UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20212022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 001-40903
001-40903HEALTHCARE TRIANGLE, INC.
(Exact name of registrant as specified in its charter)
Delaware | 84-3559776 | |
(State or other jurisdiction of | incorporation or organization) | (I.R.S. Employer Identification No.) |
4309 Hacienda Dr., Suite 150
Pleasanton, CA94588
(Address of principal executive offices)
(925)270-4812
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Yes ☐ No☒ NOTE ABOUT FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, including the sections titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors," contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, involving substantial risks and uncertainties. The words "believe," "may," "will," "potentially," "plan," "could," "should," "predict," "ongoing," "estimate," "continue," "anticipate," "intend," "project," "expect," "seek," or the negative of these words, or terms or similar expressions conveying uncertainty of future events or outcomes, or that concern our expectations, strategy, plans or intentions, are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated, or expected. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements discussed under the heading "Risk Factors" and in our publicly available filings and press releases. These statements include, among other things, those regarding: We operate in very competitive and rapidly-changing environments, and new risks emerge from time-to-time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our 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 we may make. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report may not occur, and actual results could differ materially and adversely from those implied in our forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in our forward looking statements are reasonable, we cannot guarantee the future results, levels of activity, performance or events and circumstances described in the forward looking statements will be achieved or occur. Neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward looking statements. We undertake no obligation to publicly update any forward-looking statements for any reason after the date of this report to conform such statements to actual results or to changes in our expectations, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless expressly indicated or the context suggests otherwise, references to "Healthcare Triangle," "company," "we," "us" and "our" refer to Healthcare Triangle Inc. and its consolidated subsidiary. PART I FINANCIAL INFORMATION Item 1. Financial statements HEALTHCARE TRIANGLE, (In thousands, except share and per share data) HEALTHCARE TRIANGLE, HEALTHCARE TRIANGLE, INC. (In thousands) 1) Organization and Description of Business Healthcare Triangle Inc. (“the Company”) was incorporated under the laws of the State of Nevada on October 29, 2019, and then converted into a Delaware corporation on April 24, 2020, to provide IT and data services to the Healthcare and Life Sciences (‘HCLS”) industry. On January 1, 2020, the Company acquired the Life Sciences Business of SecureKloud Technologies Inc. As an organization with the deep-rooted cloud expertise, Devcool Inc Devcool Inc (“the Company”) was Impact of the COVID-19 Pandemic experienced growth. Because of COVID-19, Healthcare and Life Sciences organizations are accelerating research, rethinking patient care, and maintaining clinical and operational continuity during this unprecedented time for the global health system. COVID-19 has necessitated the adoption of digital communication channels and remote working technology within the Healthcare and Life Sciences industry at a rapid 2) Summary of Significant Accounting Policies Basis of consolidated financial statements The accompanying statements of operations include expenses for certain functions historically performed by the Parent Unaudited Interim Financial Information The Accounting Policies Use of Estimates The (Registrant's7901 Stoneridge Drive, Suite 220Pleasanton, CA 94588 (Address of principal executive officer) (Zip Code) (925)270-4812 (Registrant’s telephone number, including area code) Title of each class Ticker Symbol(s) Name of each exchange on which registered Common Stock, $0.00001 par value HCTI The Nasdaq Stock Market LLC ☐ No ☒ No ☐ company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated filer"filer”, "smaller“accelerated filer”, “smaller reporting company"company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated Filerfiler ☒☐Smaller reporting company ☒ Emerging Growth Companygrowth company ☒ Exchange Act):.Securities registered pursuant to Section 12(b)As of August 05, 2022, shares of the Act:registrant’s common stock, $0.00001 par value per share, were issued and outstanding.Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock, par value $0.00001 per shareHCTIThe Nasdaq Stock Market LLC1 1 Note About Forward-Looking Statements Page3PART I -– FINANCIAL INFORMATIONItem 1. Financial Statementsstatements34Unaudited Condensed Consolidated Balance Sheetssheets34Unaudited Condensed Consolidated Statements of Operations 45Unaudited Condensed Consolidated Statements of Stockholders' DeficitEquity56Unaudited Condensed Consolidated Statements of Cash Flows 67Notes to Unaudited Condensed Consolidated Financial Statements 78Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 2431Item 3. Quantitative and Qualitative Disclosures About Market Risk 4247Item 4. Controls and Procedures 4247PART II - OTHER INFORMATION Item 1. Legal Proceedings 4348Item 1A. Risk Factors 4348Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 4348Item 3. Defaults Upon Senior Securities 4348Item 4. Mine Safety Disclosures 4348Item 5. Other Information 4348Item 6. Exhibits 4349Signatures 4450 2 • our ability to continue to add new customers and increase sales to our existing customers; • our ability to develop new solutions and bring them to market in a timely manner; • our ability to timely and effectively scale and adapt our existing solutions; • our dependence on establishing and maintaining a strong brand; • the occurrence of service interruptions and security or privacy breaches and related remediation efforts and fines; • system failures or capacity constraints; • the rate of growth of, and anticipated trends and challenges in, our business and in the market for our products; • our future financial performance, including our expectations regarding our revenue, cost of revenue, operating expenses, including changes in technology and development, marketing and advertising, general and administrative and customer care expenses, and our ability to achieve and maintain future profitability; • our ability to continue to efficiently acquire customers, maintain our high customer retention rates and maintain the level of our customers' lifetime spend; • our ability to provide high quality customer care; • the effects of increased competition in our markets and our ability to compete effectively; • our ability to grow internationally; • the impact of fluctuations in foreign currency exchange rates on our business and our ability to effectively manage the exposure to such fluctuations; • our ability to effectively manage our growth and associated investments, including our migration of the vast majority of our infrastructure to the public cloud; • our ability to maintain our relationships with our partners; • adverse consequences of our substantial level of indebtedness and our ability to repay our debt; • our ability to maintain, protect and enhance our intellectual property; • our ability to maintain or improve our market share; • sufficiency of cash and cash equivalents to meet our needs for at least the next 12 months; • beliefs and objectives for future operations; • our ability to stay in compliance with laws and regulations currently applicable to, or which may become applicable to, our business both in the United States (U.S.) and internationally; • economic and industry trends or trend analysis; • our ability to attract and retain qualified employees and key personnel; • anticipated income tax rates, tax estimates and tax standards; • interest rate changes; • the future trading prices of our common stock; • our expectations regarding the outcome of any regulatory investigation or litigation; • the amount and timing of future repurchases of our common stock under any share repurchase program; • the potential impact of shareholder activism on our business and operations; • the length and severity of the coronavirus (COVID-19) pandemic and its impact on our business, customers and employees; as well as other statements regarding our future operations, financial condition, growth prospects and business strategies. 3 HEALTHCARE TRIANGLE INCConsolidated Balance SheetsHEALTHCARE TRIANGLE, INC. Condensed Consolidated Balance Sheets (In thousands, except share and per share data) September 30, December 31, June 30, December 31, 2021 2020 2022 2021 (Unaudited) (Audited) (Unaudited) (Audited) Assets Current assets Cash and cash equivalents $ 1,148,429 $ 1,402,700 $ 1,363 $ 1,770 Accounts receivable 5,909,429 6,396,150 6,547 9,672 Contract asset/ unbilled revenue 763,601 — Other current assets 691,364 228,848 668 362 Total current assets 8,512,823 8,027,698 8,578 11,804 Property and equipment, net 81 74 Operating lease right-of-use assets 86 172 Intangible assets, net 11,005 10,458 Goodwill 1,289 1,289 Due from affiliates 1,350 816 Total assets $ 22,389 $ 24,613 Property and equipment, net 51,809 15,786 Intangible assets, net 2,000,116 2,619,076 Due from affiliates 826,303 445,003 Total Assets $ 11,391,051 $ 11,107,563 Liabilities and Stockholders' Equity Liabilities and stockholders' equity Current liabilities Accounts payable $ 2,632,143 $ 4,349,638 $ 1,270 $ 1,873 Warrant Liability 55 55 Payroll protection program loan — 1,069 Short term borrowing 3,212 2,209 Operating lease liabilities 86 176 Other current liabilities 415,351 491,780 1,433 869 Convertible notes 1,952,672 754,400 Warrant liability 2,347,616 885,600 Payroll protection program loan 1,068,530 — Deferred revenue 266,975 297,775 Total current liabilities 8,683,287 6,779,193 6,056 6,251 Long-term liabilities Contingent Consideration 2,227 2,227 Total current and long-term liabilities 8,683,287 6,779,193 8,283 8,478 Stockholders' equity Preferred stock, par value $0.00001; authorized — — Common stock, par value $ ; authorized and shares issued and outstanding 300 279 6,000 shares of our Series A Super Voting Preferred Stock (which provide him with 1,000 votes per share as of September 30, 2021 and December 31, 2020 respectively 1 — Series A, Super Voting Preferred Stock - shares (1,000 votes per share) 0 0 Common stock, par value $ ; authorized and shares issued and outstanding as of June 30, 2022 and December 31, 2021 respectively 0 0 Additional paid-in capital 1,924,854 1,042,021 19,186 18,799 Retained earnings 782,609 3,286,070 (5,080 ) (2,664 ) Total stockholders' equity 2,707,764 4,328,370 14,106 16,135 Total liabilities and stockholders' equity $ 11,391,051 $ 11,107,563 $ 22,389 $ 24,613 The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 34 INCINC.UnauditedCondensed Consolidated Statements of IncomeOperations Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended
June 30, Six Months Ended
June 30, 2021 2020 2021 2020 2022 2021 2022 2021 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net revenue $ 8,078,348 $ 7,360,560 $ 26,080,914 $ 22,344,093 $ 11,588 $ 10,050 $ 22,644 $ 18,003 Cost of revenue (exclusive of depreciation and amortization shown separately below) 5,351,748 5,358,695 17,828,791 16,162,776 8,429 6,704 16,591 12,477 Operating expenses Research and development expenses 2,204,030 550,167 3,774,712 1,469,416 646 813 1,712 1,571 Sales and Marketing 1,328,399 476,650 2,801,188 1,103,486 1,651 805 3,391 1,473 General and Administrative 753,338 582,874 3,061,785 2,326,341 1,451 1,048 2,802 2,308 Depreciation and amortization 211,328 200,864 633,290 603,567 844 211 1,555 422 Net income before other income/(expenses) (1,770,495 ) 191,310 (2,018,852 ) 678,507 Other income/(expenses) Total operating expenses 4,592 2,878 9,460 5,774 Net Operating income / (loss) before other income / (expenses) (1,433 ) 469 (3,407 ) (248 ) Other income / (expenses) Other income (PPP loan forgiveness) — — — — 1,087 — 1,087 — Interest expense (220,634 ) (1,161 ) (479,849 ) (24,920 ) (58 ) (164 ) (74 ) (259 ) Total other income (220,634 ) (1,161 ) (479,849 ) (24,920 ) Total other income / (expenses) 1,029 (164 ) 1,013 (259 ) Net income (loss) before income tax expenses (1,991,129 ) 190,149 (2,498,701 ) 653,587 Net income / (loss) before income tax expenses (404 ) 305 (2,394 ) (507 ) Federal income tax — (35,938 ) — (123,796 ) — — — — State income tax (942 ) (15,402 ) (4,759 ) (52,808 ) (1 ) (1 ) (22 ) (4 ) Total income tax (expense) / benefit (942 ) (51,340 ) (4,759 ) (176,605 ) (1 ) (1 ) (22 ) (4 ) Net income (loss) $ (1,992,071 ) $ 138,809 $ (2,503,460 ) $ 476,983 Net income / (loss) $ (405 ) $ 304 $ (2,416 ) $ (511 ) Net income per common share—basic $ (0.069 ) $ 0.005 $ (0.087 ) $ 0.017 (0.01 ) 0.01 (0.07 ) (0.02 ) Net income per common share—diluted $ (0.069 ) $ 0.005 $ (0.087 ) $ 0.017 (0.01 ) 0.01 (0.07 ) (0.02 ) Weighted average shares outstanding used in per common share computations: Basic 28,839,889 27,900,000 28,839,889 27,900,000 35,484,290 29,579,405 35,484,290 29,579,405 Diluted 28,839,889 27,900,000 28,839,889 27,900,000 35,484,290 29,579,405 35,484,290 29,579,405 The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 45 INCINC.Unaudited Consolidated Statements of Changes in Stockholders' Equity (In thousands, except shares) Shares Amount Additional paid-in capital Retained Earnings Total stockholders’ equity Three Months Ended September 30, 2021 and 2020: Balance at June 30, 2021 29,398,750 $ 294 $ 1,669,772 $ 2,774,680 $ 4,444,746 Net loss (1,992,071 ) (1,992,071 ) Issue of Options (ISO/NSO) 19,087 19,087 Shares issued to promoter 250,000 3 99,999 100,002 Shares issued for services 340,000 3 135,996 135,999 Balance at September 30, 2021 29,988,750 300 $ 1,924,854 $ 782,609 $ 2,707,763 Credit Series A Super Voting Preferred Stock 6,000 1 — — 1 Balance at June 30, 2020 27,900,000 279 1,042,021 1,270,801 2,313,101 Net profit — — — 138,808 138,809 Balance at September 30, 2020 27,900,000 279 1,042,021 1,409,610 2,451,910 Nine Months Ended September 30, 2021 and 2020 Balance at December 31, 2020 27,900,000 279 1,042,021 3,286,070 4,328,370 Net loss — — — (2,503,461 ) (2,503,461 ) Shares issued to promoter 250,000 3 114,133 — 114,135 Shares issued for services 1,838,750 18 735,480 — 735,499 Issue of Options (ISO/NSO) — — 33,220 — 33,220 Balance at September 30, 2021 29,988,750 300 1,924,854 782,609 2,707,763 Credit Series A Super Voting Preferred Stock 6,000 1 — — 1 Balance at December 31, 2019 27,900,000 279 1,042,021 932,627 1,974,927 Net profit — — — 476,983 476,983 Balance at September 30, 2020 27,900,000 279 1,042,021 1,409,610 2,451,910 Preferred stock Common stock Shares Shares Amount Additional paid-in capital Retained earnings Total stockholders’ equity Three Months Ended June 30, 2022 and 2021: Balance at March 31, 2022 6,000 — 35,536,671 $ 0 $ 19,174 $ (4,675 ) $ 14,499 Stock compensation expenses 12 12 Net loss — — — (405 ) (405 ) Balance at June 30, 2022 6,000 — 35,536,671 $ 0 $ 19,186 $ (5,080 ) $ 14,106 Balance at March 31, 2021 — — 29,318,750 $ 0 $ 1,624 $ 2,471 $ 4,095 Stock compensation expenses — 14 14 Shares issued for services — 80,000 0 32 32 Net profit — — — — 304 304 Balance at June 30, 2021 — — 29,398,750 $ 0 $ 1,670 $ 2,775 $ 4,445 Six Months Ended June 30, 2022 and 2021: Balance at December 31, 2021 6,000 — 35,260,834 $ 0 $ 18,799 $ (2,664 ) $ 16,135 Stock compensation expenses 27 — 27 Cash collected on common stock options 26,136 0 10 — 10 Shares issued for services 249,701 0 350 — 350 Net loss — — — (2,416 ) (2,416 ) Balance at June 30, 2022 6,000 — 35,536,671 $ 0 $ 19,186 $ (5,080 ) $ 14,106 Balance at December 31, 2020 — — 27,900,000 $ 0 $ 1,042 $ 3,286 $ 4,328 Common share warrants — Shares issued for services 1,498,750 $ 0 600 600 Stock compensation expenses 28 28 Net Loss — — — (511 ) (511 ) Balance at June 30, 2021 — — 29,398,750 $ 0 $ 1,670 $ 2,775 $ 4,445 The accompanying notes are an integral part of these consolidated financial statements. 5 6 HEALTHCARE TRIANGLE INCUnaudited Consolidated Statements of Cash Flows Nine Months Ended
September 30, 2021 2020 (Unaudited) Cash flows from operating activities Net income (loss) $ (2,503,460 ) $ 476,983 Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation and amortization 633,290 603,567 Common stock issued for services 835,501 — Stock Compensation expenses 47,353 — Warrant Fair valuation expenses 55,349 — Changes in operating assets and liabilities: (Increase)/ decrease in: Accounts receivable 486,721 665,348 Other current assets (462,516 ) (85,584 ) Contract Asset/ Unbilled Revenue (763,601 ) — Due from related party (381,300 ) (1,040,145 ) Increase/ (decrease) in: Accounts payable and accrued expenses (1,717,495 ) (2,547,978 ) Deferred revenue (30,800 ) (749,029 ) Other current liabilities (76,429 ) 674,950 Net cash provided by/(used in) operating activities (3,877,388 ) (2,001,889 ) Cash flows from investing activities (Purchase)/sale of property and equipment (50,354 ) 18,617 Net cash provided by investing activities (50,354 ) 18,617 Cash flows from financing activities Increase in convertible note 2,604,940 — Increase in paycheck protection program loan 1,068,530 1,183,395 Net cash provided by financing activities 3,673,470 1,183,395 Net increase (decrease) in cash and cash equivalents (254,271 ) (799,877 ) Cash and cash equivalents Cash and cash equivalents at the beginning of the period 1,402,700 974,832 Cash and cash equivalents at the end of the period $ 1,148,429 $ 174,955 Six Months Ended June 30, 2022 2021 (Unaudited) (Unaudited) Cash flows from operating activities Net income / (loss) $ (2,416 ) $ (511 ) Adjustment to reconcile net income / (loss) to net cash provided by (used in) operating activities Depreciation and amortization 1,555 422 Income from PPP (1,069 ) — Common stock issued for services 350 599 Warrant fair valuation expenses — 55 Stock compensation expenses 32 28 Changes in operating assets and liabilities: (Increase) / decrease in: Accounts receivable 3,125 (432 ) Other current assets (305 ) (299 ) Contract Asset / Unbilled Revenue — (1,318 ) Due from related party (534 ) (381 ) Increase / (decrease) in: Accounts payable and accrued expenses (603 ) (1,909 ) Deferred revenue — (31 ) Other current liabilities 564 291 Payment of lease liability (97 ) — Net cash provided by / (used in) operating activities 602 (3,486 ) Cash flows from investing activities (Purchase) / sale of property and equipment (22 ) (40 ) Increase in intangible assets (2,000 ) — Net cash provided by / (used in) investing activities (2,022 ) (40 ) Cash flows from financing activities ESOP Exercised 10 — Increase / (decrease) in short term borrowing 1,003 — Increase / (decrease) in convertible note — 2,604 Increase in paycheck protection program loan — 1,069 Net cash provided by / (used in) financing activities 1,013 3,673 Net increase / (decrease) in cash and cash equivalents (407 ) 147 Cash and cash equivalents Cash and cash equivalents at the beginning of the period $ 1,770 $ 1,403 Cash and cash equivalents at the end of the period $ 1,363 $ 1,550 Supplementary disclosure of cash flows information Interest 74 259 Income taxes 22 4 The accompanying notes are an integral part of these consolidated financial statements. 