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BIOFORCE NANOSCIENCES HOLDINGS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

The following information should be read in conjunction with our financial
statements and related notes thereto included in Part I, Item 1, above.



Forward Looking Statements


Certain matters discussed herein are forward-looking statements. Such
forward-looking statements contained in this Form 10-Q involve risks and
uncertainties, including statements as to:

·our future strategic plans

·our future operating results;

·our business prospects;

·our contractual arrangements and relationships with third parties;

·the dependence of our future success on the general economy;

·our possible future financing; and

·the adequacy of our cash resources and working capital.

·the Covid-19 Pandemic.

From time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by us with the Securities and Exchange Commission. Words or
phrases “will likely result”, “are expected to”, “will continue”, “is
anticipated”, “estimate”, “project or projected”, or similar expressions are
intended to identify “forward-looking statements”. Such statements are qualified
in their entirety by reference to and are accompanied by the above discussion of
certain important factors that could cause actual results to differ materially
from such forward-looking statements.



Covid-19 Pandemic


Management is currently aware of the global and domestic issues arising from the
Covid-19 pandemic and the possible direct and indirect effects on the company’s
operations which could have a material adverse effect on the company’s current
financial position, future results of operations, or liquidity, because its
current operations are limited. However, investors should also be aware of
factors, which includes the possibility of Covid-19 effects on operational
status, could have a negative impact on the company’s prospects and the
consistency of progress in the areas of revenue generation, liquidity, and
generation of capital resources, once it begins to implement its business plan.
These may include: (i) variations in revenue, (ii) possible inability to attract
investors for its equity securities or otherwise raise adequate funds from any
source should the company seek to do so, (iii) increased governmental regulation
or significant changes in that regulation, (iv) increased competition, (v)
unfavorable outcomes to litigation involving the company or to which the company
may become a party in the future, and (vi) a very competitive and rapidly
changing operating environment.

The risks identified here are not all inclusive. New risk factors emerge from
time to time and it is not possible for management to predict all of such risk
factors, nor can it assess the impact of all such risk factors on the company’s
business or the extent to which any factor or combination of factors may cause
actual results to differ materially from those contained in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results.

The financial information set forth in the following discussion should be read
with the financial statements of BioForce NanoSciences Holdings, Inc. included
elsewhere herein.



                                      -11-

Business


BioForce Nanosciences Holdings, Inc. (“BioForce or the “Company”) was previously
in the business of manufacturing nano-particular measurement devices and
molecular printers, but due to a lack of profitability, the subsidiary of the
company that owned that technology filed for bankruptcy. That subsidiary and
related technology was later bought out of bankruptcy by an unrelated third
party. Subsequently, new management came into the Company to pursue a better
business model and now the Company’s mission is to become a leading provider of
natural vitamins, minerals and other nutritional supplements, powders and
beverages, formulated to promote a healthier lifestyle for active individuals in
all age ranges. The Company private labels products with key distributors and
manufacturing providers.

BioForce entered into the supplement business in or about 2015. These
supplements, powders and beverages offer vitamins and minerals to complement a
healthy intake of protein and carbohydrates for active individuals and
participants in sports.

BioForce recently changed its business plan and it is in the process of
establishing a dynamic marketing campaign to achieve brand awareness of its
product offerings to drive business growth through sales of nutrition
supplements to retailers, sporting goods retailers, supermarkets, mass
merchandisers, and online. BioForce currently markets its products through
social media and telemarketing. The Company plans to expand marketing efforts
with a direct marketing and B2B (Business to Business) sales campaign, with the
eventual expectation to expand throughout the entire United States.

The Company proactively seeks to expand its “BioForce Eclipse” nutritional
powder for use into households throughout the U.S., and the Company will
approach retail stores, including health food and sporting goods stores to
create a vendor relationship. During this phase, the Company will continue to
try to advance its social media platform with direct online and targeted
advertisements to health conscience individuals.

Nutrition retailers, grocery stores, retail pharmacies, and online stores, like
Amazon, will be important channels for the Company’s Eclipse product-lines. In
The USA, there are thousands of direct outlets like grocery stores, pharmacies,
hospitals, department stores, medical clinics, surgery clinics, universities,
nursing homes, prisons, and other facilities which are all targets of potential
sales of the vitamin and mineral supplemental products.

BioForce Nanosciences Holdings, Inc. sells the BioForce Eclipse powder
multivitamin and mineral supplement without non-compete and non-disclosure
agreements. The Company currently private labels the powder through a
manufacturer located in Virginia. The Company has a Supplier Agreement with this
manufacturer that gives the Company non-exclusion rights to market the product.

The distributor owns the rights to the formula for this product. If the
Company can source product in a more cost-effective way without diminished
quality, the Company would evaluate such opportunities when presented.

Currently, the distributor who provides the private label powder provides
“Consignment Terms,” which allows us to only pay for the product when it is
sold.

The FDA has rules regarding the fitness for consumption of foods as well as
vitamins and supplements sold to the public, and those laws apply to our
product. However, our product does not require pre-clearance like a drug in
order to be sold into the marketplace.

The Company in May 2020, formed a wholly-owned subsidiary, Element Acquisition
Corporation
, a Wyoming corporation,with unlimited common shares authorized, par
value $0.001. Element Acquisition Corporation was formed to pursue potential
acquisitions in the media, entertainment, media technology and sports sectors.

The Company on October 15, 2020 changed the name of its wholly-owned subsidiary
Element Acquisition Corporation, a Wyoming corporation, to BioForce Nanosciences
Holdings, Inc.
, a Wyoming corporation. Management intends to redomicile BioForce
Nanosciences Holdings, Inc.
, a Nevada corporation, into a Wyoming corporation
using its wholly-owned BioForce Nanosciences Holdings, Inc., a Wyoming
corporation as the entity for the redomicile corporate action.

On December 14, 2021, the Company changed the name of its wholly-owned
subsidiary, BioForce Nanosciences Holdings, Inc., a Wyoming corporation, to its
new name, Element Global, Inc.

Memorandum of Understanding (“MOU”)

June 02, 2021, Bioforce Nanosciences Holdings, Inc. entered into another
Memorandum of Understanding (MOU) with Element Global, Inc. (ELGL), a Utah
Corporation
. This MOU contemplates a proposed transaction between the entities
that provides for BFNH to acquire all of the assets controlled by ELGL. The
closing of the transaction is subject to due diligence and the execution of a
definitive agreement. As of the date of this filing the MOU is still active.



Officer Appointments


On November 29, 2021, the Board of Directors (the “Board”) of BioForce
Nanosciences Holdings, Inc.
(the “Company”) appointed both Mr. Steve Gagnon and
Mr. John LaViolette as Co-Chief Executive Officers (Co-CEOs), effective November
30, 2021
. In addition, on November 29, 2021, the Board of Directors of BioForce
Nanosciences Holdings, Inc.
appointed Sasha Shapiro as President, effective
November 30, 2021. On November 29, 2021, the Board of Directors accepted the
resignation of Mr. Merle Ferguson as Chief Executive Officer and President,
effective November 30, 2021. Mr. Ferguson remains Chairman of the Board of
Director
of BioForce Nanoscience, Inc. There were no disagreements, no
arguments, no conflicts and no disputes with the Company’s officers, directors,
auditors, and other professional service providers on his decision to step down
as CEO and President.



                                      -12-

Transfer Agent

Our transfer agent is Transfer Online, Inc. whose address is 512 SE Salmon
Street
, Portland, Oregon 97214, and telephone number (503) 227-2950.

Company Contact Information

Our principal executive and subsidiary offices are located at 2020 General Booth
Blvd.
, Unit 230, Virginia Beach, VA 23454, telephone (757) 306-6090. The
information to be contained in our Internet website, www.bioforceeclipse.com,
shall not constitute part of this report.

Current Directors

The following table provides information concerning our officers and directors.
All directors hold office until the next annual meeting of stockholders or until
their successors have been elected and qualified.



                     Merle Ferguson         Director
                     Richard Kaiser  Director/CFO/Secretary

                     Steve Gagnon            Co-CEO
                     John LaViolette         Co-CEO
                     Sasha Shapiro         President



Management’s Discussion and Analysis of Financial Condition and Results of
Operations

Overall Operating Results:

Three Months – March 31, 2022 and 2021 Statements

The Sales Revenue from the Company’s BioForce Eclipse vitamin supplements for
the three months ended March 31, 2022 and for the three months ended March 31,
2021
were $-0– and $-0-, respectively. During the three months ended March 31,
2022
and 2021 the Company received no orders, -0- units of its Bioforce Eclipse
supplement product.

The Cost of Goods Sold for the three months ended March 31, 2022 and 2021 was
$-0– .

Gross Margins for the three months ended March 31, 2022 and 2021 was 0% from the
sale of -0- units of the BioForce Eclipse supplement product.

Gross Profit for the three months ended March 31, 2022 and 2021 was $-0– .

Operating expenses for three months ended March 31, 2022 totaled $132,408 from
Board of Director compensation and General and Administrative Expenses, compared
to $145,079 for the three months ended March 31, 2021. This decrease in March
31, 2022
compared to the same period ended March 31, 2021was attributed to lower
expenses from professional services rendered.



                                      -13-



Net Loss:


Net loss for the three months ended March 31, 2022 and 2021 were $132,408 and
$145,079 , respectively.

Liquidity and Capital Resources:

As of March 31, 2022, the Company’s assets totaled $11,115, which consisted of
cash and prepaid expenses. Our total liabilities were $1,005,386 from accounts
payable and accrued expenses, accrued director compensation expenses and amounts
due to related parties. As of March 31, 2022, the Company had an accumulated
deficit of $159,804,670 and working capital deficit $994,271.

As indicated herein, we need capital for the implementation of our business
plan, and we will need additional capital for continuing our operations. We do
not have sufficient revenues to pay our operating expenses at this time. Unless
the company is able to raise working capital, it is likely that the Company will
either have to cease operations or substantially change its methods of
operations or change its business plan (See Note 4 in Financial Statements). For
the next 12 months the Company has a written commitment from its Chairman Mr. Merle Ferguson’s employment contract to advance funds as necessary in meeting
the Company’s operating requirements.

BioForce NanoSciences Holdings, Inc. does not expect the adoption of recently
issued accounting pronouncements to have a significant impact on the Company, or
any of its subsidiaries’ operating results, financial position, or cash flow.

Cash Provided by (Used in) Operating Activities

Net cash used in operating activities for the three months ended March 31, 2022
and 2021 were $32,941 and $32,346, respectively. The increase amount was
attributed to higher amounts paid on Account Payable and Accrued Expenses.

Cash Flows from Investing Activities

Net cash used in investing activities was $-0– for both the three months periods
ended March 31, 2022 and 2021.

                                      -14-

Cash Provided by Financing Activities

Net cash provided by financing activities was $32,941 for three months ended
March 31, 2022 from proceeds from Related Parties, and was $ 24,316 for three
months ended March 31, 2021 from proceeds from Related Parties. The increase
amount was attributed to increased amounts of cash infusions by related parties
that were used in operational expenses.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

New Accounting Pronouncements

BioForce Nanosciences Holdings, Inc. does not expect the adoption of recently
issued accounting pronouncements to have a significant impact on the Company, or
any of its subsidiaries’ operating results, financial position, or cash flow.



Accounting Principals


Our consolidated financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that impact the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management’s
application of accounting policies. Critical accounting policies include revenue
recognition and impairment of long-lived assets.



Revenue Recognition


In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC
606”), revenues are recognized when control of the promised goods or services is
transferred to our clients, in an amount that reflects the consideration to
which we expect to be entitled in exchange for those goods and services. To
achieve this core principle, we apply the following five steps: (1) Identify the
contract with a client; (2) Identify the performance obligations in the
contract; (3) Determine the transaction price; (4) Allocate the transaction
price to performance obligations in the contract; and (5) Recognize revenues
when or as the company satisfies a performance obligation.

We adopted this ASU on January 1, 2018. Although the new revenue standard is
expected to have an immaterial impact, if any, on our ongoing net income, we did
implement changes to our processes related to revenue recognition and the
control activities within them.



Reverse Stock Split


We were authorized to issue 900,000,000 shares of our common stock, of which
15,270,588 shares were outstanding taking into account the one-for-five
(1-for-5) reverse stock split effective February 28, 2020. Our shares of common
stock are held by approximately 230 stockholders of record. The number of
record holders was determined from the records of our transfer agent and does
not include beneficial owners of our common stock whose shares are held in the
names of various securities brokers, dealers, and registered clearing agencies.

In addition to our authorized common stock, BioForce Nanosciences Holdings,
Inc.
is authorized to issue 100,000,000 shares of preferred stock, par value at
$0.001 per share. Based on the amended Articles of Incorporation the Company has
10,000,000 Series ‘A’ Preferred which have voting and conversion rights of 100
common shares, par value $0.001; leaving a balance of 90,000,000 “Blank Check”
Preferred. There are no Series ‘A’ Preferred shares issued or outstanding.



Going Concern


We have incurred net losses since our inception. We anticipate incurring
additional losses before realizing growth in revenue and we will depend on
additional financing in order to meet our continuing obligations and ultimately
to attain profitability. Our ability to obtain additional financing, whether
through the issuance of additional equity or through the assumption of debt, is
uncertain. Accordingly, our independent auditors’ report on our financial
statements for the year ended December 31, 2021 includes an explanatory
paragraph regarding concerns about our ability to continue as a going concern,
including additional information contained in the notes to our financial
statements describing the circumstances leading to this disclosure. The
financial statements do not include any adjustments that might result from the
uncertainty about our ability to continue our business.

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© Edgar Online, source Glimpses

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MIDWEST ENERGY EMISSIONS CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes appearing elsewhere in this report. Some of the
information contained in this discussion and analysis or set forth elsewhere in
this report, including information with respect to our plans and strategy for
our business, includes forward-looking statements that involve risks,
uncertainties, and assumptions. You should read the “Forward-Looking Statements”
and “Risk Factors” sections of this report for a discussion of important factors
that could cause actual results to differ materially from the results described
in or implied by the forward-looking statements contained in the following
discussion and analysis.



Overview


We are an environmental services and technologies company developing and
delivering patented and proprietary solutions to the global power industry. Our
leading-edge services have been shown to achieve mercury emissions removal at a
significantly lower cost and with less operational impact to coal-fired power
plants than currently used methods, while maintaining and/or increasing power
plant output and preserving the marketability of byproducts for beneficial use.

North America is currently the largest market for our technology. The U.S. EPA
MATS (Mercury and Air Toxics Standards) rule requires that all coal and
oil-fired power plants in the U.S., larger than 25MWs, must limit mercury in its
emissions to below certain specified levels, according to the type of coal
burned. Power plants were required to begin complying with MATS on April 16,
2015
, unless they were granted a one-year extension to begin to comply. MATS,
along with many state and provincial regulations, form the basis for mercury
emission capture at coal fired plants across North America. Under the MATS
regulation, Electric Generating Units (“EGUs”) are required to remove about 90%
of the mercury from their emissions. We believe that we continue to meet the
requirements of the industry as a whole and our technologies have been shown to
achieve mercury removal levels compliant with all state, provincial and federal
regulations at a lower cost and with less plant impact than our competition.

