Healthcare Triangle(HCTI) - 2025 Q2 - Quarterly Report

Note About Forward-Looking Statements Forward-Looking Statements Disclaimer This section outlines the nature of forward-looking statements within the Form 10-Q, emphasizing that actual results may differ materially due to various risks and uncertainties - Forward-looking statements are identified by words like 'believe,' 'may,' 'will,' 'expect,' and 'anticipate,' and involve substantial risks and uncertainties that could cause actual results to differ materially from projections[12] - Key factors influencing future results include the company's ability to add new customers, develop and scale solutions, maintain brand strength, manage service interruptions and security breaches, and adapt to market competition and international growth[12] - The company operates in competitive and rapidly changing environments, making it impossible to predict all risks or assess the full impact of factors that may cause actual results to differ from forward-looking statements[13] PART I – FINANCIAL INFORMATION Item 1. Financial statements This section presents the unaudited condensed consolidated financial statements for Healthcare Triangle, Inc., including the Balance Sheets, Statements of Operations, Statements of Changes in Stockholders' Equity (Deficit), and Statements of Cash Flows, along with detailed notes Unaudited Condensed Consolidated Balance Sheets The unaudited condensed consolidated balance sheets show a significant increase in total assets and stockholders' equity for Healthcare Triangle, Inc. as of June 30, 2025, compared to December 31, 2024 | Metric | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | | :-------------------------------- | :-------------------------- | :------------------ | | Cash and cash equivalents | $3,228 | $20 | | Accounts receivable (net) | $1,862 | $1,110 | | Due from affiliates | $3,320 | $497 | | Total current assets | $8,865 | $1,949 | | Goodwill and other intangibles, net | $5,700 | $- | | Total assets | $14,568 | $1,961 | | Total current liabilities | $3,159 | $6,575 | | Total liabilities and stockholders' equity | $14,568 | $1,961 | | Total stockholders' equity (deficit) | $10,209 | $(5,114) | - Total assets increased significantly from $1,961 thousand at December 31, 2024, to $14,568 thousand at June 30, 2025, largely due to a $5,700 thousand increase in goodwill and other intangibles and a substantial rise in cash and cash equivalents[19] - Stockholders' equity shifted from a deficit of $(5,114) thousand at December 31, 2024, to a positive $10,209 thousand at June 30, 2025, indicating a substantial improvement in the company's equity position[19] Unaudited Condensed Consolidated Statements of Operations The unaudited condensed consolidated statements of operations show a net loss for both the three and six months ended June 30, 2025 and 2024, with a notable decrease in net loss per common share due to a reverse stock split | Metric | Three Months Ended June 30, 2025 ($ in thousands) | Three Months Ended June 30, 2024 ($ in thousands) | Six Months Ended June 30, 2025 ($ in thousands) | Six Months Ended June 30, 2024 ($ in thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net revenue | $3,558 | $2,984 | $7,263 | $7,093 | | Cost of revenue | $3,064 | $2,086 | $6,440 | $5,181 | | Total operating expenses | $1,853 | $2,276 | $3,580 | $4,998 | | Loss from operations | $(1,359) | $(1,378) | $(2,757) | $(3,087) | | Net loss | $(1,368) | $(1,510) | $(3,068) | $(3,372) | | Net loss per common share—basic and diluted | $(0.58) | $(70.72) | $(2.56) | $(171.85) | | Weighted average shares outstanding (Basic and diluted) | 2,343,385 | 21,351 | 1,197,824 | 19,622 | - Net revenue increased by 19% for the three months ended June 30, 2025, to $3,558 thousand from $2,984 thousand in the prior year, but only by 2% for the six-month period[21] - Net loss per common share significantly decreased from $(70.72) to $(0.58) for the three months ended June 30, 2025, and from $(171.85) to $(2.56) for the six months ended June 30, 2025, primarily due to a 1-for-249 reverse stock split effected on August 1, 2025, which reduced the number of outstanding shares[21] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) The statements of changes in stockholders' equity reflect a substantial increase from a deficit of $(5,114) thousand to a positive $10,209 thousand, driven by significant equity transactions despite ongoing net losses | Metric | Balance at Dec 31, 2024 ($ in thousands) | Net Loss (6 months) ($ in thousands) | Shares issued for acquisition ($ in thousands) | Common stock issued for cash ($ in thousands) | Prefunded warrants issued for cash ($ in thousands) | Series B (cashless warrants) ($ in thousands) | Expenses relating to funding ($ in thousands) | Conversion of Debt to Equity ($ in thousands) | Stock based compensation ($ in thousands) | Balance at June 30, 2025 ($ in thousands) | | :-------------------------------- | :---------------------- | :------------------ | :---------------------------- | :--------------------------- | :------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :------------------------- | :----------------------- | | Total stockholders' equity (deficit) | $(5,114) | $(3,068) | $3,000 | $95 | $395 | $14,710 | $(1,524) | $1,191 | $36 | $10,209 | - The company issued 1,388,041 shares of restricted common stock for an acquisition valued at $3,000 thousand during the six months ended June 30, 2025[25][28] - Significant equity funding activities included $395 thousand from