67 HEALTHCARE TRIANGLE, INC. Notes To Condensed Consolidated Financial Statements (Unaudited) (in thousands except share and per share data) HEALTHCARE TRIANGLE, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Parent)(“Parent”) and on May 8, 2020, the Company acquired Cornerstone Advisors Group LLC (Healthcare Business) from its Parent.Healthcare Triangle, Inc. (HCTI)Company reinforces healthcare progress through breakthrough technology and extensive industry know-how. HCTICompany support healthcare providers and payors, hospitals and Pharma/Life Sciencespharma/life sciences organizations in their effort to improve health outcomes by enabling the adoption of new technologies, data enlightenment, business agility and accelerate responding to immediate business needs and competitive threats. The highly regulated HCLS industry turn to HCTICompany for expertise in digital transformation on the cloud, security and compliance, develops, data lifecycle management, healthcare interoperability, clinical and business performance optimization.HCTI will concentrateCompany concentrates on accelerating value to the three healthcare sectors:1. Pharmaceutical companies, which require improved efficiencies in the clinical trial process. HCTICompany modernizes their IT infrastructure to advance the clinical trial process to drug discovery and delivery.2. Hospitals and health systems, which face interoperability challenges as mergers, acquisitions and partnerships drive increasing need for integrated healthcare infrastructures. HCTI'sCompany's health IT expertise optimizes providers' enterprise digital structure needs connecting disparate systems and applying analytics capabilities.3. Life sciences, payers and all healthcare organizations must protect and secure personal health information (PHI), a regulatory compliance mandate that HCTICompany addresses and manages for its customers.HCTI’sCompany’s technology significantly relies on Big Data, Analytics, DevOps, Security/Compliance, Identity Access Management (IAM), Machine Learning (ML), Artificial Intelligence (AI), Internet of Things (IoT) and Blockchain.Cornerstone Advisors Group LLC.Cornerstone Advisors Group LLC.On December 10, 2021, we acquired our wholly owned subsidiary Devcool Inc. (“Subsidiary”Devcool”) which isfor a 100% subsidiarypurchase price of SecureKloud Technologies Inc. (Parent)$7.7 million, subject to certain earnout conditions. Devcool was incorporated inunder the laws of the State of Connecticut,California on September 25, 2016. Devcool solves complex technology problems and delivers innovation to healthcare industry. The Company has successfully implemented projects for top healthcare insurance companies and hospitals across United States of America.acquired byincorporated under the laws of the State of California on September 25, 2016. The Company solves complex technology problems and delivers innovation to healthcare industry. The Company has successfully implemented projects for top Healthcare insurance companies and hospitals across United States of America. On December 10, 2021, Healthcare Triangle, Inc (the “Company”) entered into a Share Purchase Agreement (the "Share Purchase Agreement") with Devcool, Inc., a California corporation ("Devcool"), Go To Assistance Inc., a California corporation ("Seller"), and Mr. Sandeep Deokule, current Chief Executive Officer of Devcool (“SD”). Pursuant to the Share Purchase Agreement, the Company will acquire 5,000,000 shares of Devcool’s Class B Common Stock, par value $0.0001, which represents all of the issued and outstanding capital stock of Devcool (the “Acquisition”). The closing of the Acquisition occurred on May 8, 2020.December 10, 2021 (the “Closing Date”). The Subsidiary provides executive level information technology advisory, consulting,Company exercised control by virtue of taking over the operations from November 01, 2021 (effective date) and implementation services to the healthcare provider industry.financials have been consolidated from this date.8 The Subsidiary partners with every client to drive meaningful change, add value, and maximize return on investment by delivering consulting and technology implementation services to providers. The Subsidiary’s vast areas of expertise include population health and ACO enablement, physician and post-acute care integration, EMR selection and implementation, strategy definition and total cost of ownership planning, compliance, change management, and value realization. The Subsidiary’s consulting and advisory services includes a broad range of assessment, planning, and management offerings to help IT, clinical, and executive leadership establish a shared agenda, align IT strategy with business and clinical objectives, and to fully capitalize on an organization’s investment in technology.HEALTHCARE TRIANGLE, INC. Notes To Condensed Consolidated Financial Statements (Unaudited) (in thousands except share and per share data) TheCOVID-19 has created uncertainty for our employees, members, and customers. We consider the impact of the pandemic on our business by evaluating the health of our operations, any changes to our revenue outlook, and the degree to which interest in Company’s solutions have evolved during these unprecedented times. We measure our performance through several key metrics; and as gauged these performance metrics, service levels have been high, and customer engagement and satisfaction have remained strong through these tough times. While the COVID-19 pandemic has not had a material adverse impact on our financial condition and is likelyresults of operations to continue todate, the future impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, impact on our marketing efforts, and any reduction in spending by our customers, all of which are uncertain and cannot be predicted. We have a severe and unprecedented impact on the world and on our business. Measures to prevent its spread, including government-imposed restrictions on large gatherings, closuresdiverse set of face-to-face events, “shelter in place” health orders and travel restrictionscustomers, while some have had a significant effect on certain of our business operations. In response to these business disruptions, which include a transition to remote working, reducing certain of our discretionary expenditures and eliminating non-essential travel particularly with respect to COVID-19 impacted operation and complying with health and safety guidelines to protect employees, contractors, and customers.7 The Company reported sequential growth in revenue in 2020; the Healthcare revenue was lower in the second and third quarters of 2020 due to COVID-19 as many hospitals delayed investments in new projects or upgrade; however, the Company witnessed strong growth in Life Sciences revenue due to investments in research and development for drug discovery to address COVID-19 challenges and Healthcare revenuesfaced headwinds, others have returned to pre-COVID-19 levels in the fourth quarter 2020. There has been no major impact on account of COVID-19 during the quarter ended September 30, 2021.The Company has obtained necessary funding to manage our short-term working capital requirements. The Company has not altered any credit terms with its customers and the realisation from the customers have generally been on time. The Company has been able to service its debt and other obligations on time. There has been no material impact on the operational liquidity and capital resources on account of COVID-19.pace.pace and our proprietary platforms and solutions addresses these challenges. Our business is focused on providing digital platform solutions to healthcare organizations and it is our mission to adequately address COVID-19 challenges for the benefit of our customers and society in general. As a result, consumers have better personal care, convenience, and value. COVID-19 is expected to drive increased utilization of technology during and after the pandemic, and such shift to a virtual approach creates a unique opportunity for our business to shape the new virtual-oriented experiences of businesses through our cloud technology and services and our value proposition resonates with a broader audience of companies as they turn their focus to safely reopening their workplaces and managing the ongoing health and well-being of employees and their families.8 DuringThe accompanying condensed consolidated financial statements include the periods presented,accounts of Healthcare Triangle and its wholly owned subsidiary. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany balances and transactions have been eliminated in consolidation.performed certaincompany, including general corporate functions for the Life Sciences and Healthcare Business. Therefore, certain corporate costs, including compensation costs for corporate employees, have been allocated from Parent. These allocated costs are for corporate functions including, but not limited to, senior management,services, such as legal, human resources, finance and accounting, treasury, information technology, whichhuman resources and administration. These expenses are not provided at the HCLS Business. Where possible, these costs were allocated based primarily on direct usage with the remainder allocated on a basis of cost, headcount,when identifiable, direct capital expenditures or other measures we have determined asrelevant allocations during the respective periods. We believe the assumptions underlying the accompanying condensed consolidated financial statements, including the assumptions regarding these expenses from this related party, are reasonable. Actual results may differ from these expenses, assumptions and estimates. The Consolidated Financial Statements doamounts recorded in the accompanying condensed consolidated financial statements are not necessarily include allindicative of the actual amount of such indirect expenses that would have been incurred or held by the HCLSrecorded had itwe been a separate standalone company. It is not practicable to estimate actual costs that would have been incurred had the HCLS been a separate standalone company during the periods presented. The Company expects to incur additional expenses as a separate, standalone company; however, we do not expect the cost to be materially different had the company operated as a separate standalone company.independent entity.management believes thataccompanying unaudited condensed consolidated financial statements and the assumptions underlyingrelated footnote disclosures have been prepared by us in accordance with GAAP for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the Consolidated Financial Statements, including the assumptions regarding the allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by the HCLS Business during the periods presented. Nevertheless, the Consolidated Financial Statementsunaudited condensed consolidated financial statements may not beinclude all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2021 condensed consolidated balance sheet data included herein was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of items of a normal and recurring nature, necessary to present fairly our financial position as of June 30, 2022, the results of operations, comprehensive income (loss), stockholders’ deficit, and cash flows for the three months ended June 30, 2022 and 2021. The results of operations for the three months ended June 30, 2022 and 2021 are not necessarily indicative of the HCLS Businesses’ future performance.results to be expected for the full year. The information contained herein should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC. Management considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.9 HEALTHCARE TRIANGLE, INC. Notes To Condensed Consolidated Financial Statements (Unaudited) (in thousands except share and per share data) Accounting Policiesfinancials are preparedpreparation of financial statements is in accordanceconformity with U.S. generally accepted accounting principles (U.S. GAAP) and pursuant to the rules and regulations of the SEC.The GAAP which requires us to make estimates, judgments and assumptions that affect the financial statements and the notes thereto. These estimates are based on information available as of the date of the financial statements. On a regular basis, management evaluates these estimates and assumptions. Items subject to such estimates and assumptions include, but are not limited to:
• the standalone selling price for each distinct performance obligation
• the determination of the period of benefit for amortization of deferred costs
• the fair value of assets acquired, and liabilities assumed for business combinations.
• Share based compensation including warrants.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of (i) December 21, 2026 (the last day of the fiscal year following the fifth anniversary of our IPO), (ii) the last day of the first fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the first fiscal year in which we are deemed to be a “large accelerated filer”, as defined in the rules under the Exchange Act, and (iv) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act,” and any reference herein to “emerging growth company” has the meaning ascribed to it in the JOBS Act.
We have elected to take advantage of certain of the reduced disclosure obligations in this Annual Report on Form 10-K and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. As a result, the information that we provide to our stockholders may be different from the information you might receive from other public reporting companies in which you hold equity interests. In particular, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the Securities Act) for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this extended transition period and, as a result, so long as we remain an emerging growth company, we will not be subject to the same implementation timing of new or revised accounting standards as other public companies that are not emerging growth companies until these standards apply to private companies unless we elect to early adopt as permitted by the relevant guidance for private companies.
Segment Information
The management has chosen to organize the Company around differences in products and services and segregated the reporting segments as Software Services, Managed Services and Support, and Platform Services.
Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. The Company definedefines the term ‘‘chief operating decision maker’’ to be the Chief Executive Officer. The Chief Executive Officer along with the management team reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating our financial performance.
Accordingly,performance.Accordingly, the Company has determined that it operates in three distinct reportable operating segments, and all required financial segments information can be found in the consolidated financial statements.
10 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
Expenses included in segment operating profit consist principally of direct selling, delivery costs and research and development expenses. Certain Sales and Marketing expenses, General and Administrative expenses, depreciation, and amortization are not allocated to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment operating profit and are included below as “unallocated costs” and adjusted against our total income from operations. Additionally, management has determined that it is not practical to allocate identifiable assets by segment, since such assets are used interchangeably among the segments.
Revenue by Operating Segment Schedule of Operating segment | ||||||||||||||||
Three Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Software Services | $ | 6,585 | $ | 3,217 | $ | 3,368 | 105 | % | ||||||||
Managed Services and Support | 3,903 | 5,304 | (1,401 | ) | (26 | %) | ||||||||||
Platform Services | 1,100 | 1,529 | (429 | ) | (28 | %) | ||||||||||
Revenue | $ | 11,588 | $ | 10,050 | $ | 1,538 | 15 | % |
Six Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Software Services | $ | 12,041 | $ | 5,941 | $ | 6,100 | 103 | % | ||||||||
Managed Services and Support | 8,172 | 9,531 | (1,359 | ) | (14 | %) | ||||||||||
Platform Services | 2,431 | 2,531 | (100 | ) | (4 | %) | ||||||||||
Revenue | $ | 22,644 | $ | 18,003 | $ | 4,641 | 26 | % |
11 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
RevenueOperating profit/(loss) by Operating Segment
Schedule of operating segment | ||||||||||||||||||||||||||||||||
Operating profit by Operating Segment | ||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Changes | Three Months Ended June 30, | Changes | |||||||||||||||||||||||||||||
2021 | 2020 | Amount | % | 2022 | 2021 | Amount | % | |||||||||||||||||||||||||
Software Services | $ | 2,307,055 | $ | 2,560,460 | $ | (253,405 | ) | (10 | %) | $ | (321 | ) | $ | 521 | $ | (842 | ) | (161 | %) | |||||||||||||
Managed Services and Support | 4,673,173 | 3,975,870 | 697,303 | 18 | % | 1,284 | 1,441 | (157 | ) | (11 | %) | |||||||||||||||||||||
Platform Services | 1,098,120 | 824,230 | 273,890 | 33 | % | (212 | ) | 174 | (386 | ) | (222 | %) | ||||||||||||||||||||
Revenue | $ | 8,078,348 | $ | 7,360,560 | $ | 717,788 | 10 | % | ||||||||||||||||||||||||
Total segment operating profit | 751 | 2,136 | (1,385 | ) | (65 | %) | ||||||||||||||||||||||||||
Less: unallocated costs | 2,184 | 1,667 | (517 | ) | (31 | %) | ||||||||||||||||||||||||||
Income/(loss) from operations | (1,433 | ) | 469 | (1,902 | ) | (406 | %) | |||||||||||||||||||||||||
Other Income | 1,087 | — | 1,087 | 100 | % | |||||||||||||||||||||||||||
Interest expense | 58 | 164 | 106 | 65 | % | |||||||||||||||||||||||||||
Net income / (loss) before income tax expenses | $ | (404 | ) | $ | 305 | $ | (709 | ) | (232 | %) |
Six Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
Software Services | $ | (521 | ) | $ | 989 | $ | (1,510 | ) | (153 | %) | ||||||
Managed Services and Support | 2,538 | 2,328 | 210 | 9 | % | |||||||||||
Platform Services | (784 | ) | (94 | ) | (690 | ) | (734 | %) | ||||||||
Total segment operating profit | 1,233 | 3,223 | (1,990 | ) | (62 | %) | ||||||||||
Less: unallocated costs | 4,640 | 3,472 | (1,169 | ) | (34 | %) | ||||||||||
Income/(loss) from operations | (3,407 | ) | (248 | ) | (3,159 | ) | (1,274 | %) | ||||||||
Other Income | 1,087 | — | 1,087 | 100 | % | |||||||||||
Interest expense | 74 | 259 | 185 | 71 | % | |||||||||||
Net income / (loss) before income tax expenses | $ | (2,394 | ) | $ | (507 | ) | $ | (1,887 | ) | (372 | %) |
Nine Months Ended September 30, 2021 and 2020
Nine Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Software Services | $ | 8,248,478 | $ | 9,715,209 | $ | (1,466,731 | ) | (15 | %) | |||||||
Managed Services and Support | 14,203,583 | 10,315,049 | 3,888,534 | 38 | % | |||||||||||
Platform Services | 3,628,853 | 2,313,835 | 1,315,018 | 57 | % | |||||||||||
Revenue | $ | 26,080,914 | $ | 22,344,093 | $ | 3,736,821 | 17 | % |
Operating profit by Operating Segment
Operating profit by Operating Segment | ||||||||||||||||
Three Months Ended September 30, 2021 and 2020 | ||||||||||||||||
Three Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Software Services | $ | 80,775 | $ | 158,482 | $ | (77,707 | ) | (49 | %) | |||||||
Managed Services and Support | 1,465,626 | 1,218,935 | 246,691 | 20 | % | |||||||||||
Platform Services | (1,545,495 | ) | (294,288 | ) | (1,251,207 | ) | (425 | %) | ||||||||
Total segment operating profit | 906 | 1,083,130 | (1,082,223 | ) | (100 | %) | ||||||||||
Less: unallocated costs | 1,771,401 | 891,820 | 879,581 | 99 | % | |||||||||||
Income from operations | (1,770,495 | ) | 191,310 | (1,961,804 | ) | (1025 | %) | |||||||||
Interest expense | 220,634 | 1,161 | 219,473 | 18903 | % | |||||||||||
Net income (loss) before income tax expenses | $ | (1,991,129 | ) | $ | 190,149 | $ | (2,181,277 | ) | (1147 | %) |
Nine Months Ended September 30, 2021 and 2020 | ||||||||||||||||
Nine Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Software Services | $ | 1,069,703 | $ | 1,369,035 | $ | (299,332 | ) | (22 | %) | |||||||
Managed Services and Support | 3,793,958 | 2,669,241 | 1,124,717 | 42 | % | |||||||||||
Platform Services | (1,639,374 | ) | (618,000 | ) | (1,021,374 | ) | (165 | %) | ||||||||
Total segment operating profit | 3,224,287 | 3,420,276 | (195,989 | ) | (6 | %) | ||||||||||
Less: unallocated costs | 5,243,139 | 2,741,769 | 2,501,370 | 91 | % | |||||||||||
Income from operations | (2,018,852 | ) | 678,507 | (2,697,359 | ) | (398 | %) | |||||||||
Interest expense | 479,849 | 24,920 | 454,929 | 1826 | % | |||||||||||
Net income (loss) before income tax expenses | $ | (2,498,701 | ) | $ | 653,587 | $ | (3,152,288 | ) | (482 | %) |
Revenue from top 5 customers
Three Months Ended SeptemberJune 30, 2021 and 2020
2021 2022
Schedule of concentration | ||||||||
(In thousands, except percentages) | ||||||||
Customer | Amount | % of Revenue | ||||||
Customer 1 | $ | 4,517 | 39 | % | ||||
Customer 2 | 1,744 | 15 | % | |||||
Customer 3 | 920 | 8 | % | |||||
Customer 4 | 845 | 7 | % | |||||
Customer 5 | $ | 440 | 4 | % |
Schedule of concentration | |||||||||
Customer | Amount | % of Revenue | |||||||
Customer 1 | $ | 2,004,478 | 25 | % | |||||
Customer 2 | 1,630,000 | 20 | % | ||||||
Customer 3 | 1,400,000 | 17 | % | ||||||
Customer 4 | 753,991 | 9 | % | ||||||
Customer 5 | $ | 623,665 | 8 | % |
2020 2021
(In thousands, except percentages) | ||||||||
Customer | Amount | % of Revenue | ||||||
Customer 1 | $ | 5,038 | 50 | % | ||||
Customer 2 | 1,450 | 14 | % | |||||
Customer 3 | 960 | 10 | % | |||||
Customer 4 | 651 | 6 | % | |||||
Customer 5 | $ | 471 | 5 | % |
Customer | Amount | % of Revenue | |||||||
Customer 1 | $ | 4,448,401 | 60 | % | |||||
Customer 2 | 638,651 | 9 | % | ||||||
Customer 3 | 628,437 | 9 | % | ||||||
Customer 4 | 443,544 | 6 | % | ||||||
Customer 5 | $ | 295,366 | 4 | % |
12 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
NineSix Months Ended SeptemberJune 30, 2021 and 2020
2021 2022
(In thousands, except percentages) | ||||||||
Customer | Amount | % of Revenue | ||||||
Customer 1 | $ | 8,350 | 37 | % | ||||
Customer 2 | 3,709 | 16 | % | |||||
Customer 3 | 1,886 | 8 | % | |||||
Customer 4 | 1,744 | 8 | % | |||||
Customer 5 | $ | 912 | 4 | % |
Customer | Amount | % of Revenue | ||||||
Customer 1 | $ | 11,295,093 | 43 | % | ||||
Customer 2 | 2,604,726 | 10 | % | |||||
Customer 3 | 2,131,360 | 8 | % | |||||
Customer 4 | 1,799,010 | 7 | % | |||||
Customer 5 | $ | 1,630,000 | 6 | % |
2020 2021
(In thousands, except percentages) | ||||||||
Customer | Amount | % of Revenue | ||||||
Customer 1 | $ | 9,291 | 52 | % | ||||
Customer 2 | 1,851 | 10 | % | |||||
Customer 3 | 1,799 | 10 | % | |||||
Customer 4 | 1,508 | 8 | % | |||||
Customer 5 | $ | 754 | 4 | % |
Customer | Amount | % of Revenue | ||||||
Customer 1 | $ | 12,912,514 | 58 | % | ||||
Customer 2 | 1,798,496 | 8 | % | |||||
Customer 3 | 1,445,472 | 6 | % | |||||
Customer 4 | 1,032,207 | 5 | % | |||||
Customer 5 | $ | 768,345 | 3 | % |
Revenue Recognition
We recognize revenues as we transfer control of deliverables (services, solutions, and platform) to our clients in an amount reflecting the consideration to which we expect to be entitled. To recognize revenues, we apply the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. We account for a contract when it has approval and commitment from all parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We apply judgment in determining the customer’s ability and intention to pay based on a variety of factors including the customer’s historical payment experience.
