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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 September 30, 2023

 

☐ 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

 

HEALTHCARE 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.)
   
7901 Stoneridge Drive, Suite 220 Pleasanton, 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

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 ☒  No ☐

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 company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒

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 Act).

Yes ☐  No ☒

As of November 13, 2023, 4,277,572 shares of the registrant’s common stock, $0.00001 par value per share, were issued and outstanding.

 1 

 

Note About Forward-Looking Statements 3
PART I – FINANCIAL INFORMATION  
Item 1. Financial statements 5
Unaudited Condensed Consolidated Balance sheets 5
Unaudited Condensed Consolidated Statements of Operations   6
Unaudited Condensed Consolidated Statements of Stockholders' Equity 7
Unaudited Condensed Consolidated Statements of Cash Flows 8
Notes to Unaudited Condensed Consolidated Financial Statements 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
Item 3. Quantitative and Qualitative Disclosures About Market Risk 42
Item 4. Controls and Procedures 42
PART II - OTHER INFORMATION  
Item 1. Legal Proceedings 43
Item 1A. Risk Factors 43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 43
Item 3. Defaults Upon Senior Securities 43
Item 4. Mine Safety Disclosures 43
Item 5. Other Information 43
Item 6. Exhibits 44
Signatures 45

 2 

 

 

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:

•   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;
 3 

 

•   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.

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 confirm 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.

 4 

 

PART I

FINANCIAL INFORMATION

Item 1. Financial statements

HEALTHCARE TRIANGLE, INC.

Condensed Consolidated Balance Sheets

 

       
   September 30,  December 31,
   2023  2022
   (Unaudited)  (Audited)
   (In thousands)
Assets      
Current assets          
Cash and cash equivalents  $75   $1,341 
Accounts receivable   4,196    5,592 
Other current assets   622    816 
Total current assets   4,893    7,749 
Property and equipment, net   49    80 
Intangible assets, net   8,220    10,570 
Goodwill   1,289    1,289 
Due from affiliates   15    1,075 
Total assets  $14,466   $20,763 
           
Liabilities and stockholders' equity          
Current liabilities          
Accounts payable  $1,161   $1,481 
Warrant liability   795    55 
Short term borrowing   3,479    2,412 
Other current liabilities   1,417    2,200 
Total current liabilities   6,852    6,148 
           
Long-term liabilities          
Contingent consideration   1,487    2,227 
Total current and long-term liabilities   8,339    8,375 
           
Stockholders' equity          
Preferred stock, par value $0.00001; 10,000,000 authorized   —      —   
Series A, Super Voting Preferred Stock - 6,000 shares (1,000 votes per share)   0      0 
Common stock, par value $0.00001; 100,000,000 authorized 4,277,572  and 4,170,953 shares issued and outstanding as of September 30, 2023 and December 31, 2022 respectively   0      0 
Additional paid-in capital   25,703    24,956 
Retained earnings/(deficit)   (19,576)   (12,568)
Total stockholders' equity   6,127    12,388 
Total liabilities and stockholders' equity  $14,466   $20,763 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 5 

 

 

HEALTHCARE TRIANGLE, INC.

Condensed Consolidated Statements of Operations

 

             
   Three Months Ended
September 30,		  Nine Months Ended
September 30,
   2023  2022  2023  2022
   (In thousands)  (In thousands)
Net revenue  $7,779   $11,950   $26,143   $34,594 
Cost of revenue (exclusive of depreciation and amortization shown separately below)   6,072    8,522    20,896    25,113 
Operating expenses                    
Research and development   54    1,471    695    3,183 
Sales and marketing   1,101    1,815    3,888    5,206 
General and administrative   1,364    1,480    4,604    4,282 
Depreciation and amortization   712    909    2,388    2,464 
Total operating expenses   3,231    5,675    11,575    15,135 
Loss from operations   (1,524)   (2,247)   (6,328)   (5,464)
Other income             12    1,087
Interest expense   (415)   (55)   (663)   (129)
Loss before income tax   (1,939)   (2,302)   (6,979)   (4,696)
Provision for income tax   (4)   (37)   (28)   (51)
Net loss  $(1,943)  $(2,339)  $(7,007)  $(4,747)
Net loss per common share—basic and diluted   (0.46)   (0.64)   (1.66)   (1.31)
Weighted average shares outstanding used in per common share computations:                    
Basic and diluted   4,228,340    3,602,289    4,228,340    3,602,289 
                     
The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 6 

 

 

HEALTHCARE TRIANGLE, INC.

