UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

~~Form 10-Q~~

(Mark one)

~~[X]~~☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2020~~2021

~~[ ]~~☐

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 001-36529

~~MTBC,~~

CareCloud, Inc.

(Exact name of registrant as specified in its charter)

Delaware

22-3832302

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

7 Clyde Road

Somerset, New Jersey

08873

(Address of principal executive offices)

(Zip Code)

(732)873-5133

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	MTBC	Nasdaq Global Market
11% Series A Cumulative Redeemable Perpetual Preferred Stock, par value $0.001 per share	MTBCP	Nasdaq Global Market

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 ~~[X]~~ ☒ 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 ~~[X]~~ ☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth 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 ~~[X]~~☒	Smaller reporting company~~[X]~~☒
	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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ~~[ ]~~ ☐ No~~[X]~~ ☒

At ~~November 2, 2020,~~ July 29, 2021, the registrant had ~~13,187,221~~ 14,613,710shares of common stock, par value $0.001 per share, outstanding.

~~INDEX~~

INDEX

		Page

Forward-Looking Statements		2

	PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020	3
	Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	4
	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	5
	Condensed Consolidated Statements of Shareholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	6
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2827
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4038
Item 4.	Controls and Procedures	4138

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4239
Item 1A.	Risk Factors	4239
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4339
Item 3.	Defaults Upon Senior Securities	4339
Item 4.	Mine Safety Disclosures	4339
Item 5.	Other Information	4339
Item 6.	Exhibits	44 39

Signatures	45	40

Forward-Looking Statements

Certain statements that we make from time to time, including statements contained in this Quarterly Report on Form 10-Q, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements. These statements relate to anticipated future events, future results of operations or future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “intends,” “expects,” “plans,” “goals,” “projects,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Our operations involve risks and uncertainties, many of which are outside of our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements reflecting management’s expectations for future financial performance and operating expenditures (including our ability to continue as a going concern, to raise additional capital and to succeed in our future operations), expected growth, profitability and business outlook, increased sales and marketing expenses, and the expected results from the integration of our acquisitions.

Forward-looking statements are only predictions, are uncertain and involve substantial known and unknown risks, uncertainties, and other factors which may cause our (or our industry’s) actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. These factors include, among other things, the unknown risks and uncertainties that we believe could cause actual results to differ from these forward-looking statements as set forth under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on February ~~28, 2020.~~ 25, 2021. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all of the risks and uncertainties that could have an impact on the forward-looking statements, including without limitation, risks and uncertainties relating to:

	●	our ability to manage our growth, including acquiring, partnering with, and effectively integrating ~~the recent acquisitions of Meridian Medical Management, CareCloud Corporation and other~~ acquired businesses into our infrastructure and avoiding legal exposure and liabilities associated with acquired companies and assets;

	●	our ability to retain our clients and revenue levels, including effectively migrating new clients and maintaining or growing the revenue levels of our new and existing clients;

	●	our ability to maintain operations in our Pakistan Offices and Sri Lanka in a manner that continues to enable us to offer competitively priced products and services;

	●	our ability to keep pace with a rapidly changing healthcare industry;

	●	our ability to consistently achieve and maintain compliance with a myriad of federal, state, foreign, local, payor and industry requirements, regulations, rules, laws and contracts;

	●	our ability to maintain and protect the privacy of confidential and protected Company, client and patient information;

	●	our ability to develop new technologies, upgrade and adapt legacy and acquired technologies to work with evolving industry standards and third-party software platforms and technologies, and protect and enforce all of these and other intellectual property rights;

	●	our ability to attract and retain key officers and employees, and the continued involvement of Mahmud Haq as Executive Chairman and ~~Stephen Snyder~~A. Hadi Chaudhry as Chief Executive Officer and President, all of which are critical to our ongoing operations, growing our business and integrating of our newly acquired businesses;

	●	our ability to comply with covenants contained in our credit agreement with our senior secured lender, Silicon Valley Bank and other future debt facilities;

	●	our ability to pay our monthly preferred dividends to the holders of our Series A Preferred Stock;

	●	our ability to compete with other companies developing products and selling services competitive with ours, and who may have greater resources and name recognition than we have;

	●	our ability to respond to the uncertainty resulting from the ~~recent~~ spread of the COVID-19 pandemic and the impact it may have on our operations, the demand for our services, and economic activity in general; and

	●	our ability to keep and increase market acceptance of our products and services.

Although we believe that the expectations reflected in the forward-looking statements contained in this Quarterly Report on Form 10-Q are reasonable, we cannot guarantee future results, levels of activity, performance, or ~~performance.~~achievements. Except as required by ~~applicable~~ law, ~~including the securities laws of the U.S.,~~ we are under no duty to update or revise any of such forward-looking statements, whether as a result of new information, future events, or otherwise, after the date of this Quarterly Report on Form 10-Q.

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

~~MTBC,~~CARECLOUD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, December 31,
2020 2019
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 22,839,886 $ 19,994,134
Accounts receivable - net of allowance for doubtful accounts of $514,000 and $256,000 at September 30, 2020 and December 31, 2019, respectively 13,765,301 6,995,343
Contract asset 4,078,316 2,385,334
Inventory 305,238 491,088
Current assets - related party 13,200 13,200
Prepaid expenses and other current assets 3,589,350 1,123,036
Total current assets 44,591,291 31,002,135
Property and equipment - net 3,946,768 2,907,516
Operating lease right-of-use assets 7,529,032 3,526,315
Intangible assets - net 31,119,576 5,977,225
Goodwill 48,950,323 12,633,696
Other assets 1,217,458 356,578
TOTAL ASSETS $ 137,354,448 $ 56,403,465
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,302,785 $ 3,490,834
Accrued compensation 2,517,901 1,836,309
Accrued expenses 5,801,199 2,111,515
Operating lease liability (current portion) 4,636,019 1,688,772
Deferred revenue (current portion) 1,215,161 20,277
Accrued liability to related party 663 663
Notes payable (current portion) 632,809 283,675
Contingent consideration 500,000 -
Dividend payable 4,097,133 1,745,791
Total current liabilities 26,703,670 11,177,836
Notes payable 47,949 83,275
Deferred payroll taxes 1,313,250 -
Operating lease liability 6,642,878 2,040,772
Deferred revenue 160,007 18,745
Deferred tax liability 151,477 244,512
Total liabilities 35,019,231 13,565,140
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.001 par value - authorized 7,000,000 shares at September 30, 2020 and December 31, 2019; issued and outstanding 5,470,473 and 2,539,325 shares at September 30, 2020 and December 31, 2019, respectively 5,470 2,539
Common stock, $0.001 par value - authorized 29,000,000 shares at September 30, 2020 and December 31, 2019; issued 13,876,887 and 12,978,485 shares at September 30, 2020 and December 31, 2019, respectively; 13,136,088 and 12,237,686 shares outstanding at September 30, 2020 and December 31, 2019, respectively 13,877 12,979
Additional paid-in capital 138,156,729 69,403,366
Accumulated deficit (34,043,410 ) (25,075,545 )
Accumulated other comprehensive loss (1,135,449 ) (843,014 )
Less: 740,799 common shares held in treasury, at cost at September 30, 2020 and December 31, 2019 (662,000 ) (662,000 )
Total shareholders’ equity 102,335,217 42,838,325
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 137,354,448 $ 56,403,465

($ in thousands, except share and per share amounts)

	June 30,			December 31,
	2021			2020
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	8,002		$	20,925
Restricted cash		1,500			-
Accounts receivable - net, of allowance for doubtful accounts of $430 and $522 at June 30, 2021 and December 31, 2020, respectively		16,224			12,089
Contract asset		5,470			4,105
Inventory		441			399
Current assets - related party		13			13
Prepaid expenses and other current assets		3,279			7,288
Total current assets		34,929			44,819
Property and equipment - net		5,544			4,921
Operating lease right-of-use assets		7,712			7,743
Intangible assets - net		33,267			29,978
Goodwill		60,661			49,291
Other assets		1,245			1,247
TOTAL ASSETS	$	143,358		$	137,999
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,758		$	6,461
Accrued compensation		3,577			2,590
Accrued expenses		6,993			8,501
Operating lease liability (current portion)		4,098			4,729
Deferred revenue (current portion)		1,181			1,173
Accrued liability to related party		1			1
Deferred payroll taxes		927			927
Notes payable (current portion)		22			401
Dividend payable		3,810			4,241
Consideration payable		1,571			-
Total current liabilities		26,938			29,024
Notes payable		31			41
Contingent consideration		6,500			-
Borrowings under line of credit		5,000			-
Deferred payroll taxes		927			927
Operating lease liability		5,727			6,297
Deferred revenue		184			305
Deferred tax liability		286			160
Total liabilities		45,593			36,754
COMMITMENTS AND CONTINGENCIES (NOTE 8)		-			-
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.001 par value - authorized 7,000,000 shares at June 30, 2021 and December 31, 2020; issued and outstanding 5,291,383 and 5,475,279 shares at June 30, 2021 and December 31, 2020, respectively		5			5
Common stock, $0.001 par value - authorized 29,000,000 shares at June 30, 2021 and December 31, 2020; issued 15,352,405 and 14,121,044 shares at June 30, 2021 and December 31, 2020, respectively; 14,611,606 and 13,380,245 shares outstanding at June 30, 2021 and December 31, 2020, respectively		15			14
Additional paid-in capital		135,551			136,781
Accumulated deficit		(36,080	)		(33,889	)
Accumulated other comprehensive loss		(1,064	)		(1,004	)
Less: 740,799 common shares held in treasury, at cost at June 30, 2021 and December 31, 2020		(662	)		(662	)
Total shareholders’ equity		97,765			101,245
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	143,358		$	137,999

See notes to condensed consolidated financial statements.

~~MTBC,~~

CARECLOUD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
NET REVENUE $ 31,638,616 $ 16,851,328 $ 73,084,575 $ 48,681,038
OPERATING EXPENSES:
Direct operating costs 19,718,381 10,535,629 45,841,788 31,779,564
Selling and marketing 1,571,423 347,568 4,777,818 1,091,524
General and administrative 6,191,008 4,451,975 17,176,593 13,757,805
Research and development 2,366,560 175,758 6,846,014 648,822
Change in contingent consideration (500,000 ) (279,565 ) (500,000 ) (343,768 )
Depreciation and amortization 3,206,005 814,210 6,943,705 2,407,111
Restructuring, impairment and unoccupied lease charges 320,575 136,332 681,400 136,332
Total operating expenses 32,873,952 16,181,907 81,767,318 49,477,390
OPERATING (LOSS) INCOME (1,235,336 ) 669,421 (8,682,743 ) (796,352 )
OTHER:
Interest income 2,431 57,272 44,112 202,969
Interest expense (132,373 ) (88,925 ) (396,154 ) (284,883 )
Other (expense) income - net (246,347 ) (688,342 ) 84,464 (224,151 )
LOSS BEFORE PROVISION FOR INCOME TAXES (1,611,625 ) (50,574 ) (8,950,321 ) (1,102,417 )
Income tax provision 61,965 86,970 17,549 101,790
NET LOSS $ (1,673,590 ) $ (137,544 ) $ (8,967,870 ) $ (1,204,207 )

Preferred stock dividend 4,229,808 1,602,833 10,149,641 4,582,239
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (5,903,398 ) $ (1,740,377 ) $ (19,117,511 ) $ (5,786,446 )

Net loss per common share: basic and diluted $ (0.46 ) $ (0.14 ) $ (1.53 ) $ (0.48 )
Weighted-average common shares used to compute basic and diluted loss per share 12,771,307 12,146,110 12,493,458 12,038,819

($ in thousands, except share and per share amounts)

	2021			2020			2021			2020
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
NET REVENUE	$	34,065		$	19,579		$	63,834		$	41,446
OPERATING EXPENSES:
Direct operating costs		20,534			12,557			38,595			26,123
Selling and marketing		2,204			1,625			4,094			3,206
General and administrative		6,269			5,393			11,893			10,986
Research and development		1,813			2,146			3,839			4,479
Depreciation and amortization		3,128			2,405			5,959			3,738
Impairment and unoccupied lease charges		223			63			1,241			361
Total operating expenses		34,171			24,189			65,621			48,893
OPERATING LOSS		(106	)		(4,610	)		(1,787	)		(7,447	)
OTHER:
Interest income		2			4			6			42
Interest expense		(115	)		(146	)		(183	)		(264	)
Other income (expense) - net		205			(114	)		(15	)		331
LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES		(14	)		(4,866	)		(1,979	)		(7,338	)
Income tax provision (benefit)		213			(74	)		212			(44	)
NET LOSS	$	(227	)	$	(4,792	)	$	(2,191	)	$	(7,294	)

Preferred stock dividend		3,638			3,277			6,767			5,920
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(3,865	)	$	(8,069	)	$	(8,958	)	$	(13,214	)

Net loss per common share: basic and diluted	$	(0.27	)	$	(0.65	)	$	(0.63	)	$	(1.07	)
Weighted-average common shares used to compute basic and diluted loss per share		14,430,882			12,395,197			14,258,772			12,353,007

See notes to condensed consolidated financial statements.

~~MTBC,~~

CARECLOUD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS (UNAUDITED)

($ in thousands)

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
NET LOSS $ (1,673,590 ) $ (137,544 ) $ (8,967,870 ) $ (1,204,207 )
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Foreign currency translation adjustment (a) 281,824 701,992 (292,435 ) 148,774
COMPREHENSIVE (LOSS) INCOME $ (1,391,766 ) $ 564,448 $ (9,260,305 ) $ (1,055,433 )

	2021			2020			2021			2020
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
NET LOSS	$	(227	)	$	(4,792	)	$	(2,191	)	$	(7,294	)
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
Foreign currency translation adjustment (a)		(405	)		16			(60	)		(574	)
COMPREHENSIVE LOSS	$	(632	)	$	(4,776	)	$	(2,251	)	$	(7,868	)

~~(a)~~

(a)	No tax effect has been recorded as the Company recorded a valuation allowance against the tax benefit from its foreign currency translation adjustments.

See notes to condensed consolidated financial statements.