prefunded warrants, $14,710 thousand from Series B cashless warrants, and $1,191 thousand from the conversion of debt to equity, contributing to the positive shift in stockholders' equity[25] Unaudited Condensed Consolidated Statements of Cash Flows The unaudited condensed consolidated statements of cash flows indicate a substantial increase in cash and cash equivalents, primarily driven by significant cash inflows from financing activities, which offset considerable cash used in operating and investing activities | Cash Flow Activity | Six Months Ended June 30, 2025 ($ in thousands) | Six Months Ended June 30, 2024 ($ in thousands) | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(8,192) | $(985) | | Net cash used in investing activities | $(603) | $- | | Net cash provided by / (used in) financing activities | $12,003 | $(220) | | Net changes in cash and cash equivalents | $3,208 | $(1,205) | | Cash and cash equivalents at end of period | $3,228 | $29 | - Net cash used in operating activities increased significantly to $(8,192) thousand for the six months ended June 30, 2025, compared to $(985) thousand in the prior year, primarily due to changes in operating assets and liabilities, including a large increase in 'Due from affiliates'[32] - Net cash provided by financing activities was $12,003 thousand for the six months ended June 30, 2025, a substantial increase from $(220) thousand in the prior year, mainly from net proceeds from equity issuance[32] - Cash and cash equivalents at the end of the period rose dramatically to $3,228 thousand as of June 30, 2025, from $29 thousand as of June 30, 2024[32] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering the company's business, accounting policies, specific asset and liability accounts, equity transactions, segment information, and recent accounting pronouncements - The consolidated financial statements include Healthcare Triangle, Inc. and its wholly-owned subsidiaries, prepared in accordance with GAAP for interim financial reporting[37][39] - The company operates in three distinct reportable operating segments: Software Services, Managed Services and Support, and Platform Services, with financial information reviewed by the Chief Operating Decision Maker (CODM) on a consolidated basis[42][43] - Revenue is recognized when control of deliverables (services, solutions, platform) is transferred to clients, applying a five-step approach, with specific methods for Software Services (time-and-material or cost-to-cost), Managed Services and Support (ratably over time), and Platform Services (fixed-price or SaaS subscription)[45][48][52][54] 1) Organization and Description of Business Healthcare Triangle Inc. provides IT and data services to the Healthcare and Life Sciences (HCLS) industry, focusing on digital transformation, security, compliance, and data management - Healthcare Triangle Inc. was incorporated in Nevada on October 29, 2019, and converted to a Delaware corporation on April 24, 2020, to offer IT and data services to the HCLS industry[33] - The company supports healthcare providers, payors, hospitals, and pharma/life sciences organizations with digital transformation on the cloud, security and compliance, data lifecycle management, healthcare interoperability, and performance optimization[34] - Key technology areas include Big Data, Analytics, DevOps, Security/Compliance, IAM, Machine Learning (ML), Artificial Intelligence (AI), IoT, and Blockchain, applied across pharmaceutical, hospital, and life sciences sectors[35][36] 2) Summary of Significant Accounting Policies This section details the significant accounting policies, including the basis of consolidation, preparation of unaudited interim financial information, use of estimates, emerging growth company status, segment reporting, revenue recognition for different service types, and accounting for cash, receivables, fixed assets, business combinations, equity, and taxes Basis of consolidated financial statements The condensed consolidated financial statements include Healthcare Triangle, Inc. and its wholly-owned subsidiaries, prepared under GAAP, with all intercompany balances and transactions eliminated - The consolidated financial statements include Healthcare Triangle, Inc., Devcool, Inc., and QuantumNexis, Inc. (which owns Ezovion Solutions Private Limited and QuantumNexis SDN. BHD.)[37] - Statements are prepared in accordance with GAAP, and all intercompany balances and transactions are eliminated upon consolidation[37] Unaudited Interim Financial Information The interim financial statements are unaudited and prepared in accordance with GAAP for interim reporting, including all necessary adjustments for fair presentation, but may not include all disclosures required for audited statements - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial reporting and Rule 10-01 of Regulation S-X[39] - Management believes the statements contain all necessary adjustments for fair presentation, but interim results are not necessarily indicative of full-year results[39] Use of Estimates The preparation of financial statements requires management to make estimates and judgments, which are regularly evaluated, for items such as standalone selling prices, fair value of acquired assets, credit loss, contingent consideration, and share-based compensation - Financial statements conform to GAAP, requiring management to make estimates and judgments affecting financial reporting[40] - Key estimates include standalone selling prices, fair value of assets/liabilities