 Condensed Consolidated Statements of Changes in Stockholders' Equity

 

                      
   Preferred stock  Common stock         
   Shares  Amount  Shares  Amount  Additional paid-in capital  Retained earnings  Total stockholders’ equity
               (In thousands)
Three Months Ended September 30, 2023 and 2022               
Balance at June 30, 2023   6,000   $1    4,277,863   $0   $25,683   $(17,632)  $8,051 
Net loss                           $(1,943)  $(1,943)
Preferential issue        —      —     $0   $—      —     $—   
Issue of stock options (ISO/NSO)                  —     $20    —     $20 
Shares issued for services        —      —     $—      —      —     $0 
Adjustment        —      (291)        —      —      —   
Balance at September 30, 2023   6,000   $1    4,277,572   $0   $25,703   $(19,575)  $6,127 
                                    
Nine Months Ended September 30, 2023 and 2022                                   
Balance at December 31, 2022   6,000   $1    4,170,940   $0   $24,956   $(12,568)  $12,388 
Issue of stock options (ISO/NSO)                       197        $197 
Preferential issue        —      76,923   $0   $499        $499 
Shares issued for services        —      30,000    0   $51        $51 
Net loss         —      —      —      —     $(7,007)  $(7,007)
Adjustments        —      (291)   —      —      —      —   
Balance at September 30, 2023   6,000   $1    4,277,572    0    25,703    (19,575)   6,127 
                                    
Three Months Ended September 30, 2022                                   
Balance at June 30, 2022   6,000   $1    3,553,667   $0   $19,186   $(5,080)  $14,106 
Stock compensation expenses                       13         13 
Net loss                            (2,339)   (2,339)
Issuance of common stock in connection with private placement        —      393,000    —      3,580         3,580 
Issuance of warrants in connection with private placement                       2,308         2,308 
Common stock repurchased                       (91)       $(91)
Balance at September 30, 2022   6,000   $1    3,946,667   $0   $24,996   $(7,419)  $17,577 
                                    
Nine Months Ended September 30, 2022                                   
Balance at December 31, 2021   6,000   $1    3,526,083   $0   $18,799   $(2,664)  $16,135 
Stock compensation expenses                       40    (8)  $32 
Cash collected on common stock options        —      2,614   $0    10        $10 
Shares issued for services        —      24,970   $0    350        $350 
Net loss                            (4,747)  $(4,747)
Issuance of common stock in connection with private placement        —      393,000   $0    3,580        $3,580 
Common stock repurchased                       (91)       $(91)
Issuance of warrants in connection with private placement                       2,308         2,308 
Balance at September 30, 2022   6,000   $1    3,946,667   $0   $24,996   $(7,419)  $17,577 
                                    
The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 7 

 

 

HEALTHCARE TRIANGLE, INC.

Condensed Consolidated Statements of Cash Flows

 

       
   Nine Months Ended
September 30,
   2023  2022
   (In thousands)
Cash flows from operating activities          
Net income (loss)  $(7,007)  $(4,747)
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities          
Depreciation and amortization   2,388    2,464 
Common stock issued for services   51    350 
Income from PPP   —      (1,069)
Stock compensation expenses   194    40 
Changes in operating assets and liabilities:          
(Increase)/ decrease in:          
Accounts receivable   1,396    2,970 
Other current assets   195    129 
Due from related party   1,060    (134)
Increase/ (decrease) in:          
Accounts payable and accrued expenses   (320)   (405)
Other current liabilities   (783)   176 
Payment of lease liability   —      (146)
Net cash provided by/ (used in) operating activities   (2,826)   (372)
Cash flows from investing activities          
(Purchase)/sale of property and equipment   (7)   (26)
Increase in intangible assets   —      (3,279)
Net cash provided by/ (used in) investing activities   (7)   (3,305)
Cash flows from financing activities          
Employee stock options exercised   —      10 
Increase/(decrease) in short term borrowing   1,067    244 
Repurchases of common stock   —      (91)
Increase in additional paid-up capital   500    5,888 
Net cash provided by/ (used in) financing activities   1,567    6,051 
           