~~MTBC,~~

CARECLOUD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS'~~SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021 AND ~~SEPTEMBER~~JUNE 30, ~~2019~~2020

($ in thousands, except for number of shares)

Preferred Stock Common Stock Additional Paid-in Accumulated
Accumulated Other
Comprehensive

Treasury
(Common)

Total
Shareholders’

Shares Amount Shares Amount Capital Deficit Loss Stock Equity
Balance - January 1, 2020 2,539,325 $ 2,539 12,978,485 $ 12,979 $ 69,403,366 $ (25,075,545 ) $ (843,014 ) $ (662,000 ) $ 42,838,325
Net loss - - - - - (2,501,770 ) - - (2,501,770 )
Foreign currency translation adjustment - - - - - - (590,286 ) - (590,286 )
Issuance of stock under the Amended and Restated Equity Incentive Plan 28,870 29 129,607 129 (158 ) - - - -
Issuance of preferred stock in connection with the CareCloud acquisition 760,000 760 - - 18,999,240 - - - 19,000,000
Stock-based compensation, net of cash settlements - - - - 793,606 - - - 793,606
Issuance of warrants in connection with the CareCloud acquisition - - - - 300,000 - - - 300,000
Preferred stock dividends - - - - (2,642,916 ) - - - (2,642,916 )
Balance - March 31, 2020 3,328,195 $ 3,328 13,108,092 $ 13,108 $ 86,853,138 $ (27,577,315 ) $ (1,433,300 ) $ (662,000 ) $ 57,196,959

Balance - April 1, 2020 3,328,195 $ 3,328 13,108,092 $ 13,108 $ 86,853,138 $ (27,577,315 ) $ (1,433,300 ) $ (662,000 ) $ 57,196,959
Net loss - - - - - (4,792,505 ) - - (4,792,505 )
Foreign currency translation adjustment - - - - - - 16,027 - 16,027
Issuance of stock under the Amended and Restated Equity Incentive Plan 4,803 5 87,398 88 (93 ) - - - -
Issuance of preferred stock in connection with the Meridian acquisition 200,000 200 - - 4,999,800 - - - 5,000,000
Issuance of preferred stock, net of fees and expenses 828,000 828 - - 19,013,319 - - - 19,014,147
Stock-based compensation, net of cash settlements - - - - 1,438,908 - - - 1,438,908
Issuance of warrants in connection with the Meridian acquisition - - - - 4,770,000 - - - 4,770,000
Preferred stock dividends - - - - (3,276,917 ) - - - (3,276,917 )
Balance - June 30, 2020 4,360,998 $ 4,361 13,195,490 $ 13,196 $ 113,798,155 $ (32,369,820 ) $ (1,417,273 ) $ (662,000 ) $ 79,366,619

Balance - July 1, 2020 4,360,998 4,361 13,195,490 13,196 113,798,155 (32,369,820 ) (1,417,273 ) (662,000 ) 79,366,619
Net loss - - - - - (1,673,590 ) - - (1,673,590 )
Foreign currency translation adjustment - - - - - - 281,824 - 281,824
Exercise of common stock warrants - - 399,349 399 2,994,718 - - - 2,995,117
Issuance of stock under the Amended and Restated Equity Incentive Plan 5,475 5 282,048 282 (287 ) - - - -
Issuance of preferred stock, net of fees and expenses 1,104,000 1,104 - - 25,529,126 - - - 25,530,230
Stock-based compensation, net of cash settlements - - - - 1,457,012 - - - 1,457,012
Release of preferred stock from escrow - - - - (1,392,187 ) - - - (1,392,187 )
Preferred stock dividends - - - - (4,229,808 ) - - - (4,229,808 )
Balance - September 30, 2020 5,470,473 $ 5,470 13,876,887 $ 13,877 $ 138,156,729 $ (34,043,410 ) $ (1,135,449 ) $ (662,000 ) $ 102,335,217

Balance- January 1, 2019 2,136,289 $ 2,136 12,570,557 $ 12,571 $ 65,142,460 $ (24,203,745 ) $ (1,421,068 ) $ (662,000 ) $ 38,870,354
Net loss - - - - - (295,691 ) - - (295,691 )
Foreign currency translation adjustment - - - - - - 209,345 - 209,345
Issuance of stock under the Amended and Restated Equity Incentive Plan 26,160 26 179,984 180 (206 ) - - - -
Stock-based compensation, net of cash settlements - - - - 523,556 - - - 523,556
Tax withholding obligations on stock issued to employees - - - - (800,271 ) - - - (800,271 )
Preferred stock dividends - - - - (1,492,700 ) - - - (1,492,700 )
Balance - March 31, 2019 2,162,449 $ 2,162 12,750,541 $ 12,751 $ 63,372,839 $ (24,499,436 ) $ (1,211,723 ) $ (662,000 ) $ 37,014,593

Balance- April 1, 2019 2,162,449 $ 2,162 12,750,541 $ 12,751 $ 63,372,839 $ (24,499,436 ) $ (1,211,723 ) $ (662,000 ) $ 37,014,593
Net loss - - - - - (770,972 ) - - (770,972 )
Foreign currency translation adjustment - - - - - - (762,563 ) - (762,563 )
Issuance of stock under the Amended and Restated Equity Incentive Plan - - 18,500 18 (18 ) - - - -
Stock-based compensation, net of cash settlements - - - - 473,387 - - - 473,387
Tax withholding obligations on stock issued to employees - - - - (58,536 ) - - - (58,536 )
Preferred stock dividends - - - - (1,486,706 ) - - - (1,486,706 )
Balance - June 30, 2019 2,162,449 $ 2,162 12,769,041 $ 12,769 $ 62,300,966 $ (25,270,408 ) $ (1,974,286 ) $ (662,000 ) $ 34,409,203

Balance - July 1, 2019 2,162,449 2,162 12,769,041 12,769 62,300,966 (25,270,408 ) (1,974,286 ) (662,000 ) 34,409,203
Net loss - - - - - (137,544 ) - - (137,544 )
Foreign currency translation adjustment - - - - - - 701,992 - 701,992
Issuance of stock under the equity incentive plan - - 184,081 184 (184 ) - - - -
Issuance of preferred stock, net of fees and expenses 145,184 146 - - 3,718,960 - - - 3,719,106
Stock-based compensation, net of cash settlements - - - - 326,803 - - - 326,803
Preferred stock dividends - - - - (1,602,831 ) - - - (1,602,831 )
Balance - September 30, 2019 2,307,633 $ 2,308 12,953,122 $ 12,953 $ 64,743,714 $ (25,407,952 ) $ (1,272,294 ) $ (662,000 ) $ 37,416,729

	Shares			Amount			Shares		Amount		Capital			Deficit			Loss			Stock			Equity
	Preferred Stock						Common Stock				Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Treasury (Common)			Total Shareholders’
	Shares			Amount			Shares		Amount		Capital			Deficit			Loss			Stock			Equity
Balance - January 1, 2021		5,475,279		$	5			14,121,044	$	14	$	136,781		$	(33,889	)	$	(1,004	)	$	(662	)	$	101,245
Net loss		-			-			-		-		-			(1,964	)		-			-			(1,964	)
Foreign currency translation adjustment		-			-			-		-		-			-			345			-			345
Issuance of stock under the Amended and Restated Equity Incentive Plan
Issuance of stock under the Amended and Restated Equity Incentive Plan, shares
Issuance of common stock, net of fees and expenses
Issuance of common stock, net of fees and expenses, shares
Cancellation of shares held in escrow
Cancellation of shares held in escrow, shares
Issuance of stock under the equity incentive plan		27,682			1			161,545		-		(1	)		-			-			-			-
Issuance of preferred stock in connection with an acquisition
Issuance of preferred stock in connection with an acquisition, shares
Issuance of warrants in connection with an acquisition
Stock-based compensation, net of cash settlements		-			-			-		-		623			-			-			-			623
Exercise of common stock warrants		-			-			858,000		1		6,391			-			-			-			6,392
Preferred stock dividends		-			-			-		-		(3,128	)		-			-			-			(3,128	)
Balance - March 31, 2021		5,502,961		$	6			15,140,589	$	15	$	140,666		$	(35,853	)	$	(659	)	$	(662	)	$	103,513

Balance - April 1, 2021		5,502,961		$	6			15,140,589	$	15	$	140,666		$	(35,853	)	$	(659	)	$	(662	)	$	103,513
Net loss		-			-			-		-		-			(227	)		-			-			(227	)
Foreign currency translation adjustment		-			-			-		-		-			-			(405	)		-			(405	)
Issuance of stock under the Amended and Restated Equity Incentive Plan		4,244			-			33,724		-		-			-			-			-			-
Issuance of common stock, net of fees and expenses		-			-			178,092		-		1,360			-			-			-			1,360
Stock-based compensation, net of cash settlements		-			-			-		-		1,163			-			-			-			1,163
Cancellation of shares held in escrow		(215,822	)		(1	)						(4,000	)		-			-			-			(4,001	)
Preferred stock dividends		-			-			-		-		(3,638	)		-			-			-			(3,638	)
Balance - June 30, 2021		5,291,383		$	5			15,352,405	$	15	$	135,551		$	(36,080	)	$	(1,064	)	$	(662	)	$	97,765

Balance- January 1, 2020		2,539,325		$	2			12,978,485	$	13	$	69,403		$	(25,075	)	$	(843	)	$	(662	)	$	42,838
Net loss		-			-			-		-		-			(2,502	)		-			-			(2,502	)
Foreign currency translation adjustment		-			-			-		-		-			-			(590	)		-			(590	)
Issuance of stock under the equity incentive plan		28,870			-			129,607		-		-			-			-			-			-
Issuance of preferred stock in connection with an acquisition		760,000			1			-		-		18,999			-			-			-			19,000
Stock-based compensation, net of cash settlements		-			-			-		-		794			-			-			-			794
Issuance of warrants in connection with an acquisition		-			-			-		-		300			-			-			-			300
Preferred stock dividends		-			-			-		-		(2,643	)		-			-			-			(2,643	)
Balance - March 31, 2020		3,328,195		$	3			13,108,092	$	13	$	86,853		$	(27,577	)	$	(1,433	)	$	(662	)	$	57,197

Balance- April 1, 2020		3,328,195		$	3			13,108,092	$	13	$	86,853		$	(27,577	)	$	(1,433	)	$	(662	)	$	57,197
Balance		3,328,195			3			13,108,092		13		86,853			(27,577	)		(1,433	)		(662	)		57,197
Net loss		-			-			-		-		-			(4,792	)		-			-			(4,792	)
Foreign currency translation adjustment		-			-			-		-		-			-			16			-			16
Issuance of stock under the Amended and Restated Equity Incentive Plan		4,803			-			87,398		-		-			-			-			-			-
Issuance of preferred stock in connection with the Meridian acquisition		200,000			-			-		-		5,000			-			-			-			5,000
Issuance of preferred stock, net of fees and expenses		828,000			1			-		-		19,013			-			-			-			19,014
Stock-based compensation, net of cash settlements		-			-			-		-		1,439			-			-			-			1,439
Issuance of warrants in connection with the Meridian acquisition		-			-			-		-		4,770			-			-			-			4,770
Preferred stock dividends		-			-			-		-		(3,277	)		-			-			-			(3,277	)
Balance - June 30, 2020		4,360,998		$	4			13,195,490	$	13	$	113,798		$	(32,369	)	$	(1,417	)	$	(662	)	$	(79,367	)
Balance		4,360,998		$	4			13,195,490	$	13	$	113,798		$	(32,369	)	$	(1,417	)	$	(662	)	$	(79,367)

For all periods presented, the preferred stock dividends were paid monthly at the rate of $2.75 per share per annum.

See notes to condensed consolidated financial statements.

CARECLOUD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

($ in thousands)

	2021			2020
OPERATING ACTIVITIES:
Net loss	$	(2,191	)	$	(7,294	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		6,185			3,643
Lease amortization		1,455			1,338
Deferred revenue		(133	)		1
Provision for doubtful accounts		257			285
Provision (benefit) for deferred income taxes		126			(100	)
Foreign exchange gain		(59	)		(333	)
Interest accretion		288			331
Stock-based compensation expense		3,002			3,188
Adjustment of goodwill		36			-
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable		(1,687	)		1,604
Contract asset		1,037			343
Inventory		(42	)		182
Other assets		(120	)		(524	)
Accounts payable and other liabilities		(6,073	)		(5,592	)
Net cash provided by (used in) operating activities		2,081			(2,928	)
INVESTING ACTIVITIES:
Purchase of property and equipment		(1,484	)		(817	)
Capitalized software		(3,254	)		(2,622	)
Cash paid for acquisitions (net)		(12,261	)		(23,716	)
Net cash used in investing activities		(16,999	)		(27,155	)
FINANCING ACTIVITIES:
Preferred stock dividends paid		(7,198	)		(4,472	)
Settlement of tax withholding obligations on stock issued to employees		(1,572	)		(1,048	)
Repayments of notes payable, net		(391	)		(186	)
Proceeds from exercise of warrants		6,392			-
Proceeds from issuance of common stock, net of expenses		1,360			-
Proceeds from line of credit		5,000			19,500
Repayment from line of credit		-			(9,750	)
Net proceeds from issuance of preferred stock		-			19,014
Net cash provided by financing activities		3,591			23,058
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(96	)		(437	)
NET DECREASE IN CASH AND RESTRICTED CASH		(11,423	)		(7,462	)
CASH - beginning of the period		20,925			19,994
CASH AND RESTRICTED CASH - end of the period	$	9,502		$	12,532
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Preferred stock (cancelled) issued in connection with an acquisition	$	(4,000	)	$	24,000
Contingent consideration	$	6,500		$	-
Vehicle financing obtained	$	-		$	28
Dividends declared, not paid	$	3,810		$	3,194
Warrants issued	$	-		$	5,070
SUPPLEMENTAL INFORMATION - Cash paid during the period for:
Income taxes	$	92		$	62
Interest	$	39		$	111

See notes to condensed consolidated financial statements.

~~MTBC, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)~~

~~FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019~~

2020 2019
OPERATING ACTIVITIES:
Net loss $ (8,967,870 ) $ (1,204,207 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization 6,816,235 2,457,183
Lease amortization 2,134,143 1,440,066
Deferred revenue 159,819 (11,557 )
Provision for doubtful accounts 295,645 105,315
(Benefit) provision for deferred income taxes (93,035 ) 34,585
Foreign exchange (gain) loss (62,741 ) 408,057
Interest accretion 510,771 381,827
Gain on sale of assets (1,647 ) (26,213 )
Stock-based compensation expense 4,951,001 2,324,799
Change in contingent consideration (500,000 ) (343,768 )
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable (1,208,961 ) (126,542 )
Contract asset (274,149 ) 51,607
Inventory 185,850 69,137
Other assets 106,470 (108,080 )
Accounts payable and other liabilities (8,384,301 ) (698,408 )
Net cash (used in) provided by operating activities (4,332,770 ) 4,753,801
INVESTING ACTIVITIES:
Capital expenditures (1,288,500 ) (1,326,650 )
Capitalized software (3,767,219 ) -
Cash paid for acquisitions (net) (23,716,250 ) (1,600,000 )
Net cash used in investing activities (28,771,969 ) (2,926,650 )
FINANCING ACTIVITIES:
Preferred stock dividends paid (7,798,299 ) (4,464,435 )
Settlement of tax withholding obligations on stock issued to employees (1,847,318 ) (1,320,650 )
Repayments of notes payable, net (430,080 ) (290,164 )
Contingent consideration payments - (182,664 )
Proceeds from exercise of warrants 2,995,117 -
Proceeds from line of credit 19,500,000 -
Repayments of line of credit (19,500,000 ) -
Settlement of contingent obligation (1,325,000 ) -
Net proceeds from issuance of preferred stock 44,544,378 3,719,106
Net cash provided by (used in) financing activities 36,138,798 (2,538,807 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH (188,307 ) 226,370
NET INCREASE (DECREASE) IN CASH 2,845,752 (485,286 )
CASH - beginning of the period 19,994,134 14,472,483
CASH - end of the period $ 22,839,886 $ 13,987,197
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Preferred stock issued in connection with CareCloud and Meridian acquisitions $ 24,000,000 $ -
Vehicle financing obtained $ 28,473 $ 24,909
Dividends declared, not paid $ 4,097,133 $ 1,586,528
Purchase of prepaid insurance through assumption of note $ 667,507 $ 301,359
Warrants issued $ 5,070,000 $ -
SUPPLEMENTAL INFORMATION - Cash paid during the period for:
Income taxes $ 64,326 $ 95,822
Interest $ 150,425 $ 46,089

~~See notes to condensed consolidated financial statements.~~

~~MTBC,~~

CARECLOUD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021

AND ~~2019~~2020 (UNAUDITED)

1. ~~Organization and Business~~ORGANIZATION AND BUSINESS

CareCloud, Inc., formerly MTBC, Inc. (“CareCloud”, ~~(and~~and together with its consolidated subsidiaries, ~~“MTBC” or~~ the “Company”, “we”, “us” and/or “our”) is a healthcare information technology company that ~~offers an integrated~~provides a full suite of proprietary cloud-based ~~electronic health records and practice management~~ solutions, together with related business services, to healthcare ~~providers.~~providers and hospitals throughout the United States. The Company’s integrated services are designed to help customers increase revenues, streamline workflows and make better business and clinical decisions, while reducing administrative burdens and operating costs. ~~The Company’s services include full-scale~~Our Software-as-a-Service (“SaaS”) platform includes revenue cycle management ~~comprehensive~~(“RCM”), practice management ~~services,~~(“PM”), electronic health ~~records,~~record (“EHR”), business intelligence, telehealth, patient experience management (“PXM”) solutions and ~~other technology-driven practice management~~complementary software tools and business services for ~~private~~high-performance medical groups and ~~hospital-employed healthcare providers. MTBC~~health systems. CareCloud has its corporate offices in Somerset, New Jersey and maintains client support teams throughout the U.S., in Pakistan and Azad Jammu and Kashmir (together, the “Pakistan Offices”), and in Sri Lanka.