in business combinations, expected credit loss, contingent consideration, and share-based compensation[44] Emerging Growth Company Status The company is classified as an "emerging growth company" under the JOBS Act, which provides certain exemptions from reporting requirements until December 21, 2026, or until specific revenue or market capitalization thresholds are met - The company is an 'emerging growth company' as defined by the JOBS Act of 2012[41] - This status will continue until the earlier of December 21, 2026, achieving $1.07 billion in annual gross revenue, becoming a 'large accelerated filer,' or issuing over $1.0 billion in non-convertible debt over three years[41] Segment Information The company organizes its operations into three reportable segments: Software Services, Managed Services and Support, and Platform Services, with the Chief Financial Officer and Chief Operating Officer acting as the Chief Operating Decision Maker (CODM) who reviews consolidated financial information - The company's reportable segments are Software Services, Managed Services and Support, and Platform Services[42] - The Chief Financial Officer and Chief Operating Officer serve as the CODM, reviewing consolidated financial information to make operating decisions and assess performance[43] Revenue Recognition Revenue is recognized when control of services, solutions, and platforms is transferred to clients, following a five-step approach, with specific recognition methods based on contract terms and performance obligations - Revenue is recognized upon transfer of control of deliverables (services, solutions, platform) to clients, reflecting the expected consideration[45] - Software Services revenue is recognized on a time-and-material or fixed-price (cost-to-cost method) basis, while Managed Services and Support revenue is recognized ratably over the service period[48][52] - Platform Services revenue is recognized based on standalone selling price (SSP), using the cost-to-cost method for fixed-price solutions or ratably for SaaS subscriptions[54] Cash and Cash Equivalents The company defines cash equivalents as highly liquid investments with original maturities of three months or less, and while cash balances may exceed federally insured limits, the company believes there is no significant credit risk - Cash equivalents include highly liquid investments with original maturities of three months or less, such as money market funds[58] - The company maintains cash balances that may exceed federally insured limits but does not believe this poses significant credit risk[58][76] Accounts Receivable Accounts receivable are stated at expected collectible amounts, with an allowance for uncollectible accounts based on historical experience and management's trend analysis | Metric | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | | :----------------------- | :------------ | :---------------- | | Accounts receivable, (net) | $1,862 | $1,110 | - Accounts receivable are extended to clients based on creditworthiness and are stated at the amount the company expects to collect[59][61] - An allowance for uncollectible accounts is provided based on historical experience and management's trend analysis, remaining at $185 thousand for the quarter ended June 30, 2025[59] Allowance for Doubtful Accounts The collectability of trade receivables is regularly evaluated based on customer creditworthiness, transaction history, economic trends, and payment patterns, with specific allowances recorded for customers unable to meet obligations - Collectability of trade receivables is evaluated based on customer creditworthiness, past transaction history, economic trends, and payment patterns[61] - Specific allowances for doubtful accounts may be recorded if a customer is determined to be unable to fully meet its financial obligation[61] Furniture and Equipment Furniture and equipment are recorded at cost and depreciated using the straight-line method over estimated useful lives of 3 to 7 years, with leasehold improvements amortized over the shorter of lease terms or useful lives - Furniture and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives of 3 to 7 years[63] - Repairs and maintenance costs that do not extend asset lives are expensed as incurred[63] Business Combinations Business combinations are accounted for using the acquisition method, which involves identifying the acquirer, determining the acquisition date, and allocating the purchase price to acquired assets and assumed liabilities at fair value - Business combinations are accounted for using the acquisition method, allocating the purchase price to identifiable tangible and intangible assets and assumed liabilities at fair value[65] - Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including identifiable intangible assets[66] - Common-control transactions are recognized at the historical cost of the parent, with any difference between proceeds and carrying amounts recognized in equity[64] Valuation of Contingent Earn-out Consideration Contingent consideration in acquisitions is recognized at fair value on the acquisition date, estimated based on financial projections and achievement probabilities, with changes in fair value reflected in the consolidated statements of operations - Contingent consideration payments in acquisitions are recognized at fair value as of the acquisition date[67] - Fair value estimates are based on financial projections and estimated probabilities of achieving future performance targets[67] - Changes in the