For performance obligations where control is transferred over time, revenues are recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided.
Software Services
The Company enters into contractual obligations with the customers to perform (i) Strategic advisory services which include assessment of the enterprise network, applications environment and advise on the design and tools; (ii) Implementation services which include deployment, upgrades, enhancements, migration, training, documentation and maintenance of various electronic health record systems and (iii) Development services which include customization of network and applications in the public cloud environment.
Revenue from Strategic advisory, Implementation and Development services are distinct performance obligation and is recognized on time-and-material or fixed-price project basis. Revenues related to time-and-material are recognized over the period the services are provided using labor hours. Revenues related to fixed-price contracts are recognized as the service is performed using the cost-to-cost method, under which the total value of revenues is recognized based on the percentage that each contract’s total labor cost to date bears to the total expected labor costs. The cost-to-cost method requires estimation of future costs, which is updated as the project progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately, where appropriate.
13 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
We may enter into contracts that consist of multiple performance obligations. Such contracts may include any combination of our deliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For contracts with multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to the customer. When not directly observable, we estimate standalone selling price by using the expected cost plus a margin approach. We establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change.
Managed Services and Support
The Company has standard contracts for its Managed Services and Support, however the statement of work contained in such contracts is unique for each customer. A typical Managed Services and Support contract would provide for some or all of the following types of services being provided to the customer: Cloud hosting, Continuous monitoring of applications, security and compliance and support.
Revenue from Managed services and support is a distinct performance obligation and recognized based on SSP (standalone selling price), ratablyrateably on a straight-line basis over the period in which the services are rendered. Contract with customers includes subcontractor services or third-party cloud infrastructure services in certain integrated services arrangements. In these types of arrangements, revenue is recognized net of costs when the Company is acting as an agent between the customer and the vendor, and gross when the Company is the principal for the transaction. In doing so, the Company first evaluates whether it controls the platform or service before it is transferred to the customer.
The Company considers whether it has the primary obligation to fulfil the contract, pricing discretion and other factors to determine whether it controls the platform or service and therefore is acting as a principal or an agent. Payment for managed services and support is due monthly.
Platform Services
The Company has standard contracts for its Platform Services, however the statement of work contained in such contracts is unique for each customer. A typical Platform Services contract would provide for some or all of the following types of services being provided to the customer: Data Analytics, Backup and Recovery, through our Platform.
The revenue from Platform services is a distinct performance obligation and recognized based on SSP. During the periods presented the Company generated revenue from Platform services on a fixed-price solutions delivery model. Revenues related to fixed-price contracts are recognized as the service is performed using the cost-to-cost method, under which the total value of revenues is recognized based on the percentage that each contract’s total labor cost to date bears to the total expected labor costs. The cost-to-cost method requires estimation of future costs, which is updated as the project progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately, where appropriate.
Our contractual terms and conditions for Software services, Managed Services and Support and Platform services mandate that our services are documented and subject to inspection, testing at the time of delivery to customer. In addition, the Company needs to integrate seamlessly into the customers’ systems. Also, the customer has a right to cancel all, or part of the services rendered if it is not in accordance with statement of work and within the stipulated time.
14 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
Source and Timing of revenue
Schedule of revenue | ||||||||||||||||
Three Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Software Services | $ | 6,585 | $ | 3,217 | $ | 3,368 | 105 | % | ||||||||
Managed Services and Support | 3,903 | 5,304 | (1,401 | ) | (26 | %) | ||||||||||
Platform Services | 1,100 | 1,529 | (429 | ) | (28 | %) | ||||||||||
Revenue | $ | 11,588 | $ | 10,050 | $ | 1,538 | 15 | % |
Six Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Software Services | $ | 12,041 | $ | 5,941 | $ | 6,100 | 103 | % | ||||||||
Managed Services and Support | 8,172 | 9,531 | (1,359 | ) | (14 | %) | ||||||||||
Platform Services | 2,431 | 2,531 | (100 | ) | (4 | %) | ||||||||||
Revenue | $ | 22,644 | $ | 18,003 | $ | 4,641 | 26 | % |
Schedule of revenue | ||||||||||||||||
Three Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Software Services | $ | 2,307,055 | $ | 2,560,460 | $ | (253,405 | ) | (10 | %) | |||||||
Managed Services and Support | 4,673,173 | 3,975,870 | 697,303 | 18 | % | |||||||||||
Platform Services | 1,098,120 | 824,230 | 273,890 | 33 | % | |||||||||||
Revenue | $ | 8,078,348 | $ | 7,360,560 | $ | 717,788 | 10 | % |
Managed Services and support include Cloud hosting revenue of $388,205 and $2,402,007 for the three months ended September 30, 2021 and 2020.
Nine Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Software Services | $ | 8,248,478 | $ | 9,715,209 | $ | (1,466,731 | ) | (15 | %) | |||||||
Managed Services and Support | 14,203,583 | 10,315,049 | 3,888,534 | 38 | % | |||||||||||
Platform Services | 3,628,853 | 2,313,835 | 1,315,018 | 57 | % | |||||||||||
Revenue | $ | 26,080,914 | $ | 22,344,093 | $ | 3,736,821 | 17 | % |
Managed Services and support include Cloud hosting revenue of $7,340,476 and $6,779,935 for the nine months ended September 30, 2021 and 2020.
Timing of Revenue Recognition quarter ended September 30,2021June 30, 2022 and 2020.2021.
Three Months Ended June 30, | ||||||||||||||||||||||||||||||||
Timing of Revenue Recognition | Software Services | Managed Services | Platform Services | Total Revenue | ||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Transferred to a point of time | $ | 6,585 | $ | 3,217 | $ | — | $ | — | $ | 1,100 | $ | 1,529 | $ | 7,685 | $ | 4,746 | ||||||||||||||||
Transferred over time | — | — | 3,903 | 5,304 | — | — | 3,903 | 5,304 | ||||||||||||||||||||||||
Total Revenue | $ | 6,585 | $ | 3,217 | $ | 3,903 | $ | 5,304 | $ | 1,100 | $ | 1,529 | $ | 11,588 | $ | 10,050 |
Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
Timing of Revenue Recognition | Software Services | Managed Services | Platform Services | Total Revenue | ||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Transferred to a point of time | $ | 2,307,055 | $ | 2,560,460 | $ | — | $ | — | $ | 1,098,120 | $ | 824,230 | $ | 3,405,175 | $ | 3,384,690 | ||||||||||||||||
Transferred over time | — | — | 4,673,173 | 3,975,870 | — | — | 4,673,173 | 3,975,870 | ||||||||||||||||||||||||
Total Revenue | $ | 2,307,055 | $ | 2,560,460 | $ | 4,673,173 | $ | 3,975,870 | $ | 1,098,120 | $ | 824,230 | $ | 8,078,348 | $ | 7,360,560 |
Timing of Revenue Recognition Ninesix months ended September 30,2021June 30, 2022 and 2020.2021.
Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
Timing of Revenue Recognition | Software Services | Managed Services | Platform Services | Total Revenue | ||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Transferred to a point of time | $ | 8,248,478 | $ | 9,715,208 | $ | — | $ | — | $ | 3,628,853 | $ | 2,313,835 | $ | 11,877,331 | $ | 12,029,043 | ||||||||||||||||
Transferred over time | — | — | 14,203,583 | 10,315,050 | — | — | 14,203,583 | 10,315,050 | ||||||||||||||||||||||||
Total Revenue | $ | 8,248,478 | $ | 9,715,208 | $ | 14,203,583 | $ | 10,315,050 | $ | 3,628,853 | $ | 2,313,835 | $ | 26,080,914 | $ | 22,344,093 |
Six Months Ended June 30, | ||||||||||||||||||||||||||||||||
Timing of Revenue Recognition | Software Services | Managed Services | Platform Services | Total Revenue | ||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Transferred to a point of time | $ | 12,041 | $ | 5,941 | $ | — | $ | — | $ | 2,431 | $ | 2,531 | $ | 14,472 | $ | 8,472 | ||||||||||||||||
Transferred over time | — | — | 8,172 | 9,531 | — | — | 8,172 | 9,531 | ||||||||||||||||||||||||
Total Revenue | $ | 12,041 | $ | 5,941 | $ | 8,172 | $ | 9,531 | $ | 2,431 | $ | 2,531 | $ | 22,644 | $ | 18,003 |
Various economic factors affect revenues and cash flows. Software services are provided on time-and-material and fixed-price project basis and generally sales are collected within two months. Managed services are provided ratablyrateably over the term of the contract and cash flows generally are collected monthly. Platform services are delivered over several months; revenues and cash flows occur based on stages of completion.
15 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
Contract Balances
The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deferred revenue (contract liabilities) on the Consolidated Balance Sheet. Amounts are billed as work progresses in accordance with agreed-uponagreedupon contractual terms, generally monthly upon achievement of contractual milestones. Generally, billing occurs after revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits from our customers, particularly on our international contracts, before revenue is recognized, resulting in contract liabilities. These deposits are liquidated when revenue is recognized.
The beginning and ending contract balances were as follows:
Schedule of receivables and contract liabilities | ||||||||
June 30, 2022 | December 31, 2021 | |||||||
Accounts Receivable | $ | 6,547 | $ | 9,672 |
Schedule of receivables and contract liabilities | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
Accounts Receivable | 5,909,429 | 6,396,150 | ||||||
Unbilled Revenue | 763,601 | — | ||||||
Deferred Revenue | 266,975 | 297,775 |
Revenue recognized for the quarter ended September 30, 2021, and December 31, 2020, that was included in the contract liability balance at the beginning of each period was $266,975 and $749,029, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments (including money market funds) with an original maturity at acquisition of three months or less to be cash equivalents. The Company maintains cash balances, which may exceed federally insured limits. The Company does not believe that this results in any significant credit risk.
Accounts Receivable
The Company extends credit to clients based upon management’s assessment of their creditworthiness on an unsecured basis. The Company provides an allowance for uncollectible accounts based on historical experience and management evaluation of trend analysis. The Company includes any balances that are determined to be uncollectible in its allowance for doubtful accounts. For the quarter ended SeptemberJune 30, 20212022 and year ended December 31, 20202021 the Company did not provide allowances for uncollectible accounts. Based on the information available, management believes the Company’s accounts receivable are collectible.
Property and Equipment
Property and equipment are stated at cost. The Company provides for depreciation of property and equipment using the straight-line method over the estimated useful lives of the related assets ranging from 3 to 7 years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease terms or the useful lives of the improvements. The Company charges repairs and maintenance costs that do not extend the lives of the assets to expenses as incurred.
Intangible Assets
We capitalize certain costs incurred for the platform development when it is determined that it is probable that the platform will be completed and will be used as intended. Costs related to preliminary project activities, post-implementation activities, training, and maintenance are expensed as incurred. Customer relationship and platform development are amortized based on finite lives using either the straight-line method or based on estimated future cash flows to approximate the pattern in which the economic benefit of the asset will be utilized. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
Goodwill
Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized but is subject to an annual impairment test.
16 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
The Company performs its annual goodwill impairment test on an annual basis in the fourth quarter of each fiscal year or more frequently if changes in circumstances or the occurrence of events suggest that an impairment exists. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the reporting unit’s goodwill is less than the carrying value of the reporting unit’s goodwill.
The Company’s quarterly goodwill impairment test resulted in no impairment charges in the quarter ended June 30, 2022 and 2021.
Software Development Costs
Costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred and classified under research and development expenses until technological feasibility has been established, at which time any additional costs would be capitalized.capitalized. The Company believes its current process for developing software is essentially completed concurrently with the establishment of technological feasibility. Software development costs charged to expense for the quartersquarter ended SeptemberJune 30, 2021,2022, and 20202021 was $2,204,030262 and $550,167302 respectively.
Allowance for Doubtful Accounts
Trade accounts receivable are stated at the amount the Company expects to collect and do not bear interest. The collectability of trade receivable balances is regularly evaluated based on a combination of factors such as customer credit-worthiness,creditworthiness, past transaction history with the customer, current economic industry trends and changes in customer payment pattern. Additionally, if it is determined that a customer will be unable to fully meet its financial obligation, such as in the case of a bankruptcy filing or other material event impacting its business, a specific allowance for doubtful accounts may be recorded to reduce the related receivable to the amount expected to be recovered.
Although we believe that our approach to estimates and judgments regarding our allowance for doubtful accounts is reasonable, actual results could differ and we may be exposed to increases or decreases in required allowances that could be material.
Business Combinations
As per ASC 805-50 a common-control transaction does not meet the definition of a business combination because there is no change in control over the net assets. The accounting for these transactions are addressed in the “Transactions Between Entities Under Common Control”. The net assets are derecognized by the transferring entity and recognized by the receiving entity at the historical cost of the parent of the entities under common control. Any difference between the proceeds transferred or received and the carrying amounts of the net assets is recognized in equity in the transferring and receiving entities’ separate financial statements and eliminated in consolidation. The change in accounting principle is applied retroactively for all periods presented.
We account for business combinations using the acquisition method, which requires the identification of the acquirer, the determination of the acquisition date and the allocation of the purchase price paid by the acquirer to the identifiable tangible and intangible assets acquired, the liabilities assumed, including any contingent consideration and any non-controlling interest in the acquiree at their acquisition date fair values. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. Identifiable intangible assets with finite lives are amortized over their useful lives. Acquisition-related costs are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in our consolidated financial statements from the date of effective control.
Valuation of Contingent Earn-out Consideration
Acquisitions may include contingent consideration payments based on the achievement of certain future financial performance measures of the acquired company. Contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. We believe our estimates and assumptions are reasonable, however, there is significant judgment involved. We evaluate, on a routine, periodic basis, the estimated fair value of the contingent consideration and changes in estimated fair value, subsequent to the initial fair value estimate at the time of the acquisition, will be reflected in income or expense in the consolidated statements of operations. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. Any changes in the estimated fair value of contingent consideration may have a material impact on our operating results.
17 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.
Fair Value Measurements
The Company measures its financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are observable and reflect quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.
Level 3—Inputs that are unobservable
Money market funds and U.S. treasury securities are classified within Level 1 because they are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Other debt securities and investments are classified within Level 2 if the investments are valued using model driven valuations which use observable inputs such as quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Available-for-sale debt securities are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models. In connection with the acquisition of Devcool, Inc., the Company recognized a liability on the acquisition date for the estimated fair value of the contingent consideration based on the probability of achieving certain milestones pursuant to the acquisition agreement. The fair value measurement of the contingent consideration is based on significant unobservable inputs and management judgment; therefore, it is categorized under Level 3 at the balance sheet date in the table below.
Schedule of balance sheet | ||||||||||||||||
June 30, 2022 | ||||||||||||||||
Fair Value Measured Using | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial liabilities: | ||||||||||||||||
Warrant Liabilities | $ | 55 | $ | 55 | ||||||||||||
Acquisition-related contingent consideration | — | — | $ | 2,227 | $ | 2,227 |
18 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
Stock-Based Compensation
The Company accounts for stock-based awards to employees and consultants in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options over the instruments vesting period. Options awarded to purchase shares of common stock issued to non-employees do not need to be remeasured as per ASU 2018-07 principles.
The Company adopted the “2020 Stock Incentive Plan” (Plan). The Company has reserved shares of the Company’s Common stock.
Income taxes
IncomeThe provision for income taxes
Income taxes have been provided for was determined using an assetsthe asset and liability approach in whichof accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recognizedrecovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the period. Deferred taxes result from differences between the financial statement and tax basis of the Company’s assets and liabilities using enactedand are adjusted for changes in tax rates in effect for the years in which the differencesand tax laws when changes are expectedenacted. Valuation allowances are recorded to reverse. A valuation allowance is provided for the portion ofreduce deferred tax assets when based on available evidence, it is more likely than not “more-likely-than-not” that a portion of the deferred tax assetsbenefit will not be realized. Deferred tax assets and liabilities are measured using enacted tax raterates applicable in the years in which they are expected to be recovered or settled. The effect on deferred tax assets and laws.
liabilities of a change in tax law is recognized in income in the period that includes the enactment date.
Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements and Disclosures defines fair value and establishes a hierarchy for reporting the reliability of input measurements used to assess fair value for all assets and liabilities. FASB ASC 820 defines fair value as the selling price that would be received for an asset, or paid to transfer a liability, in the principal or most advantageous market on the measurement date. That framework provides a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Certain financial instruments are carried at cost on the balance sheet, which approximates fair value due to their short-term, highly liquid nature. These instruments include cash, accounts receivable, accounts payable and accrued expenses and other liabilities.
Advertising Costs
The Company expenses advertising cost as incurred. Advertising expense for the quarters ended SeptemberJune 30, 2022 and 2021 and 2020 were0 Nil.
Concentrations
Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade receivables. Credit risks associated with trade receivables is minimal due to the Company’s customer base which consist of large customer base and ongoing procedures, which monitor the credit worthiness of its customers. For the quartersquarter ended SeptemberJune 30, 20212022 and 20202021 sales to top five major customers accounted for approximately 7973% and 8885% of total revenue respectively. For the quarter ended September 30, 2021 and year ended December 31, 2020respectively accounts receivable from five major customers accounted for approximately 7867% and 8873% of the total accounts receivables.
The Company maintains cash balances in various financial institutions. The balances are generally insured by the Federal Deposit Insurance Corporation up to $250,000250 (valid through SeptemberJune 30, 2021)2022) per institution. The
As of June 30, 2022 and December 31, 2021, the Company had a cash balance for the quarter ended September 30, 2021 of $1,148,429737 and $1,402,700719 respectively, of uninsured cash balances. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on December 31, 2020.cash
4)3) Property and Equipment
Property and equipment consisted of the following at,following:
Schedule of property and equipment | ||||||||
June 30, 2022 | December 31, 2021 | |||||||
Furniture and Equipment | $ | 102 | $ | 80 | ||||
Less: Accumulated depreciation | (21 | ) | (6 | ) | ||||
Net Fixed Assets | $ | 81 | $ | 74 |
Schedule of property and equipment | ||||||||
September 30,2021 | December 31 2020 | |||||||
Furniture and Equipment | $ | 117,876 | $ | 87,790 | ||||
Less: Accumulated depreciation | (66,067 | ) | (72,004 | ) | ||||
Net Fixed Assets | $ | 51,809 | $ | 15,786 |
Depreciation expenses for the quartersquarter ended SeptemberJune 30, 2022, and June 30, 2021 and September 30, 2020 were $ 5,0098 and $ 6,480,5 respectively.
19 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
5)4) Intangible Assets
The Company’s intangible assets consist primarily of intellectual property and customer relationship it acquired through various acquisitions. We capitalize certain costs incurred for the platform development when it is determined that it is probable that the platform will be completed and will be used as intended. We amortize our intangible assets that have finite lives using either the straight-line method or based on estimated future cash flows to approximate the pattern in which the economic benefit of the asset will be utilized.utilized
Intangible assets consist of the following onfollowing:
Schedule of intangible assets | ||||||||
June 30, 2022 | December 31, 2021 | |||||||
Customer relationships | $ | 8,667 | $ | 8,667 | ||||
Intellectual property | 6,050 | 4,050 | ||||||
Product development | 477 | 477 | ||||||
15,194 | 13,194 | |||||||
Accumulated amortization | (4,189 | ) | (2,736 | ) | ||||
Net Intangible Assets | $ | 11,005 | $ | 10,458 |
Schedule of intangible assets | ||||||||
September 30, 2021 | December 31 2020 | |||||||
Customer relationships | $ | 2,648,941 | $ | 2,648,941 | ||||
Intellectual property | 1,000,000 | 1,000,000 | ||||||
Product development | 477,457 | 477,457 | ||||||
4,126,398 | 4,126,398 | |||||||
Accumulated amortization | (2,126,282 | ) | (1,507,322 | ) | ||||
Net Intangible Assets | $ | 2,000,116 | $ | 2,619,076 |
Amortization expense for the quartersquarter ended SeptemberJune 30, 2022 and June 30, 2021 and 2020 were $206,320793 and $194,384206 respectively. This amortization expense relates to capitalized software expenses, intellectual property, and customer lists.