~~MTBC~~CareCloud was founded in 1999 under the name Medical Transcription Billing, Corp. and incorporated under the laws of the State of Delaware in 2001. In 2004, ~~MTBC~~the Company formed MTBC Private Limited (or “MTBC Pvt. Ltd.”), a ~~99.9%~~99.9% majority-owned subsidiary of ~~MTBC~~CareCloud based in Pakistan. The remaining ~~0.01%~~0.01% of the shares of MTBC Pvt. Ltd. is owned by the founder and Executive Chairman of ~~MTBC.~~CareCloud. In 2016, ~~MTBC~~the Company formed MTBC Acquisition Corp. (“MAC”), a Delaware corporation, in connection with its acquisition of substantially all of the assets of MediGain, LLC and its subsidiary, Millennium Practice Management Associates, LLC (together ~~“MediGain)~~“MediGain”). MAC has a wholly owned subsidiary in Sri Lanka, RCM MediGain Colombo, Pvt. Ltd. In May 2018, ~~MTBC~~the Company formed ~~MTBC Health, Inc. (“MHI”) and MTBC~~CareCloud Practice Management, Corp. (“~~MPM”~~CPM”), ~~each~~ a Delaware corporation, ~~in connection with MTBC’s acquisition of substantially all of the revenue cycle management, practice management and group purchasing organization assets of Orion~~ ~~Healthcorp, Inc. and 13 of its affiliates (together, “Orion”). MHI is a direct, wholly owned subsidiary of MTBC, and was formed~~ to ~~own and~~ operate the ~~revenue cycle management and group purchasing organization businesses acquired from Orion. MPM is a wholly owned subsidiary of MHI and was formed to own and operate the~~medical practice management business acquired from Orion. In March 2019, MTBC formed MTBC-Med, Inc. (“MED”), a Delaware corporation, in connection with its acquisition of substantially all of the assets of Etransmedia Technology, Inc. and its subsidiaries (“Etransmedia”). Orion Healthcorp.

In January 2020, ~~MTBC~~the Company purchased CareCloud ~~Corporation.~~Corporation, a company whose name we took. That company is now known as CareCloud Health, Inc. (“CCH”). In June 2020, ~~MTBC~~the Company purchased Meridian Billing Management Co. and its affiliate Origin Holdings, Inc. (collectively “Meridian” and sometimes referred to as “Meridian Medical Management”).

During March 2021, the Company formed a new wholly-owned subsidiary, CareCloud Acquisition, Corp. (“CAC”). In June 2021, CAC purchased certain assets and assumed certain liabilities of MedMatica Consulting Associates Inc., (“MedMatica”) and purchased the stock of Santa Rosa Staffing, Inc., (“SRS”). The assets and liabilities of MedMatica were merged into SRS and the company was renamed medSR, Inc. (“medSR”). See Note 3.

During ~~the first quarter of~~ 2020, a New Jersey corporation, talkMD Clinicians, PA (“talkMD”), was formed by the wife of the Executive Chairman, who is a licensed physician, to provide telehealth services. talkMD was determined to be a variable interest entity (“VIE”) for financial reporting purposes because the entity will be controlled by the Company. As of ~~September~~June 30, ~~2020,~~2021, talkMD had not yet commenced operations or had any transactions or agreements with the Company or otherwise.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 8-03. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the Company’s financial position as of ~~September~~June 30, ~~2020,~~2021, the results of operations for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 and cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.

The condensed consolidated balance sheet as of December 31, ~~2019~~2020 was derived from our audited consolidated financial statements. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, ~~2019,~~2020, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on February ~~28, 2020.~~25, 2021.

Recent Accounting Pronouncements — On February 14, 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. These amendments provide financial statement preparers with an option to reclassify standard tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recorded. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods therein. There was no impact on the condensed consolidated financial statements as a result of this standard.

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. This ASU simplifies the accounting for nonemployee share-based payments by aligning it with the accounting for share-based payments to employees, with exceptions. Under this guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date, which may lower their cost and reduce volatility in the income statement. Awards to nonemployees are measured by estimating the fair value of the equity instruments to be issued, rather than the fair value of the goods or services received or the fair value of the equity instruments issued, whichever can be measured more reliably. Entities need to consider the probability that a performance condition will be satisfied when an award contains such condition. The guidance is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. There was no impact on the condensed consolidated financial statements as a result of this standard.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes to reduce complexity in the accounting standards. The amendments consist of the removal of certain exceptions to the general principles of ASC 740 and some additional simplifications. The amendments are ~~not required to be implemented until 2021~~effective for public ~~entities. The Company is in the process of investigating if this update will have a significant~~business entities for fiscal years beginning after December 15, 2020. There was no impact on the condensed consolidated financial ~~statements.~~statements as a result of this standard.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments are not required to be implemented until 2022 for public entities. The Company is in the process of investigating if this update will have a significant impact on the condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The guidance in Accounting Standards Update (“ASU”) 2016-13 replaces the incurred loss impairment methodology under current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It will apply to all entities. For trade receivables, loans and held-to-maturity debt securities, entities will be required to estimate lifetime expected credit losses. This may result in the earlier recognition of credit losses. In November 2019, the FASB issued ASU No. 2019-10, which delays this standard’s effective date for SEC smaller reporting companies to the fiscal years beginning on or after December 15, 2022. The Company is in the process of investigating if this update will have a significant impact on the condensed consolidated financial statements.

3. ACQUISITIONS

2021 Acquisition

On June 1, 2021, CAC entered into an Asset and Stock Purchase Agreement (“Purchase Agreement”) with MedMatica and its sole shareholder. Pursuant to the Purchase Agreement, CAC acquired (i) all of the issued and outstanding capital stock of SRS, a Delaware corporation, and (ii) all of the MedMatica assets that were used in MedMatica’s and SRS’ business. Certain MedMatica liabilities were also assumed under the Purchase Agreement. The total cash consideration was $10 million plus a working capital adjustment of approximately $3.8 million. The Purchase Agreement also provides that if during the 18-month period commencing on June 1, 2021 (the “Earn-Out Period”), certain EBITDA and revenue targets with respect to the assets and capital stock purchased under the Purchase Agreement are achieved, then CAC shall pay MedMatica an earn-out up to a maximum of $8 million. Further, if during the Earn-Out Period, certain additional and increased EBITDA and revenue targets with respect to the assets and capital stock purchased under the Purchase Agreement are achieved, then CAC shall pay MedMatica an additional earn-out, up to a maximum of $5 million.

MedMatica and SRS are in the business of providing a broad range of specialty consulting services to hospitals and large healthcare groups, including certain consulting services related to healthcare IT application services and implementations, medical practice management, and revenue cycle management. The acquisition has been accounted for as a business combination.

A summary of the total consideration is as follows:

SUMMARY OF TOTAL CONSIDERATION ON BUSINESS CONSIDERATION

medSR Purchase Price
	($ in thousands)
Cash	$	12,261
Amounts held in escrow		1,571
Contingent consideration		6,500
		-
		-
Total purchase price	$	20,332

The Company engaged a third party valuation specialist to assist the Company in valuing the assets acquired and liabilities assumed from MedMatica. The following table summarizes the preliminary purchase price allocation. The Company expects to finalize the purchase price allocation during the third or fourth quarter of 2021 and is finalizing the projections and the valuation of the acquired assets and assumed liabilities.

The preliminary purchase price allocation for medSR is summarized as follows:

SCHEDULE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

	($ in thousands)
Accounts receivable	$	2,705
Receivable from seller		108
Prepaid expenses		138
Contract asset		2,402
Property and equipment		94
Operating lease right-of-use assets		-
Customer relationships		4,500
Technology		-
Acquired backlog		500
Trademark		-
Software		-
Goodwill		11,406
Other long term assets		-
Accounts payable		(505	)
Accrued expenses & compensation		(996	)
Current loan payable		-
Operating lease liabilities		-
Other current liabilities		-
Deferred revenue		(20	)
Total preliminary purchase price allocation	$	20,332

The acquired accounts receivable is recorded at fair value which represents amounts that have subsequently been paid or were expected to be paid by clients. The fair value of customer relationships was based on the estimated discounted cash flows generated by these intangibles. The goodwill represents the Company’s ability to have an expanded local presence in additional markets and operational synergies that we expect to achieve that would not be available to other market participants. A portion of the goodwill from this acquisition is deductible ratably for income tax purposes over fifteen years. The purchase agreement provides that if revenue and EBITDA over the next 18 months exceed certain specified amounts, there will be an earn-out payment to the seller equal to such excess, up to $13 million. It was estimated that the probable payment will be approximately $6.5 million and this amount has been recorded as part of the preliminary purchase price allocation as contingent consideration.

As part of the acquisition, $1.5 million of the purchase price was held in escrow which represents $500,000 to be paid upon the achievement of agreed upon revenue and backlog milestones, and the balance will be held up to 18 months to satisfy certain indemnification obligations. This amount is included in consideration payable in the condensed consolidated balance sheet at June 30, 2021. Approximately $12.3 million in cash was paid at closing.

The weighted-average amortization period of the acquired intangible assets is approximately three years.

Revenue earned from the clients obtained from the medSR acquisition on June 1, 2021 was approximately $2.6 million during the three and six months ended June 30, 2021.

The medSR acquisition added additional clients to the Company’s customer base and, similar to previous acquisitions, broadened the Company’s presence in the healthcare information technology industry through expansion of its customer base and by increasing available customer relationship resources and specialized trained staff.

2020 Acquisitions

On June 16, 2020, ~~MTBC~~the Company entered into a Stock Purchase Agreement with Meridian Billing Management Co., a Vermont corporation, Origin Holdings, Inc., a Delaware corporation, and GMM II Holdings, LLC, a Delaware limited liability company (“Seller”), pursuant to which ~~MTBC~~the Company purchased all of the issued and outstanding capital stock of Meridian from the Seller. Meridian is in the business of providing medical billing, revenue cycle management, electronic medical records, medical coding and related services. These revenues have been included in the Company’s Healthcare IT segment. The acquisition has been accounted for as a business combination.

The total consideration paid at closing was ~~$11.9~~$11.9 million, net of cash received, 200,000 shares of the Company’s Preferred Stock plus warrants to purchase 2,250,000 shares of the Company’s common stock, with an exercise price per share of ~~$7.50~~$7.50 and a term of two ~~years.~~years. The Company also assumed Meridian’s negative net working capital and certain long-term lease liabilities where the leased space is either not being utilized or will be vacated shortly, with an aggregate value of approximately ~~$4.8~~$4.8 million.

A summary of the total consideration is as follows:

Meridian Purchase Price

Cash $ 11,863,724
Preferred stock 5,000,000
Warrants 4,770,000
Total purchase price $ 21,633,724

SUMMARY OF TOTAL CONSIDERATION ON BUSINESS CONSIDERATION

Meridian Purchase Price
	($ in thousands)
Cash	$	11,864
Preferred stock		5,000
Warrants		4,770
Total purchase price	$	21,634

Of the Preferred Stock consideration, 100,000 shares were held in escrow for up to one month pending completion of technical migration and customer acceptance. Shares net of such losses will be released upon the joint instruction of the Company and the seller in accordance with the applicable escrow terms. Such shares are entitled to the monthly dividend, which will be paid when, and if, the shares are released. The Company accrues the dividend monthly on the Preferred Stock held in escrow. The shares held in escrow were released on August 3, 2020.

The Company’s Preferred Stock and warrants issued as part of the acquisition consideration were issued in a transaction exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). The warrants were valued using the Black-Scholes method. The Company registered for resale under the Securities Act the Preferred Stock and the securities underlying the warrants. ~~During the current quarter, 399,349 warrants were exercised at $7.50 each.~~

The Meridian acquisition added additional clients to the Company’s customer base and, similar to previous acquisitions, broadened the Company’s presence in the healthcare information technology industry through geographic expansion of its customer base and by increasing available customer relationship resources and specialized trained staff.

The Company engaged a third-party valuation specialist to assist the Company in valuing the assets acquired and liabilities assumed from Meridian. The following table summarizes the ~~preliminary~~ purchase price allocation. The Company expects to finalize the purchase price allocation by the end of the fourth quarter and is finalizing the projections and the valuation of the acquired assets and assumed liabilities. The preliminary purchase price allocation for Meridian is summarized as follows:allocation:

SCHEDULE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

Accounts receivable $ 3,557,926
Prepaid expenses 703,732
Contract asset 881,111
Property and equipment 425,993
Operating lease right-of-use assets 2,775,949
Customer relationships 12,900,000
Technology 900,000
Goodwill 13,448,548
Accounts payable (3,373,212 )
Accrued expenses & compensation (3,591,380 )
Deferred revenue (907,077 )
Operating lease liabilities (6,024,616 )
Other current liabilities (63,250 )
Total preliminary purchase price allocation $ 21,633,724

	($ in thousands)
Accounts receivable	$	3,558
Prepaid expenses		704
Contract asset		881
Property and equipment		426
Operating lease right-of-use assets		2,776
Customer relationships		12,900
Technology		900
Goodwill		13,789
Accounts payable		(3,373	)
Accrued expenses & compensation		(3,932	)
Deferred revenue		(907	)
Operating lease liabilities		(6,025	)
Other current liabilities		(63	)
Total purchase price allocation	$	21,634

The acquired accounts receivable ~~are~~is recorded at fair value which represents amounts that have subsequently been paid or ~~are~~were expected to be paid by clients. The fair value of customer relationships was based on the estimated discounted cash flows generated by these intangibles. The goodwill from this acquisition is not deductible for income tax purposes and represents the Company’s ability to have an expanded local presence in additional markets and operational synergies that we expect to achieve that would not be available to other market participants.

The weighted-average amortization period of the acquired intangible assets is approximately ~~four years.~~three years.

Revenue earned from the clients obtained from the Meridian acquisition was approximately ~~$10.0~~ $9.8 million and ~~$11.4~~ $18.7 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively.~~2021, respectively, and was approximately $1.3 million during the three and six months ended June 30, 2020.