estimated fair value of contingent consideration are reflected in income or expense in the consolidated statements of operations[67] Earnings (Loss) Per Share Basic EPS is calculated by dividing income available to common stockholders by the weighted-average number of common shares outstanding, while diluted EPS includes the effect of dilutive potential common shares - Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding[68] - Diluted EPS includes the number of additional common shares that would have been outstanding if dilutive potential common shares (e.g., contingent shares, stock options, warrants) had been issued[68] Fair Value Measurements Financial assets are measured at fair value using a hierarchy that prioritizes observable inputs (Level 1 and 2) over unobservable inputs (Level 3) - The company measures financial assets at fair value using a hierarchy (Level 1, 2, 3) that prioritizes observable inputs[69] - Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are observable but not quoted prices; Level 3 inputs are unobservable[70] - Money market funds and U.S. treasury securities are classified within Level 1, while other debt securities and investments using model-driven valuations with observable inputs are Level 2[69] Stock-Based Compensation Stock-based awards to employees and consultants are accounted for by measuring and recognizing compensation expense based on the fair value of the options over their vesting period - Stock-based awards to employees and consultants are recognized as compensation expense based on the fair value of stock options over the vesting period[72] - The company adopted the '2020 Stock Incentive Plan,' reserving 4,000,000 shares of common stock[73] Income taxes Income taxes are accounted for using the asset and liability approach, recognizing deferred taxes for temporary differences, with valuation allowances established when tax benefits are unlikely to be realized - Income taxes are accounted for using the asset and liability approach, with deferred taxes reflecting future tax consequences of temporary differences[74] - Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized[74] - Uncertain tax positions are recognized only if it is more likely than not that the position will be sustained on examination by tax authorities[75] Advertising Costs Advertising costs are expensed as incurred, with expenses for the quarter ended June 30, 2025, increasing to $236 thousand from $145 thousand in the prior year | Metric | Three Months Ended June 30, 2025 ($ in thousands) | Three Months Ended June 30, 2024 ($ in thousands) | Six Months Ended June 30, 2025 ($ in thousands) | Six Months Ended June 30, 2024 ($ in thousands) | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Advertising costs | $236 | $145 | $294 | $467 | - Advertising costs are expensed as incurred[75] Concentrations The company faces credit risk primarily from cash and trade receivables, though it considers the risk minimal due to its large customer base and monitoring procedures, with the top five customers accounting for a significant portion of revenue and accounts receivable - Financial instruments subject the company to concentrations of credit risk, principally from cash and trade receivables[75] - Revenue from the top five customers accounted for approximately 57% of total revenue for the quarter ended June 30, 2025 (58% for June 30, 2024)[75] - Accounts receivable from five major customers accounted for approximately 52% of total accounts receivables as of June 30, 2025 (72% for December 31, 2024)[75] 3) Furniture and Equipment Net furniture and equipment decreased significantly to $3 thousand as of June 30, 2025, from $12 thousand at December 31, 2024, with a corresponding decrease in depreciation expenses | Metric | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | | :-------------------------- | :------------ | :---------------- | | Furniture and equipment | $33 | $132 | | Less: Accumulated depreciation | $(30) | $(120) | | Furniture and equipment, net | $3 | $12 | - Net furniture and equipment decreased by 75% from $12 thousand at December 31, 2024, to $3 thousand at June 30, 2025[78] - Depreciation expenses for the quarter ended June 30, 2025, were $0.2 thousand, a substantial decrease from $9 thousand in the prior year[78] 4) Goodwill and Other Intangibles On June 16, 2025, Healthcare Triangle, Inc. acquired Niyama Healthcare, Inc.'s assets and 100% equity interest in Ezovion Solutions Private Limited for a total consideration of $5.7 million, resulting in $5.7 million in goodwill and other intangibles - On June 16, 2025, Healthcare Triangle, Inc. acquired assets and 100% shareholder equity interest in Ezovion Solutions Private Limited from Niyama Healthcare, Inc[79] - The total acquisition consideration was $5.7 million, comprising $1.5 million in cash (with $0.6 million paid by June 30, 2025), $3.0 million in restricted common stock, and up to $1.2 million in earn-out payments[80] - The acquisition resulted in $5.7 million in goodwill and other intangibles, with the final determination of fair values and residual goodwill to be completed within one year from the acquisition date[19][81] 5) Leases The company operates from two office locations leased by SecureKloud, without signed lease agreements in its name, with rent expenses for the three months ended June 30, 2025, increasing to $45 thousand from $33 thousand in the prior year | Metric | Three Months Ended June 30, 2025 ($ in thousands) | Three Months Ended June 30, 2024 ($ in thousands) | Six