Schedule of intangibles asset useful life | ||
Nature of Intangibles | Useful Life | |
Customer relationships | 5 years | |
Intellectual property | 5 years | |
Product development | 5 years |
Estimated annual amortization expense (including amortization expense associated with capitalized software costs) for each of the next threesix years are as follows:
Schedule of amortization expense | |||||
June 30, | |||||
2022 | $ | 1,110 | |||
2023 | 2,201 | ||||
2024 | 2,201 | ||||
2025 | 2,201 | ||||
2026 | 2,201 | ||||
2027 | 1,100 | ||||
Total | $ | 11,005 |
20 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
5) Leases
Schedule of amortization expense | |||||
September 30, | |||||
2022 | $ | 825,280 | |||
2023 | 825,280 | ||||
2024 | 349,556 | ||||
Total | $ | 2,000,116 |
The Company determines if an arrangement contains a lease at inception. Right of use (“ROU”) assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
The Company is currently operating from two office locations leased by its Parent. The Company does not have any signed lease agreement(s) to its name. The Company’s principal facility is located in Pleasanton, CA and has another facility in East Brunswick, NJ. The lease expires in 2023. Rent expense was $48 and $54 for the three months ended June 30, 2022, and 2021 respectively.
The Company utilized a portfolio approach in determining the discount rate. The portfolio approach takes into consideration the range of the term, the range of the lease payments, the category of the underlying asset and the Company’s estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company also considered its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating the incremental borrowing rates.
Leases with a term of 12 months or less are not recorded on the balance sheet, per the election of the practical expedient noted above. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company recognizes variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred.
The components of lease expenses were as follows.
Schedule of lease expenses | ||||||||
Particulars | June 30, 2022 | December 31, 2021 | ||||||
Opening Balance | $ | 176 | $ | — | ||||
Additions | 344 | |||||||
Finance cost accrued during the period | 6 | 13 | ||||||
Payment of lease liability | 96 | 181 | ||||||
Closing Balance | $ | 86 | $ | 176 |
Supplemental balance sheet information related to leases was as follows:
Schedule of balance sheet related to leases | ||||
Three Months Ended June 30, 2022 | ||||
Leases | ||||
ROU assets | $ | 86 | ||
lease liabilities, included in current liabilities | 86 | |||
lease liabilities, included in long-term liabilities | — | |||
Total lease liabilities | $ | 86 |
21 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
Total future minimum payments required under the lease obligations as of June 30, 2022 are as follows:
Schedule of cash flow related to leases | ||||
Three Months Ended June 30, 2022 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Cash flows from leases | $ | 43 | ||
ROU assets obtained in exchange for lease liabilities: | 344 | |||
Leases | ||||
Weighted average remaining lease term (in months): | 12 | |||
Weighted average discount rate: | 4.75 | % |
Schedule of future minimum payments | ||||
2022 | $ | 90 | ||
Total Lease payments | 90 | |||
Less: Amount Representing Interest | (4 | ) | ||
Total lease obligation | $ | 86 |
6) Due from Related Party
The Company entered into a Master Service Agreement, Shared Services Agreement and Rental Sublease Agreement with its parent.
As per the Master Services Agreement, parent provides technical resources according to the statement of work from the Company. The initial term of the agreement is twenty-four months which is extendable based on mutual consent. The parent charges for the services at cost plus margin. The invoices are settled within sixty days as per the agreement.
As per the terms of the Shared Services and Rental Sublease Agreement, the cost incurred by the parent on behalf of the Company are settled at cost.
The Shared Services Agreement includes Development infrastructure, Sales support, Recruitment and Immigration support, Project coordination, HR and Operation support, Management /Advisory services. The Company paidreceived shared services amounting to $49,272261 and $96,262301 for the quartersquarter ended SeptemberJune 30, 2022, and 2021 and 2020 respectively.
The Company has paid for this services during the quarter.
The Company dodoes not have any signed lease agreement on its name and currently operates from threetwo office locations leased by the Parent. The Company has entered into a sublease agreement with the Parent and paid rent of $54,17743 and $41,70354 for the quartersquarter ended SeptemberJune 30, 2022, and 2021 and 2020 respectively.
The balance receivable from related parties as of SeptemberJune 30, 2021,2022, was $826,3031,350 and for the year ended December 31, 20202021 was $445,003816.
The amount represents advance payment towards project related services.
7) Business Combination
Effective May 8, 2020, the Company acquired the entire equity of Cornerstone Advisory Services LLC in exchange for a promissory note. In accordance with the terms of the Equity Purchase Agreement dated May 8, 2020, the Company acquired 100%100% of the equity of Cornerstone Advisory Services LLC for a total consideration of $7,000,0007,000. The total purchase price of $7,000,0007,000 was allocated to net working capital of $4,700,0004,700 and intangibles of $2,300,0002,300, taking into consideration projected revenue from the acquired list of Subsidiary’s customers over a period of five years.
Acquisition of Devcool, Inc.
On December 10, 2021, Healthcare Triangle, Inc. (the “Company”) entered into a Share Purchase Agreement (the "Share Purchase Agreement") with Devcool, Inc., a California corporation ("Devcool"), Go To Assistance Inc., a California corporation ("Seller"), and Mr. Sandeep Deokule, current Chief Executive Officer of Devcool (“SD”). Pursuant to the Share Purchase Agreement, the Company will acquire 5,000,000 shares of Devcool’s Class B Common Stock, par value $0.0001, which represents all of the issued and outstanding capital stock of Devcool (the “Acquisition”). The closing of the Acquisition occurred on December 10, 2021 (the “Closing Date”). The Company exercised control by virtue of taking over the operation from November 01, 2021 (effective date) and the financials have been consolidated from this date.
22 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
The aggregate purchase price for the acquisition of Devcool Inc was $7,773 consisting of;
1. | $4,500 payable to the Seller in cash on the Closing Date; |
2. | $700 worth of equity of the Company’s common stock (the “Common Stock”) whereby the number of shares of common stock issuable to Mr. Deokule will be calculated by dividing $700 by the volume weighted average price of the Company’s common stock as reported by Bloomberg Financial Markets or if Bloomberg Financial Markets is not then reporting such prices, by a comparable reporting service of national reputation (“VWAP”) for the 20 trading days immediately prior to the closing date of the Transaction. Such shares of common stock were issued as follows: |
a) | shares of unvested Common Stock were issued to the Seller, which shall vest upon Devcool meeting one of two gross revenue targets set forth in the Share Purchase Agreement: and |
b) | 83,718 shares of unvested Common Stock were issued as retention bonus to certain key personnel of Devcool to be retained by Devcool post-Closing (the “Retention Personnel”), subject to the Retention Personnel continuing to perform services to Devcool (or its affiliates) up to and through the second anniversary of the closing date, which shares shall vest equally monthly on the corresponding day of the closing date over a period of 24 successive months; and |
3. | A sum of up to $2,500 as post-closing earnout payment (the “Earnout”), subject to Devcool’s achievement of the applicable yearly earnout targets set forth in the Share Purchase Agreement, which Earnout shall be payable as follows: |
a) | up to $250 worth of Common Stock (calculated based on the average of the VWAPs for the 20 trading days immediately prior to December 31, 2022) issuable to SD or the Seller as SD’s nominee for achievement of the Year 1 Equity Earnout (as defined in Annexure B to the Share Purchase Agreement) |
b) | up to $1,000 payable to the Seller or its nominees in cash upon achieving the Year 1 Cash Earnout; and |
c) | up to $250 worth of Common Stock (calculated based on the average of the VWAPs for the 20 trading days immediately prior to December 31, 2023) issuable to SD or the Seller as SD’s nominee for achievement of the Year 2 Equity Earnout (as defined in Annexure B to the Share Purchase Agreement). |
d) | up to $1,000 payable to the Seller or its nominees in cash upon achieving the Year 2 Cash Earnout; and |
4. | The Company also issued the Seller a secured non-interest-bearing promissory note in the principal amount of $2,209 that matures on April 30, 2022 (the “Note”) that reflects an amount owed to the Seller by the Company equal to the difference between the amount of accrued and outstanding accounts receivable on the Closing Date less the amount of accrued and outstanding accounts payable on the Closing Date. The Company has repaid $1,709 during the quarter ended June 30, 2022 the balance amount outstanding as of June 30, 2022 is nil. |
Based on the preliminary purchase price allocation, we recorded $1,289 of goodwill which is not tax deductible.
Presented below is the summary of the foregoing acquisitions Allocation of purchase price
Schedule of allocation of purchase price | ||||
Asset Component | June 30, 2022 | |||
Intangible Assets | $ | 6,018 | ||
Goodwill | 1,289 | |||
Working Capital | — | |||
Current Assets | ||||
Cash | 970 | |||
Accounts Receivables | 3,142 | |||
Other Current Assets | ||||
Other Current Assets | 11,419 | |||
Current Liabilities | ||||
Accounts Payable | 758 | |||
Short term borrowing | 2,209 | |||
Other Current liabilities | 679 | |||
Current Liabilities | 3,646 | |||
Net Working Capital Acquired | 7,773 | |||
Total Purchase price | $ | 7,773 |
23 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
8) Equity Transactions
The Company has not issued common stocks at $ per share to founders, management and consultants during the year ended December 31, 2019. The Company issued common stocks as part of the reorganization planany shares towards the “Life Sciences” division from the Parent and common stocks as consideration for services rendered during the year ended December 31, 2020. The Company issued shares towards services rendered and recognized expenses of $236,000 during the quarter ended SeptemberJune 30, 2021.
2022.
9) Debt Securities
A. Convertible Note
A. Convertible Note
The Company during the period commencing December 29, 2020, and ending on February 10, 2021, entered into several Securities Purchase Agreements with certain investors pursuant to which we issued the $4,244 of convertible notes (“Convertible Notes and the Warrants. Each Convertible Note accruesNotes”) bearing interest at a rate of 10% per annum which is payable quarterly on the first day of January, April, July, and October, beginning on the first such date after the issuance of such Convertible Note and ends on the maturity date of such Convertible Note. The maturity datewarrants to purchase our common stock (“Warrants”). All of the Convertible Notes is the earlier of 9 months from their issuance datehave been either repaid or the closing of the Company’s Initial Public offering, subject to a three-month extension at the option of the Company; provided, however, if we exercise this option with respect to any Convertible Note, the outstanding principal amount of such Convertible Note will increase by 30% and the interest rate thereon will increase to 15% per annum. The Convertible Notes are convertible in whole or in part, at the option of the holder during the seven-day period immediatelyconverted into equity prior to the closing of the Company’s Initial Public Offering. The total number of shares that any Convertible Note may be converted into is calculated by dividing (x) the outstanding principal amount of such Convertible Note plus any unpaid accrued interest and any fees and any and all other outstanding amounts owing thereon by (y) a conversion price equal to 60% of the offering price of the common stock in the Company’s Initial Public Offering. The number of shares of common stock that the Convertible Notes are convertible into is subject to certain customary adjustments in the event of stock dividends and splits, issuance of options, subsequent rights offerings, and pro rata distributions. If any Event of Default occurs, the outstanding principal amount of the Convertible Notes, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Convertible Noteholder’s election, immediately due and payable in cash at 130% of the aggregate of such amounts and the interest rate on the Convertible Notes shall accrue at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law. If any amounts under any Convertible Note remain unpaid after the date that is 12 months after its issuance, the Company shall, in addition to any and all other remedies available, make monthly payments of 5% of its gross revenue for the previous month until such Convertible Note is paid in full.
The Company completed a private placement of Convertible notes raising an aggregate of $4,244,940 as of September 30, 2021, and nil 0 as of September 30, 2020. The proceeds from Convertible note have been utilized for working capital purposes. The Company has allocated the proceeds from Convertible note between promissory notes and warrants; as of September 30, 2021, the Company has reported a Convertible note liability of $1,952,672 at fair value, with subsequent changes in their respective fair values recognized in the consolidated statement of operations at each reporting date.
December 31, 2021. Interest expenses on convertible note for the quarter ended SeptemberJune 30, 2021 is $2022, nil 106,9960 and $107for SeptemberJune 30, 2020, is 0 nil.
2021.
B. Common Stock Warrants
In connection with the issueissuance of Convertible note,Notes, the Company also issued Warrants to each investorholder of Convertible Notes which entitles the holder thereof to purchase a number of shares of our common stock equal to 50% of the number of shares that Convertible Note issued with such Warrant is convertible into at a price equal to 120% of the conversion price of such Convertible Note (i.e., 72% of the offering price$2.88 per share of the common stock in the Company’s Initial Public Offering). Upon the occurrence of a clause (i) Event of Default, the number of shares underlying each Warrant will increase to 75% of the number of shares that Convertible Note issued with such Warrant is convertible into. Each Warrant expires on the second anniversary of its issuance. The warrant is exercisable for cash.share.
The warrants are subject to certain customary adjustments in the event of stock dividends and splits, issuance of options, subsequent rights offerings, and pro rata distributions.
Warrant holders have “piggyback” registration rights as set forth therein and a breach of such rights with respect to any Warrant would result in an increase by 25% of the shares of our common stock underlying such Warrant.
As of SeptemberJune 30, 2021,2022, none of the warrants have been exercised by the note holders and hence no proceeds have been received towards any of the warrants
warrants. The Warrants have been valued using the Black-Scholes-Merton Option (“BSM”) pricing model that is based on the individual characteristics of the warrants on the valuation date, which include the Company’s stock fair value and assumptions for expected volatility, expected life and risk-free interest rate, as well as the present value of the minimum cash payment component of the instrument for the warrants, when applicable. Changes in the assumptions used could have a material impact on the resulting fair value of each warrant. The primary inputs affecting the value of the warrant liability are the Company’s stock price and volatility in the Company’s stock price, as well as assumptions about the probability and timing of certain events, such as a change in control or future equity offerings. Increases in the fair value of the underlying stock or increases in the volatility of the stock price generally result in a corresponding increase in the fair value of the warrant liability; conversely, decreases in the fair value of the underlying stock or decreases in the volatility of the stock price generally result in a corresponding decrease in the fair value of the warrant liability.
The Company has recognized cost of nil 0for the quarter ended SeptemberJune 30, 2021,2022, and nil0 for the quarter ended SeptemberJune 30, 2020.2021.
24 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
C. Payroll protection program loan
The company received payroll protection program loan (PPP) 2nd tranche on February 9, 2021. The Company has obtained approval for waiver from the lender during the quarter ended June 30, 2022 and recognized an amount of $1,087 as other income for the quarter ended June 30, 2022.
C. Warrant LiabilityD. Short Term borrowing
The Company has obtained a credit facility from Seacoast business funding (SBF) a division of Seacoast National Bank during the quarter ended June 30, 2022. The funding is against the accounts receivables of the company and its subsidiary. The SBF facility charges an interest of prime rate plus 1% on a floating basis. The balance as of June 30,2022, is $3,212 and nil for the period ended December 31, 2021.
E. Warrant Liability
The Company has allocated the proceeds from Convertibleconvertible note between promissory notes and warrants; as of SeptemberJune 30, 2021,2022, the Company has reported a Warrant liability of $2,347,61655 at fair value, with subsequent changes in their respective fair values recognized in the consolidated statement of operations at each reporting date.
Schedule of fair value of warrant liabilities | ||||
Fair value assumptions | June 30, 2022 | |||
Estimated fair value of common stock warrant | $ | 1.00 | ||
Exercise price | $ | |||
Expected volatility | %- % | |||
Expected terms (in years) | ||||
Risk-free interest rate | %- % | |||
Dividend Yield | % |
The fair value of the warrant liabilities was measured using a binomial lattice model. Significant inputs into the model at the inception and reporting period measurement dates are as follows:
Schedule of assumptions | ||||
Fair value assumptions | September 30,2021 | |||
Estimated fair value of common stock warrant | $ | 0.40 | ||
Exercise price | $ | |||
Expected volatility | %- % | |||
Expected terms (in years) | ||||
Risk-free interest rate | %- % | |||
Dividend Yield | % |
10) Provision for Income Taxes
The Company accounts for income taxes in accordance with FASB ASC Topic 740, Income Taxes.Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Management evaluates all available evidence about future taxable income and other possible sources of realization of deferred tax assets. A valuation allowance is established to reduce deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized. To the extent the Company establishes a valuation allowance or increased the allowance in any given period, an expense is recognized within the provision for income taxes in the statement of income.
The Company recognizes the tax benefit from uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters as other expense in the statement of income. Based on management’s evaluations, there are no uncertain tax positions requiring recognition as of the date of these financial statements.
25 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
The components of the Company’s net deferred tax assets as of June 30, 2022 and December 31, 2021, were as follows (in thousands):
Schedule of deferred tax assets | ||||||||
June 30, 2022 | December 31, 2021 | |||||||
Deferred tax assets: | ||||||||
Net Operating loss carry forward | $ | 1,372 | $ | 1,445 | ||||
Stock-based compensation | (7 | ) | (18 | ) | ||||
Other Income (PPP loan forgiveness) | 293 | — | ||||||
Fair Value of Warrant | — | (15 | ) | |||||
Total Deferred tax asset | 1,658 | 1,412 | ||||||
Less: Valuation allowance | $ | (1,658 | ) | $ | (1,412 | ) | ||
Deferred tax asset. net of valuation allowance | — | — | ||||||
Deferred tax liabilities | — | — | ||||||
Net Deferred tax asset | — | — |
Income tax expense (benefit) was computed as follows:
Schedule of income tax expense benefit | ||||||||
June 30, 2022 | June 30, 2021 | |||||||
Federal income tax | $ | — | $ | — | ||||
State income tax | 1 | 1 | ||||||
Total Income taxes ,Current provision | 1 | 1 | ||||||
Deferred Income taxes (benefit) | — | — | ||||||
Total Income expenses/ (benefit) | $ | 1 | $ | 1 |
Schedule of income tax expense benefit | ||||||||
September 30, 2021 | September 30, 2020 | |||||||
Federal income tax | — | 35,938 | ||||||
State income tax | 942 | 15,402 | ||||||
Total Income taxes ,Current provision | 942 | 51,340 | ||||||
Deferred Income taxes (benefit) | — | — | ||||||
Total Income expenses/ (benefit) | 942 | 51,340 |
The Company’s effective tax rate is 0% for the quarter ended SeptemberJune 30, 20212022 and 270% and for the quarter ended SeptemberJune 30, 20202021 The future effective income tax rate depends on various factors, such as the Company’s income (loss) before taxes, tax legislation and the geographic composition of pre-tax income.
The Company files incomea consolidated federal tax returnsreturn with its parent and records its share of the consolidated federal tax expense on a separate return basis. The Company’s current tax expense is nil. There is no liability in the U.S. federal jurisdiction, and various State jurisdictions. 2021 on account of losses.
The Company’s federal and state income tax returns are generally subject to possible examination by the taxing authorities until the expiration of the related statute of limitations on those tax returns which is generally three years from the original filing deadline.
deadline.The Company regularly reviews its deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing taxable temporary differences and tax planning strategies. The Company’s judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute the business plans and/or tax planning strategies. Should there be a change in the ability to recover deferred tax assets, the Company’s income tax provision would increase or decrease in the period in which the assessment is changed.