On January 8, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CareCloud Corporation, a Delaware corporation which was subsequently renamed CareCloud Health, Inc. (“~~CareCloud”~~CCH”), MTBC Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”) and Runway Growth Credit Fund Inc. (“Runway”), solely in its capacity as a seller representative, pursuant to which Merger Sub merged with and into ~~CareCloud~~CCH (the “Merger”), with ~~CareCloud~~CCH surviving as a wholly-owned subsidiary of the Company. The Merger became effective simultaneously with the execution of the Merger Agreement. The acquisition has been accounted for as a business combination.

The total consideration for the Merger included approximately ~~$11.9~~$11.9 million paid in cash at closing, the assumption of a working capital deficiency of approximately ~~$5.1~~$5.1 million and 760,000 shares of the Company’s Preferred Stock. The Merger Agreement ~~provides~~provided that if ~~CareCloud’s~~CCH’s 2020 revenues exceed $36 million, there will be an earn-out payment to the seller equal to such excess, up to $3 million. Based on the 2020 revenues, no earn-out payment was required. Additional consideration included warrants to purchase 2,000,000 shares of the Company’s common stock, 1,000,000 of which have an exercise price per share of ~~$7.50~~$7.50 and a term of two years, and the other 1,000,000 warrants have an exercise price per share of ~~$10.00~~$10.00 and a term of three ~~years.~~years.

A summary of the total consideration is as follows:

CareCloud Purchase Price

Cash $ 11,852,526
Preferred stock 19,000,000
Warrants 300,000
Contingent consideration 1,000,000
Total purchase price $ 32,152,526

SUMMARY OF TOTAL CONSIDERATION ON BUSINESS CONSIDERATION

CCH Purchase Price
	($ in thousands)
Cash	$	11,853
Preferred stock		19,000
Warrants		300
Contingent consideration		1,000
Total purchase price	$	32,153

Of the Preferred Stock consideration, 160,000 shares were placed in escrow for up to 24 months, and an additional 100,000 shares were placed in escrow for up to 18 months, in both cases, to satisfy indemnification obligations of the seller for losses arising from certain specified contingent liabilities. Shares net of such losses ~~will be~~were released upon the joint instruction of the Company and Runway in accordance with the applicable escrow terms. Such shares ~~are~~were entitled to the monthly dividend, which ~~will~~was to be paid when, and if, the shares ~~are~~were released. The Company ~~accrues~~had accrued the dividend monthly on the Preferred Stock held in escrow. Due to the settlement of the obligation in April 2021, accrued dividends of $513,000 relating to the 160,000 shares held in escrow were reversed during the first quarter of 2021. The shares held in escrow were forfeited to cover the cost of the settlement.

~~During July 2020, it~~It was determined that ~~55,726~~55,822 shares of the Preferred Stock would be released from escrow and cancelled since one of the contingent liabilities was settled for the amount of the cancelled shares. This included a cash payment of approximately $1.3 million. Dividends previously accrued on these shares of ~~$102,166~~$102,000 were reversed as of June 30, 2020, since the amounts will not need to be paid. The remaining shares ~~continue to be~~ held in ~~escrow.~~escrow have been released.

The Company’s Preferred Stock and warrants issued as part of the Merger consideration were issued in a transaction exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). The warrants were valued using the Black-Scholes method. The Company registered for resale under the Securities Act the Preferred Stock and the securities underlying the warrants.

The ~~CareCloud~~CCH acquisition added additional clients to the Company’s customer base. The Company acquired ~~CareCloud’s~~CCH’s software technology and related ~~business, of which certain elements are currently subject to a civil regulatory investigation.~~business. Similar to previous acquisitions, this transaction broadened the Company’s presence in the healthcare information technology industry through geographic expansion of its customer base and by increasing available customer relationship resources and specialized trained staff.

The Company engaged a third-party valuation specialist to assist the Company in valuing the assets acquired and liabilities assumed from ~~CareCloud.~~CCH. The following table summarizes the purchase price allocation:

Accounts receivable $ 2,298,716
Prepaid expenses 1,277,990
Contract asset 537,722
Property and equipment 402,970
Operating lease right-of-use assets 2,858,626
Customer relationships 8,000,000
Trademark 800,000
Software 4,800,000
Goodwill 22,868,078
Other long term assets 539,560
Accounts payable (6,942,710 )
Accrued expenses (2,080,977 )
Current loan payable (79,655 )
Operating lease liabilities (2,858,544 )
Deferred revenue (269,250 )
Total purchase price allocation $ 32,152,526

SCHEDULE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

	($ in thousands)
Accounts receivable	$	2,299
Prepaid expenses		1,278
Contract asset		538
Property and equipment		403
Operating lease right-of-use assets		2,859
Customer relationships		8,000
Trademark		800
Software		4,800
Goodwill		22,868
Other long term assets		540
Accounts payable		(6,943	)
Accrued expenses		(2,081	)
Current loan payable		(80	)
Operating lease liabilities		(2,859	)
Deferred revenue		(269	)
Total purchase price allocation	$	32,153

The weighted-average amortization period of the acquired intangible assets is approximately three years.

Revenue earned from the clients obtained from the ~~CareCloud~~CCH acquisition was approximately ~~$8.2~~ $8.9 millionduring the three months ended ~~September~~June 30, 2021and approximately $17.2 millionduring the six months ended June 30, 2021. Revenue from these clients was approximately $7.5 million during the three months ended June 30, 2020 and approximately ~~$23.2~~$15.1 million during the ~~nine~~six months ended ~~September~~June 30, 2020.

~~2019 Acquisition~~

~~On April 3, 2019, the Company executed an asset purchase agreement (“APA”) to acquire substantially all of the assets of Etransmedia. The purchase price was~~ ~~$1.6 million~~ ~~and the assumption of certain liabilities, excluding acquisition-related costs of approximately~~ ~~$125,000. Per the APA, the acquisition had an effective date of April 1, 2019. The acquisition has been accounted for as a business combination.~~

The Etransmedia acquisition added additional clients to the Company’s customer base and, similar to previous acquisitions, broadened the Company’s presence in the healthcare information technology industry through geographic expansion of its customer base and by increasing available customer relationship resources and specialized trained staff.

~~The purchase price allocation for Etransmedia was performed by the Company and is summarized as follows:~~

Customer relationships $ 856,000
Accounts receivable 547,377
Contract asset 139,169
Operating lease right-of-use assets 1,224,480
Property and equipment 91,277
Goodwill 39,901
Operating lease liabilities (1,224,480 )
Accrued expenses (73,724 )
Total $ 1,600,000

The acquired accounts receivable are recorded at fair value which represents amounts that have subsequently been paid or are expected to be paid by clients. The fair value of customer relationships was based on the estimated discounted cash flows generated by these intangibles. The goodwill from this acquisition is deductible ratably for income tax purposes over fifteen years and represents the Company’s ability to have an expanded local presence in additional markets and operational synergies that we expect to achieve that would not be available to other market participants.

~~The weighted-average amortization period of the acquired intangible assets is approximately three years.~~

Revenue earned from the clients obtained from the Etransmedia acquisition was approximately $852,000 during the three months ended September 30, 2020 and approximately $3.0 million during the nine months ended September 30, 2020.

Pro forma financial information (Unaudited)

The unaudited pro forma information below represents the condensed consolidated results of operations as if the ~~Etransmedia, CareCloud~~CCH, Meridian and ~~Meridian~~medSR acquisitions occurred on January 1, ~~2019.~~2020. The pro forma information has been included for comparative purposes and is not indicative of results of operations that the Company would have had if the acquisitions occurred on the above date, nor is it necessarily indicative of future results. The unaudited pro forma information reflects material, non-recurring pro forma adjustments directly attributable to the business combinations. The difference between the actual revenue and the pro forma revenue ~~for the nine months ended September 30, 2020~~ is approximately ~~$18.2~~$8.1 million and $17.8 million of additional revenue primarily recorded by ~~Meridian.~~medSR and Meridian for the three and six months ended June 30, 2021, respectively.

SCHEDULE OF BUSINESS ACQUISITION, PRO FORMA INFORMATION

	Three Months Ended						Nine Months Ended						2021			2020			2021			2020
	September 30,						September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
	($ in thousands except per share amounts)												($ in thousands except per share amounts)
Total revenue	$	31,639		$	37,841		$	91,293		$	113,688		$	42,170		$	29,997		$	81,625		$	66,267
Net loss	$	(386	)	$	(6,709	)	$	(10,182	)	$	(24,684	)
Net income (loss)													$	193		$	(7,403	)	$	(618	)	$	(11,619	)
Net loss attributable to common shareholders	$	(4,616	)	$	(8,312	)	$	(20,331	)	$	(29,266	)	$	(3,445	)	$	(10,772	)	$	(7,384	)	$	(18,246	)
Net loss per common share	$	(0.36	)	$	(0.68	)	$	(1.63	)	$	(2.43	)	$	(0.24	)	$	(0.87	)	$	(0.52	)	$	(1.48	)

4. GOODWILL AND INTANGIBLE ~~ASSETS-NET~~ASSETS - NET

Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. The following is the summary of the changes to the carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and the year ended December 31, ~~2019:~~2020:

Nine Months Ended Year Ended
September 30, 2020 December 31, 2019
Beginning gross balance $ 12,633,696 $ 12,593,795
Acquisitions 36,316,627 39,901
Ending gross balance $ 48,950,323 $ 12,633,696

SCHEDULE OF INTANGIBLE ASSETS AND GOODWILL

	Six Months Ended		Year Ended
	June 30, 2021		December 31, 2020
	($ in thousands)
Beginning gross balance	$	49,291	$	12,634
Acquisitions		11,370		36,657
Ending gross balance	$	60,661	$	49,291

Intangible assets include customer contracts and relationships and covenants not-to-compete acquired in connection with acquisitions, as well as trademarks acquired and software costs. Intangible assets - net as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 consist of the following:

SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS

					June 30, 2021		December 31, 2020
	September 30, 2020		December 31, 2019		($ in thousands)
Contracts and relationships acquired	$	44,497,300	$	23,597,300	$	48,997	$	44,497
Capitalized software		8,676,756		538,012		9,014		5,760
Non-compete agreements		1,236,377		1,236,377		1,236		1,236
Other intangible assets		3,565,709		1,489,458		8,412		7,906
Total intangible assets		57,976,142		26,861,147		67,659		59,399
Less: Accumulated amortization		26,856,566		20,883,922		34,392		29,421
Intangible assets - net	$	31,119,576	$	5,977,225	$	33,267	$	29,978

~~Amortization expense~~ was approximately $6.0 million and $1.7 million for the nine months ended September 30, 2020 and 2019, respectively, and approximately $2.8 million and $577,000 for the three months ended September 30, 2020 and 2019, respectively. The weighted-average amortization period is currently approximately 4 years.

~~As of September 30, 2020, future amortization scheduled to be expensed is as follows:~~

Years ending
December 31,
2020 (three months) $ 3,156,706
2021 10,499,111
2022 8,318,376
2023 6,227,670
2024 1,267,713
Thereafter 1,650,000
Total $ 31,119,576

Amortization expense was approximately $5.0 million and $3.2 million for the six months ended June 30, 2021 and 2020, respectively, and $2.6 million and $2.1 million for the three months ended June 30, 2021 and 2020, respectively. The remaining weighted-average amortization period is approximately 3.2 years.

As of June 30, 2021, future amortization scheduled to be expensed is as follows:

SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS, FUTURE AMORTIZATION EXPENSE

Years ending
December 31,	($ in thousands)
2021 (six months)	$	6,730
2022		11,941
2023		8,915
2024		4,031
2025		300
Thereafter		1,350
Total	$	33,267

5. NET ~~LOss per~~LOSS PER COMMON ~~share~~SHARE

The following table reconciles the weighted-average shares outstanding for basic and diluted net loss per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

SCHEDULE OF LOSSES PER SHARE, BASIC AND DILUTED

	2021			2020			2021			2020

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
	($ in thousands, except share and per share amounts)
Basic and Diluted:
Net loss attributable to common shareholders	$	(3,865	)	$	(8,069	)	$	(8,958	)	$	(13,214	)
Weighted-average common shares used to compute basic and diluted loss per share		14,430,882			12,395,197			14,258,772			12,353,007
Net loss attributable to common shareholders per share - Basic and Diluted	$	(0.27	)	$	(0.65	)	$	(0.63	)	$	(1.07	)

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Basic and Diluted:
Net loss attributable to common shareholders $ (5,903,398 ) $ (1,740,377 ) $ (19,117,511 ) $ (5,786,446 )
Weighted-average common shares used to compute basic and diluted loss per share 12,771,307 12,146,110 12,493,458 12,038,819
Net loss attributable to common shareholders per share - Basic and Diluted $ (0.46 ) $ (0.14 ) $ (1.53 ) $ (0.48 )

All unvested restricted stock units (“RSUs”)~~, the 200,000~~ and unexercised warrants granted to Opus Bank (“Opus”), the 153,489 warrants granted to Silicon Valley Bank (“SVB”), the 2,000,000 warrants granted in connection with the CareCloud acquisition and the 1,850,651 outstanding warrants granted in connection with the Meridian acquisition have been excluded from the above calculations as they were anti-dilutive. Vested RSUs, ~~and~~ vested restricted shares and exercised warrants have been included in the above calculations.

6. ~~Debt~~DEBT

SVB — During October 2017, the Company opened a revolving line of credit with SVB under a three-year agreement. The SVB credit facility is a secured revolving line of credit where borrowings are based on a formula of ~~200%~~200% of repeatable revenue adjusted by an annualized attrition rate as defined in the credit agreement. During the third quarter of 2018, the credit line was increased from $5$5 million to ~~$10~~$10 million and the term was extended for an additional year. ~~Nothing~~At June 30, 2021, $5 million was drawn, ~~on this line of credit as of September 30, 2020 and December 31, 2019.~~although it was subsequently repaid in full during July, 2021. Interest on the SVB revolving line of credit is charged at the prime rate plus ~~1.50%~~1.50%, with a minimum interest rate of ~~6.5%~~6.5%. There is also a fee of one-half of 1%1% annually for the unused portion of the credit line. The debt is secured by all of the Company’s domestic assets and 65% of the shares in its offshore facilities. Future acquisitions are subject to approval by SVB.~~During the current quarter, the agreement with SVB was modified to include Meridian as a borrower. The annual covenants were set for the following year.~~

Vehicle Financing Notes — The Company financed certain vehicle purchases both in the United States and in Pakistan. The vehicle financing notes have three to six ~~years~~year terms and were issued at current market rates.

Insurance Financing — The Company finances certain insurance purchases over the term of the policy life. The interest rate charged is ~~4.0%~~4.0 % based on the annual renewal.

7. ~~leases~~LEASES

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liability and non-current operating lease liability in our condensed consolidated balance ~~sheet~~sheets as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Each time the Company acquires a business, the ROU assets and the lease liabilities are recorded at fair value as of the date of acquisition. The Company does not have any finance leases.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

We use our estimated incremental borrowing rates, which are derived from information available at the lease commencement date, in determining the present value of lease payments. ~~For leases in existence at the adoption of ASC 842, we used the incremental borrowing rate as of January 1, 2019.~~ We give consideration to our bank financing arrangements, geographical location and collateralization of assets when calculating our incremental borrowing rates.

Our lease terms include options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of less than 12 months are not recorded in the condensed consolidated balance ~~sheet.~~sheets. Our lease agreements do not contain any residual value guarantees. For real estate leases, we account for the lease and non-lease components as a single lease component. Some leases include escalation clauses and termination options that are factored in the determination of the lease payments when appropriate.