As is typical in this market, we are paid by the EGU based on how much of our
material is injected to achieve the needed level of mercury removal. Our current
clients pay us as material is delivered to their facilities. Clients will use
our material whenever their EGUs operate, although EGUs are not always in
operation. EGUs typically may not be in operation due to maintenance reasons or
when the price of power in the market is less than their cost to produce power.
Thus, our revenues from EGU clients will not typically be a consistent stream
but will fluctuate, especially seasonally as the market demand for power
fluctuates.

The MATS regulation has been subject to legal challenge since being enacted. In
June 2015, the U.S. Supreme Court held that the EPA unreasonably failed to
consider costs in determining whether it is “appropriate and necessary” to
regulate hazardous air pollutants, including mercury, from power plants, but
left the rule in place. On remand, following the Supreme Court’s instructions to
consider costs, the EPA in April 2016 issued a final supplemental finding
reaffirming the MATS rule on the ground that it is supported by the cost
analysis the Supreme Court required. That supplemental finding remains under
review by the D.C. Circuit. In April 2017, the EPA asked the court to place such
judicial review in abeyance, stating that the Agency then under the Trump
Administration
was reviewing the supplemental finding to determine whether it
should be reconsidered in whole or in part, which abeyance request was granted.
In April 2020, the EPA concluded that the 2016 supplemental finding was flawed
in part due to its reliance on co-benefits to justify MATS and withdrew EPA’s
2016 “appropriate-and-necessary” determination as erroneous, but left the 2011
MATS rule in place pursuant to D.C. Circuit case law holding that a source
category may only be removed from the list of categories to be regulated through
a rigorous delisting process that cannot currently be satisfied by the EPA. Upon
taking office, the Biden Administration in January 2021 directed the EPA to
review the previous Administration’s actions on various environmental matters
including the withdrawal of the “appropriate and necessary” determination, for
conformity with Biden Administration environmental policy. In February 2021, the
Biden Administration requested that the judicial review of the supplemental
finding withdrawal be held in abeyance which was granted by the court and
remains in place. On January 31, 2022, the EPA issued a proposal to revoke the
reconsideration step made by the EPA in April 2020 and affirm that it is
appropriate and necessary to regulate hazardous pollutants for coal and
oil-fired EGUs.




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Nevertheless, legal challenges may continue with respect to the MATS regulation
which could extend uncertainty over the status of MATS for a number of years.
Investors should note that any changes to the MATS rule could have a negative
impact on our business.

We remain focused on positioning the Company for short and long-term growth,
including focusing on execution at our customer sites and on continual operation
improvement. We continue to make refinements to all of our key products, as we
continue to focus on the customer and its operations. As part of our overall
strategy, we have a number of initiatives which we believe will be able to drive
our short and long-term growth.

In the United States, we continue to seek new utility customers for our
technology in order for them to meet the MATS requirements as well as
maintaining our contractual arrangements with our current customers. We also
seek license agreements with utilities while allowing them to use our SEA®
technologies without our supply of products. During 2021 and early 2022, we have
announced various supply contract extensions, new supply business and license
agreements. We expect additional supply business and license agreements during
the remainder of 2022 and thereafter, including converting certain licensees to
supply customers.

In Europe, we had been working to penetrate this market through a licensing
agreement entered into in 2018 with one of our suppliers which allowed them to
commercialize our technology throughout Europe. Such arrangement was terminated
in 2020. Prior to its termination, no revenues had been generated from such
agreement. We intend to continue to pursue the European market although no
assurance can be made that any such efforts will be successful.

In February 25, 2019, we were able to complete the restructuring of our
unsecured and secured debt obligations held by AC Midwest Energy LLC extending
the maturity dates of these debts until 2022 and eliminating quarterly principal
payment requirements. This restructuring reflected the commitment of our
financial partner in our efforts to attract new business, manage our present
customers and monetize our patent portfolio. In June 2021, we announced that we
had entered into a Debt Repayment and Exchange Agreement with AC Midwest which
will repay all existing secured and unsecured debt obligations held by AC
Midwest. Pursuant to such agreement, we will repay the existing $0.3 million
secured note outstanding in cash as well as the existing $13.2 million principal
amount outstanding under the unsecured note held by AC Midwest through a
combination of cash and stock. AC Midwest is also entitled to a certain
non-recourse profit share under the unsecured note which will be satisfied
through a combination of cash and stock. The closing is subject to various
conditions including but not limited to the completion of an offering of equity
securities resulting in net proceeds of at least $12.0 million by December 31,
2021
, which has been extended to June 30, 2022.

From June through October 2019, we raised $2,600,000 in a private placement
offering of 12.0% unsecured convertible promissory notes and warrants sold and
issued to certain accredited investors. In February 2021, $50,000 of such
principal was voluntarily converted into shares of common stock, and in June
2021
, the remaining principal balance of $2,550,000 was voluntarily converted by
the holders thereof into shares of common stock of the Company.

In July 2019, we announced that we had initiated patent litigation against
defendants in the U.S. District Court for the District of Delaware for
infringement of certain patents which relate to our two-part Sorbent Enhancement
Additive (SEA®) process for mercury removal from coal-fired power plants.
Between July 2020 and January 2021, we entered into agreements with each of the
four major utility defendants in the patent litigation commenced in 2019 which
agreements included certain monetary arrangements and pursuant to which we have
dismissed all claims brought against each of them and their affiliates, and such
parties have withdrawn from petitions for Inter Partes Review with the U.S.
Patent and Trademark Office
. Such agreements entered into with such parties
provide each of them and their affiliates with a non-exclusive license to
certain Company patents (related to our two-part Sorbent Enhancement Additive
(SEA®) process) for use in connection with such parties’ coal-fired power
plants. One of the agreements has facilitated an ongoing business relationship
with that party. The above described proceedings are continuing with respect to
the other parties involved. In May 2021, a U.S. District Court Magistrate Judge
issued a report and recommendation that such litigation should be permitted to
proceed against 16 refined coal defendants named in the action directly involved
in the refined coal program and operations, and be dismissed against 12 other
defendants, primarily affiliated entities of the refined coal operators. In
September 2021, such report and recommendation was approved by the District
Judge for the United States District Court for the District of Delaware which
will allow us to proceed against certain refined coal entities named in the
lawsuit.




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In October 2019, we entered into a license and development agreement with a
nonrelated third-party entity located in Alabama pursuant to which the parties
have agreed to work together to develop a plan to commercialize and market
certain technology owned by such entity related to the removal of mercury from
air and water emissions generated by coal burning power plants. In addition,
during the first quarter of 2021, we announced new technologies under
development intended to improve the processing of rare earth elements (REEs) in
North America. Our new technologies are under development in conjunction with
our collaboration with such Alabama third party entity and its affiliates. Such
technologies focus on improving the cost of extracting rare earth minerals along
with improving the environmental footprint of extracting those REEs from their
solvent state. In October 2021, we announced that we had completed phase 1
testing of our REE technology with Pennsylvania State University’s College of
Earth and Mineral Sciences
confirming 80-90% efficiency rate in extracting
select REEs. While there is no established timeline for the introduction of
these technologies after further testing is performed, we hope that if such
further testing is successful, these technologies can be commercialized in 2022
and thereafter.

During the first quarter of 2021, we announced that we are in the process of
developing a proprietary methane gas emissions control technology which we
believe can be adopted within the oil and gas industry. We have not established
a timeline for the introduction of our methane gas emissions control technology.

In addition to the $2.6 million in convertible notes which were converted into
shares of common stock in the first and second quarters as described above,
during the first quarter of 2021, we eliminated $1,830,000 of other convertible
notes originally issued in 2013 and 2018 through conversions to shares of common
stock. During the third quarter of 2021, we issued 20,000 shares of common stock
to a certain holder of notes issued in 2013 for the conversion of outstanding
principal in the amount of $10,000 and prepaid the outstanding principal balance
of another of such notes issued in 2013 in the principal amount of $10,000. As a
result, there are no convertible notes outstanding as of December 31, 2021,
compared to $4,450,000 in convertible notes outstanding as of December 31, 2020.

In November 2021, we filed a registration statement on Form S-1 with the SEC for
a proposed offering of common stock. Such registration statement has not yet
become effective, and no assurance can be given that such offering will be
completed. In addition, we have applied to list our common stock on the Nasdaq
Capital Market. No assurance can be given that such application will be
approved.

Although we face a host of challenges and risks, we are optimistic about our
future and expect our business to grow substantially.

Effects of the COVID-19 Pandemic

It should be noted that the coronavirus (COVID-19) pandemic has impacted various
businesses throughout the world since early 2020, including travel restrictions
and the extended shutdown of certain businesses in impacted geographic regions.
During this time, we have continued to conduct our operations while responding
to the pandemic with actions to mitigate adverse consequences to our employees,
business, supply chain and customers. Nevertheless, the duration and scope of
the COVID-19 pandemic continues to be uncertain. If the coronavirus situation
does not improve during 2022 or should worsen, we may experience disruptions to
our business including, but not limited to, the availability of raw materials,
equipment, to our workforce, or to our business relationships with other third
parties.




Results of Operations



Revenues


We generated revenues of approximately $13,012,000 and $8,158,000 for the years
ended December 31, 2021 and 2020, respectively. Such revenues were primarily
derived from sorbent product sales which were approximately $11,004,000 and
$7,420,000 for the years ended December 31, 2021 and 2020, respectively. The
increase in revenues from the prior year was primarily driven by increased
sorbent product sales due to the increased supply demands in the coal-fired
market as well as expansion of our customer base.




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Licensing revenues were approximately $1,707,000 and $546,000 for the years
ended December 31, 2021 and 2020, respectively. Such increases were primarily
due to the licensing revenues generated from the agreements entered into with
certain of the defendants in the patent litigation commenced in 2019.

Equipment sales and other revenues for the years ended December 31, 2021 and
2020 were approximately $134,000 and $44,000, respectively. This increase was
primarily due to increased equipment rental revenues in 2021 compared to last
year.




Costs and Expenses



Total costs and expenses were approximately $16,622,000 and $14,000,000 during
the years ended December 31, 2021 and 2020, respectively. The increase in costs
and expenses from the prior year is mainly attributable to the increase in cost
of sales principally due to the increase in sales.

Cost of sales were approximately $7,939,000 and $5,440,000 for the years ended
December 31, 2021 and 2020, respectively. Such increase is primarily due to the
increase in sales.

Selling, general and administrative expenses were approximately $5,934,000 and
$5,936,000 for the years ended December 31, 2021 and 2020, respectively.

Interest expense related to the financing of capital was approximately
$2,818,000 and $2,658,000 for the years ended December 31, 2021 and 2020,
respectively. The small increase is due to the stock conversion incentives
provided to certain notes and accelerated interest expense upon conversion of
notes, partially offset by the reduced interest on the notes payable. The
breakdown of interest expense for the years ended December 31, 2021 and 2020 is
as follows:



                                                            Years Ended
                                                           December 31,
                                                         2021        2020
                                                          (In thousands)

Interest expense on notes payable                       $   277     $   562
Accelerated interest expense upon conversion of notes       343           -
Additional interest upon conversion of notes                221           -
Amortization of discount of notes payable                 1,855       1,974
Amortization of debt issuance costs                         122         122

                                                        $ 2,818     $ 2,658



Loss (gain) on change in fair value of profit share liability (relating to the
restructured unsecured debt obligation held by AC Midwest Energy LLC) were
approximately $531,000 and $(24,000) for the years ended December 31, 2021 and
2020, respectively. The change is primarily attributed to an increase (decrease)
in the fair value of the profit share liability. There were no significant
changes to the underlying model during the years ended December 31, 2021 and
2020.

Gain on forgiveness of debt of $600,677 relates to the loan proceeds we received
in April 2020 and February 2021 pursuant to the Paycheck Protection Program
(“PPP”) under the CARES Act. Such loans were forgiven in January 2021 and
October 2021 pursuant to the applicable PPP requirements.



Net Loss


For the years ended December 31, 2021 and 2020, we had a net loss of
approximately $3,633,000 and $5,826,000 respectively. Such change was primarily
due to increased sales and improved margin on such sales as well as the gain on
extinguishment of debt partially offset by the change in the fair value of the
profit share liability and the change in interest expense due principally to the
stock conversion incentive provided to certain note holders and related
accelerated interest.




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Liquidity and Capital Resources

We had approximately $1,388,000 in cash on our balance sheet at December 31,
2021
compared to approximately $591,000 at December 31, 2020. Total current
assets were approximately $3,791,000 and total current liabilities were
approximately $15,483,000 at December 31, 2021, resulting in working capital
deficit of approximately $11,692,000. This compares to total current assets of
approximately $2,362,000 and total current liabilities of approximately
$3,359,000 at December 31, 2020, resulting in a working capital deficit of
approximately $997,000. Our accumulated deficit was approximately $67.1 million
at December 31, 2021 compared to $63.5 million at December 31, 2020.
Additionally, we had a net loss in the amount of approximately $3,633,000 and
cash provided by operating activities of approximately $206,000 for the year
ended December 31, 2021.

The accompanying consolidated financial statements as of December 31, 2021 have
been prepared assuming we will continue as a going concern. As reflected in the
consolidated financial statements, we had $1,388,000 in cash at December 31,
2021
, along with cash provided by operating activities of $206,000 for the year
ended December 31, 2021. However, we had a working capital deficit of
$11,692,000 at December 31, 2021 and an accumulated deficit of $67.1 million at
December 31, 2021, and we had a net loss in the amount of $3.6 million for the
year ended December 31, 2021. In addition, all existing secured and unsecured
debt held by our principal lender in the principal amount of $13.4 million
matures on August 25, 2022, other than the profit share liability, which is
within one year from the issuance of these consolidated financial statements.
These factors raise substantial doubt about our ability to continue as a going
concern for the next twelve months from the issuance of these consolidated
financial statements.

We have taken steps to alleviate such doubt. During the year ended December 31,
2021
, we eliminated $4,440,000 of convertible notes through conversions to
shares of common stock and repaid $10,000 of convertible notes, leaving no
convertible notes outstanding as of December 31, 2021. In addition, in June
2021
, we announced that we had entered into a Debt Repayment and Exchange
Agreement with our principal lender which, subject to various closing
conditions, including but not limited to the completion of an offering of equity
securities resulting in net proceeds of at least $12.0 million by December 31,
2021
, which has been extended to June 30, 2022, will repay all existing secured
and unsecured debt obligations held by such lender.

Although we anticipate continued significant revenues in our business operations
and that we will be able to raise the funds necessary to complete the
transaction contemplated by the Debt Repayment and Exchange Agreement, no
assurances can be given that we can obtain sufficient working capital through
our business operations or that we will be able to raise the funds necessary to
close under the Debt Repayment Agreement by June 30, 2022, or at all, in order
to sustain ongoing operations.

In November 2021, we filed a registration statement on Form S-1 with the SEC for
a proposed offering of common stock. Such registration statement has not yet
become effective. These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes effective. This
report shall not constitute an offer to sell or the solicitation of an offer to
buy, nor shall there be any sale of these securities in any state or
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any state or
jurisdiction. The contemplated offering of our securities will be made only by
means of a prospectus. No assurances can be given that the contemplated offering
will be completed on reasonable terms or otherwise.

The accompanying consolidated financial statements do not include adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classifications of liabilities that may result from
the possible inability of us to continue as a going concern.



Total Assets


Total assets were approximately $8,135,000 at December 31, 2021 versus
approximately $7,376,000 at December 31, 2020. The change in total assets is
primarily attributable to an increase in cash.