Net increase (decrease) in cash and cash equivalents   (1,266)   2,374 
Cash and cash equivalents          
Cash and cash equivalents at the beginning of the period  $1,341   $1,770 
Cash and cash equivalents at the end of the period  $75   $4,144 
           
Supplementary disclosure of cash flows information          
Interest   663    129 
Income taxes   28    51 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.

   

 8 

 

 

HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

 

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. (“Parent”) and on May 8, 2020, the Company acquired Cornerstone Advisors Group LLC (Healthcare Business) from its Parent.

Company  reinforces healthcare progress through breakthrough technology and extensive industry know-how. Company support healthcare providers and payors, hospitals and pharma/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 Company for expertise in digital transformation on the cloud, security and compliance, develops, data lifecycle management, healthcare interoperability, clinical and business performance optimization. 

Company concentrates on accelerating value to the three healthcare sectors:

  1. Pharmaceutical companies, which require improved efficiencies in the clinical trial process. Company 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. Company'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 Company addresses and manages for its customers.

As an organization with the deep-rooted cloud expertise, Company’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.

 9 

 

HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

 

Devcool Inc

Devcool Inc (“the Company”) was incorporated 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 $0.00001, 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 operations from November 01, 2021 (effective date) and the financials have been consolidated from this date.

Impact of the COVID-19 Pandemic

COVID-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 results of operations to date, 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 diverse set of customers, while some have faced headwinds, others have 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 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.

 10 

 

HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

2) Summary of Significant Accounting Policies

Basis of consolidated financial statements

The accompanying condensed consolidated financial statements include the 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.

The accompanying statements of operations include expenses for certain functions historically performed by the Parent company, including general corporate services, such as legal, accounting, treasury, information technology, human resources and administration. These expenses are based primarily on direct usage when identifiable, direct capital expenditures or other relevant 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 amounts recorded in the accompanying condensed consolidated financial statements are not necessarily indicative of the actual amount of such indirect expenses that would have been recorded had we been a separate independent entity.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements and the related 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 unaudited condensed consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The year-end December 31, 2022 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 September 30, 2023, the results of operations, comprehensive income (loss), stockholders’ deficit, and cash flows for the three months ended September 30, 2023 and 2022. The results of operations for the three months ended September 30, 2023 and 2022 are not necessarily indicative of the 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, 2022 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.

 11 

 

HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

 

Accounting Policies

Use of Estimates

The preparation of financial statements is in conformity with 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 defines the term ‘chief operating decision maker’ to be the Chief Financial Officer. The Chief Financial 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, the Company has determined that it operates in three distinct reportable operating segments, and all required financial segments information can be found in the condensed consolidated financial statements.

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.

Schedule of operating segment            
             
   Three months Ended
 September 30,		  Changes
   (In thousands)   
   2023  2022  Amount  %
Software services  $4,918   $6,177   $(1,259)    (20)%
Managed services and support   2,456    3,708    (1,252)   (34)%
Platform services   405    2,065    (1,660)   (80)%
Revenue  $7,779   $11,950   $(4,171)   (35)%

 

   Nine months Ended
 September 30,		  Changes
   (In thousands)   
   2023  2022  Amount  %
Software Services  $16,561   $18,218   $(1,657)   (9)%
Managed Services and Support   8,362    11,879    (3,517)   (30)%
Platform Services   1,220    4,497    (3,277)   (73)%
Revenue  $26,143   $34,594   $(8,451)   (24)%

 

 
 12 

 

 

HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

 