If a lease is modified after the effective date, the operating lease ROU asset and liability is re-measured using the current incremental borrowing rate. During the ~~nine~~six months ended ~~September~~June 30, 2021, there were $466,000 of unoccupied lease charges for two of the Company’s facilities. During the six months ended June 30, 2020, there were $64,000 of unoccupied lease charges and a lease impairment of approximately ~~$683,000~~ $297,000was recorded since the Company is no longer using one of its leased facilities.

In February 2021, the Company was able to settle one of the lease obligations assumed in connection with the Meridian acquisition for an amount that approximated the remaining lease liability.

We lease all of our facilities and some equipment. Lease expense is included in direct operating costs and general and administrative expenses in the condensed consolidated statements of operations based on the nature of the expense. As of ~~September~~June 30, ~~2020,~~2021, we had 3840 leased properties, ~~five~~six in Medical Practice Management and 3334 in Healthcare IT, with remaining terms ranging from less than one year to five ~~years.~~years. Our lease terms are determined taking into account lease renewal options, the Company’s anticipated operating plans and leases that are on a month-to-month basis. We also have some related party leases – see Note 9.

The components of lease expense were as follows:

SCHEDULE OF LEASE EXPENSE

									2021		2020		2021		2020
									Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,				2021		2020		2021		2020
	2020		2019		2020		2019		($ in thousands)
Operating lease cost	$	1,226,874	$	572,516	$	2,861,360	$	1,677,137	$	1,058	$	835	$	2,115	$	1,634
Short-term lease cost		25,068		51,353		35,378		189,329		22		1		44		10
Variable lease cost		6,816		6,873		22,350		25,906		8		2		14		16
Total- net lease cost	$	1,258,758	$	630,742	$	2,919,088	$	1,892,372	$	1,088	$	838	$	2,173	$	1,660

Short-term lease cost represents leases that were not capitalized as the lease term as of the later of January 1, ~~2020~~2021 or the beginning of the lease was less than 12 months. Variable lease costs include utilities, real estate taxes and common area maintenance costs.

Supplemental balance sheet information related to leases was as follows:

SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES

							June 30, 2021			December 31, 2020
	September 30, 2020			December 31, 2019			($ in thousands)
Operating leases:
Operating lease ROU assets, net	$	7,529,032		$	3,526,315		$	7,712		$	7,743

Current operating lease liabilities	$	4,636,019		$	1,688,772		$	4,098		$	4,729
Non-current operating lease liabilities		6,642,878			2,040,772			5,727			6,297
Total operating lease liabilities	$	11,278,897		$	3,729,544		$	9,825		$	11,026

Operating leases:
ROU assets	$	9,688,357		$	5,467,749		$	9,163		$	10,648
Asset lease expense		(2,134,143	)		(1,888,443	)		(1,455	)		(2,889	)
Foreign exchange loss		(25,182	)		(52,991	)
Foreign exchange gain (loss)								4			(16	)
ROU assets, net	$	7,529,032		$	3,526,315		$	7,712		$	7,743

Weighted average remaining lease term (in years):
Operating leases		2.64			2.46			4.39			2.71
Weighted average discount rate:
Operating leases		6.80	%		7.05	%		6.79	%		6.76	%

Supplemental cash flow and other information related to leases was as follows:

SCHEDULE OF SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION RELATED TO LEASES

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,416,615 $ 611,249 $ 2,859,681 $ 1,736,133

ROU assets obtained in exchange for lease liabilities:
Operating leases, net of impairment and terminations $ 202,603 $ (119,052 ) $ 6,466,501 $ 1,514,989

	2021		2020		2021		2020
	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	($ in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,336	$	764	$	2,732	$	1,443

ROU assets obtained in exchange for lease liabilities:
Operating leases, net of impairment and terminations	$	1,537	$	2,647	$	1,748	$	6,264

Maturities of lease liabilities are as follows:

SCHEDULE OF MATURITIES OF LEASE LIABILITIES

Operating leases - Year ending December 31,				($ in thousands)
2020 (three months)	$	1,413,597
2021		4,965,055
2021 (six months)				$	2,474
2022		3,863,226			4,047
2023		1,674,095			1,931
2024		328,222			739
2025		58,601			481
Thereafter					1,972
Total lease payments		12,302,796			11,644
Less: imputed interest		(1,023,899	)		(1,819	)
Total lease obligations		11,278,897			9,825
Less: current obligations		(4,636,019	)		(4,098	)
Long-term lease obligations	$	6,642,878		$	5,727

As of ~~September~~June 30, ~~2020,~~2021, we ~~do not~~ have ~~any~~one operating lease ~~commitments~~commitment that ~~have~~has not yet ~~commenced.~~commenced with an aggregate gross lease liability of approximately $32,000.

8. ~~Commitments and Contingencies~~COMMITMENTS AND CONTINGENCIES

Legal Proceedings — On April 4, 2017, Randolph Pain Relief and Wellness Center (“RPRWC”) filed an arbitration demand with the American Arbitration Association (the “Arbitration”) seeking to arbitrate claims against ~~MTBC,~~CareCloud, Inc. (“~~MTBC”~~CareCloud”) and MTBC Acquisition Corp. (“MAC”). The claims relate solely to services provided by Millennium Practice Management Associates, Inc. (“MPMA”), a subsidiary of MediGain, LLC, pursuant to a billing services agreement that contains an arbitration provision. ~~MTBC~~CareCloud and MAC jointly moved in the Superior Court of New Jersey, Chancery Division, Somerset County (the “Chancery Court”) to enjoin the Arbitration on the grounds that neither were a party to the billing services agreement. On May 30, 2018, the Chancery Court denied that motion and ~~MTBC~~CareCloud and MAC appealed. The Chancery Court ordered the Arbitration stayed pending the appeal.

On April 23, 2019, the Appellate Division reversed the Chancery Court’s ruling that ~~MTBC~~CareCloud is required to participate in the Arbitration and remanded the case for further proceedings before the Chancery Court on that issue. The Appellate Division upheld the Chancery Court’s ruling that MAC was required to participate in the Arbitration. The parties completed discovery in the remanded matter, and both ~~MTBC~~CareCloud and RPRWC filed cross-motions for summary judgement in their favor. On February 6, 2020, the Chancery Court denied RPRWC’s motion for summary judgment and granted ~~MTBC’s~~CareCloud’s motion for summary judgment, holding that ~~MTBC~~CareCloud cannot be compelled to participate in the Arbitration. RPRWC has informed ~~MTBC~~CareCloud that it does not intend to appeal the Chancery Court’s ruling and that it intends to move forward solely against MAC in the Arbitration. On March 25, 2020, the Chancery Court lifted the stay of arbitration relative to RPRWC and MAC.

Due to conflicting information provided by RPRWC, it is unclear what the extent of the claimed damages are in this matter which at this time appear to be entirely speculative. According to its arbitration demand, RPRWC seeks compensatory damages of ~~six~~$6.6 million, ~~six hundred thousand dollars,~~ plus costs, for MPMA’s alleged breach of the billing services ~~agreement.~~agreement. On June 12, 2020, in response to a directive from the arbitrator, RPRWC disclosed a statement of damages to MAC in which it increased its alleged damages from ~~six~~$6.6 million ~~six hundred thousand dollars~~ and costs to ~~twenty~~$20 million ~~dollars~~ and costs. On July 24, 2020, RPRWC disclosed a declaration to MAC, in which RPRWC estimates its damages to be approximately ~~eleven~~$11 million ~~dollars~~ plus costs. MAC intends to vigorously defend against RPRWC’s claims. If RPRWC is successful in the Arbitration, ~~MTBC~~CareCloud and MAC anticipate the award would be substantially less than the amount claimed.

Through the CCH transaction, we acquired CCH’s software technology and related business, of which certain elements were, at the time of the acquisition, subject to a civil investigation to determine pre-acquisition compliance with certain federal regulatory requirements. Following the closing of the transaction, the Company continued to cooperate with the inquiry as CCH had historically done since the commencement of the investigation in July of 2018. This element was considered as part of the transaction as $4 million of the transaction’s consideration was held in escrow for the resolution of this investigation. The Company accrued $4.2 million to resolve this investigation, of which up to $4 million is the escrow, which has been recorded as an indemnification asset which is included in the condensed consolidated balance sheet at December 31, 2020 in prepaid expenses and other current assets with an offsetting amount in accrued expenses. The Company settled the obligation in April 2021 substantially within the range covered by the escrowed funds.

From time to time, we may become involved in other legal proceedings arising in the ordinary course of our business. Including the proceedings described above, we are not presently a party to any legal proceedings that, in the opinion of our management, would individually or taken together have a material adverse effect on our business, consolidated results of operations, financial position or cash flows of the Company.

9. ~~Related~~9. RELATED PARTIES

The Company had sales to a related party, a physician who is the wife of the Executive Chairman. Revenues from this customer were approximately ~~$11,000~~ $9,000 and ~~$14,000~~ $7,000 for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, respectively and ~~2019~~ $5,000 and ~~$4,000 and $5,000~~ $2,000 for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. As of ~~September~~both June 30, ~~2020~~2021, and December 31, ~~2019,~~2020, the receivable balance due from this customer was approximately ~~$1,000 and $2,000, respectively.~~$2,000.

The Company is a party to a nonexclusive aircraft dry lease agreement with Kashmir Air, Inc. (“KAI”), which is owned by the Executive Chairman. The Company recorded an expense of approximately ~~$105,000~~$60,000 and ~~$86,000~~$73,000 for the ~~nine~~six month periods ended ~~September~~June 30, 2021 and 2020 and ~~2019~~$30,000 and ~~$32,000~~$32,000 for ~~both~~ the three months ended ~~September~~June 30, 2021 and 2020, ~~and 2019.~~respectively. As of both ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had a liability outstanding to KAI of approximately ~~$1,000,~~$1,000, which is included in accrued liability to related party in the condensed consolidated balance sheets. The ~~original aircraft lease expired on March 31, 2019 and was not included in the ROU asset at January 1, 2019. A~~ lease for ~~a different~~the current aircraft ~~at the same lease rate~~ was ~~entered into~~renewed as of April 1, ~~2019~~2021 and has been included in the ROU asset and operating lease liability at December 31, ~~2019~~2020 and ~~September~~June 30, ~~2020.~~2021.

The Company leases its corporate offices in New Jersey, its temporary housing for its foreign visitors, a printing and mailing facility and its backup operations center in Bagh, Pakistan, from the Executive Chairman. The related party rent expense for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020 was approximately ~~$139,000~~$94,000 and ~~$144,000, respectively~~$93,000 and $49,000 and $46,000for ~~both~~ the three months ended ~~September~~June 30, 2021 and 2020, ~~and 2019, was $47,000~~respectively and is included in direct operating costs and general and administrative expense in the condensed consolidated statements of operations. During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company spent ~~a total of~~ approximately ~~$75,000~~$807,000 to upgrade two of the related party leased facilities. Current assets-related party in the condensed consolidated balance sheets includes security deposits and prepaid rent related to the leases of the Company’s corporate offices in the amount of approximately ~~$13,000~~$13,000 as of both ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Included in the ROU asset at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 is approximately ~~$350,000~~ $257,000 and ~~$566,000,~~$283,000, respectively, applicable to the related party leases. Included in the current and non-current operating lease liability at ~~September~~June 30, ~~2020~~2021 is approximately ~~$239,000~~ $196,000 and ~~$121,000,~~$72,000, respectively, applicable to the related party leases. At December 31, ~~2019,~~2020, the current and non-current operating lease liability applicable to related party leases was approximately ~~$275,000~~ $202,000 and ~~$298,000,~~$92,000, respectively.

During the first quarter of 2020, talkMD Clinicians, PA, a New Jersey corporation was formed to provide telehealth services. This entity is owned by the wife of the Executive Chairman since an entity providing medical services must be owned by a physician. The Company did not have any transactions with this entity since its formation.

10. SHAREHOLDERS’ EQUITY

The Company may sell up to $50 million of its common stock using an “at-the-market” facility (“ATM”). The underwriter receives 3% of the gross proceeds. During the quarter, the Company sold 178,092 shares of common stock under its ATM and received net proceeds of approximately $1.4 million. Also during the ~~nine months ended September 30, 2020.~~quarter, the Company cancelled 215,822 shares of preferred stock that were held in escrow from the CCH acquisition as the matters related to the escrow were settled in cash.

~~10. REVENUE~~

11. REVENUE

Introduction

The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers. All revenue is recognized as our performance obligations are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under ASC 606. Under ASC 606, the Company ~~recognizes revenue when~~breaks a contract into distinctly identifiable performance obligations. Most of our contracts with customers contain a single performance obligation. For contracts where we provide multiple services, such as where we perform multiple ancillary services which are priced separately, each service represents its own performance obligation. Selling prices are based on the ~~revenue cycle management services begin~~contractual price for the service, which approximates their standalone selling price.

Many technology-enabled business solutions are invoiced based on receipt of payment by the practices which are our clients, for medical billing claims ~~which is generally upon receipt of~~where the ~~claim from the provider.~~provider utilized our software or where we submitted a claim. For ~~revenue cycle management services,~~these solutions, the Company estimates the value of the consideration it will earn over the remaining contractual period as our services are provided and recognizes the fees over the term; this estimation involves predicting the amounts our clients will ultimately collect associated with the services they provided. The selling price of the Company’s services equals the contractual price. Certain significant estimates, such as payment-to-charge ratios, effective billing rates and the estimated contractual payment periods are required to measure revenue ~~cycle management revenue~~ under ASC 606.

Most of our current contracts with customers contain a single performance obligation. For contracts where we provide multiple services, such as where we perform multiple ancillary services, each service represents its own performance obligation. Selling prices are based on the contractual price for the service, which approximates the stand alone selling price.

We apply the portfolio approach as permitted by ASC 606 as a practical expedient to contracts with similar characteristics and we use estimates and assumptions when accounting for those portfolios. Our contracts generally include standard commercial payment terms. We have no significant obligations for refunds, warranties or similar obligations and our revenue does not include taxes collected from our customers.

Disaggregation of Revenue from Contracts with Customers

We derive the majority of our revenue from ~~eight primary sources:~~providing technology-enabled business solutions, including our integrated SaaS-based software platform and revenue cycle management ~~services, SaaS solutions,~~services. In addition, we derive revenues from professional ~~services, ancillary~~ services, group purchasing services, printing and mailing services, and ~~clearinghouse and EDI (electronic data interchange) services and~~medical practice management services.

The following table represents a disaggregation of revenue for the three months and ~~nine~~six months ended ~~September~~June 30:

SCHEDULE OF DISAGGREGATION OF REVENUE

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Healthcare IT:
Revenue cycle management services $ 20,372,558 $ 10,715,358 $ 44,927,372 $ 32,598,825
SaaS solutions 3,945,309 93,080 11,315,904 199,738
Professional services 489,093 376,189 1,278,067 1,094,960
Ancillary services 2,414,832 873,841 3,967,438 2,303,118
Group purchasing services 283,075 295,850 649,083 700,963
Printing and mailing services 340,783 436,735 1,093,487 1,186,834
Clearinghouse and EDI services 345,407 146,989 926,782 433,923
Practice Management:
Practice management services 3,447,559 3,913,286 8,926,442 10,162,677
Total $ 31,638,616 $ 16,851,328 $ 73,084,575 $ 48,681,038

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	($ in thousands)
Healthcare IT:
Technology-enabled business solutions	$	27,145	$	16,215	$	52,990	$	34,059
Professional services		3,497		398		4,114		789
Printing and mailing services		272		324		656		753
Group purchasing services		171		189		359		366
Medical Practice Management:
Medical practice management services		2,980		2,453		5,715		5,479
Total	$	34,065	$	19,579	$	63,834	$	41,446

~~Revenue~~Technology-enabled business solutions:

Most of our revenue comes from clients who are using subscription-based technology-enabled business solutions. These solutions typically include one or more elements of our proprietary cloud-based software-as-a-service (“SaaS”) platform, along with revenue cycle management ~~services:~~and related services.