Months Ended June 30, 2025 ($ in thousands) | Six Months Ended June 30, 2024 ($ in thousands) | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Rent expenses | $45 | $33 | $89 | $67 | - The company operates from two office locations leased by SecureKloud, without signed lease agreements in its own name[84] - Leases with a term of 12 months or less are not recorded on the balance sheet, and lease expense for these is recognized on a straight-line basis[86] 6) Other current assets Other current assets increased to $455 thousand as of June 30, 2025, from $322 thousand at December 31, 2024, primarily due to the recognition of unbilled revenue | Particulars | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | | :---------------- | :------------ | :---------------- | | Unbilled revenue | $295 | $- | | Prepaid expenses | $160 | $262 | | Others | $- | $60 | | Total | $455 | $322 | - Other current assets increased by $133 thousand, or 41%, from $322 thousand at December 31, 2024, to $455 thousand at June 30, 2025[87] - The increase is mainly attributable to $295 thousand in unbilled revenue as of June 30, 2025, which was not present at December 31, 2024[87] 7) Due from Affiliates The balance due from affiliates significantly increased to $3,320 thousand as of June 30, 2025, from $497 thousand at December 31, 2024, primarily due to advance payments made to Securekloud Technologies Inc. and SecureKloud Technologies Limited for technical resources | Affiliate | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | | :------------------------------ | :------------ | :---------------- | | SecureKloud Technologies Limited | $792 | $- | | SecureKloud Technologies, Inc. | $2,413 | $497 | | Blockedge Technologies, Inc. | $115 | $- | | Total Due from Affiliates | $3,320 | $497 | - The balance due from affiliates increased by $2,823 thousand, or 568%, from $497 thousand at December 31, 2024, to $3,320 thousand at June 30, 2025[89] - This increase is primarily due to advance payments of $4,843 thousand made to Securekloud Technologies Inc. and Securekloud Technologies Limited for technical resources under a Master Service Agreement[89] 8) Contingent consideration The company settled a contingent consideration of $500 thousand on February 24, 2025, through the issuance of common stock and cash, and the acquisition of Niyama Healthcare, Inc. included up to $1.2 million in earn-out payments - On February 24, 2025, the company settled a contingent consideration of $500 thousand by issuing 594,130 common stocks ($400 thousand) and paying $100 thousand in cash[91] - The acquisition of Niyama Healthcare, Inc. on June 16, 2025, includes up to $1.2 million in earn-out payments contingent on first-year financial performance targets[80][92] 9) Stockholder Equity Stockholders' equity significantly improved from a deficit to a positive balance, driven by a private placement of units (common stock, pre-funded warrants, Series A & B Warrants) generating $13.676 million in net proceeds, and the issuance of Series A and B Preferred Stock for an acquisition - On February 27, 2025, the company completed a private placement of units (common stock, pre-funded warrants, Series A & B Warrants) to institutional investors, generating net proceeds of approximately $13,676 thousand[95][97][100] - All prefunded warrants and alternative cashless warrants were converted into equity or exercised during the quarter ended June 30, 2025[98] - The company issued 14,000 Series A Preferred Stock with super voting rights (1,000 votes per share) to Mr. Suresh Venkatachari and 1,600,000 shares of Series B Convertible Preferred Stock (convertible into 64,000 common stocks) for an acquisition valued at $7,435 thousand[106][108] 10) Short Term Borrowing Short-term borrowing decreased significantly to $415 thousand as of June 30, 2025, from $2,650 thousand at December 31, 2024, primarily due to the settlement of convertible notes | Particulars | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | | :-------------------- | :------------ | :---------------- | | Seacoast Business Funding | $415 | $589 | | Convertible note | $- | $2,061 | | Total | $415 | $2,650 | - Short-term borrowing decreased by $2,235 thousand, or 84%, from $2,650 thousand at December 31, 2024, to $415 thousand at June 30, 2025[110] - The company settled the entire balance of convertible notes during the six months ended June 30, 2025, including converting $875 thousand principal and $316 thousand interest/fees from L1 Capital notes into 10,559 shares, and repaying a $1,500 thousand loan from Pioneer Garage[113][116][118] 11) Other current liability Other current liabilities decreased to $670 thousand as of June 30, 2025, from $1,386 thousand at December 31, 2024, with notable reductions in payroll, audit fees, and insurance liabilities | Particulars | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | | :-------------------- | :------------ | :---------------- | | Payroll | $230 | $463 | | Audit fees | $36 | $193 | | Insurance | $55 | $217 | | Other | $349 | $513 | | Total | $670 | $1,386 | - Other current liabilities decreased by $716 thousand, or 52%, from $1,386 thousand at December 31, 2024, to $670 thousand at June 30, 2025[126] - Significant decreases were observed in payroll ($233 thousand reduction), audit fees ($157 thousand reduction), and insurance ($162 thousand reduction)[126] 12) Provision for Income Taxes The company accounts for income taxes using the asset and liability approach, recognizing deferred taxes for temporary differences, with