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Total Liabilities


Total liabilities were approximately $18,374,000 at December 31, 2021 versus
approximately $20,580,000 at December 31, 2020. The decrease in liabilities is
primarily due to a decrease in debt.



Operating Activities


Net cash provided by operating activities consists of net loss, adjusted by
certain non-cash items, and changes in operating assets and liabilities.

Net cash provided by operating activities was approximately $206,000 for the
year ended December 31, 2021 compared to net cash used in operating activities
of approximately $1,239,000 for the year ended December 31, 2020. Such change of
approximately $1,445,000 was primarily due to an approximate $2,193,000 decrease
in net loss.




Investing Activities



Net cash used in investing activities was approximately $11,000 for the year
ended December 31, 2021 compared to net cash provided by investing activities of
approximately $43,000 for the year ended December 31, 2020. The activity for
2021 related to the purchase of equipment. The activity for 2020 related to cash
received from the sale of equipment.



Financing Activities


Net cash provided by financing activities was approximately $602,000 for the
year ended December 31, 2021 compared to net cash provided by financing
activities of approximately $288,000 for the year ended December 31, 2020.
During the year ended December 31, 2021, the Company received approximately
$299,000 from the issuance of notes payable, $247,000 from the exercise of
warrants and $126,000 from the exercise of stock options.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial conditions and results of operation
are based upon the accompanying consolidated financial statements which have
been prepared in accordance with the generally accepted accounting principles in
the U.S. The preparation of the consolidated financial statements requires that
we make estimates and assumptions that affect the amounts reported in assets,
liabilities, revenues, and expenses. Management evaluates on an on-going basis
our estimates with respect to the valuation allowances for accounts receivable,
income taxes, accrued expenses, and equity instrument valuation, for example. We
base these estimates on various assumptions and experience that we believe to be
reasonable. The following critical accounting policies are those that are
important to the presentation of our financial condition and results of
operations. These policies require management’s most difficult, complex, or
subjective judgments, often as a result of the need to make estimates of matters
that are inherently uncertain.

The following critical accounting policies affect our more significant estimates
used in the preparation of our consolidated financial statements. In particular,
our most critical accounting policies relate to the recognition of revenue, and
the valuation of our stock-based compensation.



Inventory


Inventories are stated at the lower of cost (first-in, first-out basis) or net
realizable value. Inventories are periodically evaluated to identify obsolete or
otherwise impaired products and are written off when management determines usage
is not probable. We estimate the balance of excess and obsolete inventory by
analyzing inventory by age using last used and original purchase date and
existing sales pipeline for which the inventory could be used. In the past we
have experienced a minimal valuation allowance on our inventory.




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Property and Equipment


Property and equipment are stated at cost. When retired or otherwise disposed,
the related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For consolidated financial statement
purposes, equipment is recorded at cost and depreciated using the straight-line
method over their estimated useful lives of 2 to 5 years. Leasehold improvements
are recorded at cost and depreciated using the straight-line method over the
life of the lease.

Expenditures for repairs and maintenance which do not materially extend the
useful lives of property and equipment are charged to operations. Management
reviews the carrying value of our property and equipment for impairment on an
annual basis.




Intellectual Property



Intellectual property is recorded at cost and amortized over its estimated
useful life of 15 years. Management reviews intellectual property for impairment
when events or changes in circumstances indicate the carrying amount of an asset
or asset group may not be recoverable. In the event that impairment indicators
exist, a further analysis is performed and if the sum of the expected
undiscounted future cash flows resulting from the use of the asset or asset
group is less than the carrying amount of the asset or asset group, an
impairment loss equal to the excess of the asset or asset group’s carrying value
over its fair value is recorded. Management considers historical experience and
all available information at the time the estimates of future cash flows are
made, however, the actual cash values that could be realized may differ from
those that are estimated.

Recoverability of Long-Lived and Intangible Assets

Long-lived assets and certain identifiable intangibles held and used by us are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Events relating to
recoverability may include significant unfavorable changes in business
conditions, recurring losses or a forecasted inability to achieve break-even
operating results over an extended period. We evaluate the recoverability of
long-lived assets based upon forecasted undiscounted cash flows. Should
impairment in value be indicated, the carrying value of the long-lived and or
intangible assets would be adjusted, based on estimates of future discounted
cash flows. We evaluated the recoverability of the carrying value of our
equipment. No impairment charges were recognized for the years ended December
31, 2021
and 2020, respectively.



Leases


In February 2016, the FASB issued new guidance which requires lessees to
recognize a lease liability for the obligation to make lease payments and a
right-to-use asset for the right to use the underlying asset for the lease term.
The accounting standard, effective January 1, 2019, requires virtually all
leases to be recognized on the Balance Sheet. Effective January 1, 2019, we
adopted the standard using the modified retrospective method, under which we
elected the package of practical expedients and transition provisions allowing
us to bring our existing operating leases onto the Consolidated Balance Sheet
without adjusting comparative periods but recognizing a cumulative-effect
adjustment to the opening balance of accumulated deficit on January 1, 2019.
Under the guidance, we have also elected not to separate lease and non-lease
components in recognition of the lease-related assets and liabilities, as well
as the related lease expense.

We have operating leases for office space in two multitenant facilities, which
are not recorded as assets and liabilities as those leases do not have terms
greater than 12 months. We have operating leases for a multi-purpose facility
and bulk trailers used in operations which are recorded as assets and
liabilities as the leases have terms greater than 12 months. Lease-related
assets, or right-of-use assets, are recognized at the lease commencement date at
amounts equal to the respective lease liabilities, adjusted for prepaid lease
payments, initial direct costs, and lease incentives received. Lease-related
liabilities are recognized at the present value of the remaining contractual
fixed lease payments, discounted using our incremental borrowing rate. Operating
lease expense is recognized on a straight-line basis over the lease term, while
variable lease payments are expensed as incurred.

Upon adoption of the new lease accounting standard on January 1, 2019, we
recorded $1,339,569 of right of use assets and $1,417,435 of lease-related
liabilities, with the difference charged to accumulated deficit at that date.




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Stock-Based Compensation


We account for stock-based compensation awards in accordance with the provisions
of ASC 718, Compensation-Stock Compensation, which requires equity-based
compensation, be reflected in the consolidated financial statements over the
period of service which is typically the vesting period based on the estimated
fair value of the awards.

Fair Value of Financial Instruments

The fair value hierarchy has three levels based on the inputs used to determine
fair value, which are as follows:



    ·   Level 1 - Unadjusted quoted prices available in active markets for the
        identical assets or liabilities at the measurement date.

    ·   Level 2 - Unadjusted quoted prices in active markets for similar assets or
        liabilities, or unadjusted quoted prices for identical or similar assets
        or liabilities in markets that are not active, or inputs other than quoted
        prices that are observable for the asset or liability.

    ·   Level 3 - Unobservable inputs that cannot be corroborated by observable
        market data and reflect the use of significant management judgment. These
        values are generally determined using pricing models for which the
        assumptions utilize management's estimates of market participant
        assumptions.



The fair value hierarchy requires the use of observable market data when
available. In instances where the inputs used to measure fair value fall into
different levels of the fair value hierarchy, the fair value measurement has
been determined based on the lowest level input significant to the fair value
measurement in its entirety. Our assessment of the significance of a particular
item to the fair value measurement in its entirety requires judgment, including
the consideration of inputs specific to the asset or liability.



Revenue Recognition


We record revenue in accordance with ASC 606, Revenue from Contracts with
Customers. The core principle of the guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. To achieve that core
principle, an entity should apply the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the
contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance
obligation.

Revenue is recognized when we satisfy our performance obligation under the
contract by transferring the promised product to its customer that obtains
control of the product. A performance obligation is a promise in a contract to
transfer a distinct product to a customer. Most of our contracts have a single
performance obligation, as the promise to transfer products or services is not
separately identifiable from other promises in the contract and, therefore, not
distinct.

Revenue is measured as the amount of consideration we expect to receive in
exchange for transferring products. As such, revenue is recorded net of returns,
allowances, customer discounts, and incentives. Sales and other taxes are
excluded from revenues. Invoiced shipping and handling costs are included in
revenue. The adoption of this standard did not have a material impact on our
financial statements.




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Disaggregation of Revenue



We generated revenue for the years ended December 31, 2021 and 2020 by (i)
delivering product to our commercial customers, (ii) completing and
commissioning equipment projects at commercial customer sites and (iii)
performing demonstrations of our technology at customers with the intent of
entering into long term supply agreements based on the performance of our
products during the demonstrations and (iv) licensing our technology to
customers.

Revenue for product sales is recognized at the point of time in which the
customer obtains control of the product, at the time title passes to the
customer upon shipment or delivery of the product based on the applicable
shipping terms.

Revenue for equipment sales is recognized upon commissioning and customer
acceptance of the installed equipment per the terms of the purchase contract.

Revenue for demonstrations and consulting services is recognized when
performance obligations contained in the contract have been completed, typically
the completion of necessary field work and the delivery of any required analysis
per the terms of the agreement.



Income Taxes


We follow the asset and liability method of accounting for income taxes under
FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that included the enactment date.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.

FASB ASC 740 prescribes a recognition threshold and a measurement attribute for
the financial statement recognition and measurement of tax positions taken or
expected to be taken in a tax return. For those benefits to be recognized, a tax
position must be more likely than not to be sustained upon examination by taxing
authorities. There were no unrecognized tax benefits as of December 31, 2020. We
are currently not aware of any issues under review that could result in
significant payments, accruals or material deviation from our position. We are
subject to income tax examinations by major taxing authorities since inception.

We may be subject to potential examination by federal, state, and city taxing
authorities in the areas of income taxes. These potential examinations may
include questioning the timing and amount of deductions, the nexus of income
among various tax jurisdictions, and compliance with federal, state, and city
tax laws. Our management does not expect that the total amount of unrecognized
tax benefits will materially change over the next twelve months.

We are no longer subject to tax examinations by tax authorities for years prior
to 2017.

Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under ASU
2016-02, lessees will, among other things, require lessees to recognize a lease
liability, which is a lessee’s obligation to make lease payments arising from a
lease, measured on a discounted basis; and a right-of-use asset, which is an
asset that represents the lessee’s right to use, or control the use of, a
specified asset for the lease term. ASU 2016-02 does not significantly change
lease accounting requirements applicable to lessors; however, certain changes
were made to align, where necessary, lessor accounting with the lessee
accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU
2016-02 became effective for us on January 1, 2019 and initially required
transition using a modified retrospective approach for leases existing at, or
entered into after, the beginning of the earliest comparative period presented
in the financial statements. In July 2018, the FASB issued ASU 2018-11, Leases
(Topic 842) – Targeted Improvements, which, among other things, provides an
additional transition method that would allow entities to not apply the guidance
in ASU 2016-02 in the comparative periods presented in the financial statements
and instead recognize a cumulative-effect adjustment to the opening balance of
retained earnings in the period of adoption. In December 2018, the FASB also
issued ASU 2018-20, Leases (Topic 842) – Narrow-Scope Improvements for Lessors,
which provides for certain policy elections and changes lessor accounting for
sales and similar taxes and certain lessor costs. As of January 1, 2019, we
adopted ASU 2016-02 and have recorded a right-of-use asset and lease liability
on the balance sheet for our operating leases. We elected to apply certain
practical expedients provided under ASU 2016-02 whereby we will not reassess (i)
whether any expired or existing contracts are or contain leases, (ii) the lease
classification for any expired or existing leases, and (iii) initial direct
costs for any existing leases. We did not apply the recognition requirements of
ASU 2016-02 to any short-term leases (as defined by related accounting
guidance). We accounted for lease and non-lease components separately because
such amounts are readily determinable under our lease contracts and because we
expect this election will result in a lower impact on our balance sheet.




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In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260),
Distinguishing Liabilities from Equity (Topic 480), and Derivatives and Hedging
(Topic 815): (Part I) Accounting for Certain Financial Instruments with Down
Round Features and (Part II) Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.
ASU 2017-11 allows companies to exclude a down round feature when determining
whether a financial instrument (or embedded conversion feature) is considered
indexed to the entity’s own stock. As a result, financial instruments (or
embedded conversion features) with down round features may no longer be required
to be accounted for as derivative liabilities. A company will recognize the
value of a down round feature only when it is triggered and the strike price has
been adjusted downward. For equity-classified freestanding financial
instruments, an entity will treat the value of the effect of the down round as a
dividend and a reduction of income available to common shareholders in computing
basic earnings per share. For convertible instruments with embedded conversion
features containing down round provisions, entities will recognize the value of
the down round as a beneficial conversion discount to be amortized to earnings.

The guidance in ASU 2017-11 is effective for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. Early adoption
is permitted, and the guidance is to be applied using a full or modified
retrospective approach. We early adopted ASU 2017-11 and changed our method of
accounting for certain warrants that were initially recorded as liabilities
during the year ended December 31, 2014 on a full retrospective basis. The
adoption of ASU 2017-11 did not have a material impact on our consolidated
financial statements.

In December 2019, the FASB issued authoritative guidance intended to simplify
the accounting for income taxes (ASU 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes). This guidance eliminates certain
exceptions to the general approach to the income tax accounting model and adds
new guidance to reduce the complexity in accounting for income taxes. This
guidance is effective for annual periods after December 15, 2020, including
interim periods within those annual periods. The adoption of ASU-2019-12 did not
have a material impact on our consolidated financial statements.

Effective January 1, 2020, we adopted ASU No. 2018-07, Compensation – Stock
Compensation (Topic 718). ASU 2018-07 is intended to reduce cost and complexity
and to improve financial reporting for nonemployee share based payments. Prior
to the issuance of this guidance, the accounting requirements for nonemployee
and employee share-based payment transactions were significantly different. ASU
2018-07 expands the scope of Topic 718, Compensation – Stock Compensation (which
only included share-based payments to employees) to include share-based payments
issued to nonemployees for goods or services. Consequently, the accounting for
share-based payments to nonemployees and employees is substantially aligned.
This ASU supersedes Subtopic 505-50, Equity – Equity-Based Payments to
Nonemployees. The adoption of ASU 2018-07 did not have a material impact on our
consolidated financial statements.

Effective January 1, 2020, we adopted ASU No. 2018-13, Fair Value Measurement
(Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for
Fair Value Measurement. The amendments in ASU 2018-13 modify the disclosure
requirements associated with fair value measurements based on the concepts in
the Concepts Statement, including the consideration of costs and benefits. The
amendments on changes in unrealized gains and losses, the range and weighted
average of significant unobservable inputs used to develop Level 3 fair value
measurements, and the narrative description of measurement uncertainty should be
applied prospectively for only the most recent interim or annual period
presented in the initial fiscal year of adoption. All other amendments should be
applied retrospectively to all periods presented upon their effective date. The
adoption of ASU 2018-13 did not have a material impact on our consolidated
financial statements.




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Recently Issued Accounting Standards

Management does not believe that any recently issued, but not yet effective
accounting pronouncements, when adopted, will have a material effect on the
accompanying consolidated financial statements.