Practice management software automates the labor-intensive workflow of a medical office in a unified and streamlined manner. EHR software allows our healthcare provider clients to deliver better patient care, document their clinical visits effectively and thus potentially qualify for government incentives, reduce documentation errors and reduce paperwork. Patient experience management software allows patients to schedule appointments, request refills, and view their electronic records online or via their mobile device. Business intelligence, robotic process automation, patient experience software, customized applications, interfaces and a variety of other technology solutions support our healthcare clients, either in conjunction with our practice management and EHR platform or through interfaces with third-party platforms. When these software elements are part of the technology-enabled business solution, they are normally included in a price, which is normally expressed as a percentage of the practice’s collections.

Revenue cycle management services are the recurring process of submitting and following up on claims with health insurance companies in order for the healthcare providers to receive payment for the services they rendered. ~~MTBC typically~~Approximately 81% of our revenue is derived from clients using one or more elements of our technology platform and approximately 19% comes from clients using our other services.

The Company invoices many customers on a monthly basis based on the actual collections received by ~~its~~ customers and the agreed-upon rate in the sales contract. The fee for these services ~~include medical billing services and are often included with the~~typically includes use of practice management software and related tools on(on a ~~software-as-a-service (“SaaS”) basis,~~SaaS basis), electronic health records on(on a SaaS ~~basis,~~basis), medical billing services and use of mobile health solutions. Alternatively, SaaS fees may be fixed based on the number of providers, or may be variable based on usage. We consider the services to be one performance obligation since the promises are not distinct in the context of the contract. The performance obligation consists of a series of distinct services that are substantially the same and have the same periodic pattern of transfer to our customers.

In many cases, our clients may terminate their agreements with 90 days’ notice without cause, thereby limiting the term in which we have enforceable rights and obligations, although this time period can vary between clients. Our payment terms are normally net 30 days. Although our contracts typically have stated terms of one or more years, under ASC 606 our contracts are considered month-to-month and accordingly, there is no financing component.

For the majority of our ~~revenue cycle management~~ contracts, the total transaction price is variable because our obligation is to process an unknown quantity of claims, as and when requested by our customers over the contract period. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with variable consideration is subsequently resolved. Estimates to determine variable consideration such as payment to charge ratios, effective billing rates, and the estimated contractual payment periods are updated at each reporting date. Revenue is recognized over the performance period using the input method.

~~SaaS Solutions:~~

~~Some of the Company’s SaaS solutions were initially developed by CareCloud and Meridian, both of which were acquired during 2020.~~

The Company’s SaaS solutions which were initially developed and sold by CareCloud include Central, Complete and Breeze. Central is a SaaS subscription service for healthcare practice management. Complete is a SaaS subscription service that combines healthcare practice management with electronic health records. Breeze is a SaaS subscription service providing patient registration and intake solutions.

The Company’s SaaS solutions which were initially developed and sold by Meridian include VertexDr, Precision BI and Microbots. VertexDr is one of the only fully-integrated electronic medical record and practice management systems encompassing appointment scheduling, practice management, electronic prescribing of controlled substances (EPCS), customizable electronic health records, mobile functionality, and automation. Precision BI provides powerful insight into both clinical and financial performance so healthcare providers can optimize revenue, increase productivity and improve patient care. RPA is an industry term for software tools that help automate routine tasks to make them more reliable and efficient. Meridian’s RPA solution, Microbots, are digital assistants that replace mundane, repetitive processes, allowing organizations scalability and increased productionIncluded in ~~a HIPAA compliant environment.~~

~~Under the Company’s SaaS solutions, the Company derives revenue primarily from recurring~~technology-enabled business subscription fees. The Company typically invoices customers on a monthly basis based on an agreed-upon rate in the sales contract. The Company considers all these services to be one performance obligation since the promises are not distinct in the context of the contract. The performance obligation consists of a series of distinct services that are substantially the same and have the same periodic pattern of transfer to customers. Recurring business subscription fees may also include amounts charged to the customer for patient statements and for other services for which reimbursement is based on a fixed fee per patient visit and recognized as revenue as the related services are performed.

~~Payment terms for the above SaaS~~ solutions are normally between seven and thirty days. Although the contracts typically have stated terms of one or more years, under ASC 606, contracts are considered month-to-month and accordingly, there is no financing component.

~~Professional services:~~

~~These services include training, implementation, data conversion, data migration and ongoing support.~~

For all of the above revenue streams, revenue is recognized over time, which is typically one month or less, which closely matches the point in time that the customer simultaneously receives and consumes the benefits provided by the Company. Each service is substantially the same and has the same periodic pattern of transfer to the customer. Each of the services provided above is considered a separate performance obligation.

MTBC also provides implementation and professional services to certain customers and records revenue monthly on a time and materials or a fixed rate basis. The performance obligation is satisfied over time as the implementation or professional services are rendered.

~~Other revenue streams:~~

~~Ancillary services represent~~ancillary services such as coding, credentialing and transcription that are rendered in connection with the delivery of revenue cycle management and related ~~medical~~ services. The Company invoices customers monthly, based on the actual amount of services performed at the agreed upon rate in the contract. These services are only offered to revenue cycle management customers. These services do not represent a material right because the services are optional to the customer and customers electing these services are charged the same price for those services as if they were on a standalone basis. Each individual ~~coding, credentialing or transcription~~ancillary service transaction processed represents a performance obligation, which is satisfied over time as that individual service is rendered.

Also included in technology-enabled business solutions are medical billing clearinghouse services which takes claim information from customers, checks the claims for errors and sends this information electronically to insurance companies. The Company invoices customers on a monthly basis based on the number of claims submitted and the agreed-upon rate in the agreement. This service is provided to medical practices and providers to medical practices who are not revenue cycle management customers. The performance obligation is satisfied once the relevant submissions are completed.

Professional services:

The Company provides implementation and professional services to certain customers and records revenue monthly on a time and materials or a fixed rate basis. These services consist of implementation, advisory and on demand staffing. This is a separate performance obligation from any revenue cycle management and SaaS services provided, for which the Company receives and records monthly fees. The performance obligation is satisfied over time as the professional services are rendered.

Substantially all of the professional services obligations consist of a series of distinct services that are substantially the same and have the same periodic pattern of transfer to our customers, Revenue is recognized over time.

Other revenue streams:

The Company provides printing and mailing services for both technology-enabled business solutions and a customer that does not utilize our technology-enabled business solutions, and invoices on a monthly basis based on the number of prints, the agreed-upon rate per print and the postage incurred. The performance obligation is satisfied once the printing and mailing is completed.

The Company also provides group purchasing services which enable medical providers to purchase various vaccines directly from selected pharmaceutical companies at a discounted price. Currently, there are approximately 4,000 medical providers who are members of the program. Revenue is recognized as the vaccine shipments are made to the medical providers. ~~Referral fees~~Fees from the pharmaceutical companies are paid ~~to MTBC~~ either quarterly or annually and the Company adjusts its revenue accrual at the time of payment. The Company makes significant judgments regarding the variable consideration which we expect to be entitled to for the group purchasing services which includes the anticipated shipments to the members enrolled in the program, anticipated volumes of purchases made by the members, and the changes in the number of members. The amounts recorded are constrained by estimates of decreases in shipments and loss of members to avoid a significant revenue reversal in the subsequent period. The only performance obligation is to provide the pharmaceutical companies with the medical providers who want to become members in order to purchase vaccines. The performance obligation is satisfied once the medical provider agrees to purchase a specific quantity of vaccines and the medical provider’s information is forwarded to the vaccine suppliers. The Company records a contract asset for revenue earned and not paid as the ultimate payment is conditioned on achieving certain volume thresholds.

The Company provides printing and mailing services for both revenue cycle management customers and a large non-revenue cycle management customer, and invoices on a monthly basis based on the number of prints, the agreed-upon rate per print and the postage incurred. The performance obligation is satisfied once the printing and mailing is completed.

The medical billing clearinghouse service takes claim information from customers, checks the claims for errors and sends this information electronically to insurance companies. MTBC invoices customers on a monthly basis based on the number of claims submitted and the agreed-upon rate in the agreement. This service is provided to medical practices and providers to medical practices who are not revenue cycle management customers. The performance obligation is satisfied once the relevant submissions are completed.

For all of the above revenue streams other than group purchasing services and printing and mailing, revenue is recognized over time, which is typically one month or less, which closely matches the point in time that the customer simultaneously receives and consumes the benefits provided by the Company. For the group purchasing services, revenue is recognized at a point in time. ~~Other than the group purchasing services, each of the Company’s services are~~Each service is substantially the same and ~~have~~has the same periodic pattern of transfer to the customer. Each ~~service~~of the services provided ~~by the Company~~above is considered a separate performance obligation.

~~Practice~~Medical practice management services:

The Company also provides medical practice management services under long-term management service agreements to three medical practices. We provide the medical practices with the nurses, administrative support, facilities, supplies, equipment, marketing, RCM, accounting, and other non-clinical services needed to efficiently operate their practices. Revenue is recognized as the services are provided to the medical practices. Revenue recorded in the consolidated statements of operations represents the reimbursement of costs paid by the Company for the practices and the management fee earned each month for managing the practice. The management fee is based on either a fixed fee or a percentage of the net operating income.

The Company assumes all financial risk for the performance of the managed medical practices. Revenue is impacted by the amount of the costs incurred by the practices and their operating income. The gross billing of the practices is impacted by billing rates, changes in current procedural terminology code reimbursement and collection trends which in turn impacts the management fee that the Company is entitled to. Billing rates are reviewed at least annually and adjusted based on current insurer reimbursement practices. The performance obligation is satisfied as the management services are provided.

Our contracts for medical practice management services have approximately an additional 20 years remaining and are only cancellable under very limited circumstances. The Company receives a management fee each month for managing the day-to-day business operations of each medical group as a fixed fee or a percentage payment of the net operating income which is included in revenue in the condensed consolidated statements of operations.

Our medical practice management services obligations consist of a series of distinct services that are substantially the same and have the same periodic pattern of transfer to our customers. Revenue is recognized over time; however, for reporting and convenience purposes, the management fee is computed at each month end.

Information about contract balances:

The contract assets in the condensed consolidated balance sheets represent the revenue associated with the amounts we estimate our ~~revenue cycle management~~ clients will ultimately collect ~~associated with the services they have provided and the relative fee we charge associated with those~~if our charges are based on a percentage of collections, together with amounts related to the group purchasing services. As of ~~September~~June 30, ~~2020,~~2021, the estimated revenue expected to be recognized in the future related to the remaining ~~revenue cycle management~~ performance obligations outstanding was approximately ~~$3.5~~ $4.1 million. We expect to recognize substantially all of the revenue for the remaining performance obligations over the next three months. Approximately ~~$600,000~~ $315,000 of the contract asset represents revenue earned, not paid, from the group purchasing services. Approximately $1.0 million of the contract asset represents revenue for professional services performed, not yet invoiced to the customer.

Accounts receivable are shown separately at their net realizable value in our condensed consolidated balance sheets. Amounts that we are entitled to collect under the applicable contract are recorded as accounts receivable. Invoicing is performed at the end of each month when the services have been provided. The contract asset results from our revenue cycle management services and is due to the timing of revenue recognition, submission of claims from our customers and payments from the insurance providers. The contract asset includes our right to payment for services already transferred to a customer when the right to payment is conditional on something other than the passage of time. For example, contracts for revenue cycle management services where we recognize revenue over time but do not have a contractual right to payment until the customer receives payment of their claim from the insurance provider. The contract asset also includes the revenue accrued, not received, for the group purchasing services and revenue earned, not invoiced, for professional services.

The contract asset was approximately ~~$4.1~~$5.5 million and ~~$2.7~~$3.4 million as of ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Changes in the contract asset are recorded as adjustments to net revenue. The changes primarily result from providing services to ~~revenue cycle management~~ customers that result in additional consideration and are offset by our right to payment for services becoming unconditional and changes in the revenue accrued for the group purchasing services. The contract asset for our group purchasing services is reduced when we receive payments from vaccine manufacturers and is increased for revenue earned, not received. The contract asset for professional services is reduced when the customer is invoiced and is increased as services are rendered. Deferred revenue represents sign-up fees received from customers that are amortized over three years. The opening and closing balances of the Company’s accounts receivable, contract asset and deferred revenue are as follows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

SCHEDULE OF ACCOUNTS RECEIVABLE, CONTRACT ASSET AND DEFERRED REVENUE

	Accounts Receivable, Net			Contract Asset			Deferred Revenue (current)			Deferred Revenue (long term)
	($ in thousands)
Balance as of January 1, 2021	$	12,089		$	4,105		$	1,173		$	305
medSR acquisition		2,705			2,402			20			-
Increase (decrease), net		1,430			(1,037	)		(12	)		(121	)
Balance as of June 30, 2021	$	16,224		$	5,470		$	1,181		$	184

Balance as of January 1, 2020	$	6,995		$	2,385		$	20		$	19
CCH acquisition		2,299			538			-			269
Meridian acquisition		3,800			881			907			-
(Decrease) increase, net		(1,888	)		(376	)		82			(81	)
Balance as of June 30, 2020	$	11,206		$	3,428		$	1,009		$	207

Accounts Receivable, Net Contract Asset Deferred Revenue (current) Deferred Revenue (long term)
Balance as of January 1, 2020 $ 6,995,343 $ 2,385,334 $ 20,277 $ 18,745
CareCloud acquisition 2,298,716 537,722 - 269,250
Meridian acquisition 3,557,926 881,111 907,077 -
Increase (decrease), net 913,316 274,149 287,807 (127,988 )
Balance as of September 30, 2020 $ 13,765,301 $ 4,078,316 $ 1,215,161 $ 160,007

Balance as of January 1, 2019 $ 7,331,474 $ 2,608,631 $ 25,355 $ 18,949
Etransmedia acquisition - 139,169 - -
Increase (decrease), net 568,604 (51,607 ) (8,916 ) (2,641 )
Balance as of September 30, 2019 $ 7,900,078 $ 2,696,193 $ 16,439 $ 16,308

Deferred commissions:

Our sales incentive plans include commissions payable to employees and third parties at the time of initial contract execution that are capitalized as incremental costs to obtain a contract. The capitalized commissions are amortized over the period the related services are transferred. As we do not offer commissions on contract renewals, we have determined the amortization period to be the estimated client life which is three years for contracts entered into by ~~MTBC and four years for contracts entered into by CareCloud.~~CCH. Deferred commissions were approximately ~~$870,000~~$1.0 million and ~~$44,000~~$836,000 at ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and are included in the other assets amounts in the condensed consolidated balancesheets.