net deferred tax assets fully offset by a valuation allowance as of June 30, 2025, and December 31, 2024 | Deferred Tax Assets | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | | :-------------------------- | :------------ | :---------------- | | Net operating loss carry-forward | $859 | $1,667 | | Total deferred tax asset | $887 | $1,348 | | Less: valuation allowance | $(887) | $(1,348) | | Deferred tax asset, net of valuation allowance | $- | $- | | Net deferred tax asset | $- | $- | - The company applies FASB ASC Topic 740 for income taxes, using the asset and liability approach to determine deferred taxes[127] - As of June 30, 2025, and December 31, 2024, the total deferred tax asset of $887 thousand and $1,348 thousand, respectively, was fully offset by a valuation allowance, resulting in a net deferred tax asset of zero and no current tax expense[130] 13) Segment Information The company reports revenue and operating results across three segments: Software Services, Managed Services and Support, and Platform Services, with Software Services revenue significantly increasing for the three months ended June 30, 2025 | Segment | Three Months Ended June 30, 2025 ($ in thousands) | Three Months Ended June 30, 2024 ($ in thousands) | Change Amount ($ in thousands) | Change % | | :-------------------------- | :------------------------------- | :------------------------------- | :------------ | :------- | | Software services | $2,101 | $663 | $1,438 | 217% | | Managed services and support | $1,388 | $2,253 | $(865) | (38)% | | Platform services | $70 | $68 | $2 | 2% | | Total Revenue | $3,559 | $2,984 | $574 | 19% | | Segment | Six Months Ended June 30, 2025 ($ in thousands) | Six Months Ended June 30, 2024 ($ in thousands) | Change Amount ($ in thousands) | Change % | | :-------------------------- | :------------------------------- | :------------------------------- | :------------ | :------- | | Software services | $4,266 | $2,235 | $2,031 | 91% | | Managed services and support | $2,857 | $4,724 | $(1,867) | (40)% | | Platform services | $140 | $134 | $6 | 4% | | Total Revenue | $7,263 | $7,093 | $170 | 2% | - For the three months ended June 30, 2025, the top 5 customers accounted for 57% of total revenue (Customer 1: 20%, Customer 2: 19%, Customer 3: 9%, Customer 4: 7%, Customer 5: 3%)[75][141] 14) Legal Matters The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business, financial condition, results of operations, or liquidity - The company is not involved in any legal proceedings expected to have a material adverse effect on its business, financial condition, results of operations, or liquidity[146] - All legal costs are expensed as incurred[146] 15) Stock Based Compensation The company estimates the fair value of stock options using the Black-Scholes option pricing model, considering factors like expected volatility, expected term, risk-free interest rates, and zero dividend yield - The fair value of stock options is estimated using the Black-Scholes option pricing model, which requires subjective assumptions[147] - Key assumptions include expected volatility (based on similar public entities), expected term (simplified method), risk-free interest rate (U.S. Treasury yield curve), and an expected dividend yield of zero[148] - As of June 30, 2025, there was no unrecognized share-based compensation expense related to unvested options[157] 16) Net Income per share Basic and diluted EPS are presented, with basic EPS calculated by dividing net income attributable to common stockholders by the weighted average shares outstanding, and due to net loss, basic and diluted weighted average shares outstanding are the same | Metric | Three Months Ended June 30, 2025 ($ in thousands) | Three Months Ended June 30, 2024 ($ in thousands) | Six Months Ended June 30, 2025 ($ in thousands) | Six Months Ended June 30, 2024 ($ in thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to common stockholders | $(1,368) | $(1,510) | $(3,068) | $(3,372) | | Weighted average shares outstanding – basic and diluted | 2,343,385 | 21,351 | 1,197,824 | 19,622 | | Basic and diluted EPS | $(0.58) | $(70.72) | $(2.56) | $(171.85) | - Basic and diluted EPS are calculated based on net loss attributable to common stockholders and weighted average shares outstanding[159] - Due to the net loss position, basic and diluted weighted average shares outstanding are the same for the reported periods[161] 17) Subsequent Events On August 1, 2025, the company effected a 1-for-249 reverse stock split, which reduced the number of issued and outstanding common shares proportionally without changing authorized shares or par value - On August 1, 2025, the company effected a 1-for-249 reverse split of its issued and outstanding common stock[162] - The reverse split reduced the number of common shares in proportion to the split ratio, without altering total authorized shares or par value per share[162] 18) New Accounting Pronouncements The company is evaluating the impact of several new FASB Accounting Standards Updates (ASUs), including ASU 2024-01 on profits interests and similar awards, ASU 2024-03 on expense disaggregation disclosures, and ASU 2024-04 on induced conversions of convertible debt instruments - ASU 2024-01 (Compensation—Stock Compensation) is effective for annual periods beginning after December 15, 2025, and is not expected to impact the company's financial statements[163] - ASU 2024-03 (Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures) is effective January 1, 2027, and the company is