Non-GAAP Financial Measures



Adjusted EBITDA


To supplement our consolidated financial statements presented in accordance with
GAAP and to provide investors with additional information regarding our
financial results, we consider and are including herein Adjusted EBITDA, a
Non-GAAP financial measure. We view Adjusted EBITDA as an operating performance
measure and, as such, we believe that the GAAP financial measure most directly
comparable to it is net income (loss). We define Adjusted EBITDA as net income
adjusted for interest and financing fees, income taxes, depreciation,
amortization, stock based compensation, and other non-cash income and expenses.
We believe that Adjusted EBITDA provides us an important measure of operating
performance because it allows management, investors, debtholders and others to
evaluate and compare ongoing operating results from period to period by removing
the impact of our asset base, any asset disposals or impairments, stock based
compensation and other non-cash income and expense items associated with our
reliance on issuing equity-linked debt securities to fund our working capital.

Our use of Adjusted EBITDA has limitations as an analytical tool, and this
measure should not be considered in isolation or as a substitute for an analysis
of our results as reported under GAAP, as the excluded items may have
significant effects on our operating results and financial condition.
Additionally, our measure of Adjusted EBITDA may differ from other companies’
measure of Adjusted EBITDA. When evaluating our performance, Adjusted EBITDA
should be considered with other financial performance measures, including
various cash flow metrics, net income and other GAAP results. In the future, we
may disclose different non-GAAP financial measures in order to help our
investors and others more meaningfully evaluate and compare our future results
of operations to our previously reported results of operations.

The following table shows our reconciliation of net loss to adjusted EBITDA for
the year ended December 31, 2021 and 2020, respectively:



                                            For the Year Ended
                                      December 31,       December 31,
                                          2021               2020
                                              (In thousands)

Net loss                             $       (3,633 )   $       (5,826 )

Non-GAAP adjustments:
Depreciation and amortization                   679                713
Interest and letter of credit fees            2,818              2,658
Gain on extinguishment of debt                 (601 )                -
Income taxes                                     23                 10
Stock based compensation                      1,011              1,710

Adjusted EBITDA                      $          297     $         (735 )

© Edgar Online, source Glimpses

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EXLSERVICE HOLDINGS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

You should read the following discussion in connection with our consolidated
financial statements and the related notes included elsewhere in this Annual
Report on Form 10-K. Some of the statements in the following discussion are
forward looking statements.

We have described in this Annual Report on Form 10-K, the impact of the global
Coronavirus Disease 2019 pandemic ("COVID-19") on our financial results for the
year ended December 31, 2021. See "Cautionary Note Regarding Forward-Looking
Statements" below and in Part I, Item 1A, "Risk Factors" included elsewhere in
this Annual Report on Form 10-K for further information regarding risks and
uncertainties relating to COVID-19.

Cautionary Note Regarding Forward-Looking Statements


This Annual Report on Form 10-K contains forward-looking statements within the
meaning of the United States Private Securities Litigation Reform Act of 1995.
You should not place undue reliance on these statements because they are subject
to numerous uncertainties and factors relating to our operations and business
environment, all of which are difficult to predict and many of which are beyond
our control. These statements often include words such as "may," "will,"
"should," "believe," "expect," "anticipate," "intend," "plan," "estimate" or
similar expressions. These statements are based on assumptions that we have made
in light of our experience in the industry as well as our perceptions of
historical trends, current conditions, expected future developments and other
factors we believe are appropriate under the circumstances. As you read and
consider this Annual Report on Form 10-K, you should understand that these
statements are not guarantees of performance or results. They involve known and
unknown risks, uncertainties and assumptions. Although we believe that these
forward-looking statements are based on reasonable assumptions, you should be
aware that many factors could affect our actual financial results or results of
operations and could cause actual results to differ materially from those in the
forward-looking statements. Many of the following risks, uncertainties and other
factors identified below have been, and will be, amplified by COVID-19. These
factors include but are not limited to:

•the impact of COVID-19 and related response measures on our business, results
of operations and financial condition, including the impact of governmental
lockdowns and other restrictions on our operations and processes and those of
our clients and suppliers;

•our dependence on a limited number of clients in a limited number of industries
and our ability to withstand the loss of a significant client;

•negative public reaction in the U.S. or elsewhere to offshore outsourcing;

•fluctuations in our earnings;

•our ability to attract and retain clients including in a timely manner;

•our ability to successfully consummate or integrate strategic acquisitions;

•our ability to accurately estimate and/or manage the costs;

•restrictions on immigration;

•our ability to hire and retain enough sufficiently trained employees to support
our operations;

•our ability to grow our business or effectively manage growth and international
operations;

•any changes in the senior management team;

•increasing competition in our industry;

•telecommunications or technology disruptions or breaches, natural or other
disasters, or medical epidemics or pandemics;

•our ability to realize the entire book value of goodwill and other intangible
assets from acquisitions;

•our ability to make accurate estimates and assumptions in connection with the
preparation of our consolidated financial statements;

•failure to protect our intellectual property;

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•regulatory, legislative and judicial developments, including changes to or the
withdrawal of governmental fiscal incentives;

•changes in tax laws or decisions regarding repatriation of funds held abroad;

•ability to service debt or obtain additional financing on favorable terms;

•credit risk fluctuations in the market values of our investment and derivatives
portfolios;

•legal liability arising out of customer contracts;

•technological innovation;

•our ability to meet our environmental, social and governance-related goals and
targets;

•effects of political and economic conditions globally, particularly in the
geographies where we operate;

•operational and information security failures arising as a result of remote
work solutions adopted due to COVID-19;

•cyber security incidents, data breaches, or other unauthorized disclosure of
sensitive or confidential client and employee data; and

•adverse outcome of our disputes with the tax authorities, in the geographies
where we operate.


In particular, you should consider the numerous risks outlined in Part I, Item
1A, "Risk Factors" in this Annual Report on Form 10-K. These and other risks
could cause actual results to differ materially from those implied by
forward-looking statements in this Annual Report on Form 10-K.

The forward-looking statements made by us in this Annual Report on Form 10-K, or
elsewhere, speak only as of the date on which they were made. New risks and
uncertainties come up from time to time, and it is impossible for us to predict
those events or how they may affect us. We have no obligation to update any
forward-looking statements in this Annual Report on Form 10-K after the date of
this Annual Report on Form 10-K, except as required by federal securities laws.

Executive Overview


We are a leading data analytics and digital operations and solutions company
that partners with clients to improve business outcomes and unlock growth. By
bringing together deep domain expertise with robust data, powerful analytics,
cloud, AI and ML, we create agile, scalable solutions and execute complex
operations for the world's leading corporations in industries including
insurance, healthcare, banking and financial services, media, and retail, among
others.

We deliver data analytics and digital operations and solutions to our clients,
driving enterprise-scale business transformation initiatives that leverage our
deep expertise in advanced analytics, AI, ML and cloud. We manage and report
financial information through our four strategic business units: Insurance,
Healthcare, Analytics and Emerging Business, which reflects how management
reviews financial information and makes operating decisions, and is in line with
certain operational and structural changes we made effective January 1, 2020 to
more closely integrate our businesses and to simplify our organizational
structure.

Our reportable segments are as follows:

•Insurance,

•Healthcare,

•Analytics, and

•Emerging Business

Our global delivery network, which includes highly trained industry and process
specialists across the United States, Latin America, South Africa, Europe and
Asia (primarily India and the Philippines), is a key asset. We have operations
centers in India, the United States, the United Kingdom, the Philippines,
Bulgaria, Colombia, South Africa, Romania and the Czech Republic.

On December 16, 2021, we completed the acquisition of Clairvoyant, a global
data, AI, ML, and cloud services firm that helps organizations in their business
transformation by maximizing the value of data through actionable insights. It
provides
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data engineering, analytics, AI, ML, product engineering, and cloud-based
solutions. The acquisition strengthens our Analytics capabilities by adding
additional expertise in data engineering and cloud enablement, further
supporting our clients in the insurance, healthcare, banking and financial
services, and retail industries.

Continued Impact of COVID-19 on Our Business


Over the course of 2020, and continuing into 2021, our clients, contractors,
suppliers, and other partners adapted in order to conduct business activities in
a COVID-19 environment. As the global economy continued to adapt to the impact
of COVID-19, our clients are focused on receiving personalized customer
experiences, optimizing costs and supporting resilient operating models. We
remain committed to helping our clients adapt and thrive through the ongoing
uncertainties caused by COVID-19 and, going forward, to the shifting business
environment.

Our remote working delivery capability steadily improved throughout 2021. We
estimate that we are able to deliver a significant portion of our clients’
current requirements in a remote work model given the current lockdown
restrictions in the locations in which we operate and certain clients not
authorizing us to perform the remaining process work remotely due to its
sensitive nature.


We continue to incur additional costs in order to ensure the continuity of our
operations and support our remote work model. Such costs include purchase of
desktops and laptops for our employees, software and internet connectivity
devices, technology tools for productivity enhancement, accommodation, meal,
overtime, transportation and sanitization and cleaning costs of our offices and
facilities. We also expect that we will continue to incur additional costs to
monitor and improve operational efficiency of our remote work model, implement
new information technology solutions and security measures to safeguard against
information security risks and protect the health and safety of our employees as
they gradually return to the office. We believe that these short-to-medium-term
costs may benefit us in the long-term, as these steps have broadened our remote
working capabilities, which we expect to become a permanent feature in our
future delivery model, as well as our business continuity plans.

Certain impacts of COVID-19 on our business, results of operations, financial
position and cash flow during 2021 have been described above and below, however
the full extent of the impact for the period beyond 2021 is currently uncertain
and will depend on many factors that are not within our control.

For additional information and risks related to COVID-19, see Part I, Item 1A,
“Risk Factors.”


During the fourth quarter of 2021, we performed our annual goodwill quantitative
impairment test for any potential impairment. We considered the effects of
COVID-19 on our significant inputs used in determining the fair value of our
reporting units. Based on the results, the fair value of each of our reporting
units exceeded their carrying value and the goodwill was not impaired. However,
there can be no assurances that goodwill will not be impaired in future periods.
Estimating the fair value of goodwill requires the use of estimates and
significant judgments that are based on a number of factors including actual
operating results. These estimates and judgments may not be within our control
and accordingly it is reasonably possible that they could change in future
periods.

Revenues


For the year ended December 31, 2021, we generated revenues of $1,122.3 million
compared to revenues of $958.4 million for the year ended December 31, 2020, an
increase of $163.9 million, or 17.1%.

We serve clients mainly in the United States and the United Kingdom, with these
two regions generating 85.9% and 9.4%, respectively, of our total revenues for
the year ended December 31, 2021 and 85.0% and 9.3%, respectively, of our
revenues for the year ended December 31, 2020.

For the years ended December 31, 2021 and 2020, our total revenues from our top
ten clients accounted for 38.1% and 37.4% of our total revenues, respectively.
Our revenue concentration with our top clients remains largely consistent
year-over-year and we continue to develop relationships with new clients to
diversify our client base. We believe that the loss of any of our top ten
clients could have a material adverse effect on our financial performance.

Our Business


We provide data analytics and digital operations and solutions to our clients.
We market our services to our existing and prospective clients through our sales
and client management teams, which are aligned by key industry verticals and
cross-industry domains such as finance and accounting. Our sales and client
management teams operate from the United States, Europe and Australia.

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Digital Operations and Solutions: We provide our clients with a range of digital
operations and solutions from our Insurance, Healthcare and Emerging Business
strategic business units, which are focused on solving complex industry problems
such as the insurance claims lifecycle and financial transactions processing,
and typically involve the use of agile delivery models to implement digital
technologies and interventions like hyper-automation, customer experience
transformation, advanced automation, robotics, enterprise architecture,
end-to-end business function management and transformations. We either
administer and manage these functions on an ongoing basis via longer-term
arrangements or project work. For a portion of our digital operations and
solutions, we hire and train employees to work at our operations centers on the
relevant business operations, implement a process migration to these operations
centers and then provide services either to the client or directly to the
client's customers. Each client contract has different terms based on the scope,
deliverables and complexity of the engagement. We also provide consulting
services related to digital operations and solutions that include
industry-specific digital transformational services as well as cross-industry
finance and accounting services as part of the Emerging Business strategic
business unit.

We provide our services under contracts with our clients, which typically have
terms of three or more years, with some being rolling contracts with no end
dates. Typically, our clients can terminate these contracts with or without
cause and with short notice periods. These contracts provide us with a
relatively predictable revenue base for a substantial portion of our digital
operations and solutions business. However, we have a long selling cycle for our
services and the budget and approval processes of prospective clients make it
difficult to predict the timing of entering into definitive agreements with new
clients. Similarly, new license sales and implementation projects for our
technology service platforms and other software-based services have a long
selling cycle, however ongoing annual maintenance and support contracts for
existing arrangements provide us with a relatively predictable revenue base.

We charge for our services using various pricing models like time-and-material
pricing, full-time-equivalent pricing, transaction-based pricing, outcome-based
pricing, subscription-based pricing and other alternative pricing models.
Outcome-based pricing arrangements are examples of non-linear pricing models
where clients link revenues from platforms and solutions and the services we
provide to usage or savings rather than the efforts deployed to provide these
services. We continue to observe a shift in the industry pricing models toward
transaction-based pricing, outcome-based pricing and other alternative pricing
models. We believe this trend will continue and we use such alternative pricing
models with some of our current clients and are seeking to move certain other
clients from a full-time-equivalent pricing model to a transaction-based or
other alternative pricing model. These alternative pricing models place the
focus on operating efficiency in order to maintain or improve our gross margins.

We have also observed that prospective larger clients are entering into
multi-vendor relationships with regard to their outsourcing needs. We believe
that the trend toward multi-vendor relationships will continue. A multi-vendor
relationship allows a client to seek more favorable pricing and other contract
terms from each vendor, which can result in significantly reduced gross margins
from the provision of services to such client for each vendor. To the extent our
large clients expand their use of multi-vendor relationships and are able to
extract more favorable contract terms from other vendors, our gross margins and
revenues may be reduced with regard to such clients if we are required to modify
the terms of our relationships with such clients to meet competition.

Analytics: Our analytics services focus on driving improved business outcomes
for our clients by unlocking deep insights from data and create data driven
solutions across all parts of our clients' business. We also provide care
optimization and reimbursement optimization services, for our clients through
our healthcare analytics solutions and services. We also offer integrated
solutions to help our clients in cost containment by leveraging technology
platforms, customizable and configurable analytics and expertise in healthcare
reimbursements to help clients enhance their claim payment accuracy. Our teams
deliver predictive and prescriptive analytics in the areas of customer
acquisition and lifecycle management, risk underwriting and pricing, operational
effectiveness, credit and operational risk monitoring and governance, regulatory
reporting, payment integrity and care management and data management. We
enhance, modernize and enrich structured and unstructured data and use a
spectrum of advanced analytical tools and techniques, including our in-house ML
and AI capabilities to create insights and improve decision making for our
clients. Our Clairvoyant acquisition in December 2021 strengthens our analytics
capabilities by adding additional expertise in data engineering and cloud
enablement, further supporting our clients in the insurance, healthcare, banking
and financial services, and retail industries. We actively cross-sell and, where
appropriate, integrate our analytics services with other digital operations and
solutions as part of a comprehensive offering for our clients. Our
projects-based analytics services are cyclical and can be significantly affected
by variations in business cycles. In addition, our projects-based analytics
services are documented in contracts with terms generally not exceeding one year
and may not produce ongoing or recurring business for us once the project is
completed. These contracts also usually contain provisions permitting
termination of the contract after a short notice period. The short-term nature
and specificity of these projects could lead to fluctuations and uncertainties
in the revenues generated from providing analytics services.