~~11.~~ 12. STOCK-BASED COMPENSATION

In April 2014, the Company adopted the Medical Transcription Billing, Corp. 2014 Equity Incentive Plan (the “2014 Plan”), reserving 1,351,000 shares of common stock for grants to employees, officers, directors and consultants. During 2017, the 2014 Plan was amended and restated whereby an additional 1,500,000 shares of common stock and 100,000 shares of Preferred Stock were added to the plan for future issuance. The 2014 Plan was amended and restated on April 14, 2017 (the “Amended and Restated Equity Incentive Plan”). During 2018, an additional 200,000 of preferred shares were added to the plan for future issuance. In May 2020, an additional 2,000,000 shares of common stock and 300,000 shares of Preferred Stock were added to the plan for future issuance. As of ~~September~~June 30, ~~2020, 1,706,283~~2021, 1,329,267 shares of common stock and ~~374,881~~327,909 shares of Preferred Stock are available for grant. Permissible awards include incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance stock and cash-settled awards and other stock-based awards in the discretion of the Compensation Committee of the Board of Directors including unrestricted stock grants.

The equity-based RSUs contain a provision in which the units shall immediately vest and become converted into common shares at the rate of one share per RSU, immediately after a change in control, as defined in the award agreement. The preferred stock RSUs contain a similar provision, which vest and convert to Preferred Stock upon a change in control.

Common and preferred stock RSUs

In January ~~2020,~~2021, the Compensation Committee approved executive bonuses to be paid in shares of Preferred Stock, with the number of shares and the amount based on specified criteria being achieved during the year ~~2020.~~2021. The actual amount will be settled in early ~~2021~~2022 based on the achievement of the specified criteria. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, an expense of approximately ~~$900,000,~~$450,000, was recorded for these bonuses based on the value of the shares at the grant date and recognized over the service period. The portion of the stock compensation expense to be used for the payment of withholding and payroll taxes is included in accrued compensation in the condensed consolidated balance sheets. The balance of the stock compensation expense has been recorded as additional paid-in capital.

The following table summarizes the RSU transactions related to the common and preferred stock under the Equity Incentive Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

DISCLOSURE OF SHARE-BASED COMPENSATION ARRANGEMENTS BY SHARE-BASED PAYMENT AWARD

							Common Stock			Preferred Stock
Outstanding and unvested shares at January 1, 2021								382,435			44,000
Granted								419,159			42,166
Vested								(294,575	)		(52,166	)
Forfeited								(30,412	)		-
Outstanding and unvested shares at June 30, 2021								476,607			34,000
	Common Stock			Preferred Stock
Outstanding and unvested shares at January 1, 2020		451,085			44,000			451,085			44,000
Granted		777,884			59,673			618,879			44,000
Vested		(667,436	)		(59,673	)		(326,996	)		(44,000	)
Forfeited		(82,428	)		-			(50,896	)		-
Outstanding and unvested shares at September 30, 2020		479,105			44,000

Outstanding and unvested shares at January 1, 2019		929,347			44,800
Granted		176,000			44,000
Vested		(581,065	)		(44,800	)
Forfeited		(26,614	)		-
Outstanding and unvested shares at September 30, 2019		497,668			44,000
Outstanding and unvested shares at June 30, 2020								692,072			44,000

~~Of the~~The total outstanding and unvested common stock RSUs at ~~September~~June 30, ~~2020, 465,605 RSUs~~2021 are classified as ~~equity and 13,500 RSUs are classified as a liability. All of the preferred stock RSUs are classified as~~ equity.

Stock-based compensation expense

The Company recognizes compensation expense on a straight-line basis over the total requisite service period for the entire award. For stock awards classified as equity, the market price of our common stock or preferred stock on the date of grant is used in recording the fair value of the award and includes the related taxes. For stock awards classified as a liability, the earned amount is marked to market based on the end of period common stock price. The liability for the cash-settled awards was approximately $~~766,000~~ 658,000and ~~$741,000~~$976,000 at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and is included in accrued compensation in the condensed consolidated balance sheets.

The following table summarizes the components of share-based compensation expense for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

SCHEDULE OF EMPLOYEE SERVICE SHARE-BASED COMPENSATION, ALLOCATION OF RECOGNIZED PERIOD COSTS

Stock-based compensation included in the	Three Months Ended September 30,				Nine Months Ended September 30,
Stock-based compensation included in the condensed									Three Months Ended June 30,				Six Months Ended June 30,
consolidated statements of operations:	2020		2019		2020		2019		2021		2020		2021		2020
									($ in thousands)
Direct operating costs	$	379,314	$	49,590	$	808,469	$	146,448	$	254	$	259	$	559	$	429
General and administrative		818,666		693,138		2,887,434		2,100,609		1,120		1,217		1,745		2,069
Research and development		262,281		9,044		516,398		18,878		72		178		209		254
Selling and marketing		302,731		22,839		738,700		58,864		288		227		489		436
Total stock-based compensation expense	$	1,762,992	$	774,611	$	4,951,001	$	2,324,799	$	1,734	$	1,881	$	3,002	$	3,188

~~12.~~ 13.INCOME TAXES

The income tax ~~provision~~expense for the three months ended ~~September~~June 30, ~~2020~~2021 was approximately ~~$62,000,~~$213,000, comprised of a current tax expense of ~~$55,000~~ $51,000 and a deferred tax expense of ~~$7,000.~~$162,000. The income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was approximately ~~$18,000,~~$212,000, comprised of a current tax expense of ~~$111,000~~ $86,000 and a deferred tax ~~benefit~~expense of ~~$93,000.~~$126,000. The deferred tax expense is not anticipated to result in a cash payment.

The current income tax provision for the ~~three and nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 primarily relates to state minimum taxes and foreign income taxes. The deferred tax provision ~~(benefit)~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 relates to the book and tax difference of amortization on indefinite-lived intangibles, primarily goodwill. To the extent allowable, the federal deferred tax provision has been offset by the indefinite life net operating loss.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. Several new corporate tax provisions were included in the CARES Act, including, but not limited to, the following: increasing the limitation threshold for determining deductible interest expense, class life changes to qualified improvements (in general - from 39 years to 15 years), and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years.The Company has evaluated the income tax provisions of the CARES Act and determined the impact to be either immaterial or not applicable. Under the CARES Act, the Company took advantage of the payroll tax deferral provision. As of ~~September~~both June 30, 2021 and December 31, 2020, the Company has deferred approximately ~~$1.3~~ $1.9 million of payroll taxes. Of this amount, one-half needs to be repaid by December 31, 2021 and the balance by December 31, 2022.

The Company has incurred cumulative losses which make realization of a deferred tax asset difficult to support in accordance with ASC 740. Accordingly, a valuation allowance has been recorded against the Federal and state deferred tax assets as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

~~13.~~ 14.FAIR VALUE OF FINANCIAL INSTRUMENTS

As of ~~September~~June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, the carrying amounts of accounts receivable, accounts payable and accrued expenses approximated their estimated fair values because of the short-term nature of these financial instruments.

Fair value measurements-Level 2

Our notes payable are carried at cost and approximate fair value since the interest rates being charged approximate market rates. As a result, the Company categorizes these borrowings as Level 2 in the fair value hierarchy.

Contingent Consideration

The Company’s contingent consideration of ~~$500,000~~ ~~as of September 30, 2020~~ is a Level 3 liability. ~~During the third quarter, the Company determined that $500,000 of contingent consideration previously recorded would not be earned by the seller and was reversed.~~ The Company based this amount on a review of current revenue levels, including potential revenue from existing customers, the amount of customer backlog and an estimate of new customer activity. The remaining fair value of the contingent consideration ~~at September 30, 2020 was~~is primarily driven by changes in revenue estimates related to ~~the Company’s~~ acquisitions, the passage of time and the associated discount rate. As of June 30, 2021, the contingent consideration is approximately $6.5 million and relates to medSR.

The following table provides a reconciliation of the beginning and ending balances for the contingent consideration measured at fair value using significant unobservable inputs (Level 3):

Fair Value Measurement at Reporting Date Using Significant Unobservable Inputs, Level 3
Nine Months Ended September 30,
2020 2019
Balance - January 1, $ - $ 526,432
Acquisition 1,000,000 -
Change in fair value (500,000 ) (343,768 )
Payments - (182,664 )
Balance - September 30, $ 500,000 $ -

~~14.~~

SCHEDULE OF FAIR VALUE, LIABILITIES MEASURED ON RECURRING BASIS, UNOBSERVABLE INPUT RECONCILIATION

	Fair Value Measurement at Reporting Date Using Significant Unobservable Inputs, Level 3 Six Months Ended June 30,
	2021		2020
	($ in thousands)
Balance - January 1,	$	-	$	-
Acquisitions		6,500		1,000
Change in fair value		-		-
Payments		-		-
Balance - June 30,	$	6,500	$	1,000

15.SEGMENT REPORTING

Both our Chief Executive Officer and Executive Chairman serve as the Chief Operating Decision Maker (“CODM”), organize the Company, manage resource allocations and measure performance among ~~two~~2 operating and reportable segments: (i) Healthcare IT and (ii) Medical Practice Management.

The Healthcare IT segment includes revenue cycle management, SaaS solutions and other services. The Medical Practice Management segment includes the management of three medical practices. Each segment is considered a reporting unit. The CODM evaluates financial performance of the business units on the basis of revenue and direct operating costs excluding unallocated amounts, which are mainly corporate overhead costs. Our CODM does not evaluate operating segments using asset or liability information. The accounting policies of the segments are the same as those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 filed with the SEC on February ~~28, 2020.~~25, 2021. The following tables present revenues, operating expenses and operating (loss) income by reportable segment:

SCHEDULE OF REVENUES, OPERATING EXPENSES AND OPERATING INCOME (LOSS) BY REPORTABLE SEGMENT

	Six Months Ended June 30, 2021
	($ in thousands)
	Healthcare IT		Medical Practice Management		Unallocated Corporate Expenses			Total
Net revenue	$	58,119	$	5,715	$	-		$	63,834
Operating expenses:
Direct operating costs		34,149		4,446		-			38,595
Selling and marketing		4,079		15		-			4,094
General and administrative		6,839		1,016		4,038			11,893
Research and development		3,839		-		-			3,839
Depreciation and amortization		5,792		167		-			5,959
Impairment and unoccupied lease charges		1,241		-		-			1,241
Total operating expenses		55,939		5,644		4,038			65,621
Operating (loss) income	$	2,180	$	71	$	(4,038	)	$	(1,787	)

	Three Months Ended June 30, 2021
	($ in thousands)
	Healthcare IT		Medical Practice Management		Unallocated Corporate Expenses			Total
Net revenue	$	31,085	$	2,980	$	-		$	34,065
Operating expenses:
Direct operating costs		18,161		2,373		-			20,534
Selling and marketing		2,197		7		-			2,204
General and administrative		3,411		497		2,361			6,269
Research and development		1,813		-		-			1,813
Depreciation and amortization		3,043		85		-			3,128
Impairment and unoccupied lease charges		223		-		-			223
Total operating expenses		28,848		2,962		2,361			34,171
Operating (loss) income	$	2,237	$	18	$	(2,361	)	$	(106	)

	Six Months Ended June 30, 2020
	($ in thousands)
	Healthcare IT			Medical Practice Management		Unallocated Corporate Expenses			Total
Net revenue	$	35,967		$	5,479	$	-		$	41,446
Operating expenses:
Direct operating costs		21,927			4,196		-			26,123
Selling and marketing		3,189			17		-			3,206
General and administrative		6,894			1,025		3,067			10,986
Research and development		4,479			-		-			4,479
Depreciation and amortization		3,579			159		-			3,738
Impairment charges		361			-		-			361
Total operating expenses		40,429			5,397		3,067			48,893
Operating (loss) income	$	(4,462	)	$	82	$	(3,067	)	$	(7,447	)

												Three Months Ended June 30, 2020
	Nine Months Ended September 30, 2020											($ in thousands)
	Healthcare IT			Practice Management		Unallocated Corporate Expenses			Total			Healthcare IT			Medical Practice Management		Unallocated Corporate Expenses			Total
Net revenue	$	64,158,133		$	8,926,442	$	-		$	73,084,575		$	17,126		$	2,453	$	-		$	19,579
Operating expenses:
Direct operating costs		39,073,783			6,768,005		-			45,841,788			10,761			1,796		-			12,557
Selling and marketing		4,752,713			25,105		-			4,777,818			1,617			8		-			1,625
General and administrative		11,067,480			1,492,865		4,616,248			17,176,593			3,014			468		1,911			5,393
Research and development		6,846,014			-		-			6,846,014			2,146			-		-			2,146
Change in contingent consideration		(500,000	)		-		-			(500,000	)
Depreciation and amortization		6,705,215			238,490		-			6,943,705			2,325			80		-			2,405
Impairment and unoccupied lease charges		681,400			-		-			681,400
Impairment charges													63			-		-			63
Total operating expenses		68,626,605			8,524,465		4,616,248			81,767,318			19,926			2,352		1,911			24,189
Operating (loss) income	$	(4,468,472	)	$	401,977	$	(4,616,248	)	$	(8,682,743	)	$	(2,800	)	$	101	$	(1,911	)	$	(4,610	)

Three Months Ended September 30, 2020
Healthcare IT Practice Management Unallocated Corporate
Expenses Total
Net revenue $ 28,191,057 $ 3,447,559 $ - $ 31,638,616
Operating expenses:
Direct operating costs 17,147,137 2,571,244 - 19,718,381
Selling and marketing 1,563,255 8,168 - 1,571,423
General and administrative 4,173,350 468,172 1,549,486 6,191,008
Research and development 2,366,560 - - 2,366,560
Change in contingent consideration (500,000 ) - - (500,000 )
Depreciation and amortization 3,126,508 79,497 - 3,206,005
Impairment and unoccupied lease charges 320,575 - - 320,575
Total operating expenses 28,197,385 3,127,081 1,549,486 32,873,952
Operating (loss) income $ (6,328 ) $ 320,478 $ (1,549,486 ) $ (1,235,336 )

Nine Months Ended September 30, 2019
Healthcare IT Practice Management Unallocated Corporate
Expenses Total
Net revenue $ 38,518,361 $ 10,162,677 $ - $ 48,681,038
Operating expenses:
Direct operating costs 23,912,120 7,867,444 - 31,779,564
Selling and marketing 1,065,750 25,774 - 1,091,524
General and administrative 8,549,122 1,504,506 3,704,177 13,757,805
Research and development 648,822 - - 648,822
Change in contingent consideration (343,768 ) - - (343,768 )
Depreciation and amortization 2,170,204 236,907 - 2,407,111
Restructuring and impairment charges 136,332 - - 136,332
Total operating expenses 36,138,582 9,634,631 3,704,177 49,477,390
Operating income (loss) $ 2,379,779 $ 528,046 $ (3,704,177 ) $ (796,352 )

Three Months Ended September 30, 2019
Healthcare IT Practice Management Unallocated Corporate
Expenses Total
Net revenue $ 12,938,042 $ 3,913,286 $ - $ 16,851,328
Operating expenses:
Direct operating costs 7,508,208 3,027,421 - 10,535,629
Selling and marketing 339,603 7,965 - 347,568
General and administrative 2,791,573 548,746 1,111,656 4,451,975
Research and development 175,758 - - 175,758
Change in contingent consideration (279,565 ) - - (279,565 )
Depreciation and amortization 735,133 79,077 - 814,210
Restructuring and impairment charges 136,332 - - 136,332
Total operating expenses 11,407,042 3,663,209 1,111,656 16,181,907
Operating income (loss) $ 1,531,000 $ 250,077 $ (1,111,656 ) $ 669,421

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our condensed consolidated financial condition and results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and other factors that are expected to affect our prospective financial condition. The following discussion and analysis should be read together with our Condensed Consolidated Financial Statements and related notes beginning on page 34 of this Quarterly Report on Form 10-Q.