evaluating its impact[164] - ASU 2024-04 (Debt - Debt with Conversions and Other Options) is effective for fiscal years beginning after December 15, 2025, and the company is evaluating its impact[165] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Healthcare Triangle, Inc.'s financial condition, results of operations, liquidity, and cash flows for the periods presented, highlighting significant changes and strategic initiatives Overview Healthcare Triangle, Inc. is a leading healthcare information technology company providing cloud services, data science, and professional/managed services to the Healthcare and Life Sciences industry, reporting a 21% increase in revenue for the quarter ended June 30, 2025 - Healthcare Triangle, Inc. is a leading healthcare IT company focused on cloud services, data science, and professional/managed services for the HCLS industry[167] - Revenue for the quarter ended June 30, 2025, increased by $0.6 million, or 21%, to $3.5 million compared to $2.9 million in the prior year[169] - Subsequent to the quarter, on August 1, 2025, the company effected a 1-for-249 reverse split of its common stock[170] Our Business Model The company's business model primarily generates revenue from full-time employees providing Software Services (strategic advisory, implementation, development) and Managed Services and Support (post-implementation support, cloud hosting) to clients in the Healthcare and Life Sciences industry - The majority of revenue is generated by full-time employees providing Software Services and Managed Services and Support to HCLS clients[174] - Software Services include strategic advisory, implementation, and development, while Managed Services and Support encompass post-implementation support and cloud hosting[174] Key Factors of Success Future growth and success depend on continuous investment in sales, marketing, and operational functions, increasing customer adoption of solutions, successful marketing of SaaS offerings, and shifting revenue mix towards higher-margin recurring and subscription-based services - Future growth is dependent on continuous investment in sales, marketing, and operational/administrative functions to support expected growth and public company transition[177] - The company's ability to increase its customer base, drive existing customers to deploy more solutions, and successfully market SaaS offerings like DataEz, CloudEz, and Readabl.AI are crucial for growth[181][183] - A key factor is the ability to shift revenue towards recurring and subscription-based models, which typically have higher gross margins than software services[184] - On June 16, 2025, the company acquired Niyama Healthcare, Inc.'s assets and Ezovion Solutions Private Limited for $5.7 million, including cash, restricted common stock, and earn-out payments, as part of its investment strategy[178][179] Components of Results of Operations This section details the components of the company's financial results, including revenue recognition across Software Services, Managed Services and Support, and Platform Services, cost of revenue, operating expenses, other income/expense, and income tax provisions - Revenue is generated from Software Services (strategic advisory, implementation, development), Managed Services and Support (post-implementation support, cloud hosting), and Platform Services (solution delivery and SaaS subscription models)[186][188][189] - Cost of revenue primarily includes employee-related costs, subcontractors, travel, cloud hosting, and allocated overhead, with professional services having higher costs as a percentage of revenue[192] - Gross margin decreased to 14% (3 months) and 11% (6 months) for June 30, 2025, from 30% and 27% in the prior year, due to the acquisition and onboarding of lower-margin SecureKloud contracts, with expectations for future margin increases[194] - Operating expenses (R&D, sales & marketing, G&A) are expected to increase in absolute dollars to support business growth, while depreciation and amortization will also rise with investments and acquisitions[196][198][200][201] Results of Operations This section provides a detailed analysis of the company's financial performance for the three and six months ended June 30, 2025, compared to the prior year, highlighting a 19% increase in total revenue for the three-month period, driven by a significant surge in Software Services revenue | Metric | Three Months Ended June 30, 2025 ($ in thousands) | Three Months Ended June 30, 2024 ($ in thousands) | Change Amount ($ in thousands) | Change % | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------ | :------- | | Revenue | $3,558 | $2,984 | $574 | 19% | | Cost of revenue (exclusive of D&A) | $3,064 | $2,086 | $978 | 47% | | Research and development | $55 | $207 | $(152) | (73)% | | Sales and marketing | $616 | $631 | $(15) | (2)% | | General and administrative | $1,182 | $904 | $278 | 31% | | Depreciation and amortization | $- | $534 | $(534) | (100)% | | Interest expense | $21 | $131 | $(110) | (84)% | | Net loss | $(1,368) | $(1,510) | $142 | (9)% | - Total revenue increased by 19% to $3.5 million for the quarter ended June 30, 2025, compared to $2.9 million in the prior year, with Software Services revenue surging by 217% to $2.1 million[207][219] - Managed Services and Support revenue decreased by 38% to $1.4 million, while Platform Services revenue saw a slight increase of 2% to $0.07 million[219] - Cost of revenue (exclusive of depreciation/amortization) increased by 47% to $3.0 million, while Research