We anticipate that revenues from our analytics services will grow as we expand
our service offerings and client base, both organically and through
acquisitions.

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Expenses

Cost of Revenues

Our cost of revenues primarily consists of:


•employee costs, which include salary, bonus and other compensation expenses;
retirement benefits, recruitment and training costs; employee health and life
insurance; transport; rewards and recognition for certain employees; and
non-cash stock compensation expense; and

•costs relating to our facilities and communications network, which include
telecommunication and IT costs; facilities and customer management support;
operational expenses for our operations centers; rent expenses; and

•Outsourced/subcontractors and professional services costs; and

•travel and other billable costs to our clients; and

•costs relating to our direct mail operations and other digital operations and
solutions.


The most significant components of our cost of revenues are salaries and
benefits (including stock-based compensation), retirement benefits, recruitment,
training, transport, meals, rewards and recognition and employee health and life
insurance. Salary levels, employee turnover rates and our ability to efficiently
manage and utilize our employees significantly affect our cost of revenues. We
make every effort to manage employee and capacity utilization and continuously
monitor service levels and staffing requirements. Although we generally have
been able to reallocate our employees as client demand has fluctuated, a
contract termination or significant reduction in work assigned to us by a major
client could cause us to experience a higher-than-expected number of unassigned
employees, which would increase our cost of revenues as a percentage of revenues
until we are able to reduce or reallocate our headcount. A significant increase
in the turnover rate among our employees, particularly among the highly skilled
workforce needed to execute certain services, would increase our recruiting and
training costs and decrease our operating efficiency, productivity and profit
margins. In addition, cost of revenues also includes non-cash amortization of
stock compensation expense relating to our issuance of equity awards to
employees directly involved in providing services to our clients.

We expect our cost of revenues to continue to increase as we continue to add
professionals in our operating centers globally to service additional business
and as wages continue to increase globally. In particular, we expect training
costs to continue to increase as we continue to add staff to service new clients
and provide existing staff with additional skill sets. There is significant
competition for professionals with skills necessary to perform the services we
offer to our clients. As our existing competitors continue to grow, and as new
competitors enter the market, we expect competition for skilled professionals in
each of these areas to continue to increase, with corresponding increases in our
cost of revenues to reflect increased compensation levels for such
professionals. We also expect that we will continue to incur additional costs to
monitor and improve operational efficiency of our remote work model, invest in
information technology solutions and security measures to safeguard against
information security risks and costs to protect the health and safety of our
employees as they gradually return to the office. See Part I, Item 1A, "Risk
Factors" under "Risks Related to Our Business-Employee wage increases may
prevent us from sustaining our competitive advantage and may reduce our profit
margin" and under "Risks Related to the International Nature of Our Business-We
are subject to labor and employment laws across jurisdictions and if more
stringent labor laws become applicable to us or if our employees unionize, our
profitability may be adversely affected." However, a significant portion of our
client contracts include inflation-based adjustments to our billing rates year
over year which partially offset such increase in cost of revenues.

We generally experience a higher cost of revenues as a percentage of revenues
during the initial 12 to 18 months in a long-term digital operations and
solutions contract due to upfront investments in infrastructure, resource hiring
and training during migration. The cost of revenues as a percentage of revenues
improves as we scale up, achieve operational efficiencies and complete the
migration.

Selling, General and Administrative Expenses (“SG&A”)


Our General and Administrative expenses ("G&A") comprise of expenses relating to
salaries and benefits (including stock based compensation), retirement benefits
as well as costs related to recruitment, training and retention of senior
management and other support personnel in enabling functions,
telecommunications, utilities, travel and other miscellaneous administrative
costs. G&A expenses also include acquisition-related costs, legal and
professional fees (which represent the costs of third party legal, tax,
accounting, immigration and other advisors), investment in product development,
digital technology, advanced automation and robotics, cloud, AI and MI, bad debt
allowance and stock compensation expenses related to our issuance of

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equity awards to members of our board of directors. We expect our G&A costs to
increase as we continue to strengthen our support and enabling functions and
invest in leadership development, performance management and training programs.

Selling and marketing expenses primarily consist of salaries and benefits
(including stock based compensation), retirement benefits and other compensation
expenses of sales and marketing and client management personnel, sales
commission, travel and brand building, client events and conferences. We expect
that sales and marketing expenses will continue to increase as we invest in our
sales and client management functions to better serve our clients and in our
branding.

Depreciation and Amortization Expense


Depreciation and amortization pertains to depreciation of our tangible assets,
including network equipment, cabling, computers, office furniture and equipment,
motor vehicles and leasehold improvements and amortization of intangible assets.
As we add new facilities and expand our existing operations centers, we expect
that depreciation expense will increase, reflecting additional investments in
equipment such as desktop computers, servers and other infrastructure. The
property and equipment which are abandoned, are assessed for revision of their
useful life, thereby revising the future depreciation to reflect the use of
property and equipment over the remaining shortened life. We expect lower
depreciation on assets related to operating centers closed as a result of
optimization of office space and increased reliance on remote work model, due to
the impact of COVID-19. We expect amortization of intangible assets to increase
further as we pursue strategic relationships and acquisitions.

Foreign Exchange


We report our financial results in the U.S. dollar. However, a significant
portion of our total revenues are earned in the U.K. pound sterling (8.6% and
8.3%, respectively, for the years ended December 31, 2021 and 2020), while a
significant portion of our expenses are incurred and paid in Indian rupees
(29.4% and 27.2%, respectively, of our total costs for the years ended
December 31, 2021 and 2020) and the Philippine peso (9.5% and 11.5%, of our
total costs for the years ended December 31, 2021 and 2020). The exchange rates
among the Indian rupee, the Philippine peso, the U.K. pound sterling and the
U.S. dollar have changed substantially in recent years and may fluctuate
substantially in the future as well. The results of our operations could be
substantially impacted as the Indian rupee, the Philippine peso and the U.K.
pound sterling appreciate or depreciate against the U.S. dollar. See Note 2 -
Summary of Significant Accounting Policies and Note 16 - Derivatives and Hedge
Accounting to our consolidated financial statements and Part II, Item 7A,
"Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency
Risk."

Interest Expense

Interest expense primarily consist of interest on our borrowings under our
credit facility and convertible senior notes, finance lease liabilities and
notional interest implicit in the purchase of property and equipment.

Other Income, net


Other income, net primarily consists of gain/(loss) on sale, mark to market and
dividend income on our investments in mutual funds and money market funds, and
interest on time deposits classified under "Cash and cash equivalents,"
"Short-term investments" and "Other assets," as applicable on our consolidated
balance sheets. Other income, net also consists of changes in fair value of
earn-out consideration, interest on refunds received from income tax authorities
in India on completion of tax assessments and components of net periodic benefit
cost such as interest cost, expected return on plan assets, amortization of
actuarial gain or loss and profit or loss on disposal of long-lived assets.

Income Taxes


We are subject to income taxes in the United States and other foreign
jurisdictions. Our tax expense and cash tax liability in the future could be
adversely affected by various factors, including, but not limited to, changes in
tax laws, regulations, accounting principles or interpretations and the
potential adverse outcome of tax examinations. Changes in the valuation of
deferred tax assets and liabilities, which may result from a decline in our
profitability or changes in tax rates or legislation, could have a material
adverse effect on our tax expense.

During the year 2018, we made an election to change the tax status of most of
our controlled foreign corporations ("CFC") to disregarded entities for U.S.
income tax purposes. As a result, we no longer have undistributed earnings in
connection with these CFCs. The Transition Tax resulted in previously taxed
income ("PTI") which may be subject to withholding taxes and currency gains or
losses upon repatriation. We periodically evaluate opportunities to distribute
PTI among our group entities to fund our operations in the United States and
other geographies, and as and when we decide to distribute, we may have to
accrue additional taxes in accordance with local tax laws, rules and regulations
in the relevant foreign jurisdictions. These distributions do not constitute a
change in our permanent reinvestment assertion.

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In 2019, the Government of India introduced a new tax regime for certain Indian
companies by enacting the Taxation Laws (Amendment) Act, 2019. The new tax
regime is optional and provides for a lower tax rate for Indian companies,
subject to certain conditions, which among other things includes not availing of
specified exemptions or incentives. During the year 2019 and 2020, we elected
this new tax regime for our Indian subsidiaries to obtain the benefit of a lower
tax rate.

We also benefited from a corporate tax holiday in the Philippines for our
operations centers established there over the last several years. The tax
holiday expired for few of our operations centers in last few years and will
expire for other operations centers by year 2022, which may lead to an increase
in our overall tax rate. Following the expiry of the tax exemption, income
generated from operations centers in the Philippines will be taxed at the
prevailing annual tax rate, which as of December 31, 2021 was 5.0% on gross
income.

We recognize deferred tax assets and liabilities for temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss carry forwards. We
determine if a valuation allowance is required or not on the basis of an
assessment of whether it is more likely than not that a deferred tax asset will
be realized.

Critical Accounting Policies and Estimates


The discussion and analysis of our financial condition and results of operations
are based upon the financial statements included in this Annual Report on Form
10-K, which have been prepared in accordance with U.S. generally accepted
accounting principles ("U.S. GAAP"). A summary of our significant accounting
policies is included in Note 2 - Summary of Significant Accounting Policies to
our consolidated financial statements. We consider the policies discussed below
to be critical to an understanding of our consolidated financial statements, as
their application places the most significant demands on management's judgment
regarding matters that are inherently uncertain at the time an estimate is made.
These policies include revenue recognition, allowance for expected credit
losses, business combinations, goodwill, intangibles and long-lived assets,
stock-based compensation, derivative instruments and hedging activity and
borrowings. The significant estimates and assumptions that affect the financial
statements include, but are not limited to, estimates of the fair value of the
identifiable intangible assets and contingent consideration, purchase price
allocation, allowance for expected credit losses, the nature and timing of the
satisfaction of performance obligations, the standalone selling price of
performance obligations, and variable consideration in a customer contract,
expected recoverability from customers with contingent fee arrangements,
estimated costs to complete fixed price contracts, recoverability of dues from
statutory authorities, assets and obligations related to employee benefit plans,
deferred tax valuation allowances, income-tax uncertainties and other
contingencies, valuation of derivative financial instruments, assumptions
related to lease liabilities, ROU assets, lease cost, income taxes and assets,
obligations related to employee benefit plans, revenue projections and discount
rate applied within the discounted cash flow model for business acquisitions.
These accounting policies and the associated risks are set out below. Future
events may not develop exactly as forecasted and estimates routinely require
adjustment.

Revenue Recognition

Revenue is recognized when services are provided to our clients, in an amount
that reflects the consideration which we expect to be entitled to in exchange
for the services provided.

Revenue is measured based on consideration specified in a contract with a
customer and excludes discounts and amounts collected on behalf of third
parties. We recognize revenue when we satisfy a performance obligation by
providing services to a customer.

Taxes assessed by a governmental authority that are both imposed on and
concurrent with a specific revenue-producing transaction, that are collected by
us from a customer, are excluded from revenue.

Significant judgments

Arrangements with Multiple Performance Obligations


We sometimes enter into contracts with our clients which include promises to
transfer multiple products and services to the client. Determining whether
products and services are considered as distinct performance obligations that
should be accounted for separately rather than as one performance obligation may
require significant judgment. The transaction price is allocated to performance
obligations on relative standalone selling price basis.

Judgment is also required to determine the standalone selling price for each
distinct performance obligation. In instances where the standalone selling price
is not directly observable, it is determined using information that may include
market conditions and other observable inputs.

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Variable Consideration

Variability in the transaction price arises primarily due to service level
agreements and volume discounts.


We consider our experience with similar transactions and expectations regarding
the contract in estimating the amount of variable consideration that should be
recognized during a period.

We believe that the expected value method is most appropriate for determining
the variable consideration since we have a large number of contracts with
similar nature of transactions/services.

Type of Contracts Requiring Judgment


a.Revenues for our fixed-price contracts are recognized using costs incurred to
date relative to total estimated costs at completion to measure progress toward
satisfying our performance obligations. Incurred cost represents work performed,
which corresponds with, and thereby best depicts, the transfer of control to the
client. The use of this method requires significant judgment to estimate the
cost required to complete the contracted scope of work, including assumptions
and estimates relative to the length of time to complete the project and the
nature and complexity of the work to be performed and resources engaged. We
regularly monitor these estimates throughout the execution of the project and
record changes in the period in which a change in an estimate is determined. If
a change in an estimate results in a projected loss on a project, such loss is
recognized in the period in which it is first identified.

b.Revenues from reimbursement optimization services having contingent fee
arrangements are recognized by us at the point in time when a performance
obligation is satisfied, which is when we identify an overpayment claim. In such
contracts, our consideration is contingent upon the actual collections made by
our clients and net of any subsequent retraction claims. Based on guidance on
"variable consideration" in Topic 606, we use our historical experience and
projections to determine the expected recoveries from our clients and recognize
revenue based upon such expected recoveries. Any adjustment required due to
change in estimates are recorded in the period in which such change is
identified.

For additional information, see Note 4 – Revenues, net to our consolidated
financial statements under Part II, Item 8, “Financial Statements and
Supplementary Data.”

Unbilled Receivables


Unbilled receivables represent revenues recognized for services rendered between
the last billing date and the balance sheet date. Unbilled receivables also
include revenues recognized from reimbursement optimization services where we
identify an overpayment claim. In such contracts, our consideration is
contingent upon and collectable only when the actual collections are made by our
clients. Based on guidance on "variable consideration" in Topic 606, we use our
historical experience and projections to determine the expected recoveries from
our clients and recognize revenue and receivables based upon such expected
recoveries. Accordingly, the amounts for which services have been performed and
for which invoices have not been issued to customers on the balance sheet date,
(i.e. unbilled receivables) are presented under accounts receivable.

Deferred Revenue and contract fulfillment costs


We have contract liabilities (deferred revenue) consisting of advance billings
and billing in excess of revenues recognized. Deferred revenue also includes the
amount for which services have been rendered but other conditions of revenue
recognition are not met, for example where we do not have an enforceable
contract.

Further, we also defer revenues attributable to certain process transition
activities, with respect to our clients where such activities do not represent
separate performance obligations. Revenues related to such transition activities
are classified under "Deferred revenue" and "Other non-current liabilities" in
our consolidated balance sheets and are recognized ratably over the period
during which the related services are performed.

Costs related to such transition activities are contract fulfillment costs, and
thereby classified under "Other current assets" and "Other assets" in the
consolidated balance sheets, and are recognized over the expected duration of
the relationship with customers, under "Cost of revenues" in our consolidated
statements of income.

Contract Acquisition Costs

Direct and incremental costs incurred for acquiring contracts, such as sales
commissions are contract acquisition costs and thereby classified under "Other
current assets" and "Other assets" in our consolidated balance sheets. Such
costs are amortized

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over the expected duration of the relationship with customers and recorded under
Selling and marketing expenses in our consolidated statements of income.

Upfront Payment Made to Customers


Upfront payments in nature of deal signing discount or deal signing bonuses made
to customers are contract assets and classified under "Other current assets" and
"Other assets" in our consolidated balance sheets. Such costs are amortized over
the expected period of benefit and are recorded as an adjustment to transaction
price and reduced from revenues.

