Healthcare Triangle(HCTI) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021, including balance sheets, income statements, equity changes, cash flows, and detailed notes Unaudited Condensed Consolidated Balance Sheets As of September 30, 2021, total assets slightly increased, while total liabilities significantly rose, primarily due to new convertible notes and warrant liabilities, leading to a decrease in stockholders' equity Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | September 30, 2021 ($) | December 31, 2020 ($) | | :--- | :--- | :--- | | Total Current Assets | $8,512,823 | $8,027,698 | | Total Assets | $11,391,051 | $11,107,563 | | Total Current Liabilities | $8,683,287 | $6,779,193 | | Convertible notes | $1,952,672 | $754,400 | | Warrant liability | $2,347,616 | $885,600 | | Total Liabilities | $8,683,287 | $6,779,193 | | Total Stockholders' Equity | $2,707,764 | $4,328,370 | Unaudited Condensed Consolidated Statements of Operations For Q3 and the nine months ended September 30, 2021, revenue increased, but the company swung to a net loss due to significantly higher operating expenses Q3 2021 vs Q3 2020 Performance (Unaudited) | Metric | Q3 2021 ($) | Q3 2020 ($) | | :--- | :--- | :--- | | Net Revenue | $8,078,348 | $7,360,560 | | Research and development expenses | $2,204,030 | $550,167 | | Sales and Marketing | $1,328,399 | $476,650 | | Net Income (Loss) | $(1,992,071) | $138,809 | | Basic EPS | $(0.069) | $0.005 | Nine Months 2021 vs 2020 Performance (Unaudited) | Metric | Nine Months 2021 ($) | Nine Months 2020 ($) | | :--- | :--- | :--- | | Net Revenue | $26,080,914 | $22,344,093 | | Net Income (Loss) | $(2,503,460) | $476,983 | | Basic EPS | $(0.087) | $0.017 | Unaudited Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased as of September 30, 2021, primarily due to a net loss, partially offset by equity issued for services and to promoters - For the nine months ended September 30, 2021, total stockholders' equity decreased from $4,328,370 to $2,707,763. This was mainly due to a net loss of $2,503,461[18] - During the nine months ended September 30, 2021, the company issued shares for services and to promoters, adding $735,499 and $114,135 to equity, respectively[18] Unaudited Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash used in operating activities significantly increased, partially offset by cash provided by financing activities, resulting in a decrease in cash and cash equivalents Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2021 (Unaudited) ($) | 2020 (Unaudited) ($) | | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $(3,877,388) | $(2,001,889) | | Net cash provided by investing activities | $(50,354) | $18,617 | | Net cash provided by financing activities | $3,673,470 | $1,183,395 | | Net (decrease) in cash and cash equivalents | $(254,271) | $(799,877) | | Cash and cash equivalents at end of period | $1,148,429 | $174,955 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's HCLS IT and data services business across three segments, covering revenue recognition, segment performance, customer concentration, debt instruments, and significant post-period events including the IPO - The company operates in three reportable segments: Software Services, Managed Services and Support, and Platform Services[37] Revenue by Operating Segment (Nine Months Ended Sep 30) | Segment | 2021 ($) | 2020 ($) | Change % | | :--- | :--- | :--- | :--- | | Software Services | $8,248,478 | $9,715,209 | (15%) | | Managed Services and Support | $14,203,583 | $10,315,049 | 38% | | Platform Services | $3,628,853 | $2,313,835 | 57% | | Total Revenue | $26,080,914 | $22,344,093 | 17% | - For Q3 2021, the top 5 customers accounted for approximately 79% of total revenue[42][81] - Subsequent to the quarter's end, the company completed its IPO on October 13, 2021, raising gross proceeds of $13.05 million and net proceeds of $11.8 million. It also converted $4.06 million of convertible notes into 1,693,492 shares[126][127] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting revenue growth driven by Managed and Platform Services, offset by strategic shifts and increased operating expenses, leading to a net loss, while assessing liquidity post-IPO Overview Healthcare Triangle, Inc. provides cloud, data science, and managed services to the HCLS industry, leveraging proprietary platforms and transitioning towards a subscription-based SaaS model - The company provides IT and data services to the Healthcare and Life Sciences (HCLS) industry, supporting organizations in improving health outcomes through technology adoption[23][130] - The business model is shifting towards SaaS offerings (CloudEz, DataEz, Readabl.AI) with a subscription model, expected to be commercially available in Q1 2022, to generate recurring revenues[137][147][156] Results of Operations Revenue increased for Q3 and the nine months ended September 30, 2021, driven by Managed and Platform Services, but significant increases in R&D and S&M expenses led to a net loss, alongside notable customer diversification Q3 2021 vs Q3 2020 Revenue by Segment | Segment | Q3 2021 ($) | Q3 2020 ($) | Change % | | :--- | :--- | :--- | :--- | | Software Services | $2,307,055 | $2,560,460 | (10%) | | Managed Services and Support | $4,673,173 | $3,975,870 | 18% | | Platform Services | $1,098,120 | $824,230 | 33% | | Total Revenue | $8,078,348 | $7,360,560 | 10% | - For Q3 2021, R&D expenses increased by 301% to $2.2 million and Sales & Marketing expenses increased by 179% to $1.3 million compared to Q3 2020, reflecting increased investment in platform development and market expansion[190][191] - Revenue from Customer 1 decreased by 55% in Q3 2021 compared to Q3 2020, falling from $4.4 million (60% of total revenue) to $2.0 million (25% of total revenue)[182][183][188] Liquidity and Capital Resources As of September 30, 2021, the company's cash position and cash flow from operations and financing activities are discussed, with management assessing liquidity as sufficient for the next 12 months post-IPO Cash Flow Summary (Nine Months Ended Sep 30, 2021) | Cash Flow Category | Amount ($) | | :--- | :--- | | Cash flows used in operating activities | $(3,877,388) | | Cash flows used in investing activities | $(50,354) | | Cash flows provided by financing activities | $3,673,470 | - Principal sources of liquidity as of September 30, 2021, were cash and cash equivalents of $1.1 million[226] - The company raised approximately $2.6 million from convertible promissory notes and received a $1.1 million PPP loan during the nine months ended September 30, 2021[230] Quantitative and Qualitative Disclosures About Market Risk The company states it does not utilize derivative financial instruments to manage interest rate risks - The company does not use derivative financial instruments to manage interest rate risks[232] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[233] - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, internal controls[234] PART II - OTHER INFORMATION Legal Proceedings The company reports no involvement in material legal proceedings that would significantly impact its financial condition or results of operations - The company is not currently involved in any material claims or litigation outside the ordinary course of business[237] Risk Factors The company indicates no material changes to the risk factors previously disclosed in its October 14, 2021 Prospectus - As of the filing date, there have been no material changes to the risk factors disclosed in the company's Prospectus from October 14, 2021[238] Unregistered Sales of Equity Securities and Use of Proceeds This section is reported as not applicable for the period - The company reported 'Not Applicable' for this item[239] Exhibits This section provides an index of all exhibits filed with the Form 10-Q, including key corporate documents, material contracts, and officer certifications - The report includes an index of filed exhibits, such as the Certificate of Incorporation, bylaws, material agreements (including with SecureKloud Technologies and F. Hoffmann-La Roche Ltd), and officer certifications[239][241]