11 A)11) New Accounting Pronouncementsimplemented
i) In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The standard largely aligns the accounting for share-based payment awards issued to employees and non-employees by expanding the scope of ASC 718 to apply to non-employee share-based transactions, as long as the transaction is not effectively a form of financing. For public entities, ASU 2018-07 was required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. For nonpublic entities, ASU 2018-07 is effective for annual periods beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted for all entities but no earlier than the Company’s adoption of ASU 2018-07. The Company adopted ASU 2018-07 as of the required effective date of January 1, 2020. The adoption of ASU 2018-07 adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
ii) In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. In addition, a lessee is required to record (i) a right-of-use asset and a lease liability on its balance sheet for all leases with accounting lease terms of more than 12 months regardless of whether it is an operating or financing lease and (ii) lease expense in its consolidated statement of operations for operating leases and amortization and interest expense in its consolidated statement of operations for financing leases. Leases with a term of 12 months or less may be accounted for similar to prior guidance for operating leases today. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), which added an optional transition method that allows companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented. In November 2019, the FASB issued guidance delaying the effective date for all entities, except for public business entities. For nonpublic entities, this guidance is effective for annual periods beginning after December 15, 2020. In June 2020, the FASB issued additional guidance delaying the effective date for all entities, except for public business entities. For public entities, ASU 2016-02 was effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. For nonpublic entities, this guidance is effective for annual periods beginning after December 15, 2021. The adoption of ASU 2016-02 adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
i) | ASU 2021-08—Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in an interim period. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements. |
ii) | ASU 2021-10—Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendments in this Update are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements |
26 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
iii) In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. For public entities, ASU 2019-12 is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. For nonpublic companies, ASU 2019-12 is effective for annual periods beginning after December 15, 2021, and interim periods within those reporting periods. Early adoption is permitted. The adoption of ASU 2019-12 adoption of this standard did not have a material impact on the Company’s consolidated financial statements .
iv) In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the existing disclosure requirements for fair value measurements in ASC 820. The new disclosure requirements include disclosure related to changes in unrealized gains or losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of each reporting period and the explicit requirement to disclose the range and weighted average of significant unobservable inputs used for Level 3 fair value measurements. The other provisions of ASU 2018-13 include eliminated and modified disclosure requirements. For all entities, this guidance is required to be adopted for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2018-13 as of the required effective date of January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.
11 B) New Accounting Pronouncements (under consideration)
i) The Company qualifies as “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected to “opt in” to the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.
12) Legal Matters
The Company is not involved in any action, arbitration and / and/or other legal proceedings that it expects to have a material adverse effect on the business, financial condition, results of operations or liquidity of the Company. All legal cost is expensed as incurred.
13) Share Based Compensation
We estimate the fair value of our stock options using the Black-Scholes option pricing model. This requires the input of subjective assumptions, including the fair value of our underlying common stock, the expected term of stock options, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock, the most critical of which, prior to our IPO, was the estimated fair value of common stock. The assumptions used in our option pricing model represent our best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. The resulting fair value, net of actual forfeitures, is recognized on a straight-line basis over the period during which an employee is required to provide service in exchange for the award
These assumptions used in the Black-Scholes option pricing model, other than the fair value of our common stock, are estimated as follows:
• | Expected volatility. Since a public market for our common stock did not exist prior to our IPO in October 2021 and, therefore, we do not have an extensive trading history of our common stock, we estimated the expected volatility based on the volatility of similar publicly-held entities (guideline companies) over a period equivalent to the expected term of the awards. In evaluating the similarity of guideline companies to us, we considered factors such as industry, stage of life cycle, size, and financial leverage. We intend to continue to consistently apply this process using the same or similar guideline companies to estimate the expected volatility until sufficient historical information regarding the volatility of the share price of our common stock becomes available. |
• | Expected term. We estimate the expected term using the simplified method, as we do not have sufficient historical exercise activity to develop reasonable expectations about future exercise patterns and post-vesting employment termination behaviour. The simplified method calculates the average period the stock options are expected to remain outstanding as the midpoint between the vesting date and the contractual expiration date of the award. |
• | Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for maturities corresponding with the expected term of the option |
• | Expected dividend yield. We have never declared or paid any dividends and do not presently plan to pay dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero. |
We are required to estimate the fair value of the common stock underlying our stock-based awards when performing fair value calculations
Historically for all periods prior to our IPO, given the absence of a public trading market for our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation, we exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock including:
• | contemporaneous valuations performed at periodic intervals by unrelated third-party specialists |
• | our actual operating and financial performance. |
• | relevant precedent transactions involving our capital stock; |
• | likelihood of achieving a liquidity event, such as an initial public offering or a sale of our company given prevailing market conditions and the nature and history of our business; |
• | market multiples of comparable companies in our industry; |
• | stage of development. |
• | industry information such as market size and growth; |
• | illiquidity of stock-based awards involving securities in a private company; and |
27 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
In valuing our common stock prior to our IPO, our board of directors determined the enterprise value of our company using both the income approach and market approach valuation methods. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate based on the cost of capital at a company’s stage of development. The market approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business. From the comparable companies, a representative market value multiple is determined and then applied to the subject company’s financial results to estimate the enterprise value of the subject company.
The Company issued Incentive Stock Options (ISO) on January 01, 2021 to 56 of its employees (the “Employee Stock Options”) under the Company’s 2020 Stock Incentive Plan (the “Plan”). All of the Employee Stock Options are exercisable at a per share exercise price of $ and vest over a four-year period with the first 25% vesting on the one-year anniversary of the date of the grant and the remaining 75% vesting monthly over the remaining three years. The Employee Stock Options terminate on the earlier of 90 days after the applicable employee’s employment termination and 10 years after the date of the grant.
The Company issued Non-EmployeeNonEmployee Stock Options issued to employees of the Parent terminate on the earlier of 90 days after the applicable employee’s employment termination and 10 years after the date of the grant. The Non-Employee Stock Options issued to consultants terminate on the earlier of 90 days after the applicable consultant’s termination and 10 years after the date of the grant. Non-Qualified Stock Options (NSO) on January 01, 2021 to various employees of the Parent and consultants for services rendered (“Non-Employee Stock Options”) at an exercise price of $ per option. The Non-Employee Stock Options vest over a four-year period with the first 25% vesting on the one-year anniversary of the date of the grant and the remaining 75% vesting monthly over the remaining three years. The
The Company issued non-qualified stock options (“Director Stock Option”) on January 01, 2021 to three of our directors, Vivek Prakash, Lakshmanan Kannappan and Shibu Kizhakevilayil each that are exercisable for $ per option. The Director Stock Options vest over a four-year period with the first 25% vesting on the one-year anniversary of the date of the grant and the remaining 75% vesting monthly over the remaining three years. The Director Stock Options terminate on the earlier of 90 days after the applicable director’s termination from the board and 10 years after the date of the grant.
The Company, and Mr. Venkatachari entered into a four year employment agreement dated July 12, 2021 pursuant to which Mr. Venkatachari will perform the duties of the Company’s Chief Executive Officer and receive an annual base salary of $300,000300, a signing bonus of vested options to purchase shares of the Company’s common stock at an exercise price of $ per share, 6,000 shares of our Series A Super Voting Preferred Stock (which provide him with 1,000 votes per share), an annual cash bonus to be determined by the Compensation Committee of the board and other usual and customary perquisites. The employment agreement renews automatically for additional one-year terms until it is terminated, or a new mutually acceptable agreement is executed. In the event the agreement is terminated without cause by the Company or for “good reason” by Mr. Venkatachari, the Company will pay him severance equal to two years’ base salary, the vesting of any unvested options and the cash equivalent to all accrued and untaken vacation pay. Mr. Venkatachari is subject to certain post-employment restrictions on competition and solicitation of Company clients subject to applicable law.
Schedule of stock option activity | ||||||||||||||||||||
Options | Shares of Stock | |||||||||||||||||||
No. of Options | Weighted Average Price | No. of Shares | Weighted Average Price | Total | ||||||||||||||||
Equity compensation plan total shares | 4,000,000 | $ | 0.40 | — | — | 4,000,000 | ||||||||||||||
Granted | ||||||||||||||||||||
Incentive Stock Options (ISO) | 1,131,500 | $ | 0.40 | — | — | 1,131,500 | ||||||||||||||
Non-Qualified Stock Options (NSO) | 452,000 | $ | 0.40 | — | — | 452,000 | ||||||||||||||
Non-Qualified Stock Options (NSO) - Directors Stock Options | 150,000 | $ | 0.40 | — | — | 150,000 | ||||||||||||||
Cancelled/expired | — | — | — | — | — | |||||||||||||||
Balance outstanding as at September 30, 2021 | 1,733,500 | — | — | — | 1,733,500 | |||||||||||||||
Balance available under the plan as at September 30, 2021 | 2,266,500 | — | — | — | 2,266,500 |
28 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
Schedule of stock option activity | ||||||||||||||||||||
Options | Shares of Stock | |||||||||||||||||||
No. of Options | Weighted Average Price | No. of Shares | Weighted Average Price | Total | ||||||||||||||||
Equity compensation plan total shares | 4,000,000 | $ | 0.40 | — | — | 4,000,000 | ||||||||||||||
Granted | ||||||||||||||||||||
Incentive Stock Options (ISO) | 1,131,500 | $ | 0.40 | — | — | 1,131,500 | ||||||||||||||
Non-Qualified Stock Options (NSO) | 452,000 | $ | 0.40 | — | — | 452,000 | ||||||||||||||
Non-Qualified Stock Options (NSO) - Directors Stock Options | 230,000 | $ | 0.40 | — | — | 230,000 | ||||||||||||||
Cancelled/expired | — | — | — | — | — | |||||||||||||||
Balance outstanding as at December 31, 2021 | 1,813,500 | — | — | — | 1,813,500 | |||||||||||||||
Balance available under the plan as at December 31, 2021 | 2,186,500 | — | — | — | 2,186,500 | |||||||||||||||
Transferred back to plan | (157,927 | ) | — | — | — | (157,927 | ) | |||||||||||||
Balance outstanding as of March 31, 2022 | 2,028,573 | — | — | — | 2028,573 | |||||||||||||||
Balance available under the plan as of March 31, 2022 | 1,971,427 | — | — | — | 1,971,427 | |||||||||||||||
Transferred back to plan | (105,208 | ) | — | — | — | (105,208 | ) | |||||||||||||
Balance outstanding as of June 30, 2022 | 1,866,219 | — | — | — | 1,866,219 | |||||||||||||||
Balance available under the plan as of June 30, 2022 | 2,133,781 | — | — | — | 2,133,781 |
The companyCompany issued and valued options using the Black-Scholes model for all 20202022 issuances with the following significant assumptions.
Schedule of assumptions | ||||||||
Fair value assumptions | September 30, 2021 | 2022 | ||||||
Estimated fair value of common stock warrant | $ | 0.40 | $ | 1.00 | ||||
Exercise price | $ | $ | ||||||
Expected volatility | %- % | %- % | ||||||
Expected terms (in years) | ||||||||
Risk-free interest rate | %- % | %- % | ||||||
Dividend Yield | % | % |
The Company recognized compensation expenses related to ISO/NSO stock options of $quarterthree-month ended SeptemberJune 30, 20212022 and nil $ for the three month ended June 30, 2021. during the
14) Defined Contribution Retirement Plan
The Company established the savings plan (hereinafter referred to as the “Plan”) to provide eligible employees with a means of deferring current compensation from income tax. This plan is offered to all employees who have attained twenty one years of age and have competed six consecutive months of service with the employer. The Company, at its discretion, may make matching contributions and/or elective contributions at the end of the year to eligible participants. The Company has not made any matching contributions for the quarter ended SeptemberJune 30, 2020.
2022.
Operating Lease
The Company is currently operating from three office locations leased by its Parent. The Company do not have any signed lease agreement on its name. The Company pays rent monthly to its Parent. For the quarter ended September 30, 2021 and 2020, rent expense were $54,177 and $41,703, respectively.
The Company presents basic and diluted earnings per share ("EPS") data for its common stock. Basic EPS is calculated by dividing the net income attributable to stockholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is determined by adjusting the net income attributable to stockholders of the Company and the weighted average number of shares of common stock outstanding during the period for the effects of all dilutive potential common shares, including awards under stock-based compensation arrangements.
29 |
HEALTHCARE TRIANGLE, INC. |
Notes To Condensed Consolidated Financial Statements |
(Unaudited) |
(in thousands except share and per share data) |
The Company's unvested restricted stock awards are considered participating securities under FASB Codification topic, Earnings Per Share,, because they entitle holders to non-forfeitable rights to dividends until the awards vest or are forfeited. When a company has a security that qualifies as a "participating security," the Codification requires the use of the two-class method when computing basic EPS. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net income to allocate to common stockholders, income is allocated to both common stock and participating securities based on their respective weighted average shares outstanding for the period, with net income attributable to common stockholders ultimately equalling net income less net income attributable to participating securities. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.
Schedule of earning per shares | ||||||||
Three Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Net income/(loss) attributable to common stockholders | $ | (405 | ) | $ | 304 | |||
Weighted average shares outstanding used in basic per common share computations | 35,507,184 | 28,579,405 | ||||||
Basic EPS | $ | (0.011 | ) | $ | 0.011 | |||
Diluted EPS | $ | (0.011 | ) | $ | 0.011 |
Schedule of earning per shares | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net income attributable to common stockholders | $ | (1,992,071 | ) | $ | 138,808 | $ | (2,503,460 | ) | $ | 476,981 | ||||||
Weighted average shares outstanding used in basic per common share computations | 28,839,889 | 27,900,000 | 28,839,889 | 27,900,000 | ||||||||||||
Basic EPS | $ | (0.069 | ) | $ | 0.005 | $ | (0.087 | ) | $ | 0.017 | ||||||
Diluted EPS | $ | (0.069 | ) | $ | 0.005 | $ | (0.087 | ) | $ | 0.017 |
16) Subsequent Events
For the quarter ended SeptemberJune 30, 2021,2022, the Company has evaluated subsequent events through November 11, 2021August 5, 2022 the date, which the financial statements were available to be issued. No reportable subsequent events have occurred through November 11, 2021,August 5, 2022, which would have a significant effect on the financial statements as of SeptemberJune 30, 2021 except as otherwise disclosed.2022 excluding the items mentioned below.
The company has made a private placement of 2,167,561 shares of the Company’s common Stock and Preferred Investment Options to purchase up to an aggregate of shares of common stock pursuant to the terms and conditions of the Securities Purchase Agreement, dated as of July 10, 2022. The Purchaser paid $ for each Share and $1.065 for each Warrant Share. shares of its common stock, a Pre-Funded Warrant to purchase
The Purchaser also received the Preferred Investment Options. The aggregate gross proceeds to the Company from the Private Placement were approximately $6,500,000, before deducting placement agent fees and other offering expenses. The net proceeds from the private placement amounts to $ 5,888,183.
The Company received gross proceedshas also bought back its common shares in the following dates as part of $13,050,0002 and net proceeds of $11,796,000 from IPO by issue of shares at $ per share. The Company’s shares have started trading in Nasdaq from Oct 13, 2021 under the ticker (HCTI).million share repurchase program plan announced on June 21, 2022.
The company had a Convertible Note liability of $4,445,568 (Principal $4,244,940 and Interest accrued $200,628) of which the company has repaid $ 381,188 to three of the investors and converted the balance amount of $4,064,380 into equity by allotting shares at $ per share.
1. | Common shares purchased on July 12, 2022 at a purchase price of $ | |
2. | Common shares purchased on July 8, 2022 at a purchase price of $ | |
3. | Common shares purchased on July 27, 2022 at a purchase price of $ | |
4. | Common shares purchased on July 28, 2022 at a purchase price of $ | |
5. | Common shares purchased on July 29, 2022 at a purchase price of $ | |
6. | Common shares purchased on July 30, 2022 at a purchase price of $ |
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Item 2. Management’s discussion and analysis of financial condition and results of operations.
The following discussion summarizes the significant factors affecting the operating results, financial condition, liquidity, and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the related notes thereto, and the consolidated financial statements and the related notes thereto all included elsewhere in this prospectus. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity, and capital resources, and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-lookingforward looking statements as a result of various factors, including those discussed below and elsewhere in this report, and in the sections entitled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” contained in the Company’s final prospectus for its initial public offering filed with the Securities and Exchange Commission (‘SEC”).
Overview
Healthcare Triangle, Inc. (the “Company”) is a leading healthcare information technology company focused on advancing innovative, industry-transforming solutions in the areas of cloud services, data science, professional and managed services for the Healthcare and Life Sciences industry.
The Company was formed on October 29, 2019, as a Nevada corporation and then converted into a Delaware corporation on April 24, 2020, to provide IT and data services to the Healthcare and Life Sciences (“HCLS”) industry. The business commenced on January 1, 2020, after the Parent transferred its s Life Sciences business to us. As of SeptemberJune 30, 2021,2022, we had a total of 6971 full time employees, 142256 sub-contractors, including 67158 certified cloud 16engineers, 116 Epic Certified EHR experts and 1419 MEDITECH Certified EHR experts. Many of the senior management team and the members of our board of directors hold advanced degrees and some are leading experts in software development, regulatory science, and market access. During the nine monthsquarter ended SeptemberJune 30, 2021,2022, we generated revenues of approximately $26.1$11.6 million when compared to revenue of $22.3$10.1 million for the nine monthsquarter ended SeptemberJune 30, 2020 from the sale of our products and services2021 which represents an increase of $3.7$1.5 million amounting to 17% increase whenor 15% compared to the previous year.
Our approach leverages our proprietary technology platforms, extensive industry knowledge, and healthcare domain expertise to provide solutions and services that reinforce healthcare progress. Through our platform, solutions, and services, we support healthcare delivery organizations, healthcare insurance companies, pharmaceutical, and Life Sciences, biotech companies, and medical device manufacturers in their efforts to improve data management, develop analytical insights into their operations, and deliver measurable clinical, financial, and operational improvements.
We offer a comprehensive suite of software, solutions, platforms, and services that enables some of the world’s leading healthcare and pharma organizations to deliver personalized healthcare, precision medicine, advances in drug discovery, development and efficacy, collaborative research and development, respond to real-world evidence, and accelerate their digital transformation. We combine our expertise in the healthcare technology domain, cloud technologies, DevOps and automation, data engineering, advanced analytics, AI/ML, IoT, security, compliance, and governance to deliver platforms and solutions that drive improved results in the complex workflows of Life Sciences, biotech, healthcare providers, and payers. Our differentiated solutions, enabled by our intellectual property and delivered as a service, provide advanced analytics, data science applications, and data aggregation in these highly regulated environments in a more compliant, secure, and cost-effective manner to our customers.
Our deep expertise in healthcare allows us to reinforce our clients’ progress by accelerating their innovation. Our healthcare IT services include Electronic Health Records (EHR) and software implementation, optimization, extension to community partners, as well as application managed services, and backup and disaster recovery capabilities on public cloud. Our 24x7 managed services are used by hospitals and health systems, payers, Life Sciences, and biotech organizations in their effort to improve health outcomes and deliver deeper, more meaningful patient and consumer experiences. Through our services, our customers achieve a return on investment in their technology by delivering measurable improvements. Combined with our software and solutions, our services provide clients with an end-to-end partnership for their technology innovation.
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Our Business Model
The majority of our revenue is generated by our full-time employees who provide software services and Managed Services and Support to our clients in the Healthcare and Life Sciences industry. Our software services include strategic advisory, implementation and development services and Managed Services and Support include post implementation support and cloud hosting. Our CloudEz and DataEz platforms became commercially available to deploy under solution delivery model in 2019 and Readabl.AI platform from last quarter of 2020. While these platforms are commercially available, we continue to develop and upgrade them on a regular basis.
We are in the early stages of marketing CloudEz, DataEz and Readabl.AI as our SaaS offerings on a subscription basis, which we expect will provide us with recurring revenues. We do not yet have enough information about our competition or customer acceptance of the proposed SaaS offerings to determine whether or not recurring subscription revenue will have a material impact on our revenue growth. Our SaaS offerings are expected to become commercially available infrom the first quarter of 2022.