Allowance for Expected Credit Losses


We record accounts receivable net of allowances for expected credit losses.
Allowances for credit losses are established through the evaluation of aging of
accounts receivables, prior collection experience, current market conditions,
forecasts about future economic conditions, clients' financial condition and the
amount of accounts receivable in dispute to estimate the collectability of these
accounts receivable. Accounts receivable balances are written-off against the
allowance for expected credit losses after all means of collection have been
exhausted and the potential for recovery is considered remote.

Business Combinations


We account for all business combinations using the acquisition method of
accounting as prescribed by Accounting Standards Codification ("ASC") Topic 805,
"Business Combinations." The guidance requires the use of significant estimates
and assumptions in determining the fair value of identifiable assets acquired
and liabilities assumed, including intangible assets and contingent
consideration, and allocation of purchase price over such assets and liabilities
on the acquisition date. The significant estimates and assumptions include, but
are not limited to, the timing and amount of future revenue and cash flows based
on, among other things, discount rate reflecting the risk inherent in future
cash flows, customer attrition rates and the long-term growth rate applied
within the discounted cash flow model. This requires a high degree of the
Company's judgment and the need to involve fair value specialists to evaluate
the reasonableness of the Company's valuation methodology and the selection of
inputs to the valuation.

Goodwill, Intangible Assets and Long-lived Assets


Goodwill represents the cost of the acquired businesses in excess of the fair
value of identifiable tangible and intangible net assets purchased in a business
combination. Goodwill is not amortized but is tested for impairment at least on
an annual basis, relying on a number of factors including operating results,
business plans and estimated future cash flows of the reporting units to which
it is assigned. We undertake studies to determine the fair values of assets and
liabilities acquired and allocate purchase consideration to assets and
liabilities, including property and equipment, goodwill and other identifiable
intangibles. We examine the carrying value of the goodwill annually in the
fourth quarter, or more frequently, as circumstances warrant, to determine
whether there are any impairment losses. We test for goodwill impairment at the
reporting unit level. We also assess any potential goodwill impairment for our
reporting units immediately prior to any segment changes and reallocate goodwill
on the basis of the new reporting units.

The goodwill quantitative impairment test involves a comparison of the fair
value of a reporting unit with its carrying amount. We estimate the fair value
of a reporting unit using a combination of the income approach, using discounted
cash flow analysis ("DCF model"), and also the market approach, using market
multiples for reporting units whereby the fair value is not substantially in
excess of carrying value. Under the income approach, fair value is determined
based on the present value of estimated future cash flows, discounted at an
appropriate risk-adjusted rate. We use our internal forecasts to estimate future
cash flows and include an estimate of long-term future growth rates based on our
most recent views of the long-term outlook for each business. Actual results may
differ from those assumed in our forecasts. Discount rate assumptions are based
on an assessment of the risk inherent in the future cash flows of the respective
reporting units. The discount rate is mainly based on judgment of the specific
risk inherent within each reporting unit. The variables within the discount
rate, many of which are outside of our control, provide us best estimate of all
assumptions applied within the DCF model. Discount rates used in our reporting
unit valuations range from 12.0% to 12.1%. We also use the "Market approach" to
corroborate the results of the income approach for some of our reporting units.
Under the market approach, we estimate fair value based on market multiples of
revenues and earnings derived from comparable publicly-traded companies with
characteristics similar to the reporting unit and comparable market
transactions. The estimates used to calculate the fair value of a reporting unit
change from year to year based on operating results, market conditions and other
factors. Changes in these estimates and assumptions could materially affect the
determination of fair value for each reporting unit.

Determining fair value requires the use of estimates and exercise of significant
judgment, including assumptions about appropriate discount rates, perpetual
growth rates, amount and timing of expected future cash flows, market multiples
of revenues and earnings and comparable market transactions. These estimates and
judgements may not be within our control and

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accordingly it is reasonably possible that the estimates and judgments described
above could change in future periods. There can be no assurance that operations
will achieve the future cash flows reflected in the projections. If the carrying
amount of the reporting unit exceeds its fair value, an impairment loss shall be
recognized, in an amount equal to that excess, limited to the total amount of
goodwill allocated to that reporting unit.

We review long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In general, we will recognize an impairment
loss when the sum of discounted expected future cash flows is less than the
carrying amount of such asset. The estimate of discounted cash flows and the
fair value of assets require several assumptions and estimates like the weighted
average cost of capital, discount rates, risk-free rates, market rate of return
and risk premiums and can be affected by a variety of factors, including
external factors such as industry and economic trends, and internal factors such
as changes in our business strategy and our internal forecasts. Although we
believe the historical assumptions and estimates we have made are reasonable and
appropriate, different assumptions and estimates could materially impact our
reported financial results. See Note 2 - Summary of Significant Accounting
Policies - Business Combinations, Goodwill and Other Intangible Assets to our
consolidated financial statements for more information.

Stock-based Compensation


Under the fair value recognition provisions of ASC Topic 718, Compensation-Stock
Compensation ("ASC No. 718"), cost is measured at the grant date based on the
fair value of the award and is amortized on a straight-line basis over the
requisite service periods of the awards, which is generally the vesting period.

Determining the fair value of stock-based awards at the grant date requires
significant judgment, including estimating the expected term over which the
stock awards will be outstanding before they are exercised and the expected
volatility of our stock.


We also grant performance-based restricted stock units ("PRSUs") to executive
officers and other specified employees. Generally the grants provide that 50% of
the PRSUs cliff vest at the end of a three-year period based on an aggregated
revenue target ("PUs") for a three-year period. The remaining 50% vest based on
a market condition ("MUs") that is contingent on EXL meeting or exceeding the
total shareholder return relative to a group of peer companies specified under
the program, measured over a three-year performance period. The award recipient
may earn up to 200% of the PRSUs granted based on the actual achievements of
both targets. However, the features of our equity incentive compensation program
are subject to change by the Compensation Committee of our Board of Directors.

The fair value of each PU is determined based on the market price of one share
of our common stock on the day prior to the date of grant. The grant date fair
value for the MUs is determined using a Monte Carlo simulation model. The Monte
Carlo simulation model simulates a range of possible future stock prices and
estimates the probabilities of the potential payouts. The Monte Carlo simulation
model also involves the use of additional key assumptions, including dividend
yield and risk-free interest rate. We periodically assess the reasonableness of
our assumptions and update our estimates as required. If actual results differ
significantly from our estimates, stock-based compensation expense and our
results of operations could be materially affected.

Derivative Instruments and Hedging Activities


In the normal course of business, we actively look to mitigate the exposure of
foreign currency market risk associated with forecasted transactions denominated
in certain foreign currencies and to minimize earnings and cash flow volatility
associated with changes in foreign currency exchange rates by entering into
various foreign currency exchange forward contracts, with counterparties that
are highly rated financial institutions.

We hedge forecasted transactions that are subject to foreign exchange exposure
with foreign currency exchange contracts that qualify as cash flow hedges.
Changes in the fair value of these cash flow hedges are recorded as a component
of accumulated other comprehensive income/(loss), net of tax, until the hedged
transactions occurs. The resultant foreign exchange gain/(loss) upon settlement
of these cash flow hedges is recorded along with the underlying hedged item in
the same line in our consolidated statements of income as a part of "Cost of
revenues," "General and administrative expenses," "Selling and marketing
expenses," and "Depreciation and amortization expense," as applicable.

We also use derivative instruments consisting of foreign currency exchange
contracts to economically hedge intercompany balances and other monetary assets
or liabilities denominated in currencies other than the functional currency.
These derivatives do not qualify as fair value hedges. Changes in the fair value
of these derivatives are recognized in our consolidated statements of income and
are included in foreign exchange gain/(loss).

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We determine the fair value of our derivatives based on market observable inputs
including both forward and spot prices for currencies. Derivative assets and
liabilities included in Level 2 primarily represent foreign currency forward
contracts. The quotes are taken primarily from independent sources, including
highly rated financial institutions.

We evaluate hedge effectiveness of cash flow hedges at the time a contract is
entered into as well as on an ongoing basis. For hedge relationships that are
discontinued because the forecasted transaction is not expected to occur by the
end of the originally specified period, any related derivative amounts recorded
in equity are reclassified to earnings.

Borrowings


We account for convertible notes in accordance with the guidelines established
by the ASC No. 470-20, Debt with Conversion and Other Options. We separate the
convertible notes into liability and equity components. The Beneficial
Conversion Feature ("BCF") of a convertible note, which is the equity component
and recorded as additional paid-in capital, is normally characterized as the
convertible portion or feature of certain notes payable that provide a rate of
conversion that is below market value or in-the-money when issued. We record a
BCF related to any issuance of convertible notes.

If a convertible note is within the scope of the Cash Conversion Subsections
contains embedded features other than the embedded conversion option, the
guidance in ASC No. 815-15, Derivatives and Hedging - Embedded Derivatives ("ASC
815-15"), is applied to determine if any of those features must be separately
accounted for as a derivative instrument.

The estimated fair value of the liability component at issuance is determined
using a discounted cash flow technique, which considers debt issuances with
similar features of our convertible notes, excluding the conversion feature. The
excess of the gross proceeds received over the estimated fair value of the
liability component is allocated to the BCF, which is credited to additional
paid-in-capital with a corresponding offset recognized as a discount to reduce
the net carrying value of the convertible notes. The discount is being amortized
to interest expense over the expected term of the convertible notes using the
effective interest method.

Direct, incremental finance costs related to the convertible notes are amortized
over the term instrument through charges to interest expense using the effective
interest method.

Pursuant to ASC Subtopic 470-20, total consideration for the settlement of an
existing debt obligation is separated into liability and equity components. The
fair value of the existing liability is estimated using a discounted cash flow
technique, which considers debt issuances with terms similar to that of our
debt, however without the conversion feature. The excess of consideration over
the fair value of liability component is assigned to the equity component. The
effective interest rate used to estimate the fair value of the liability
component is based on the income and market based approaches, adjusted for the
remaining tenor of the extinguished debt. The difference between the fair value
and the carrying value of the extinguished debt, net of the unamortized debt
discount and unamortized debt issuance costs, is recorded as a gain or loss on
settlement in the consolidated statements of income.

Income Taxes


We account for income tax using the asset and liability method. Under this
method, income tax expense is recognized for the amount of taxes payable or
refundable for the current year. In addition, deferred tax assets and
liabilities are recognized in respect of future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their tax bases and operating losses carried forward, if
any. Deferred tax assets and liabilities are measured using the anticipated tax
rates for the years in which such temporary differences are expected to be
recovered or settled. We recognize the effect of a change in tax rates on
deferred tax assets and liabilities during the period in which the new tax rate
was enacted or the change in tax status was filed or approved. We release the
tax effects from accumulated other comprehensive income/(loss) ("AOCI") at the
time of reclassification of cash flows hedges gains/ (losses) from AOCI to the
consolidated statements of income. Deferred tax assets are recognized in full,
subject to a valuation allowance that reduces the amount recognized to that
which is more likely than not to be realized. In assessing the likelihood of
realization, we consider all available evidence for each jurisdiction including
past operating results, estimates of future taxable income and the feasibility
of tax planning strategies. With respect to any entity that benefits from a
corporate tax holiday, deferred tax assets or liabilities for existing temporary
differences are recorded only to the extent such temporary differences are
expected to reverse following the expiration of the tax holiday.

We also evaluate potential exposures related to tax contingencies or claims made
by the tax authorities in various jurisdictions in order to determine whether a
reserve may be required. A reserve is recorded if we believe that a loss is
probable and if the amount of such loss can be reasonably estimated. Such
reserves are based on estimates and, consequently, are subject to changing facts
and circumstances, including the progress of ongoing audits, changes in case law
and the passage of new legislation. We believe that we have established adequate
reserves to cover any current tax assessments.

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During the year 2018, we made an election to change the tax status of most of
our controlled foreign corporations ("CFC") to disregarded entities for U.S.
income tax purposes. As a result, we no longer have undistributed earnings in
connection with these CFCs. The Transition Tax resulted in previously taxed
income ("PTI") which may be subject to withholding taxes and currency gains or
losses upon repatriation. We periodically evaluate opportunities to repatriate
PTI held by our foreign subsidiaries to fund our operations in the United States
and other geographies, and as and when we decide to repatriate such PTI, we may
have to accrue additional taxes which will be recorded in accordance with local
tax laws, rules and regulations in the relevant foreign jurisdictions. See Note
21 - Income Taxes to our consolidated financial statements contained herein.

We employ a two-step process for recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by
determining, based on the technical merits, that the position will, more likely
than not, be sustained upon examination. The second step is to measure the tax
benefit as the largest amount of the tax benefit that is more likely than not to
be realized upon settlement.

Employee Benefits


We record contributions to defined contribution plans in our consolidated
statements of income in the period in which services are rendered by the covered
employees. Current service costs for defined benefit plans are recognized in the
period to which they relate. The liability in respect of defined benefit plans
is calculated annually by using the projected unit credit method and various
actuarial assumptions including discount rates, mortality, expected return on
assets, expected increase in the compensation rates and attrition rates. We
evaluate these critical assumptions at least annually. If actual results differ
significantly from our estimates, current service costs for defined benefit
plans and our results of operations could be materially impacted.

We include the service cost component of the net periodic benefit cost in the
same line item or items as other compensation costs arising from services
rendered by the respective employees during the period. The interest cost,
expected return on plan assets and amortization of actuarial gains/loss, are
included in "Other income, net." See Note 19 - Employee Benefit Plans to our
consolidated financial statements for details.

We recognize the liabilities for compensated absences dependent on whether the
obligation is attributable to employee services already rendered, relates to
rights that vest or accumulate and payment is probable and estimable.

Leases


We account for a lease at the inception of the contract. Our assessment is based
on whether: (1) the contract involves the use of a distinct identified asset,
(2) we obtain the right to substantially all the economic benefits from the use
of the asset throughout the term of the contract, and (3) we have the right to
direct the use of the asset. A lease is classified as a finance lease if any one
of the following criteria are met: (1) the lease transfers ownership of the
asset by the end of the lease term, (2) the lease contains an option to purchase
the asset that is reasonably certain to be exercised, (3) the lease term is for
a major part of the remaining useful life of the asset or (4) the present value
of the lease payments equals or exceeds substantially all of the fair value of
the asset. Operating leases are recorded in "Operating lease right-of-use
assets," "Current portion of operating lease liabilities" and "Operating lease
liabilities, less current portion" in our consolidated balance sheets. Finance
leases are recorded in "Property and equipment, net," and the current and
non-current portion of finance lease liabilities are presented within "Accrued
expenses and other current liabilities" and "Other non-current liabilities,"
respectively in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset during the lease term
and lease liabilities represent our obligation to make lease payments arising
from the lease arrangement. Operating lease ROU assets and liabilities are
recognized at commencement date based on the present value of lease payments
over the lease term. For leases in which the rate implicit in the lease is not
readily determinable, we use our incremental borrowing rate at commencement date
by adjusting the benchmark reference rates, applicable to the respective
geographies where the leases are entered, with appropriate financing spreads and
lease specific adjustments for the effects of collateral.

Lease terms includes our assessment for the effects of options to extend or
terminate the lease. We consider the extension option as part of our lease term
for those lease arrangements where we are reasonably certain that we will
exercise that option. Lease expense for operating lease arrangements is
recognized on a straight-line basis over the lease term. We have lease
agreements with lease and non-lease components, which are accounted for
separately.


