move from operations will present adequate sources of liquidity to satisfy our monetary wants over the following 12 months from the date of publication of those monetary statements. . Nevertheless, as we shouldn’t have any financial institution services or traces of credit score, reductions in our money and money equivalents ensuing from working losses, capital expenditures, adversarial authorized selections, acquisitions or the like may have an effect. materials adversarial influence on society.
Internet money supplied by working actions
Money supplied by our working actions for the yr endedDecember 31, 2020 was$5.7 million and was the results of the web earnings of$0.6 million , the impact of changes for non-cash gadgets of$3.4 million and sources of working capital of$1.6 million . Changes for non-cash gadgets primarily consisted of$2.3 million for depreciation and amortization, stock-based compensation of$0.9 million and$0.2 million for different non-cash gadgets. Working capital actions primarily consisted of sources from a$1.4 million enhance in accrued salaries, wages and associated advantages, a$0.8 million enhance in earnings and different taxes, offset by a$0.6 million enhance in pay as you go bills and different present belongings. Consult with the Consolidated Statements of Money Flows for additional particulars. 33 Money supplied by our working actions for the yr endedDecember 31, 2019 was$4.3 million and was the results of the web lack of$2.1 million , the impact of changes for non-cash gadgets of$3.6 million and sources of working capital of$2.9 million . Changes for non-cash gadgets primarily consisted of$2.7 million for depreciation and amortization, inventory possibility expense of$0.8 million and$0.1 million for different non-cash gadgets. Working capital actions primarily consisted of sources from a$1.2 million lower in our accounts receivable, a$1.2 million lower in pay as you go and different present belongings, and a$0.9 million enhance in earnings and different taxes which was offset partially by a use of$0.5 million on account of a rise in different working capital. The discount in accounts receivable is a results of greater collections in the course of the yr endedDecember 31, 2019 . Consult with the Consolidated Statements of Money Flows for additional particulars. Our days' gross sales excellent had been 62 days and 66 daysDecember 31, 2020 and 2019, respectively. We calculate DSO by first dividing the overall revenues for the interval by common internet accounts receivable, which is the sum of internet accounts receivable in the beginning of the interval and internet accounts receivable on the finish of the interval, to yield an quantity we seek advice from because the "accounts receivable turnover". Then we divide the overall variety of days inside the interval reported by the accounts receivable turnover to yield DSO expressed in variety of days.
Money utilized in our investing actions was$1.4 million and$1.7 million for the years endedDecember 31, 2020 and 2019, respectively. These capital expenditures had been principally for the acquisition of expertise gear together with servers, community infrastructure and workstations, and expenditures for internally developed software program. Capital expenditures for the yr endedDecember 31, 2020 amounting to$1.4 million consisted of$0.6 million for the DDS phase and$0.8 million for the Agility phase.
For the yr 2020, we anticipate capital expenditures for continued upgrades to expertise, gear and infrastructure to approximate
Money supplied by financing actions for the yr endedDecember 31, 2020 was from PPP mortgage proceeds of$0.6 million and proceeds from inventory possibility workout routines of$2.6 million . Funds of long-term obligations had been$0.9 million and$0.6 million forDecember 31, 2020 and 2019, respectively. Money utilized in financing actions for 2019 was$1.8 million for the repurchase of 1,503,095 shares of our widespread inventory at a volume-weighted common worth of$1.23 per share.
Inflation, seasonality and present financial circumstances
Though most of our revenues are denominated inU.S. {dollars}, a big portion of our revenues is denominated in Canadian {dollars}, Pound Sterling and Euros. As well as, a good portion of our bills, primarily labor bills inthe Philippines ,India ,Sri Lanka ,Germany ,Canada andIsrael , are incurred within the native currencies of the international locations during which we function. For monetary reporting functions, we translate all non-U.S. denominated transactions intoU.S. {dollars} in accordance withU.S. GAAP. Thus, we're uncovered to the danger that fluctuations within the worth of those currencies relative to theU.S. greenback may have a direct influence on our revenues and our outcomes of operations.The Philippines andIndia have at occasions skilled excessive charges of inflation as effectively as main fluctuations within the alternate charge between the Philippine peso and theU.S. greenback and the Indian rupee and theU.S. greenback. As ofDecember 31, 2020 , the mixture notional quantity of our hedges towards the Indian rupee was roughly$2.9 million , and$4.0 million for the Philippine peso. 34
Fluctuations in alternate charges additionally have an effect on the worth of funds held by our international subsidiaries. We don’t at present intend to hedge these belongings.
Our most important prices are the salaries and associated advantages of our staff inAsia . We're uncovered to excessive inflation in wage charges within the international locations during which we function. We usually carry out work for our shoppers underneath project-specific contracts, requirements-based contracts or long-term contracts. We should adequately anticipate wage will increase, significantly on our fixed-price contracts. There will be no assurance that we will recuperate value will increase by means of will increase within the costs that we cost for our providers to our shoppers. Our quarterly working outcomes are topic to sure fluctuations. We expertise fluctuations in our income and earnings as we exchange and start new initiatives, which can have some regular start-up delays, or we could also be unable to exchange a mission solely. These and different components could contribute to fluctuations in our working outcomes from quarter to quarter. As well as, as a few of our Asian services are closed throughout holidays within the fourth quarter, we sometimes incur greater wages, on account of additional time, that cut back our margins. Our Synodex subsidiary experiences seasonal fluctuations in revenues. Usually, income is lowest within the third quarter of the calendar yr and highest within the fourth quarter of the calendar yr. The seasonality is straight linked to the variety of life insurance coverage functions acquired by the insurance coverage corporations.
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