Impacts of the COVID-19 Pandemic
TheCOVID-19 has created uncertainty for our employees, members, and customers. We consider the impact of the pandemic on our business by evaluating the health of our operations, any changes to our revenue outlook, and the degree to which interest in Company’s solutions have evolved during these unprecedented times. We measure our performance through several key metrics; and as gauged these performance metrics, service levels have been high, and customer engagement and satisfaction have remained strong through these tough times. While the COVID-19 pandemic has not had and is likely to continue to have, a severe and unprecedentedmaterial adverse impact on our financial condition and results of operations to date, the world andfuture impact of the COVID-19 outbreak on our business. Measures to prevent its spread, including government-imposed restrictions on large gatherings, closures of face-to-face events, “shelter in place” health ordersoperational and travel restrictions have had a significant effectfinancial performance will depend on certain developments, including the duration and spread of our business operations. In response to these business disruptions, which include a transition to remote working, reducing certain of our discretionary expenditures and eliminating non-essential travel particularly with respect to COVID-19 impacted operation and complying with health and safety guidelines to protect employees, contractors, and customers.
The Company reported sequential growth in revenue in 2020; the healthcare revenue was lower in the second and third quarters of 2020 due to COVID-19 as many hospitals delayed investments in new projects or upgrade; however, the Company witnessed strong growth in Life Sciences revenue due to investments in research and development for drug discovery to address COVID-19 challenges and healthcare revenues have returned to pre-COVID-19 levels in the fourth quarter 2020. We have obtained necessary funding to manage our short-term working capital requirements. We have not altered any credit terms withoutbreak, impact on our customers and the realization from the customers have generally been on time. We have been able to service our debt and other obligations on time. There has been no materialsales cycles, impact on our operational liquiditymarketing efforts, and capital resources on accountany reduction in spending by our customers, all of COVID-19.
On May 5, 2020, we receivedwhich are uncertain and cannot be predicted. We have a PPP loan pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) amounting to $1.5 million. The principal and interest on the PPP loans are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amountdiverse set of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over five years at an interest rate of 1%, with a deferral of payments for the first six months. The Company has been notified by its lender that the Company’s PPP loan will be forgiven in whole on account of fulfilling the eligibility criteria and therefore this amount has been recognized by us as other income.
customers, while some have faced headwinds, others have experienced growth. Because of COVID-19, healthcareHealthcare and Life Sciences organizations are accelerating research, rethinking patient care, and maintaining clinical and operational continuity during this unprecedented time for the global health system. COVID-19 has necessitated the adoption of digital communication channels and remote working technology within the Healthcare and Life Sciences industry at a rapid pace.
We believe our proprietary platforms and solutions addressaddresses these challenges. Our business is focused on providing digital platform solutions to healthcare organizations and it is our mission to adequately address COVID-19 challenges for the benefit of our customers and society in general. As a result, consumers have better personal care, convenience, and value. We believe that COVID-19 is expected to drive increased utilization of technology during and after the pandemic, and such shift to a virtual approach creates a unique opportunity for our business to shape the new virtual-oriented experiences of businesses through our cloud technology and services.services and our value proposition resonates with a broader audience of companies as they turn their focus to safely reopening their workplaces and managing the ongoing health and well-being of employees and their families.
On February 9, 2021, the Company received a PPP loan pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) amounting to $1.1 million. The principal and interest on the PPP loans are forgivable after eight weeks if the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over five years at an interest rate of 1%, with a deferral of payments for the first six months. The Company has obtained waiver from its lender this amount shall be recognized as other income.
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Key Factors of Success
We believe that our future growth, success, and performance are dependent on many factors, including those mentioned below. While these factors present significant opportunities for us, they also represent the challenges that we must successfully address in order to grow our business and improve our results of operations.
Investment in scaling the business
We need to continuously invest in research and development to build new solutions, sales, and marketing to promote our solutions to new and existing customers in various geographies, and other operational and administrative functions in systems, controls and governance to support our expected growth and our transition to a public company. We anticipate that our employee strength will increase because of these investments.
Adoption of our solutions by new and existing customers
We believe that our ability to increase our customer base will enable us to drive growth. Most of our customers initially deploy our solutions within a division or geography and may only initially deploy a limited set of our available solutions. Our future growth is dependent upon our existing customers’ continued success and renewals of our solutions agreements, deployment of our solutions to additional divisions or geographies and the purchase of subscriptions to additional solutions. Our growth is also dependent on the adoption of our solutions by new customers. Our customers are large organizations who typically have long procurement cycles which may lead to declines in the pace of our new customer additions.
Subscription services adoption
The key factor to our success in generating substantial recurring subscription revenues in future will be our ability to successfully market and persuade new customers to adopt our SaaS offerings. We are in the early stages of marketing our SaaS offeringsproducts such as DataEz, CloudEz and Readabl.AI which are not yet commercially available,as SaaS offerings, and do not yet have enough information about our competition or customer acceptance to determine whether or not recurring subscription revenue from these offerings will have a material impact on our revenue growth. Our SaaS offerings are expected to become available in the first quarter of 2022.
Mix of solutions and software services revenues.revenues
Another factor to our success is the ability to sell our solutions to the existing software services customers. During the initial period of deployment by a customer, we generally provide a greater number of services including advisory, implementation and training. At the same time, many of our customers have historically purchased our solutions after the deployment. Hence, the proportion of total revenues for a customer associated with software services is relatively high during the initial deployment period. While our software services help our customers achieve measurable improvements and make them stickier, they have lower gross margins than solution-based revenue. Over time, we expect the revenues to shift towards recurring and subscription-based revenues.
Liquidity
The current debt equity ratio measures a company's ability to pay off its current liabilities (payable within one year) with its total current assets such as cash, accounts receivable, and inventories. The higher the ratio, the better the company's liquidity position.
The Company’s current debt equity ratio, based on the nine months ended September 30, 2021 financial statement is 1.98, compared to 0.38 for the financial year ended December 31, 2020. A good current ratio is between 1.2 to 2, which means that a business has 2 times more current assets than liabilities to covers its debts. A debt to equity ratio below 1 means that a company doesn't have enough liquid assets to cover its short-term liabilities.
The Company does not have inventory and hence the quick ratio is the same as current ratio.
Components of Results of Operations
Revenues
We provide our services and manage our business under these operating segments:
• | Software Services |
• | Managed Services and Support |
• | Platform Services |
Software Services
The Company earns revenue primarily through the sale of software services that is generated from providing strategic advisory, implementation, and development services. The Company enters into Statement of Work (SOW) which provides for service obligations that need to be fulfilled as agreed with the customer. The majority of our software services arrangements are billed on a time and materials basis and revenues are recognized over time based on time incurred and contractually agreed upon rates. Certain software services revenues are billed on a fixed fee basis and revenues are typically recognized over time as the services are delivered based on time incurred and customer acceptance. We recognize revenue when we have the right to invoice the customer using the allowable practical expedient under ASC 606-10-55-18 since the right to invoice the customer corresponds with the performance obligations completed.
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Managed Services and Support
Managed Services and Support include post implementation support and cloud hosting. Managed Services and Support are a distinct performance obligation. Revenue for Managed Services and Support is recognized ratablyrateably over the life of the contract.
Platform Services
Platform Services from CloudEz, DataEz and Readabl.AI are offered as a solution delivery model and will be offeredtill 2021. We have launched our platforms as Software as a Service (SaaS) which ison a subscription model. Our SaaS offerings are expected to become available in the first quarter of 2022.
The revenue from solutions delivery model contains a series of separately identifiable and distinct services that represent performance obligations that are satisfied over time. During the periods presented the company generated Platform revenue on solution delivery model only, which is non-recurring revenue.
Our SaaS agreements will be generally non-cancelablenon-cancellable during the term, although customers typically will have the right to terminate their agreements for cause in the event of material breach.
SaaS revenues will be recognized ratablyrateably over the respective non-cancelablenon-cancellable subscription term because of the continuous transfer of control to the customer. Our subscription arrangements will be considered service contracts, and the customer will not have the right to take possession of the software Segment wise revenue breakup.
Cost of Revenue
Cost of revenue consists primarily of employee-related costs associated with the rendering of our services, including salaries, benefits and stock-based compensation expense, the cost of subcontractors, travel costs, cloud hosting charges and allocated overhead the cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscription services due to the direct labor costs and costs of subcontractors.
Our business and operational models are designed to be highly scalable and leverage variable costs to support revenue-generating activities.
While we may grow our headcount overtime to capitalize on our market opportunities, we believe our increased investment in automation, electronic health record integration capabilities, and economies of scale in our operating model, will position us to grow our platform solutions revenue at a greater rate than our cost of revenue.
Operating Expenses
Research and Development
Research and development expense (majorly our investment in innovation) consists primarily of employee-related expenses, including salaries, benefits, incentives, employment taxes, severance, and equity compensation costs for our software developers, engineers, analysts, project managers, and other employees engaged in the development and enhancement of our cloud-based platform applications. Research and development expenses also include certain third-party consulting fees. Our research and development expense excludes any depreciation and amortization.
We expect to continue our focus on developing new product offerings and enhancing our existing product offerings. As a result, we expect our research and development expense to increase in absolute dollars, although it may vary from period to period as a percentage of revenue.
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Sales and Marketing
Sales and marketing expense consists primarily of employee-related expenses, including salaries, benefits, commissions, travel, discretionary incentive compensation, employment taxes, severance, and equity compensation costs for our employees engaged in sales, sales support, business development, and marketing. Sales and marketing expense also includes operating expenses for marketing programs, research, trade shows, and brand messages, and public relations costs.
We expect our sales and marketing expenses to continue to increase in absolute dollar terms as we strategically invest to expand our business, although it may vary from period to period as a percentage of total revenues.
General and Administrative
Our general and administrative expenses consist primarily of employee-related expenses including salaries, benefits, discretionary incentive compensation, employment taxes, severance, and stock-based compensation expenses, , for employees who are responsible for management information systems, administration, human resources, finance, legal, and executive management. The general and administrative expenses also include occupancy expenses (including rent, utilities, and facilities maintenance), professional fees, consulting fees, insurance, travel, contingent consideration, transaction costs, integration costs, and other expenses. Our general and administrative expenses exclude depreciation and amortization.
In the nearest future, we expect our general and administrative expenses to continue to increase to support business growth. Over the long term, we expect general and administrative expenses to decrease as a percentage of revenue.
Depreciation and Amortization Expenses
Our depreciation and amortization expense consists primarily of depreciation of fixed assets, amortization of Customer relationship and capitalized software development costs, and amortization of intangible assets. We expect our depreciation and amortization expense to increase as we expand our business organically and through acquisitions.
Other Income (Expense), Net
Other income (expense), net consists of finance cost and gains or losses on foreign currency.
Deferred revenues
Advanced billings to clients in excess of revenue earned are recorded as deferred revenue until the revenue recognition criteria are met.
Unbilled accounts receivable
Unbilled accounts receivable is a contract asset related to the delivery of our professional services for which the related billings will occur in a future period. Unbilled receivables are classified as accounts receivable on the consolidated balance sheet.
Although we believe that our approach to estimates and judgments regarding revenue recognition is reasonable, actual results could differ and we may be exposed to increases or decreases in revenue that could be material.
Provision for Income Taxes
Provision for income taxes consists of federal and state income taxes in the United States, including deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes.
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PaycheckPay-check Protection Program
On February 9, 2021, we received a PPP loan pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) amounting to $1.06 million. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.
The unforgiven portion of the PPP loan is payable over five years at an interest rate of 1%, with a deferral of payments for the first six months. The Company has utilized the proceeds for purposes in line with the terms of the PPP. The Company has received communication from the bank for forgiveness of the loan, in whole on account of fulfilling the criteria and hence this amount has been considered under other income.
Results of Operations
The following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenues for each of the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2021 | % Sales | 2020 | % Sales | 2021 | % of Sales | 2020 | % of Sales | |||||||||||||||||||||||||
Revenue | $ | 8,078,348 | 100 | % | $ | 7,360,560 | 100 | % | $ | 26,080,914 | 100 | % | $ | 22,344,093 | 100 | % | ||||||||||||||||
Cost of Revenue (exclusive of depreciation /amortization) | 5,351,748 | 66 | % | 5,358,695 | 73 | % | 17,828,791 | 68 | % | 16,162,776 | 72 | % | ||||||||||||||||||||
Research & Development | 2,204,030 | 27 | % | 550,167 | 7 | % | 3,774,712 | 14 | % | 1,469,416 | 7 | % | ||||||||||||||||||||
Sales and Marketing | 1,328,399 | 16 | % | 476,650 | 6 | % | 2,801,188 | 11 | % | 1,103,486 | 5 | % | ||||||||||||||||||||
General and Administrative | 753,338 | 9 | % | 582,874 | 8 | % | 3,061,785 | 12 | % | 2,326,341 | 10 | % | ||||||||||||||||||||
Depreciation and Amortization | 211,328 | 3 | % | 200,864 | 3 | % | 633,290 | 2 | % | 603,567 | 3 | % | ||||||||||||||||||||
Other income ( PPP loan forgiveness) | — | 0 | % | — | 0 | % | — | 0 | % | — | 0 | % | ||||||||||||||||||||
Interest expense | 220,634 | 3 | % | 1,161 | 0 | % | 479,849 | 2 | % | 24,920 | 0 | % | ||||||||||||||||||||
Income tax expense | 942 | 0 | % | 51,340 | 1 | % | 4,759 | 0 | % | 176,605 | 1 | % | ||||||||||||||||||||
Net income | ($ | 1,992,071 | ) | (25 | %) | $ | 138,808 | 2 | % | ($ | 2,503,460 | ) | (10 | %) | $ | 476,981 | 2 | % |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
2022 | % Sales | 2021 | % Sales | 2022 | % Sales | 2021 | % Sales | |||||||||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | (In thousands) | |||||||||||||||||||||||||||||
Revenue | $ | 11,588 | 100 | % | $ | 10,050 | 100 | % | $ | 22,644 | 100 | % | $ | 18,003 | 100 | % | ||||||||||||||||
Cost of Revenue (exclusive of depreciation /amortization) | 8,429 | 73 | % | 6,704 | 67 | % | 16,591 | 73 | % | 12,477 | 69 | % | ||||||||||||||||||||
Research & Development | 646 | 6 | % | 813 | 8 | % | 1,712 | 8 | % | 1,571 | 9 | % | ||||||||||||||||||||
Sales and Marketing | 1,651 | 14 | % | 805 | 8 | % | 3,391 | 15 | % | 1,473 | 8 | % | ||||||||||||||||||||
General and Administrative | 1,451 | 13 | % | 1,048 | 10 | % | 2,802 | 13 | % | 2,308 | 14 | % | ||||||||||||||||||||
Depreciation and Amortization | 844 | 7 | % | 211 | 2 | % | 1,555 | 7 | % | 422 | 2 | % | ||||||||||||||||||||
Other income ( PPP loan forgiveness) | (1,087 | ) | (9 | %) | — | 0 | % | (1,087 | ) | (5 | %) | — | 0 | % | ||||||||||||||||||
Interest expense | 58 | 0 | % | 164 | 2 | % | 74 | 0 | % | 259 | 1 | % | ||||||||||||||||||||
Income tax expense | 1 | 0 | % | 1 | 0 | % | 22 | 0 | % | 4 | 0 | % | ||||||||||||||||||||
Net income / (Loss) | $ | (405 | ) | (4 | %) | $ | 304 | 3 | % | $ | (2,416 | ) | (11 | %) | $ | (511 | ) | (3 | %) |
Three Months Ended SeptemberJune 30, 20212022 and 2020June 30, 2021
Revenue from operations
Three Months Ended September 30, | Changes | |||||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||||
Revenue | $ | 8,078,348 | $ | 7,360,560 | $ | 717,788 | 10 | % |
Three Months Ended June 30, | Changes | ||||||||||||||||
2022 | 2021 | Amount | % | ||||||||||||||
(In thousands, except percentages) | |||||||||||||||||
Revenue | $ | 11,588 | $ | 10,050 | $ | 1,538 | 15 | % |
Revenue increased by $0.7$1.5 million, or 10%15% to $8$11.6 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $7.3$10.1 million for the quarter ended SeptemberJune 30, 2020.2021. Revenue from Managed Services and Support has increased more than the decrease in the revenue from Software Services which resultedhas increased resulting in net increase in revenue. The Software Services are typically short-term engagements to provide software consulting and development services, which do not require continual third-party maintenance. Managed Services and Support such as IT cloud hosting and support call for services on a continuous basis and allow for strengthening of client relationships which can lead to additional engagements from the client. Therefore, theThe Company is determined to focusfocusing on increasing the Managed Services & Support and Platform Services revenue to enhance our relationship and long-term engagement with our customers. We have made additional investments in Sales & Marketing and Research & Development to grow Managed Services & Support and Platform Services revenue. We expect this trend to continue and have a net positive impact on overall results of the operations.
Our top 5 customers accounted for 79%73% in quarter ended SeptemberJune 30, 20212022, and 88%85% in during quarter ended SeptemberJune 30, 2020,2021, respectively.
The following table has the breakdown of our revenues for the quarter ended SeptemberJune 30, 20212022, and 20202021 for each of our top 5 customers. SeveralTwo of the top 5 customers in 20212022 are not the same for 2020. However, F. Hoffmann-La Roche Ltd, a Swiss multinational healthcare company (“Customer 1”) and Customer 5 held those positions for both Quarter ended September 30, 2021 and 2020.2021.
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Top Five Customers Revenue for three months ended SeptemberJune 30, 20212022 and 20202021.
2022
(In thousands, except percentages) | ||||||||
Customer | Amount | % of Revenue | ||||||
Customer 1 | $ | 4,517 | 39 | % | ||||
Customer 2 | 1,744 | 15 | % | |||||
Customer 3 | 920 | 8 | % | |||||
Customer 4 | 845 | 7 | % | |||||
Customer 5 | $ | 440 | 4 | % |
2021
Customer | Amount | % of Revenue | |||||||
Customer 1 | $ | 2,004,478 | 25 | % | |||||
Customer 2 | 1,630,000 | 20 | % | ||||||
Customer 3 | 1,400,000 | 17 | % | ||||||
Customer 4 | 753,991 | 9 | % | ||||||
Customer 5 | $ | 623,665 | 8 | % |
2020
Customer | Amount | % of Revenue | |||||||
Customer 1 | $ | 4,448,401 | 60 | % | |||||
Customer 2 | 638,651 | 9 | % | ||||||
Customer 3 | 628,437 | 9 | % | ||||||
Customer 4 | 443,544 | 6 | % | ||||||
Customer 5 | $ | 295,366 | 4 | % |
Significance of Customer 1
We have been engaged by Customer since 2017 in their cloud transformation projects pursuant to an IT Master Procurement Agreement (“MSA”) effective as of May 1, 2017 between Customer 1 and the Parent. All of Parent’s rights and obligations under the MSA were transferred to us under the Asset Transfer Agreement. Initially we started with their cloud assessment and expanded to their cloud transformation journey. Our revenues are consistently growing with this customer as we continue to grow in our Managed Services and Support. While we are dependent on Customer 1 for a majority of our revenues, our revenues are from multiple projects within various divisions of Customer 1. In addition, we are continuously adding new customers and growing other existing customers to reduce our dependency on Customer 1.
Terms of Customer 1 Agreements
The MSA establishes the terms and conditions under which we supply Customer 1 with our services on each project, including, but not limited to, Customer 1’s intellectual property ownership rights, data privacy rights, representations and warranties and indemnification. The term of the MSA commences on the MSA Effective Date and continues until terminated by either party. Customer 1 may terminate the MSA for any reason with 30 days’ notice and we may terminate the MSA for cause with 30 days’ notice. The scope of work for each project and the compensation we receive is governed by a Statement of Work (“SOW”). Depending on the SOW, Customer 1 may terminate such SOW with either 30 days’ or 24 hour notice.
The summaries of the MSA and SOW are not complete descriptions of the provisions of the MSA and any particular SOW and are qualified in their entirety by reference to the MSA and form of SOW, each filed as an exhibit to the registration statement of which this prospectus is a part.