We account for lease-related concessions to mitigate the economic effects of
COVID-19 on lessees in accordance with guidance in Topic 842, Leases, to
determine, on a lease-by-lease basis, whether the concession provided by lessor
should be accounted for as a lease modification.

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We account for a modification as a separate contract when it grants an
additional right of use not included in the original lease and the increase is
commensurate with the standalone price for the additional right of use, adjusted
for the circumstances of the particular contract. Modifications which are not
accounted for as a separate contract are reassessed as of the effective date of
the modification based on its modified terms and conditions and the facts and
circumstances as of that date. The lease liability is remeasured to reflect
changes to the remaining lease payments and discount rates and we recognize the
amount of the remeasurement of the lease liability as an adjustment to the ROU
assets. However, if the carrying amount of the ROU assets is reduced to zero as
a result of modification, any remaining amount of the remeasurement is
recognized as an expense in our consolidated statements of income.

Contingencies


Loss contingencies are recorded as liabilities when a loss is considered
probable and the amount can be reasonably estimated. When a material loss
contingency is reasonably possible but not probable, we do not record a
liability, but instead disclose the nature and the amount of the claim, and an
estimate of the loss or range of loss, if such an estimate can be made.
Significant judgment is required in the determination of probability and whether
an exposure is reasonably estimable, both. Our judgments are subjective and
based on the information available from the status of the legal or regulatory
proceedings, the merits of our defenses and consultation with in-house and
outside legal counsel. As additional information becomes available, we reassess
any potential liability related to any pending litigation and may revise our
estimates. Such revisions in estimates of any potential liabilities could have a
material impact on our results of operations, financial position and cash flows.


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Results of Operations


For a discussion of our results of operations for the year ended December 31,
2019, including a year-to-year comparison between 2020 and 2019, refer to Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K for the year ended
December 31, 2020.

The following table summarizes our results of operations for the years ended
December 31, 2021, 2020 and 2019:

                                                                         Year ended December 31,
                                                                2021               2020               2019
                                                                          (dollars in millions)
Revenues, net                                               $ 1,122.3          $   958.4          $   991.3
Cost of revenues(1)                                             690.9              623.9              655.5
Gross profit(1)                                                 431.4              334.5              335.8
Operating expenses:
General and administrative expenses                             142.1              113.9              126.9
Selling and marketing expenses                                   84.3               60.1               71.8
Depreciation and amortization expense                            49.1               50.5               52.0
Impairment and restructuring charges                                -                  -                8.7
Total operating expenses                                        275.5              224.5              259.4
Income from operations                                          155.9              110.0               76.4
Foreign exchange gain, net                                        4.3                4.4                3.8
Interest expense                                                 (7.6)             (11.2)             (13.6)
Other income, net                                                 6.8               12.1               16.5
Loss on settlement of convertible notes                         (12.8)                 -                  -

Income before income tax expense and earnings from equity
affiliates

                                                      146.6              115.3               83.1
Income tax expense                                               31.9               25.6               15.2
Income before earnings from equity affiliates                   114.7               89.7               67.9
Loss from equity-method investment                                  -               (0.2)              (0.3)

Net income attributable to ExlService Holdings, Inc.
stockholders

                                                $   114.7       

$ 89.5 $ 67.6

(1) Exclusive of depreciation and amortization expense.


Due to rounding, the numbers presented in the tables included in this Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" may not add up precisely to the totals provided.


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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Revenues.

The following table summarizes our revenues by reportable segments for the years
ended December 31, 2021 and 2020:

                            Year ended December 31,                         Percentage
                               2021                2020        Change         change
                             (dollars in millions)
Insurance             $        382.0             $ 341.8      $  40.2           11.8  %
Healthcare                     112.4               101.2         11.2           10.9  %
Emerging Business              167.2               152.7         14.5            9.5  %
Analytics                      460.7               362.7         98.0           27.0  %
Total revenues, net   $      1,122.3             $ 958.4      $ 163.9           17.1  %


Revenues for the year ended December 31, 2021 were $1,122.3 million, up $163.9
million
, or 17.1%, compared to the year ended December 31, 2020.


Revenue growth in Insurance of $40.2 million was primarily driven by expansion
of business from our new and existing clients of $37.7 million and an increase
in revenues of $2.5 million that was mainly attributable to the appreciation of
the Australian dollar, the U.K. pound sterling and the South African ZAR against
the U.S. dollar during the year ended December 31, 2021, compared to the year
ended December 31, 2020. Insurance revenues were 34.0% and 35.7% of our total
revenues during the years ended December 31, 2021 and 2020, respectively.

Revenue growth in Healthcare of $11.2 million was primarily driven by expansion
of business from our new and existing clients of $11.2 million during the year
ended December 31, 2021. Healthcare revenues were 10.0% and 10.6% of our total
revenues during the years ended December 31, 2021 and 2020, respectively.

Revenue growth in Emerging Business of $14.5 million was primarily driven by
expansion of business from our new clients and existing clients of $13.9 million
and an increase in revenues of $0.6 million that was mainly attributable to the
appreciation of the U.K. pound sterling and the Indian rupee against the U.S.
dollar during the year ended December 31, 2021, compared to the year ended
December 31, 2020. Emerging Business revenues were 14.9% and 15.9% of our total
revenues during the years ended December 31, 2021 and 2020, respectively.

Revenue growth in Analytics of $98.0 million was attributable to the higher
volumes in our annuity and project based engagements from our new and existing
clients of $95.8 million, including contribution from our acquisition of
Clairvoyant in December 2021 and an increase in revenues of $2.2 million mainly
attributable to the appreciation of the U.K. pound sterling and the South
African ZAR against the U.S. dollar during the year ended December 31, 2021,
compared to the year ended December 31, 2020. Analytics revenues were 41.0% and
37.8% of our total revenues during the years ended December 31, 2021 and 2020,
respectively.



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Cost of Revenues and Gross Margin: The following table sets forth cost of
revenues and gross margin of our reportable segments.

                                                                         Cost of Revenues                                                                            Gross Margin
                                                 Year ended December 31,                                    Percentage                               Year ended December 31,
                                                 2021                    2020            Change               change                                2021                              2020                Change
                                                  (dollars in millions)
Insurance                               $      239.5                  $  231.9          $  7.6                       3.3  %                                        37.3  %               32.2  %              5.1  %
Healthcare                                      69.8                      73.1            (3.3)                     (4.6) %                                        37.9  %               27.8  %             10.1  %
Emerging Business                               91.7                      89.5             2.2                       2.5  %                                        45.1  %               41.4  %              3.7  %
Analytics                                      289.9                     229.4            60.5                      26.3  %                                        37.1  %               36.7  %              0.4  %
Total                                   $      690.9                  $  623.9          $ 67.0                      10.7  %                                        38.4  %               34.9  %              3.5  %



For the year ended December 31, 2021, cost of revenues was $690.9 million
compared to $623.9 million for the year ended December 31, 2020, an increase of
$67.0 million, or 10.7%. Our gross margin for the year ended December 31, 2021
was 38.4% compared to 34.9% for year ended December 31, 2020, an increase of 350
("bps") primarily driven by higher revenues, operational efficiencies and lower
COVID-19 related expenses during the year ended December 31, 2021, compared to
the year ended December 31, 2020.

The increase in cost of revenues in Insurance of $7.6 million for the year ended
December 31, 2021 was primarily due to increases in employee-related costs of
$14.2 million on account of higher headcount and wage inflation, higher annual
performance incentives and higher technology costs of $0.7 million on account of
increased leverage of remote work model, partially offset by lower travel costs
of $6.1 million, lower other operating costs of $0.3 million and foreign
exchange gain, net of hedging of $0.9 million. Gross margin in Insurance
increased by 510 bps during the year ended December 31, 2021, compared to the
year ended December 31, 2020, primarily due to higher revenues, expansion in
margin in certain existing clients, operational efficiencies and lower COVID-19
related expenses during the year ended December 31, 2021, compared to the year
ended December 31, 2020.

The decrease in cost of revenues in Healthcare of $3.3 million for the year
ended December 31, 2021 was primarily due to improved employee utilization in
existing clients, resulting in lower employee-related costs of $2.9 million, and
lower travel costs of $0.8 million, partially offset by higher facility costs of
$0.4 million. Gross margin in Healthcare increased by 1,010 bps during the year
ended December 31, 2021, compared to the year ended December 31, 2020, primarily
due to higher revenues, expansion in margin in certain existing clients,
operational efficiencies and lower COVID-19 related expenses during the year
ended December 31, 2021, compared to the year ended December 31, 2020.

The increase in cost of revenues in Emerging Business of $2.2 million for the
year ended December 31, 2021 was primarily due to increases in employee-related
costs of $2.8 million on account of higher headcount and wage inflation, higher
annual performance incentives, higher technology costs of $1.1 million on
account of increased leverage of remote work model, partially offset by lower
travel costs of $0.3 million, lower facility costs of $0.3 million, lower other
operating costs of $0.3 million and foreign exchange gain, net of hedging $0.8
million. Gross margin in Emerging Business increased by 370 bps during the year
ended December 31, 2021, compared to the year ended December 31, 2020, primarily
due to higher revenues, operational efficiencies and lower COVID-19 related
expenses during the year ended December 31, 2021, compared to the year ended
December 31, 2020.

The increase in cost of revenues in Analytics of $60.5 million for the year
ended December 31, 2021 was primarily due to increases in employee-related costs
of $50.4 million on account of higher headcount and wage inflation, higher
annual performance incentives including incremental cost related to our
acquisition of Clairvoyant in December 2021. The remaining increase was
attributable to higher other operating costs of $13.8 million. This was
partially offset by lower travel costs of $1.4 million, lower facility costs of
$1.0 million on account of remote work model and foreign exchange gain, net of
hedging of $1.3 million. Gross margin in Analytics increased by 40 bps during
the year ended December 31, 2021, compared to the year ended December 31, 2020,
primarily due to higher revenues and operational efficiencies compared to the
year ended December 31, 2020.


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Selling, General and Administrative (“SG&A”) Expenses.

                                                          Year ended December 31,                                        Percentage
                                                       2021                       2020              Change                 change
                                                           (dollars in millions)
General and administrative expenses               $     142.1                 $   113.9          $    28.2                       24.7  %
Selling and marketing expenses                           84.3                      60.1               24.2                       40.2  %
Selling, general and administrative expenses      $     226.4                 $   174.0          $    52.4                       30.1  %
As a percentage of revenues                              20.2   %                  18.2  %



The increase in SG&A expenses of $52.4 million was primarily due to higher
employee-related costs of $44.8 million on account of higher headcount and wage
inflation, higher annual performance incentives, higher other operating costs of
$6.0 million, COVID-19 related expenses of $3.1 million primarily related to
financial support to family members of deceased employees, increase in
technology cost of $2.4 million on account of continued investments, product
development, digital technology, advanced automation, robotics, cloud,
artificial intelligence, machine learning and acquisition-related cost of $0.8
million on account of our acquisition of Clairvoyant in December 2021, partially
offset by lower facilities costs of $4.7 million due to optimization of office
space.

Depreciation and Amortization.

                                                     Year ended December 31,
                                                     2021                 2020              Change           Percentage change
                                                      (dollars in millions)
Depreciation expense                            $      36.3           $    36.1          $     0.2                        0.6  %
Intangible amortization expense                        12.8                14.4               (1.6)                     (11.1) %
Depreciation and amortization expense           $      49.1           $    50.5          $    (1.4)                      (2.8) %
As a percentage of revenues                             4.4   %             

5.3 %




The decrease in intangibles amortization expense of $1.6 million was primarily
due to end of useful lives for certain intangible assets during the year ended
December 31, 2021, compared to the year ended December 31, 2020. The increase in
depreciation expense of $0.2 million was primarily due to depreciation related
to our investments in new operating centers, internally developed software and
accelerated depreciation resulting from a reduction in useful lives related to
certain operating centers due to the impact of COVID-19 aggregating to $0.7
million, partially offset by foreign exchange gain, net of hedging $0.5 million,
during the year ended December 31, 2021, compared to the year ended December 31,
2020.

Income from Operations. Income from operations increased by $45.9 million, or
41.7%, from $110.0 million for the year ended December 31, 2020 to $155.9
million for the year ended December 31, 2021, primarily due to higher revenues,
partially offset by higher cost of revenues and higher SG&A expenses during the
year ended December 31, 2021. As a percentage of revenues, income from
operations increased from 11.5% for the year ended December 31, 2020 to 13.9%
for the year ended December 31, 2021.
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Foreign Exchange Gains and Losses. Foreign exchange gains and losses are
primarily attributable to the movement of the U.S. dollar against the Indian
rupee, the U.K. pound sterling, the Philippine peso and the South African ZAR
during the year ended December 31, 2021. The average exchange rate of the U.S.
dollar against the Indian rupee decreased from 74.07 during the year ended
December 31, 2020 to 73.88 during the year ended December 31, 2021. The average
exchange rate of the U.K. pound sterling against the U.S. dollar increased from
1.29 during the year ended December 31, 2020 to 1.38 during the year ended
December 31, 2021. The average exchange rate of the U.S. dollar against the
Philippine peso decreased from 49.49 during the year ended December 31, 2020 to
49.36 during the year ended December 31, 2021. The average exchange rate of the
U.S. dollar against the South African ZAR decreased from 16.51 during the year
ended December 31, 2020 to 14.92 during the year ended December 31, 2021.

We recorded a net foreign exchange gain of $4.3 million for the year ended
December 31, 2021 compared to a net foreign exchange gain of $4.4 million for
the year ended December 31, 2020.


Interest expense. Interest expense decreased from $11.2 million for the year
ended December 31, 2020 to $7.6 million for the year ended December 31, 2021
primarily due to settlement of outstanding obligations under the Notes (as
defined below under "Financing Arrangements (Debt Facility and
Notes)-Convertible Senior Notes") on August 27, 2021, and lower effective
interest rates of 1.7% under our Credit Facility during the year ended
December 31, 2021, compared to 2.3% during the year ended December 31, 2020.

Other Income, net.

                                                             Year ended December 31,                                          Percentage
                                                             2021                      2020              Change                 change
                                                              (dollars in millions)
Gain on sale and mark-to-market of mutual funds
and money market funds                            $        4.9                     $     9.6          $    (4.7)                     (49.1) %
Interest and dividend income                               2.7                           2.5                0.2                        9.0  %
Others, net                                               (0.8)                            -               (0.8)                    (100.0) %
Other income, net                                 $        6.8                     $    12.1          $    (5.3)                     (43.9) %



Other income, net decreased by $5.3 million, from $12.1 million for the year
ended December 31, 2020 to $6.8 million for the year ended December 31, 2021,
primarily due to lower amount invested in mutual funds and lower returns on such
investments of $4.7 million during the year ended December 31, 2021, compared to
the year ended December 31, 2020.

Loss on settlement of Notes. On August 27, 2021, we settled our outstanding
obligations under the Notes and recognized a loss of $12.8 million during the
year ended December 31, 2021. See Note 17 – Borrowings to our consolidated
financial statements.