and Development expenses decreased by 73% and Depreciation and Amortization decreased by 100% (to $0); General and Administrative expenses increased by 31%[212][213][215][216] Due from Affiliates The balance due from affiliates significantly increased to $3,320 thousand as of June 30, 2025, from $497 thousand at December 31, 2024, primarily due to advance payments made to Securekloud Technologies Inc. and Securekloud Technologies Limited for technical resources under a Master Service Agreement - The balance due from affiliates increased to $3,320 thousand as of June 30, 2025, from $497 thousand at December 31, 2024[223] - This increase represents advance payments of $4,843 thousand made to Securekloud Technologies Inc. and Securekloud Technologies Limited for technical resources under a Master Service Agreement[223] - The outstanding balance is expected to be settled within six months from the balance sheet date[223] Liquidity and Capital Resources The company's liquidity significantly improved, with a current ratio of 1.75 and a debt-to-equity ratio of 0.42 as of June 30, 2025, with cash and cash equivalents increasing to $3.2 million, primarily from financing activities - The company's current ratio improved to 1.75 as of June 30, 2025, from 0.7 at December 31, 2024, indicating improved liquidity[225] - The debt-to-equity ratio improved to 0.42 as of June 30, 2025, from (1.38) at December 31, 2024[226] | Cash Flow Activity | Six Months Ended June 30, 2025 ($ in thousands) | Six Months Ended June 30, 2024 ($ in thousands) | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(8,192) | $(985) | | Net cash used in investing activities | $(603) | $- | | Net cash provided by / (used in) financing activities | $12,003 | $(220) | | Cash and cash equivalents at end of period | $3,228 | $29 | - Net cash provided by financing activities was $12.0 million for the six months ended June 30, 2025, significantly offsetting cash used in operating ($8.19 million) and investing ($0.60 million) activities[233][234][235] Off-Balance Sheet Arrangements As of June 30, 2025, the company does not have any relationships with unconsolidated organizations or financial partnerships that would facilitate off-balance sheet arrangements - As of June 30, 2025, the company has no relationships with unconsolidated organizations or financial partnerships for off-balance sheet arrangements[236] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company did not have investments and did not utilize derivative financial instruments to manage interest rate risks during the reported period - The company did not hold investments or use derivative financial instruments to manage interest rate risks[237] Item 4. Controls and Procedures Management, including the Chief Operating Officer and Chief Financial Officer, evaluated the effectiveness of the company's disclosure controls and procedures, concluding they were effective as of June 30, 2025 - The Chief Operating Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[238] - There were no material changes to internal control over financial reporting during the three months ended June 30, 2025[239] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings that are expected to have a significant adverse effect on its financial condition or operations - The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business, financial condition, results of operations, or liquidity[241] Item 1A. Risk Factors As of the reporting date, there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K filed on March 31, 2025 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K filed on March 31, 2025, have occurred as of the date of this Quarterly Report[242] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On February 27, 2025, the company completed a private placement of 145,344 units, each consisting of common stock or pre-funded warrants, and Series A and B Warrants, to institutional investors - On February 27, 2025, the company entered into Securities Purchase Agreements for a private placement of 145,344 units with institutional investors[243] - Each unit consisted of one share of common stock or one pre-funded warrant, one Series A Warrant, and one Series B Warrant, offered at $104.58 per unit[243] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reported period - This item is not applicable[244] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reported period - This item is not applicable[244] Item 5. Other Information There is no other information to report under this item - No other information is reported under this item[244] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, warrant forms, securities purchase agreements, employment agreements, subsidiary lists, and certifications - The exhibits include the Certificate of Incorporation, Bylaws, Preferred Stock Certificates of Designation, various warrant forms (Series A, Series B, Pre-Funded), Securities Purchase Agreement, Registration Rights Agreement, and employment agreements[245] - Also included are the List of Subsidiaries and certifications from the Chief Operating Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act[245] Signatures The report is duly signed on August 14, 2025, by Sujatha Ramesh, Board Director and Chief Operating Officer (Principal executive officer), and David Ayanoglou, Chief Financial Officer (Principal financial officer) - The report was signed on August 14, 2025, by Sujatha Ramesh, Board Director and Chief Operating Officer, and David Ayanoglou, Chief Financial Officer[249]