(In thousands, except percentages) | ||||||||
Customer | Amount | % of Revenue | ||||||
Customer 1 | $ | 5,038 | 50 | % | ||||
Customer 2 | 1,450 | 14 | % | |||||
Customer 3 | 960 | 10 | % | |||||
Customer 4 | 651 | 6 | % | |||||
Customer 5 | $ | 471 | 5 | % |
The following table provides details of Customer 1 revenue by operating segments:
Three Months Ended June 30, | Changes | |||||||||||||||||||||||||||||||
Three Months Ended September 30, | Changes | 2022 | 2021 | Amount | % | |||||||||||||||||||||||||||
2021 | 2020 | Amount | % | (In thousands, except percentages) | ||||||||||||||||||||||||||||
Software Services | $ | 1,164,970 | $ | 3,209,105 | $ | (2,044,135 | ) | (64 | %) | $ | 3,698 | $ | 3,189 | $ | 509 | 16 | % | |||||||||||||||
Managed Services and Support | 839,508 | 415,066 | 424,442 | 102 | % | 819 | 790 | 29 | 4 | % | ||||||||||||||||||||||
Platform Services | — | 824,230 | (824,230 | ) | (100 | %) | — | — | — | 0 | % | |||||||||||||||||||||
Total Revenue | $ | 2,004,478 | $ | 4,448,401 | $ | (2,443,923 | ) | (55 | %) | $ | 4,517 | $ | 3,979 | $ | 538 | 14 | % |
Revenue from Customer 1 decreasedincreased by $2.4$0.5 million, or 55%14% to $2$4.5 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $4.4$3.9 million for the quarter ended SeptemberJune 30, 2020.2021. Software services revenue decreasedincreased by $2$0.5 million or 64%16% to $1.2$3.7 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $3.2 million for the quarter ended SeptemberJune 30, 2020.2021. Managed Services and Support revenue increased by $0.4$0.02 million, or 102%4% to $0.8 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $0.4$0.79 million for the quarter ended SeptemberJune 30, 2020.2021. Revenue from Platform Services decreased by $0.8 million, or 100% to nil forcustomer 1 in 2021 mentioned in the quarter ended September 30, 2021, as compared to $0.8 million forabove table is not the quarter ended September 30, 2020.same customer mentioned in the top 5 customers of 2021.
37 |
Cost of Revenue (exclusive of depreciation /amortization)
Three Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Cost of Revenue (exclusive of depreciation /amortization) | $ | 5,351,748 | $ | 5,358,695 | $ | (6,947 | ) | 0 | % | |||||||
Three Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Cost of Revenue (exclusive of depreciation /amortization) | $ | 8,429 | $ | 6,704 | $ | 1,725 | 26 | % |
Cost of revenue, excluding depreciation and amortization decreasedincreased by $0.01$1.7 million, or 0%26%, to $5.3$8.4 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $5.3$6.7 million for the quarter ended SeptemberJune 30, 2020..2021.
Research and Development
Three Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Research & Development | $ | 2,204,030 | $ | 550,167 | $ | 1,653,863 | 301 | % | ||||||||
Three Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Research & Development | $ | 646 | $ | 813 | $ | (167 | ) | (21 | %) |
Research &and Development expenses increaseddecreased by $1.6$0.2 million, or 301% to $2.2 million for the quarter ended September 30, 2021, as compared21% to $0.6 million for the quarter ended SeptemberJune 30, 2020, this is primarily due2022, as compared to higher investments in Platform Development.$0.8 million for the quarter ended June 30, 2021.
Sales and Marketing
Three Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Sales and Marketing | $ | 1,328,399 | $ | 476,650 | $ | 851,749 | 179 | % |
Three Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Sales and Marketing | $ | 1,651 | $ | 805 | $ | 846 | 105 | % |
Sales and Marketing expenses increased by $0.8 million, or 179%105% to $1.3$1.6 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $0.5$0.8 million for the quarter ended SeptemberJune 30, 2020,2021, this is primarily due to additional investmentshead count in Sales and Marketing.
sales.
General and Administrative
Three Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
General and Administrative | $ | 753,338 | $ | 582,874 | $ | 170,464 | 29 | % |
Three Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
General and Administrative | $ | 1,451 | $ | 1,048 | $ | 403 | 38 | % |
General and Administrative expenses increased by $0.2$0.4 million, or 2938 % to $0.8$1.4 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $0.6$1 million for the quarter ended SeptemberJune 30, 2020,2021, this is primarily due to increase in stock-based compensation expenses. general liability insurance on account of becoming a public company.
38 |
Depreciation and amortization
Three Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Depreciation and amortization | $ | 211,328 | $ | 200,864 | $ | 10,464 | 5 | % |
Three Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Depreciation and amortization | $ | 844 | $ | 211 | $ | 632 | 300 | % |
Depreciation and amortization expenses increased by $0.01$0.6 million, or 5%300% to $0.2$0.8 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $0.2 million for the quarter ended SeptemberJune 30, 2020.2021.The increase in depreciation and amortization expenses is on account of Intangibles from the of acquisition of Devcool Inc.
Interest expense
Three Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Interest expense | $ | 220,634 | $ | 1,161 | $ | 219,473 | 18903 | % |
Three Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Interest expense | $ | 58 | $ | 164 | $ | (106 | ) | (65 | %) |
Interest expenses increaseddecreased by $0.2$0.1 million, or 18903%65% to $0.1 million for the quarter ended June 30, 2022, as compared to $0.2 million for the quarter ended SeptemberJune 30, 2021, this is primarily due to interest on convertible note in 2021 this was subsequently converted into equity at the time of IPO. The interest expenses during the current quarter represents interest on factoring facility availed during the current quarter.
Provision for Income Taxes
Three Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Income tax expense | $ | 1 | $ | 1 | $ | 0 | 4 | % |
Income tax expenses increased by nil, or 4% to $0.01 million for the quarter ended June 30, 2022, as compared to $0.01 million for the quarter ended SeptemberJune 30, 2020, this is primarily due to interest on convertible note.2021.This represent state taxes.
Provision for Income Taxes
Three Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Income tax expense | $ | 942 | $ | 51,340 | $ | (50,398 | ) | (98 | %) |
Income tax expenses decreased by $0.05 million, or 98% to $0.01 million for the quarter ended September 30, 2021, as compared to $0.05 million for the quarter ended September 30, 2020, this is primarily due to lower income before tax for nine months ended September 30, 2021.
Revenue, Cost of Revenue and Operating Profit by Operating Segment performance
We currently provide our services and manage our business under three operating segments which are Software Services, Managed Services and Support and Platform Services.
Three Months Ended June 30, | Changes | |||||||||||||||||||||||||||||||
Three Months Ended September 30, | Changes | 2022 | 2021 | Amount | % | |||||||||||||||||||||||||||
2021 | 2020 | Amount | % | (In thousands, except percentages) | ||||||||||||||||||||||||||||
Software Services | $ | 2,307,055 | $ | 2,560,460 | $ | (253,405 | ) | (10 | %) | $ | 6,585 | $ | 3,217 | $ | 3,368 | 105 | % | |||||||||||||||
Managed Services and Support | 4,673,173 | 3,975,870 | 697,303 | 18 | % | 3,903 | 5,304 | (1,401 | ) | (26 | %) | |||||||||||||||||||||
Platform Services | 1,098,120 | 824,230 | 273,890 | 33 | % | 1,100 | 1,529 | (429 | ) | (28 | %) | |||||||||||||||||||||
Revenue | $ | 8,078,348 | $ | 7,360,560 | $ | 717,788 | 10 | % | $ | 11,588 | $ | 10,050 | $ | 1,538 | 15 | % |
Revenue from Software Services decreasedincreased by $0.2$3.4 million, or 10%105% to $2.3$6.6 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $2.5$3.2 million for the quarter ended SeptemberJune 30, 2020. We faced delays in closing deals in the2021. Income from Software Services segment as customers optimized the costservices increased on account of supporting legacy systems during the pandemic.acquisition of Devcool Inc. The total customers serviced during the quarter ended SeptemberJune 30, 2021, dropped2022, increased to 2644 from 3227 for the quarter ended SeptemberJune 30, 2020.2021. Revenue from Managed Services and Support increaseddecreased by $0.7$1.4 million, or 18%26% to $4.7$3.9 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $4$5.3 million for the quarter ended SeptemberJune 30, 2020.2021. The growth inrevenue from Managed Services and Support revenue reflected our existing customers’ continued adoption and accelerationhas decreased on account of decrease in the demand for cloud technology. Revenuerevenue from Managed Services and Support include Cloud hosting revenue of $0.4 million and $2.4 million for the quarter ended September 30, 2021, and 2020, respectively.services. Revenue from Platform Services increaseddecreased by $0.3$0.4 million, or 33%28% to $1.1 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $0.8$1.5 million for the quarter ended SeptemberJune 30, 2020. Revenue from Platform Services increased due to increase in the number of customers to 3 for the quarters ended September 30, 2021 as compared to 1 for the quarter ended September 30, 2020.2021.
39 |
Factors affecting revenues of Software Services, Managed Services and Support and Platform Services
Our strategy is to achieve meaningful long-term revenue growth through sales of Managed Services and Support and Platform Services to existing and new clients within our target market. In order to increase our cross-selling opportunity between our operating segments and realize long time revenue growth, our focus has shifted more towards Managed Services and Support and Platform Services which is of recurring nature when compared to Software Services segment which is of non-recurring nature. This also helps in retaining existing customers by leveraging our Managed Services and Support and Platform Services as a growth agent. This renewed focus on driving demand for subscription and platform-based model will help us in expanding our customer base and enhance customer retention which is a challenge for our existing Software Services segment. Software Services contracts are driven by Time and Material and on siteon-site employees delivering services at customers location. This has been impacted due to COVID-19 restrictions in employee’s travel.
Our CloudEz, DataEz and DataEzReadabl.ai platforms are getting more traction, and this ledwill lead to increase in Managed Services and Support revenue.revenue from platform services. We have made additional investments in Sales & Marketing and Research & Development to grow Managed Services & Support and Platform Services revenue. We expect this trend to continue and have a net positive impact on overall results of operations.
Cost of Revenue
Three Months Ended June 30, | Changes | |||||||||||||||||||||||||||||||
Three Months Ended September 30, | Changes | 2022 | 2021 | Amount | % | |||||||||||||||||||||||||||
2021 | 2020 | Amount | % | (In thousands, except percentages) | ||||||||||||||||||||||||||||
Software Services | $ | 1,704,616 | $ | 2,033,409 | $ | (328,793 | ) | (16 | %) | $ | 5,145 | $ | 2,298 | $ | 2,847 | 124 | % | |||||||||||||||
Managed Services and Support | 3,207,548 | 2,756,936 | 450,612 | 16 | % | 2,618 | 3,865 | (1,247 | ) | (32 | %) | |||||||||||||||||||||
Platform Services | 439,584 | 568,350 | (128,766 | ) | (23 | %) | 666 | 541 | 125 | 23 | % | |||||||||||||||||||||
Cost of Revenue | $ | 5,351,748 | $ | 5,358,695 | $ | (6,947 | ) | 0 | % | $ | 8,429 | $ | 6,704 | $ | 1,725 | 26 | % |
Cost of Revenue from Software Services decreasedincreased by $0.3$2.8 million, or 16%124% to $1.7$5.1 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $2$2.3 million for the quarter ended SeptemberJune 30, 2020.2021. The dropincrease in cost of Software Services is due to lowerhigher Software Services revenue. Cost of Revenue from Managed Services and Support increaseddecreased by $0.5$1.2 million, or 16%32% to $3.2$2.6 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $2.7$3.8 million for the quarter ended SeptemberJune 30, 2020. The increase is on account of increase in the Managed Services and Support revenue driven by higher adoption of cloud hosting.2021. Cost of Revenue from Platform Services decreasedincreased by $0.1 million, or 23% to $0.4$0.6 million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $0.5 million for the quarter ended SeptemberJune 30, 2020. 2021.
40 |
Segment operating profitsprofits/(loss) by reportable segment were as follows:
Three Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Software Services | $ | 80,775 | $ | 158,482 | $ | (77,707 | ) | (49 | %) | |||||||
Managed Services and Support | 1,465,626 | 1,218,935 | 246,691 | 20 | % | |||||||||||
Platform Services | (1,545,495 | ) | (294,288 | ) | (1,251,207 | ) | (425 | %) | ||||||||
Total segment operating profit | 906 | 1,083,129 | (1,082,223 | ) | (100 | %) | ||||||||||
Less: unallocated costs | 1,771,401 | 891,820 | 879,581 | 99 | % | |||||||||||
Income from operations | (1,770,495 | ) | 191,309 | (1,961,804 | ) | (1025 | %) | |||||||||
Interest expense | 220,634 | 1,161 | 219,473 | 18903 | % | |||||||||||
Net income (loss) before income tax expenses | $ | (1,991,129 | ) | $ | 190,148 | $ | (2,181,277 | ) | (1147 | %) |
Three Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
Software Services | $ | (321 | ) | $ | 521 | $ | (842 | ) | (161 | %) | ||||||
Managed Services and Support | 1,284 | 1,441 | (157 | ) | (11 | %) | ||||||||||
Platform Services | (212 | ) | 174 | (386 | ) | (222 | %) | |||||||||
Total segment operating profit | 751 | 2,136 | (1,385 | ) | (65 | %) | ||||||||||
Less: unallocated costs | 2,184 | 1,667 | (517 | ) | (31 | %) | ||||||||||
Income/(loss) from operations | (1,433 | ) | 469 | (1,902 | ) | (406 | %) | |||||||||
Other Income | 1,087 | — | 1,087 | 100 | % | |||||||||||
Interest expense | 58 | 164 | 106 | 65 | % | |||||||||||
Net income / (loss) before income tax expenses | $ | (404 | ) | $ | 305 | $ | (709 | ) | (232 | %) |
Operating profitloss from Software Services decreasedincreased by $0.1$0.8 million, or 49%162% to $0.08$(0.3) million for the quarter ended SeptemberJune 30, 2021,2022, as compared to $0.2operating profit of $0.5 million for the quarter ended SeptemberJune 30, 2020, mainly due to reduction in the Software Services revenue.2021. Operating profit from Managed Services and Support increaseddecreased by $0.2 million, or 20% to $1.5 million for the quarter ended September 30, 2021, as compared11% to $1.2 million for the quarter ended SeptemberJune 30, 2020, mainly due2022, as compared to increase in revenue.$1.4 million for the quarter ended June 30, 2021. Operating loss from Platform Services increased by $1.2$(0.4) million, or 425%222% to $(1.5)$(0.2) million for the quarter ended SeptemberJune 30, 2021,2022, as compared to ($0.3)operating profit of $0.2 million for the quarter ended SeptemberJune 30, 2020 due to increase in cost from Platform Services.
2021.
NineSix Months Ended SeptemberJune 30, 20212022 and 2020June 30, 2021
Revenue from operations
Nine Months Ended September 30, | Changes | |||||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||||
Revenue | $ | 26,080,914 | $ | 22,344,093 | $ | 3,736,821 | 17 | % |
Six Months Ended June 30, | Changes | ||||||||||||||||
2022 | 2021 | Amount | % | ||||||||||||||
(In thousands, except percentages) | |||||||||||||||||
Revenue | $ | 22,644 | $ | 18,003 | $ | 4,641 | 26 | % |
Revenue increased by $3.7$4.6 million, or 17%26% to $26$22.6 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $22.3$18 million for the ninesix months ended SeptemberJune 30, 2020.2021. Revenue from Managed Services and Support has increased more than the decrease in the revenue from Software Services which resultedhas increased resulting in net increase in revenue. The Software Services are typically short-term engagements to provide software consulting and development services, which do not require continual third-party maintenance. Managed Services and Support such as IT cloud hosting and support call for services on a continuous basis and allow for strengthening of client relationships which can lead to additional engagements from the client. Therefore, theThe Company is determined to focus on increasing the Managed Services & Support and Platform Services revenue to enhance our relationship and long-term engagement with our customers. We have made additional investments in Sales & Marketing and Research & Development to grow Managed Services & Support and Platform Services revenue. We expect this trend to continue and have a net positive impact on overall results of the operations.
Our top 5 customers accounted for 75% of revenue during the nine73% in six months ended SeptemberJune 30, 20212022, and 80%84% in during the ninesix months ended SeptemberJune 30, 2020,2021, respectively.
The following table has the breakdown of our revenues for the ninesix months ended SeptemberJune 30, 20212022, and 20202021 for each of our top 5 customers. SeveralTwo of the top 5 customers in 20212022 are not the same for 2020. However, Customer 1 and Customer 5 held those positions for both nine months ended September 30, 2021 and 2020.2021.
41 |
Top Five Customers’Customers Revenue for ninesix months ended SeptemberJune 30, 20212022 and 2021.
Customer | Amount | % of Revenue | |||||||
Customer 1 | $ | 11,295,093 | 44 | % | |||||
Customer 2 | 2,604,726 | 10 | % | ||||||
Customer 3 | 2,131,360 | 8 | % | ||||||
Customer 4 | 1,799,010 | 7 | % | ||||||
Customer 5 | $ | 1,630,000 | 6 | % |
Top Five Customers’ Revenue for nine months ended September 30, 20202022
(In thousands, except percentages) | (In thousands, except percentages) | ||||||||||||||||
Customer | Customer | Amount | % of Revenue | Amount | % of Revenue | ||||||||||||
Customer 1 | $ | 12,912,514 | 58 | % | $ | 8,350 | 37 | % | |||||||||
Customer 2 | 1,798,496 | 8 | % | 3,709 | 16 | % | |||||||||||
Customer 3 | 1,445,472 | 6 | % | 1,886 | 8 | % | |||||||||||
Customer 4 | 1,032,207 | 5 | % | 1,744 | 8 | % | |||||||||||
Customer 5 | $ | 768,345 | 3 | % | $ | 912 | 4 | % |
2021
(In thousands, except percentages) | ||||||||
Customer | Amount | % of Revenue | ||||||
Customer 1 | $ | 9,291 | 52 | % | ||||
Customer 2 | 1,851 | 10 | % | |||||
Customer 3 | 1,799 | 10 | % | |||||
Customer 4 | 1,508 | 8 | % | |||||
Customer 5 | $ | 754 | 4 | % |
The following table provides details of Customer 1 revenue by operating segments:
Six Months Ended June 30, | Changes | |||||||||||||||||||||||||||||||
Nine Months Ended September 30, | Changes | 2022 | 2021 | Amount | % | |||||||||||||||||||||||||||
2021 | 2020 | Amount | % | (In thousands, except percentages) | ||||||||||||||||||||||||||||
Software Services | $ | 2,616,402 | $ | 2,017,745 | $ | 598,657 | 30 | % | $ | 6,712 | $ | 6955 | $ | (243 | ) | (4 | %) | |||||||||||||||
Managed Services and Support | 8,161,437 | 8,580,934 | (419,497 | ) | (5 | %) | 1,638 | 1558 | 80 | 5 | % | |||||||||||||||||||||
Platform Services | 517,254 | 2,313,835 | (1,796,581 | ) | (78 | %) | — | — | ||||||||||||||||||||||||
Total Revenue | $ | 11,295,093 | $ | 12,912,514 | $ | (1,617,421 | ) | (13 | %) | $ | 8,350 | $ | 8513 | $ | (163 | ) | (2 | %) |
Revenue from Customer 1 decreased by $1.6$(0.2) million, or 13%2% to $11.3$8.3 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $12.9$8.5 million for the ninesix months ended SeptemberJune 30, 2020.2021. Software Servicesservices revenue increaseddecreased by $0.6$(0.2) million or 30%(4%) to $2.6$6.7 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $2$6.9 million for the ninesix months ended SeptemberJune 30, 2020.2021. Managed Services and Support revenue decreasedincreased by $0.4$0.08 million, or 5% to $8.2$1.6 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $8.6$1.5 million for the ninesix months ended SeptemberJune 30, 2020.2021. Revenue from Platform Services decreased by $1.8 million, or 78% to $0.5 million forcustomer 1 in 2021 mentioned in the nine months ended September 30, 2021, as compared to $2.3 million forabove table is not the nine months ended September 30, 2020.same customer mentioned in the top 5 customers of 2021.