Income Tax Expense. The effective tax rate decreased from 22.2% during the year
ended December 31, 2020 to 21.7% during the year ended December 31, 2021. We
recorded income tax expense of $31.9 million and $25.6 million for the years
ended December 31, 2021 and 2020, respectively. The increase in the income tax
expense was primarily a result of higher profit during the year ended
December 31, 2021, compared to the year ended December 31, 2020, increase in
state taxes and increase in non-deductible expenses during the year ended
December 31, 2021, partially offset by (i) the recording of higher excess tax
benefits related to stock awards of $3.7 million pursuant to ASU No. 2016-09
during the year ended December 31, 2021, compared to $2.4 million during the
year ended December 31, 2020, and (ii) the recording of a one-time deferred tax
benefit of $2.4 million on settlement of the Notes during the during the year
ended December 31, 2021.

Net Income. Net income increased from $89.5 million for the year ended
December 31, 2020 to $114.7 million for the year ended December 31, 2021,
primarily due to increase in income from operations of $45.9 million, lower
interest expense of $3.6 million, partially offset by loss on settlement of the
Notes of $12.8 million, lower other income, net of $5.2 million and higher
income tax expense of $6.3 million. As a percentage of revenues, net income
increased from 9.3% during the year ended December 31, 2020 to 10.2% during the
year ended December 31, 2021.




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Liquidity and Capital Resources

                                                            Year ended December 31,
                                                        2021          2020         2019
                                                             (dollars in millions)

Opening cash, cash equivalents and restricted cash $ 225.5 $ 127.0

      $ 104.1
Net cash provided by operating activities                184.4        203.0 

168.4

Net cash used for investing activities                  (114.3)       (18.3)       (51.4)
Net cash used for financing activities                  (146.9)       (89.6)       (93.1)
Effect of exchange rate changes                           (4.9)         3.4 

(1.0)

Closing cash, cash equivalents and restricted cash $ 143.8 $ 225.5

$ 127.0




As of December 31, 2021 and 2020, we had $313.9 million and $402.8 million,
respectively, in cash, cash equivalents and short-term investments, of which
$277.4 million and $335.1 million, respectively, is located in foreign
jurisdictions that upon distribution may be subject to withholding and other
taxes. We periodically evaluate opportunities to distribute cash among our group
entities to fund our operations in the United States and other geographies, and
as and when we decide to distribute, we may have to accrue additional taxes in
accordance with local tax laws, rules and regulations in the relevant foreign
jurisdictions. During the year ended December 31, 2021, we repatriated to the
United States $66.0 million (net of $3.5 million withholding taxes) from India
and $42.5 million (net of $7.5 million withholding taxes) from the Philippines.
These distributions do not constitute a change in our permanent reinvestment
assertion. We base our decision to continue to indefinitely reinvest earnings in
India and the Philippines on our estimate of the working capital required to
support our operations in these geographies and periodically review our capital
initiatives to support and expand our global operations, as well as whether
there exits an economically viable rate of return on our investments made in
India and the Philippines as compared to those made in the United States.

Operating Activities:


Net cash provided by operating activities was $184.4 million for the year ended
December 31, 2021, compared to $203.0 million for the year ended December 31,
2020, reflecting higher working capital needs, offset by higher cash earnings.
The major drivers contributing to the decrease of $18.6 million year-over-year
included the following:

•Changes in accounts receivable, including unbilled receivable and advance
billings, contributed to a lower cash flow of $91.2 million in 2021 compared to
2020. The decrease was a result of the higher accounts receivable resulting from
revenue growth. Lower cash flows were also affected by our accounts receivable
days sales outstanding, which increased to 56 days as of December 31, 2021 from
53 days as of December 31, 2020.

•Increase in net income of $25.2 million in 2021 compared to 2020, primarily due
to an increase in income from operations of $45.9 million driven by higher
revenues, lower interest expense of $3.6 million, partially offset by loss on
settlement of the Notes of $12.8 million, lower other income, net of $5.2
million, and higher income tax expense of $6.3 million.

•Increase in accrued employee costs, accrued expenses and other liabilities
contributed to a higher cash flow of $76.7 million in 2021 compared to 2020. The
increase was primarily due to higher annual performance incentives and other
employee costs accruals of $54.3 million and higher accrued expenses due to an
increase in our cost base to support revenue growth of $22.4 million.

•Other drivers decreasing cash flows in 2021 compared to 2020 included: income
tax payments, net of refunds, of $29.3 million, primarily due to higher advance
income tax payments on higher net income.


Investing Activities: Cash flows used for investing activities were
$114.3 million for the year ended December 31, 2021 as compared to cash flows
used for investing activities of $18.3 million for the year ended December 31,
2020. The increase of $96.0 million was primarily due to an increase in cash
used for a business acquisition of $76.8 million, net of cash and cash
equivalents acquired, during the year ended December 31, 2021, net purchase of
investments of $1.5 million during the year ended December 31, 2021 as compared
to net redemption of investments of $23.7 million during the year ended
December 31, 2020. This was partially offset by lower capital expenditures for
purchase of long-lived assets, including investments in infrastructure,
technology assets, software and product developments of $5.3 million during the
year ended December 31, 2021 compared to the year ended December 31, 2020, and
acquisition of an additional stake in our equity affiliate of $0.7 million
during the year ended December 31, 2020.
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Financing Activities: Cash flows used for financing activities were
$146.9 million during the year ended December 31, 2021 as compared to cash flows
used for financing activities of $89.6 million during the year ended
December 31, 2020. The increase in cash flows used for financing activities was
primarily due to net repayment of $29.0 million under our revolving Credit
Facility and the Notes during the year ended December 31, 2021 as compared to
net repayments of $10.9 million during the year ended December 31, 2020, higher
purchases of treasury stock by $38.4 million under our share repurchase program
and lower proceeds from the exercise of stock options by $0.8 million during the
year ended December 31, 2021 as compared to the year ended December 31, 2020.

We expect to use cash from operating activities to maintain and expand our
business by making investments, primarily related to new facilities and capital
expenditures associated with leasehold improvements to build our facilities,
digital capabilities and purchase telecommunications equipment and computer
hardware and software in connection with managing client operations.

We incurred $37.2 million of capital expenditures during the year ended
December 31, 2021. We expect to incur total capital expenditures of between $40
million
to $45 million in 2022, primarily to meet our growth requirements,
including additions to our facilities as well as investments in technology
applications, product development, digital technology, advanced automation,
robotics and infrastructure.


In connection with any tax assessment orders that have been issued or may be
issued against us or our subsidiaries, we may be required to deposit additional
amounts with respect to such assessment orders (see Note 25 - Commitments and
Contingencies to our consolidated financial statements herein for further
details). We anticipate that we will continue to rely upon cash from operating
activities to finance our working capital needs, capital expenditures and
smaller acquisitions. If we have significant growth through acquisitions, we may
need to obtain additional financing.

We believe that our existing cash, cash equivalents and short-term investments
and sources of liquidity will be sufficient to satisfy our cash requirements
over the next 12 months. Our future cash requirements will depend on many
factors, including our rate of revenue growth, our investments in strategic
initiatives, applications or technologies, operation centers and acquisition of
complementary businesses, continued purchases under our board-authorized stock
repurchase program, which may require the use of significant cash resources
and/or additional financing. We anticipate that we will continue to rely upon
cash from operating activities to finance most of our above mentioned
requirements, while if we have significant growth through acquisitions, we may
need to obtain additional financing.

In the normal course of business, we enter into contracts and commitments that
obligate us to make payments in the future. These obligations include
borrowings, including interest obligations, purchase commitments, operating and
finance lease commitments, employee benefit payments under Gratuity plans and
uncertain tax positions. See Note 17- Borrowings, Note 19- Employee Benefit
Plans, Note 20- Leases, Note 21- Income Taxes and Note 25- Commitments and
Contingencies to our consolidated financial statements herein for further
information on material cash requirements from known contractual and other
obligations.
In the ordinary course of business, we provide standby letters of credit to
third parties primarily for facility leases. As of December 31, 2021 and 2020,
we had outstanding letters of credit of $0.5 million, each, that were not
recognized in our consolidated balance sheets. These are not reasonably likely
to have, a current or future material effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources. We had no other off-balance sheet arrangements or
obligations. We had no other off-balance sheet arrangements or obligations.

The Coronavirus Aid, Relief, and Economic Security Act, (the "CARES Act") allows
employers to defer the payment of the employer share of Federal Insurance
Contributions Act ("FICA") taxes for the period from April 1, 2020 and ending
December 31, 2020. The deferred amount is payable as follows: (1) 50% of the
deferred amount was paid on or before December 31, 2021 and (2) the remaining
50% of the deferred amount will be paid on or before December 31, 2022. As of
December 31, 2021 and 2020, we deferred our contributions, net of payments to
FICA of $3.1 million and $6.3 million, respectively, under the CARES Act. The
deferred amount as of December 31, 2021 will be paid on or before December 31,
2022.

Financing Arrangements (Debt Facility and Notes)

The following tables summarizes our Debt balances as of December 31, 2021 and
2020.

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                                              As of December 31, 2021                            As of December 31, 2020
                                                (dollars in millions)                              (dollars in millions)
                                         Revolving Credit           Total          Revolving Credit          Notes             Total
                                             Facility                                  Facility
Current portion of long-term                                                                                                $   25.0
borrowings                              $         260.0          $  260.0          $        25.0          $      -

Long-term borrowings                    $             -          $      -          $        64.0          $  150.0          $  214.0
Unamortized debt discount                             -                 -                      -             (11.2)            (11.2)
Unamortized debt issuance costs*                      -                 -                      -              (0.8)             (0.8)
Long-term borrowings                    $             -          $      -          $        64.0          $  138.0          $  202.0
Total borrowings                        $         260.0          $  260.0          $        89.0          $  138.0          $  227.0

*Unamortized debt issuance costs for our revolving Credit Facility of $0.2
million
and $0.5 million as of December 31, 2021 and December 31, 2020,
respectively, are presented under “Other current assets” and “Other assets,” as
applicable in our consolidated balance sheets.

Credit Agreement


On November 21, 2017, we and each of our wholly owned material domestic
subsidiaries entered into a Credit Agreement with certain lenders, and Citibank,
N.A. as Administrative Agent (the "Credit Agreement"). The Credit Agreement
provides for a $200.0 million revolving credit facility (the "Credit Facility")
with an option to increase the commitments by up to $100.0 million, subject to
certain approvals and conditions as set forth in the Credit Agreement. The
Credit Agreement also includes a letter of credit sub facility. The Credit
Facility has a maturity date of November 21, 2022 and is voluntarily pre-payable
from time to time without premium or penalty. Borrowings under the Credit
Agreement may be used for working capital and general corporate purposes,
including permitted acquisitions. On July 2, 2018, we exercised our option under
the Credit Agreement to increase the commitments by $100.0 million, thereby
utilizing the entire revolver under the Credit Facility of $300.0 million to
fund our July 2018 acquisition of SCIOinspire Holdings, Inc.

Depending on the type of borrowing, loans under the Credit Agreement bear
interest at a rate equal to the specified prime rate (alternate base rate) or
adjusted LIBO rate, plus, in each case, an applicable margin. The applicable
margin is tied to our total net leverage ratio and ranges from 0% to 0.75% per
annum with respect to loans pegged to the specified prime rate, and 1.00% to
1.75% per annum on loans pegged to the adjusted LIBO rate. The revolving credit
commitments under the Credit Agreement are subject to a commitment fee which is
also tied to our total net leverage ratio, and ranges from 0.15% to 0.30% per
annum on the average daily amount by which the aggregate revolving commitments
exceed the sum of outstanding revolving loans and letter of credit obligations.

The revolving Credit Facility carried an effective interest rate as shown
below:-

                                    Year ended December 31,
                                        2021               2020
Effective interest rate                         1.7  %     2.3  %


Obligations under the Credit Agreement are guaranteed by our material domestic
subsidiaries and are secured by all or substantially all of our assets and that
of our material domestic subsidiaries. The Credit Agreement contains customary
affirmative and negative covenants, including, but not limited to, restrictions
on the ability to incur indebtedness, create liens, make certain investments,
make certain dividends and related distributions, enter into, or undertake,
certain liquidations, mergers, consolidations or acquisitions and dispose of
assets or subsidiaries. In addition, the Credit Agreement contains a covenant to
not permit the interest coverage ratio or the total net leverage ratio, both as
defined for the four consecutive quarter period ending on the last day of each
fiscal quarter, to be less than 3.5 to 1.0 or more than 3.0 to 1.0,
respectively. As of December 31, 2021, we were in compliance with all financial
and non-financial covenants listed under the Credit Agreement.

We entered into a second amendment (the "Amendment") to our Credit Agreement, as
amended, among the Company, as borrower, with certain lenders, and Citibank,
N.A. as Administrative Agent to, among other things, permit the issuance by the
Company of the Notes, and settlement upon maturity or conversion thereof, in
accordance with the Investment Agreement, the indenture dated as of October 4,
2018 and the other documents entered into in connection therewith.

Convertible Senior Notes


On October 1, 2018, we entered into an investment agreement (the "Investment
Agreement") with Orogen Echo LLC (the "Purchaser"), an affiliate of The Orogen
Group LLC, relating to the issuance to the Purchaser of $150.0 million, in an
aggregate

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principal amount of 3.5% per annum Convertible Senior Notes due October 1, 2024
(the "Notes"). The Notes were issued on October 4, 2018. The Notes carried
interest at a rate of 3.5% per annum, payable semi-annually in arrears in cash
on April 1 and October 1 of each year. The Notes were convertible at an initial
conversion rate of 13.3333 shares of the common stock per one thousand dollar
principal amount of the Notes (which represents an initial conversion price of
approximately $75 per share). We had the option to redeem the principal amount
of the Notes, at our option, in whole but not in part, at a purchase price equal
to the principal amount plus accrued and unpaid interest on or after October 1,
2021, if the closing sale price of our common stock exceeded 150% of the
then-current conversion price for 20 or more trading days in the 30 consecutive
trading day period preceding our exercise of this redemption right (including
the trading day immediately prior to the date of the notice of redemption).We
had the option elect to settle conversions of the Notes by paying or delivering,
as the case may be, cash, shares of our common stock or a combination of cash
and shares of our common stock.

On August 27, 2021, we entered into a Payoff and Termination Agreement (the
"Payoff and Termination Agreement") with the Purchaser, pursuant to which we
prepaid and settled our outstanding obligations under the Notes for an aggregate
consideration of $236.7 million, excluding accrued and unpaid interest under the
Notes calculated through and including, August 26, 2021, in the form of a
combination of cash and shares of our common stock. As a result, we made a cash
payment of $200.0 million to the Purchaser and satisfied the remainder of the
obligation under the Notes by issuing to the Purchaser 310,394 shares of our
common stock calculated at $118.37 per share based on a 20-day volume weighted
average price ending on, and including, August 26, 2021. We satisfied the cash
payment obligation under the Payoff and Termination Agreement by drawing
$200.0 million from our existing revolving Credit Facility, and our common stock
was issued from our existing treasury shares. In addition, except as set forth
in the Payoff and Termination Agreement, the Investment Agreement was also
terminated. See Note 17 - Borrowings and Note 18 - Capital Structure to our
consolidated financial statements herein for further details.

During the years ended December 31, 2021 and 2020, we recognized interest
expense and amortization of debt discount, on the Notes as below:


                                                     Year ended December 

31,

                                                         2021               

2020

Interest expense on the Notes                $         3.4                   $ 5.3
Amortization of debt discount on the Notes   $         1.8                  

$ 2.6

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, see Note 2 – Summary of
Significant Accounting Policies – Recent Accounting Pronouncements to our
consolidated financial statements contained herein.

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