Operating profit by Operating Segment            
             
   Three months Ended September 30,  Changes
   (In thousands)   
   2023  2022  Amount  %
Software services  $(703)  $(145)  $(558)   (385%)
Managed services and support   709    1,397    (688)   (49%)
Platform services   102   (992)   1,094    110%
Total segment operating (loss) profit   108   260    (152)   (58%)
Less: unallocated costs   1,632    2,507    (875)   (35%)
Income (loss) from operations   (1,524)   (2,247)   723   32%
Other income   —      —      —     0%
Interest expense   (415)   (55)   (360)   (655%)
Net income (loss) before income tax expenses  $(1,939)  $(2,302)  $363   16%

 

   Nine months Ended September 30,  Changes
   (In thousands)   
   2023  2022  Amount  %
Software services  $(2,482)  $(665)  $(1,817)   (273%)
Managed services and support   2,083    3,935    (1,852)   (47%)
Platform services   (277)   (1,777)   1,500    84%
Total segment operating (loss) profit   (676)   1,493    (2,169)   (145%)
Less: unallocated costs   5,652    7,147    (1,495)   (21%)
Income (loss) from operations   (6,328)   (5,654)   (674)   (12%)
Other income   12    1,087    (1,075)   (99%)
Interest expense   (663)   (129)   (534)   (414%)
Net income (loss) before income tax expenses  $(6,979)  $(4,696)  $(2,283)   (49%)

 

Revenue from top 5 customers

Three Months Ended September 30,  2023       

Schedule of concentration           
Customer  Amount (In thousands)  % of Revenue
Customer 1   $4,168    54%
Customer 2    714    9%
Customer 3    492    6%
Customer 4    427    5%
Customer 5   $339    4%

Three Months Ended September 30,  2022

Schedule of concentration      
       
Customer  Amount (In thousands)  % of Revenue
Customer 1   $4,562    38%
Customer 2    1,840    15%
Customer 3    1,218    10%
Customer 4    1,063    9%
Customer 5   $534    4%

Nine Months Ended September 30, 2023       

Schedule of concentration      
Customer  Amount (In thousands)  % of Revenue
Customer 1   $13,617    52%
Customer 2    2,485    10%
Customer 3    1,822    7%
Customer 4    1,411    5%
Customer 5   $956    4%

Nine Months Ended September 30, 2022

Schedule of concentration      
       
Customer  Amount (In thousands)  % of Revenue
Customer 1   $12,912    37%
Customer 2    4,770    14%
Customer 3    3,726    11%
Customer 4    2,963    9%
Customer 5   $1,181    3%

 

 

 13 

 

HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

 

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.

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.

 14 

 

HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

 (In thousands except share and per share data)

 

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), rateably 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.

 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-upon 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      
   September 30, 2023 December 31, 2022
   (In thousands)
Accounts Receivable   4,196    5,592 

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 the 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 September 30, 2023 the Company did not provided an allowance for uncollectible accounts and year ended December 31, 2022 the Company provided $222 as 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.

 16 

 

HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

 

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.

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 September 30, 2023 and 2022.

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 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 condensed 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 (Loss) Per Share.

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
 
   September 30, 2023
   Fair Value Measured Using
   (In thousands)
   Level 1  Level 2  Level 3  Total
Financial liabilities:                  
Warrant Liabilities          $795   $795 
Acquisition-related contingent consideration  —   —     $1,487   $1,487 

 

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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 600,000 shares of the Company’s Common stock.

Income taxes

The provision for income taxes was determined using the asset and liability approach of 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 recovered 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 and tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates applicable in the years in which they are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in income in the period that includes the enactment date.

Advertising Costs

The Company expenses advertising cost as incurred. Advertising expense for the quarters ended September 30, 2023 and 2022 were Nil.

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 quarter ended September 30, 2023 and 2022 revenue from the top five customers accounted for approximately 78% and 76% of total revenue respectively. For the quarter ended September 30, 2023 and year ended December 31, 2022 accounts receivable from five major customers accounted for approximately 79% and 72% 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 $250,000 (valid through September 30, 2023) per institution.

As of September 30, 2023 and December 31, 2022, the Company had Nil and $816 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 cash.

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HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

 

4) Property and Equipment

Property and equipment consisted of the following:

Schedule of property and equipment       
   September 30, 2023  December 31, 2022
   (In thousands)
Furniture and equipment  $126   $119 
Less:  Accumulated depreciation   (77)   (39)
Net fixed assets  $49   $80 

Depreciation expenses for the quarter ended September 30, 2023, and September 30, 2022 were $10 and $8 respectively.