Cost of Revenue (exclusive of depreciation /amortization)
Nine Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Cost of Revenue (exclusive of depreciation /amortization) | $ | 17,828,791 | $ | 16,162,776 | $ | 1,666,015 | 10 | % |
Six Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Cost of Revenue (exclusive of depreciation /amortization) | $ | 16,591 | $ | 12,477 | $ | 4,114 | 33 | % |
Cost of revenue, excluding depreciation and amortization increased by $1.7$4.1 million, or 10%33%, to $17.8$16.6 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $16.1$12.5 million for the ninesix months ended SeptemberJune 30, 2020. The increase was primarily due to increase in Managed Services and Support cost for nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.2021.
42 |
Research and Development
Six Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Research & Development | $ | 1,712 | $ | 1,571 | $ | 141 | 9 | % |
Nine Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Research & Development | $ | 3,774,712 | $ | 1,469,416 | $ | 2,305,296 | 157 | % |
Research &and Development expenses increased by $2.3$0.1 million, or 157%9% to $3.8$1.7 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $1.5$1.6 million for the ninesix months ended SeptemberJune 30, 2020, this is primarily due to additional investments in Platform Development.
2021.
Sales and Marketing
Nine Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Sales and Marketing | $ | 2,801,188 | $ | 1,103,486 | $ | 1,697,702 | 154 | % |
Six Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Sales and Marketing | $ | 3,391 | $ | 1,473 | $ | 1,918 | 130 | % |
Sales and Marketing expenses increased by $1.6$1.9 million, or 154%130% to $2.8$3.4 million for the the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $1.1$1.5 million for the ninesix months ended SeptemberJune 30, 2020,2021, this is this is primarily due to additional investmentsheadcount in Sales and Marketing.sales.
General and Administrative
Nine Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
General and Administrative | $ | 3,061,785 | $ | 2,326,341 | $ | 735,444 | 32 | % |
Six Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
General and Administrative | $ | 2,802 | $ | 2,308 | $ | 494 | 21 | % |
General and Administrative expenses increased by $0.7$0.5 million, or 3221 % to $ 3.0$2.8 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $2.3 million for the ninesix months ended SeptemberJune 30, 2020,2021, this is primarily due to increase in stock-based compensation expenses.general liability insurance on account of becoming a public company.
Depreciation and amortization
Nine Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Depreciation and amortization | $ | 633,290 | $ | 603,567 | $ | 29,723 | 5 | % |
Six Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Depreciation and amortization | $ | 1,555 | $ | 422 | $ | 1,133 | 269 | % |
Depreciation and amortization expenses increased by $0.03$1.1 million, or 5%269% to $0.63$1.5 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $0.60$0.4 million for the ninesix months ended SeptemberJune 30, 2020.2021. The increase in depreciation and amortization expenses is on account of Intangibles from the of acquisition of Devcool Inc.
43 |
Interest expense
Nine Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Interest expense | $ | 479,849 | $ | 24,920 | $ | 454,929 | 1,826 | % |
Six Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Interest expense | $ | 74 | $ | 259 | $ | (185 | ) | (71 | %) |
Interest expenses increaseddecreased by $0.4$(0.2) million, or 1826%71% to $0.5$0.1 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $0.02$0.3 million for the ninesix months ended SeptemberJune 30, 2020,2021, this is primarily due to interest on convertible note.note in 2021 this was subsequently converted into equity at the time of IPO. The interest expenses during the current quarter represents interest on factoring facility availed during the current quarter.
Provision for Income Taxes
Nine Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Income tax expense | $ | 4,759 | $ | 176,605 | $ | (171,846 | ) | (97 | %) |
Six Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
Income tax expense | $ | 22 | $ | 4 | $ | 18 | 450 | % |
Income tax expenses decreasedincreased by $0.2 million,$0.02, or 97%478% to $0.01$0.02 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $0.2$0.001 million for the ninesix months ended SeptemberJune 30, 2020, this is primarily due to lower income before tax for nine months ended September 30, 2021.2021.This represent state taxes.
Revenue, Cost of Revenue and Operating Profit by Operating Segment performance
We currently provide our services and manage our business under three operating segments which are Software Services, Managed Services and Support and Platform Services.
Six Months Ended June 30, | Changes | |||||||||||||||||||||||||||||||
Nine Months Ended September 30, | Changes | 2022 | 2021 | Amount | % | |||||||||||||||||||||||||||
2021 | 2020 | Amount | % | (In thousands, except percentages) | ||||||||||||||||||||||||||||
Software Services | $ | 8,248,478 | $ | 9,715,209 | $ | (1,466,731 | ) | (15 | %) | $ | 12,041 | $ | 5,941 | $ | 6,100 | 103 | % | |||||||||||||||
Managed Services and Support | 14,203,583 | 10,315,049 | 3,888,534 | 38 | % | 8,172 | 9,531 | (1,359 | ) | (14 | %) | |||||||||||||||||||||
Platform Services | 3,628,853 | 2,313,835 | 1,315,018 | 57 | % | 2,431 | 2,531 | (100 | ) | (4 | %) | |||||||||||||||||||||
Revenue | $ | 26,080,914 | $ | 22,344,093 | $ | 3,736,821 | 17 | % | $ | 22,644 | $ | 18,003 | $ | 4,641 | 26 | % |
Revenue from Software Services decreasedincreased by $1.5$6.1 million, or 15%103% to $8.2$12 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $9.7$5.9 million for the ninesix months ended SeptemberJune 30, 2020. We faced delays in closing deals in the2021. Income from Software Services segment as customers optimized the costservices increased on account of supporting legacy systems during the pandemic.acquisition of Devcool Inc. The total customers serviced during the ninesix months ended SeptemberJune 30, 2021, reduced2022, increased to 2644 from 3227 for the ninesix months ended SeptemberJune 30, 2020.2021. Revenue from Managed Services and Support increaseddecreased by $3.9$1.4 million, or 38%14% to $14.2$8.1 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $10.3$9.5 million for the ninesix months ended SeptemberJune 30, 2020.2021. The growth inrevenue from Managed Services and Support revenue reflected our existing customers’ continued adoption and accelerationhas decreased on account of decrease in the demand for cloud technology. Revenuerevenue from Managed Services and Support include Cloud hosting revenue of $7.3 million and $6.8 million for the nine months ended September 30, 2021, and 2020, respectively.services. Revenue from Platform Services increaseddecreased by $1.3$0.1 million, or 57%4% to $3.6$2.4 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $2.3$2.5 million for the ninesix months ended SeptemberJune 30, 2020. Revenue from Platform Services increased due to increase in the number of customers to 3 for the nine months ended September 30, 2021 as compared to 1 for the nine months ended September 30, 2020.2021.
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Factors affecting revenues of Software Services, Managed Services and Support and Platform Services
Our strategy is to achieve meaningful long-term revenue growth through sales of Managed Services and Support and Platform Services to existing and new clients within our target market. In order to increase our cross-selling opportunity between our operating segments and realize long time revenue growth, our focus has shifted more towards Managed Services and Support and Platform Services which is of recurring nature when compared to Software Services segment which is of non-recurring nature. This also helps in retaining existing customers by leveraging our Managed Services and Support and Platform Services as a growth agent. This renewed focus on driving demand for subscription and platform-based model will help us in expanding our customer base and enhance customer retention which is a challenge for our existing Software Services segment. Software Services contracts are driven by Time and Material and on siteon-site employees delivering services at customers location. This has been impacted due to COVID-19 restrictions in employee’s travel.
Our CloudEz, DataEz and DataEzReadabl.ai platforms are getting more traction, and this ledwill lead to increase in Managed Services and Support revenue.revenue from platform services. We have made additional investments in Sales & Marketing and Research & Development to grow Managed Services & Support and Platform Services revenue. We expect this trend to continue and have a net positive impact on overall results of the operations.
Cost of Revenue
Six Months Ended June 30, | Changes | |||||||||||||||||||||||||||||||
Nine Months Ended September 30, | Changes | 2022 | 2021 | Amount | % | |||||||||||||||||||||||||||
2021 | 2020 | Amount | % | (In thousands, except percentages) | ||||||||||||||||||||||||||||
Software Services | $ | 5,925,652 | $ | 7,054,549 | $ | (1,128,897 | ) | (16 | %) | $ | 9,455 | $ | 4,221 | $ | 5,234 | 124 | % | |||||||||||||||
Managed Services and Support | 10,409,624 | 7,645,808 | 2,763,816 | 36 | % | 5,633 | 7,202 | (1,569 | ) | (22 | %) | |||||||||||||||||||||
Platform Services | 1,493,515 | 1,462,419 | 31,096 | 2 | % | 1,503 | 1,054 | 449 | 43 | % | ||||||||||||||||||||||
Cost of Revenue | $ | 17,828,791 | $ | 16,162,776 | $ | 1,666,015 | 10 | % | $ | 16,591 | $ | 12,477 | $ | 4,114 | 33 | % |
Cost of Revenue from Software Services decreasedincreased by $1.1$5.2 million, or 16%124% to $5.9$9.4 million for the nine monthshalfyear ended SeptemberJune 30, 2021,2022, as compared to $7.1$4.2 million for the ninesix months ended SeptemberJune 30, 2020.2021. The dropincrease in cost of Software Services is due to lowerhigher Software Services revenue. Cost of Revenue from Managed Services and Support increaseddecreased by $2.7$1.6 million, or 36%22% to $10.4$5.6 million for the nine monthshalfyear ended SeptemberJune 30, 2021,2022, as compared to $7.6$7.2 million for the nine monthshalfyear ended SeptemberJune 30, 2020. The increase is on account of increase in the Managed Services and Support revenue driven by higher adoption of cloud hosting.2021. Cost of Revenue from Platform Services increased by $0.03$0.4 million, or 2%43% to $1.4$1.5 million for the nine monthshalfyear ended SeptemberJune 30, 2021,2022, as compared to $1.4 million for the nine months ended September 30, 2020.
Nine Months Ended September 30, | Changes | |||||||||||||||
2021 | 2020 | Amount | % | |||||||||||||
Software Services | $ | 1,069,703 | $ | 1,369,035 | $ | (299,332 | ) | (22 | %) | |||||||
Managed Services and Support | 3,793,958 | 2,669,241 | 1,124,717 | 42 | % | |||||||||||
Platform Services | (1,639,374 | ) | (618,000 | ) | (1,021,374 | ) | (165 | %) | ||||||||
Total segment operating profit | 3,224,287 | 3,420,276 | (195,989 | ) | (6 | %) | ||||||||||
Less: unallocated costs | 5,243,139 | 2,741,769 | 2,501,370 | 91 | % | |||||||||||
Income from operations | (2,018,852 | ) | 678,507 | (2,697,359 | ) | (398 | %) | |||||||||
Interest expense | 479,849 | 24,920 | 454,929 | 1826 | % | |||||||||||
Net income (loss) before income tax expenses | $ | (2,498,701 | ) | $ | 653,587 | $ | (3,152,288 | ) | (482 | %) |
Operating profit from Software Services decreased by $0.3 million, or 22% to $1.1 million for the ninesix months ended SeptemberJune 30, 2021,2021.
Segment operating profits/(loss) by reportable segment were as follows:
Six Months Ended June 30, | Changes | |||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||
Software Services | $ | (521 | ) | $ | 989 | $ | (1,510 | ) | (153 | %) | ||||||
Managed Services and Support | 2,538 | 2,328 | 210 | 9 | % | |||||||||||
Platform Services | (784 | ) | (94 | ) | (690 | ) | (734 | %) | ||||||||
Total segment operating profit | 1,233 | 3,223 | (1,990 | ) | (62 | %) | ||||||||||
Less: unallocated costs | 4,640 | 3,471 | (1,169 | ) | (34 | %) | ||||||||||
Income / (loss) from operations | (3,407 | ) | (248 | ) | (3,159 | ) | (1274 | %) | ||||||||
Other Income | 1,087 | — | 1,087 | 100 | % | |||||||||||
Interest expense | 74 | 259 | 185 | 71 | % | |||||||||||
Net income / (loss) before income tax expenses | $ | (2,394 | ) | $ | (507 | ) | $ | (1,887 | ) | (372 | %) |
Operating loss from Software Services increased by $(1.5) million, or 153% to $(0.5) million for the six months ended June 30, 2022, as compared to $1.4operating profit of $1 million for the nine monthshalfyear ended SeptemberJune 30, 2020, mainly due to reduction in the Software Services revenue.2021. Operating profit from Managed Services and Support increased by $1.1$0.2 million, or 42%9% to $ 3.8$2.5 million for the nine monthshalfyear ended SeptemberJune 30, 2021,2022, as compared to $2.7$2.3 million for the nine monthshalfyear ended SeptemberJune 30, 2020, mainly due to increase in Managed Services and Support revenue.2021. Operating loss from Platform Services increased by $1$(0.7) million, or 165%734% to $(1.6)$(0.8) million for the nine monthshalfyear ended SeptemberJune 30, 2021,2022, as compared to $(0.6)$0.1 million for the ninesix months ended SeptemberJune 30, 2020 due to increase in cost from Platform Services.2021.
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Liquidity and Capital Resources
Liquidity
As of December 31, 2020 | As of September 30, 2021 | As of September 30, 2020 | ||||||||||
Cash and cash equivalents | $ | 1,402,700 | $ | 1,148,429 | $ | 174,955 | ||||||
Short-term investments | — | — | — | |||||||||
Total cash, cash equivalents and short-term investments | $ | 1,402,700 | $ | 1,148,429 | $ | 174,955 |
As of December 31, 2020 | As of September 30, 2021 | As of September 30, 2020 | ||||||||||
Cash flows provided by operating activities | $ | (734,673 | ) | $ | (3,877,388 | ) | $ | (2,001,889 | ) | |||
Cash flows used in investing activities | (477,457 | ) | 50,354 | 18,617 | ||||||||
Cash flows provided by financing activities | 1,640,000 | 3,673,470 | 1,183,395 | |||||||||
Net increase in cash and cash equivalents | $ | 427,870 | $ | (254,271 | ) | $ | (799,877 | ) |
As of SeptemberThe current ratio measures a company's ability to pay off its current liabilities (payable within one year) with its total current assets such as cash, accounts receivable, and inventories. The higher the ratio, the better the company's liquidity position. A good current ratio is between 1.2 to 2 which means that a business has 2 times more current assets than liabilities to covers its debts. The Company’s current ratio, based on the three months ended June 30, 2021, our principal sources of liquidity2022, financial statement is 1.4 compared to 1.9 for working capital purposes were cash, cash equivalents and short-term investments totaling $1.1 million.the financial year ended December 31, 2021.
WeThe Company’s current debt equity ratio, based on the three months ended June 30, 2022, financial statement is 0.23, for the halfyear ended June 30, 2022, compared to 0.21 for the halfyear ended December 31, 2021. A debt-to-equity ratio below 1 means that a company has lower exposure to debts than equity.
The Company does not have financed our operations primarily through financing activityinventory and operating cash flows. hence the quick ratio is the same as current ratio.
We believe our existing cash, cash equivalents and short-term investments generated from operationsamounts available under our credit facilities will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months. Our futuremonths, though we may require additional capital requirements will depend on many factors including our growth rate, subscription renewal activity,resources in the expansion of sales and marketing activities and the ongoing investments in platform development.future.
Sources of Liquidity
As of SeptemberJune 30, 2021,2022, our principal sources of liquidity consisted of cash and cash equivalents of $1.1 million which was mainly on account of raising debt to the extent of $2.6 million during the period.$1.3 million. We believe that our cash and cash equivalents as of SeptemberJune 30, 2021,2022, and the future operating cash flows of the entity will provide adequate resources to fund ongoing cash requirements for the next twelve months. If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations during the next twelve months, we may be required to obtain additional sources of funds through additional operational improvements, capital market transactions, asset sales or financing from third parties, a combination thereof or otherwise. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms.
As of June 30, 2022 | As of June 30, 2021 | |||||||
(In thousands) | ||||||||
Cash and cash equivalents | $ | 1,363 | $ | 3,017 | ||||
Short-term investments | — | — | ||||||
Total cash, cash equivalents and short-term investments | $ | 1,363 | $ | 3,017 |
As of June 30, 2022, our principal sources of liquidity for working capital purposes were cash, cash equivalents and short-term investments totalling $1.3 million.
We have financed our operations primarily through financing activity and operating cash flows. We believe our existing cash, cash equivalents and short-term investments generated from operations will be sufficient to meet our working capital over the next 12 months. Our future capital requirements will depend on many factors including our growth rate, subscription renewal activity, the expansion of sales and marketing activities and the ongoing investments in platform development.
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Cash Flows
The following table presents a summary of our consolidated cash flows provided by (used in) operating, investing, and financing activities for the periods indicated:
As of June 30, 2022 | As of June 30, 2021 | |||||||
(In thousands) | ||||||||
Cash flows provided by operating activities | $ | 602 | $ | (3,486 | ) | |||
Cash flows used in investing activities | (2,022 | ) | (40 | ) | ||||
Cash flows provided by financing activities | 1,013 | 3,673 | ||||||
Net increase in cash and cash equivalents | $ | (407 | ) | $ | 147 |
Operating Activities
NetCash provided/(used) by operating activities during the six months ended June 30, 2022 was $0.6 million compared to $(3.4) million for the six months ended June 30, 2021. The increase in cash used inflows from operating activities was $(3.9) million for the nine months ended September 30, 2021, and netmostly due to an increase in cash usedcollected from operations was $ (2.0) million for the nine months ended September 30, 2020.our customers.
Investing Activities
Net cash used in investing activities was $0.05$(2.02) million for the ninesix months ended SeptemberJune 30, 2021,2022, and $0.01$0.004 million for the ninesix months ended SeptemberJune 30, 2020.2021. The increase was on account of purchase of intangible.
Financing Activities
Cash flows(outflow)/inflow from financing activities was $3.7$(1) million for the ninesix months ended SeptemberJune 30, 20212022 and $1.2$3.6 million for the ninesix months ended SeptemberJune 30, 2020.2021. The company repaid the entire loan availed at the time of acqisiton of Devcool Inc in December 2021. During the year 2020, weprevious period, the company raised an aggregate amountconvertible note of $1.6$3.6 million by issuing convertible promissory notes to various investors in a private exempted offering.
In addition, we raised approximately $1.7 million on January 13, 2021 and $0.9 million on February 10, 2021 by issuing convertible promissory notes to various investors in a private exempted offering and PPP loanwhich was subsequently converted into equity at the time of $1.1 million for the nine months ended September 30, 2021. Total principal amount of convertible promissory notes issued is $4.2 million. These notes carry an interest rate of 10% per annum payable quarterly.
IPO.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes as defined by Item 303(a)(4) of SEC Regulation S-K, as of SeptemberJune 30, 2021. 2022.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We did not have investments and do not utilize derivative financial instruments to manage our interest rate risks.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We, under the supervisionssupervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of SeptemberJune 30, 2021.2022.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting during the three months ended SeptemberJune 30, 2021,2022, that have materially affected, or are reasonable likely to materially effect, our internal controls over financial reporting.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are involved in routine litigation that arises in the ordinary course of business. We are not currently involved in any claims outside the ordinary course of business that are material to our financial condition or results of operations.
Item 1A. Risk Factors.
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our ProspectusAnnual Report on Form 10-K , filed with the SEC on October 14, 2021, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.March 8, 2022. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not Applicable
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Mine Safety Disclosures.
Not Applicable
Item 5. Other Information
None
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Item 6. Exhibits
EXHIBIT INDEX
*Filed herewith
+ Furnished
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HEALTHCARE TRIANGLE, INC. | ||
Date: | /s/ Suresh Venkatachari | |
Suresh Venkatachari | ||
Date: August 08, 2022 | ||
/s/ Thyagarajan Ramachandran | ||
Thyagarajan Ramachandran | ||
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