5) 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

Intangible assets consist of the following:

Schedule of intangible assets                      
   September 30, 2023  December 31, 2022
   Weighted average Remaining Useful life (Years)  Gross Carrying Amount  Accumulated Amortization  Net Carrying Amount  Gross Carrying Amount  Accumulated Amortization  Net Carrying Amount
   (In thousands)  (In thousands)
Customer relationships   2.97   $8,667   $4,755   $3,912   $8,667   $3,523   $5,144 
Intellectual property   4.39    7,329    3,021    4,308    7,329    2,013    5,316 
Product development   0.5    477    477    0    477    367    110 
Total intangible assets       $16,473   $8,253   $8,220   $16,473   $5,903   $10,570 

Amortization expense for the quarter ended September 30, 2023 and September 30, 2022 were $701 and $857 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

 
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HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

 

Estimated annual amortization expense (including amortization expense associated with capitalized software costs) for each of the next four years are as follows: 

Schedule of amortization expense   
    
September 30,   
2023   $636 
2024    2,547 
2025    2,547 
2026    2,489 
Total   $8,220 

6) Due from Related Party

Securekloud Technologies Inc, (Parent) is a Nevada based corporation, focusing on digital transformation for Avionics, Technology and Manufacturing Industry. As a pioneer in enabling cloud transformation for global enterprises, Securekloud Technologies Inc is building on foundation of cloud capabilities by creating innovative platforms that are time-tested and designed to drive success in its digital transformation journey. HTI uses the capabilities and resources of the parent for the execution of the projects for its customers.

Securekloud Technologies Inc owns 59.61% of Healthcare Triangle Inc as of September 30, 2023.

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. The Company received services amounting to $946 and $334 for the quarter ended September 30, 2023, and 2022 respectively. The Company has paid for these services during the year.

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 received services amounting to $78 and $48 for the quarter ended September 30, 2023, and 2022 respectively. The Company has paid for these services during the year.

The Company does not have any signed lease agreement on its name and currently operates from two office locations leased by the Parent. The Company has entered into a sublease agreement with the Parent and paid rent of $67 and $49 for the quarter ended September 30, 2023, and 2022 respectively.

The Company has earned $9 from sale to related parties for the quarter ended September 30, 2023, and Nil0 for the quarter ended September 30, 2022.

 21 

 

HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

 

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% of the equity of Cornerstone Advisory Services LLC for a total consideration of $7,000. The total purchase price of $7,000 was allocated to net working capital of $4,700 and intangibles of $2,300, 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.

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) 20,930 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) 8,372 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

 22 

 

HEALTHCARE TRIANGLE, INC.

Notes To Condensed Consolidated Financial Statements

(Unaudited)

(In thousands except share and per share data)

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.

Based on the 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  Amount
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) Debt Securities

A. Common Stock Warrants

In connection with the issuance of Convertible Notes, the Company also issued Warrants to each holder 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 $10.66 per 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 September 30, 2023, none of the warrants have been exercised by the note holders and hence no proceeds have been received towards any of the 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.

Schedule of common stock warrants             
Warrants  Number of Warrants  Weighted Average Exercise price  Weighted Average Remaining Contractual Term  Aggregate Intrinsic value
Outstanding on January 1, 2023   683,935   $12.71    4    2,386 
Granted   —      —      —      —   
Exercised   —      —      —      —   
Forfeited or expired   (74,149)   —      —      —   
Outstanding on September 30, 2023   609,756   $10.66    4    2,386 
Exercisable on September 30, 2023   609,756   $10.66    —      —   

The following table summarizes the activities for our unvested warrants for the quarter ended September 30, 2023 

Schedule of unvested warrants            
     Number of Warrants    Weighted average Grant Date Fair Value Per warrant 
Unvested on January 1, 2023    548,780   $5.22  
Granted     —       
Vested     (30,488)  $5.64  
Forfeited     —       
Unvested on March 31, 2023    518,292   $ 5.22  
Granted    —        
Vested    (30,488)  $5.64 
Forfeited