Some of the statements set forth in this section are forward-looking statements relating to our future results of operations. Our actual results may vary from the results anticipated by these statements. Please see “Forward-Looking Statements” on page 2 of this Quarterly Report on Form 10-Q.

COVID-19 Pandemic

In December 2019, a novel strain of coronavirus, SARS-CoV-2, was reported to have surfaced in Wuhan, China. Since then, SARS-CoV-2, and the resulting disease COVID-19, has spread to most countries, and all 50 states within the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Further, the former President of the United States declared the COVID-19 pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency disaster response, and under the Defense Production Act, the legislation that facilitates the production of goods and services necessary for national security and for other purposes. Numerous governmental jurisdictions, including the State of New Jersey where we maintain our principal executive offices, and those in which many of our U.S. and international offices are based, have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Most states and the federal government, including the State of New Jersey, together with foreign jurisdictions in which we have operations centers, have declared a state of emergency related to the spread of COVID-19.

While the COVID-19 pandemic did not materially adversely affect the Company’s consolidated financial results and operations induring the ~~Company’s three quarters~~six months ended ~~September~~June 30, ~~2020,~~2021, economic and health conditions in the United States and across most of the globe ~~have changed rapidly since the end of the quarter.~~continue to change. The Company has expanded its telehealth operations, which is an alternative to office visits. However, not all physicians are using telehealth and not to the same extent as previous office visits.

The COVID-19 pandemic is affecting the Company’s operations in ~~the third quarter,~~2021, and may continue to do so indefinitely thereafter. The pandemic may have an impact on the Company’s business, operations, and financial results and conditions, directly and indirectly, including, without limitation, impacts on the health of the Company’s management and employees, its operations, marketing and sales activities, and on the overall economy. The spread of the virus did not adversely affect the health and availability of our employees and staff. The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve and the outcomes are uncertain.

Due to the above circumstances and as described generally in this Quarterly Report on Form 10-Q, the Company’s consolidated results of operations for the three and ~~nine~~six months ~~period~~ ended ~~September~~June 30, ~~2020~~2021 are not necessarily indicative of the results to be expected for the full fiscal year. The Company is not aware of any certain event or circumstance that would require an update to its estimates or judgements or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates could change in the future as new information about future developments is obtained. Management cannot predict the full impact of the COVID-19 pandemic on the Company’s consolidated operations nor on economic conditions generally, including the effects on patient visits. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on highly unpredictable factors such as the ultimate geographic spread of the disease, the severity of the disease, the duration of outbreak, and the effectiveness of any further developments globally and nationally. The Company will actively monitor the situation and take further action that is in the best interest of our employees, customers, partners, and stockholders. ~~See Item 1A. “Risk Factors” below for additional details.~~

2827

Overview

~~Overview~~

~~MTBC,~~CareCloud, Inc.~~, (and~~ (“CareCloud” and together with its consolidated subsidiaries, ~~“MTBC” or~~ the “Company”, “we”, “us” and/or “our”), is a healthcare information technology company that provides a full suite of proprietary cloud-based ~~electronic health records and practice management~~ solutions, together with related business services, to healthcare ~~providers.~~providers and hospitals throughout the United States. Our Software-as-a-Service (“SaaS”) ~~platforms~~platform includes revenue cycle management (“RCM”), practice management (“PM”), electronic health record (“EHR”), business intelligence, telehealth, patient experience management (“PXM”) solutions and complementary software tools and business services ~~are designed to help our customers increase revenues, streamline workflows~~for high-performance medical groups and make better business and clinical decisions, while reducing administrative burdens and operating costs. The Company’s services include full-scale revenue cycle management, comprehensive practice management services, electronic health ~~records, and other technology-driven services for private and hospital-employed healthcare providers. These~~systems.

At a high level, these solutions ~~and services include:~~

~~Healthcare IT:~~

can be categorized as follows:

●	~~Revenue cycle management~~
●	Technology-enabled business solutions, which are often bundled but are occasionally provided individually, including:
	○	EHRs, which are easy to use, integrated with our business services or offered as Software-as-a-Service (“~~RCM”~~SaaS”) solutions, and allow our healthcare provider clients to deliver better patient care, document their clinical visits effectively and thus potentially qualify for government incentives, reduce documentation errors and reduce paperwork;
	○	PM software and related tools, which support our clients’ day-to-day business operations and workflows;
	○	Mobile Health (“mHealth”) solutions, including smartphone applications that assist patients and healthcare providers in the provision of healthcare services;
	○	Telehealth solutions, which allow healthcare providers to conduct remote patient visits;
	○	Healthcare claims clearinghouse, which enables our clients to electronically scrub and submit claims to, and process payments from, insurance companies;
	○	Business intelligence, customized applications, interfaces and a variety of other technology solutions that support our healthcare clients; and
	○	RCM services, which include end-to-end medical billing, eligibility, analytics, and related services, all of which can often be provided either with our technology platform or through a third-party ~~system;~~system.
●	~~Proprietary, healthcare IT solutions, which are often bundled with our RCM~~Professional services ~~including:~~

		o	~~Electronic health records (“EHR”), which are easy to use, integrated with our business~~consisting of application and advisory services, revenue cycle services, data analytic services and ~~allow our healthcare provider clients to reduce paperwork;~~educational training services.
		o	~~Practice management (“PM”) software and related tools, which support our clients’ day-to-day business operations and workflows;~~
		o	~~Mobile Health (“mHealth”) solutions, including smartphone applications that assist patients and healthcare providers in the provision of healthcare services;~~
		o	~~Telehealth solutions, which allow healthcare providers to conduct remote patient visits;~~
		o	~~Healthcare claims clearinghouse, which enables our clients to electronically scrub and submit claims to, and process payments from, insurance companies; and~~
		o	~~Business intelligence, customized applications, interfaces and a variety of other technology solutions that support our healthcare clients.~~

●

~~Group purchasing services which include our negotiation of discounts with pharmaceutical manufacturers and the extension of those discounts to our physician members.~~

~~Practice Management Services:~~

●

~~Comprehensive~~Medical practice management services ~~which~~ are ~~offered under long-term management~~provided to medical practices. In this service ~~agreements pursuant to which~~model, we provide ~~certain practices~~the medical practice with ~~the~~appropriate facilities, equipment, supplies, support services, nurses and administrative support ~~facilities, supplies, equipment, marketing, RCM, accounting, healthcare IT~~staff. We also provide management, bill-paying and ~~other non-clinical services required to efficiently operate their practices.~~financial advisory services.

Our solutions enable clients to increase financial and operational performance, streamline clinical workflows, get better insight through data, and make better business and clinical decisions, resulting in improvement in patient care and collections while reducing administrative burdens and operating costs.

The modernization of the healthcare industry is transforming nearly every aspect of a healthcare organization from policy to providers; clinical care to member services, devices to data, and ultimately the quality of the patient’s experience as a healthcare consumer. We create elegant, user-friendly applications that solve many of the challenges facing healthcare organizations. We partner with organizations to develop customized, best-in-class solutions to solve their specific challenges while ensuring they also meet future regulatory and organizational requirements and market demands.

We are able to deliver our industry-leading solutions at very competitive prices because we leverage a combination of our proprietary software, which automates our workflows and increases efficiency, together with our team of approximately ~~600~~700 experienced health industry experts throughout the United States. These experts are supported by our highly educated and specialized offshore workforce of approximately ~~2,900~~ 3,300 team members at labor costs that we believe are approximately one-tenth the cost of comparable U.S. employees. Our ~~unique~~unique business model also allowed us to become a leading consolidator in our industry sector, gaining us a reputation for acquiring and positively transforming distressed competitors into profitable operations of ~~MTBC.~~CareCloud.

Adoption of our ~~RCM~~technology-enabled business solutions typically requires little or no upfront expenditure by a client. Additionally, for most of our solutions and customers, our financial performance is linked directly to the financial performance of our clients, as the vast majority of our revenues are based on a percentage of our clients’ collections. The fees we charge for our complete, integrated, end-to-end solution are very competitive and among the lowest in the industry. We estimate that we currently provide services to more than 40,000 providers, (which we define as physicians, nurses, nurse practitioners, physician assistants and other clinical staff that render bills for their services) practicing in approximately ~~2,700~~2,600 independent medical practices and hospitals representing 8680 specialties and subspecialties in 50 ~~states~~.states. In addition, we serve approximately 200 clients which are not medical practices, but are primarily service organizations who serve the healthcare community. The foregoing numbers include clients leveraging any of our products or services, and are based, in part, upon estimates where the precise number of practices or providers is unknown.

We service clients ranging from small practices, consisting of one to ten providers, to ~~community hospitals. The customer which generates the largest revenue for us has~~large practices with over 2,000 providers ~~of physical, occupational and speech therapy services to patients~~operating in multiple ~~states.~~states, to community hospitals.

In April 2019, the Company acquired substantially all of the RCM business of Etransmedia Technology, Inc. and its subsidiaries (together “Etransmedia”) through MTBC’s wholly owned subsidiary MTBC-Med, Inc. The Etransmedia acquisition added additional clients to the Company’s customer base and, similar to previous acquisitions, broadened the Company’s presence in the healthcare information technology industry through geographic expansion of its customer base and by increasing available customer relationship resources and specialized trained staff. The Company paid $1.6 million in cash for the acquisition.

On January 8, 2020, through a merger with a subsidiary, the Company acquired CareCloud Corporation, a Delaware corporation which was subsequently renamed CareCloud Health, Inc (“~~CareCloud”~~CCH”), which has developed a highly acclaimed cloud-based platform including EHR, PM and patient experience capabilities. The Company paid $11.9 million in cash, assumed a working capital deficiency of approximately $5.1 million and issued 760,000 shares of the Company’s Series A Preferred Stock and two million warrants for the purchase of the Company’s common stock at prices of $7.50 for two years and $10.00 per share for three years.

On June 16, 2020, the Company purchased all of the issued and outstanding capital stock of Meridian Billing Management Co. and its affiliate Origin Holdings, Inc. (collectively “Meridian” and sometimes referred to as “Meridian Medical Management”), a former GE Healthcare IT company that delivers advanced healthcare information technology solutions and services. The Company paid ~~$15~~$11.9 million in cash, issued 200,000 shares of the Company’s Series A Preferred Stock and warrants to purchase 2,250,000 of the Company’s common stock with an exercise price per share of $7.50 for two years and assumed Meridian’s negative working capital and certain long-term lease liabilities where the space is either not being utilized or will be vacated shortly, with an aggregate value of approximately $4.8 million.

On June 1, 2021, CareCloud Acquisition Corp (“CAC”), a wholly-owned subsidiary entered into an Asset and Stock Purchase Agreement (the “Purchase Agreement”) with MedMatica Consulting Associates, Inc., (“MedMatica”) whereby CAC purchased the assets of MedMatica and the stock of its wholly-owned subsidiary Santa Rosa Staffing, Inc. (“SRS”). MedMatica and SRS provide a broad range of specialty consulting services to hospitals and large healthcare groups, including certain consulting services related to healthcare IT applications services and implementations, practice management, and revenue cycle management. The total consideration paid at closing was $10 million in cash, net of $1.5 million of escrow withheld. A working capital adjustment of approximately $3.8 million was also paid at closing. The Purchase Agreement provides that if during the 18-month period commencing on June 1, 2021 (“the “Earn-Out Period”), CAC’s EBITDA and revenue targets are achieved, then CAC shall pay an earn-out up to a maximum of $8 million (the “Base Earn-Out”). If during the Earn-Out Period, CAC’s additional and increased EBITDA and revenue targets are achieved, then CAC shall pay an additional earn-out, up to a maximum of $5 million (the “Additional Earn-Out”, collectively, with the Base Earn-Out, the “Earn-Out”). CAC will have the right to offset the Earn-Out against any claim for which CAC is entitled to indemnification under the Purchase Agreement and against damages for breaches by the seller of the non-competition and non-solicitation provisions in the Purchase Agreement.

Our offshore operations in the Pakistan Offices and Sri Lanka accounted for approximately ~~10%~~ ~~and 14%~~11% of total expenses for both the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019, respectively.~~2020. A significant portion of those foreign expenses were personnel-related costs (approximately 80% ~~and 78%~~ for both the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019, respectively)~~2020). Because personnel-related costs are significantly lower in Pakistan and Sri Lanka than in the U.S. and many other offshore locations, we believe our offshore operations give us a competitive advantage over many industry participants. We are able to achieve significant cost reductions asand leverage technology to reduce manual work and strategically transition a portion of the remaining manual tasks to our highly-specialized, cost-efficient team in the U.S., the Pakistan Offices and Sri Lanka.

Key Performance Measures

We consider numerous factors in assessing our performance. Key performance measures used by management, including adjusted EBITDA, adjusted operating income, adjusted operating margin, adjusted net income and adjusted net income per share, are non-GAAP financial measures, which we believe better enable management and investors to analyze and compare the underlying business results from period to period.

These non-GAAP financial measures should not be considered in isolation, or as a substitute for or superior to, financial measures calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of our business as determined in accordance with GAAP. We compensate for these limitations by analyzing current and future results on a GAAP basis as well as a non-GAAP basis, and we provide reconciliations from the most directly comparable GAAP financial measures to the non-GAAP financial measures. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.

Adjusted EBITDA, adjusted operating income, adjusted operating margin, adjusted net income and adjusted net income per share provide an alternative view of performance used by management and we believe that an investor’s understanding of our performance is enhanced by disclosing these adjusted performance measures.

Adjusted EBITDA excludes the following elements which are included in GAAP net income (loss):

●	●	Income tax expense (benefit) or the cash requirements to pay our taxes;
	●	Interest expense, or the cash requirements necessary to service interest on principal payments, on our debt;
	●	Foreign currency gains and losses and other non-operating expenditures;
●	●	Stock-based compensation expense includes cash-settled awards and the related taxes, based on changes in the stock price;
●	●	Depreciation and amortization charges;
●	●	Integration costs, such as severance amounts paid to employees from acquired businesses, and transaction costs, such as brokerage fees, pre-acquisition accounting costs and legal fees and exit costs related to contractual agreements; and
	●	~~Restructuring, impairment~~Impairment and unoccupied lease ~~charges; and~~
	●	~~Changes in contingent consideration.~~charges.

Set forth below is a presentation of our adjusted EBITDA for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
	($ in thousands)												($ in thousands)
Net revenue	$	31,639		$	16,851		$	73,085		$	48,681		$	34,065		$	19,579		$	63,834		$	41,446

GAAP net loss		(1,674	)		(138	)		(8,968	)		(1,204	)		(227	)		(4,792	)		(2,191	)		(7,294	)

Provision for income taxes		61			87			18			102
Provision (benefit) for income taxes														213			(74	)		212			(44	)
Net interest expense		130			32			352			82			113			142			177			222
Foreign exchange loss (gain) / other expense		296			704			(17	)		408
Foreign exchange loss / other expense														(146	)		111			97			(313	)
Stock-based compensation expense		1,763			775			4,951			2,325			1,735			1,881			3,002			3,188
Depreciation and amortization		3,206			814			6,944			2,407			3,128			2,405			5,959			3,738
Transaction and integration costs		609			464			1,709			1,403			617			455			849			1,100
Restructuring, impairment and unoccupied lease charges		321			136			681			136
Change in contingent consideration		(500	)		(280	)		(500	)		(344	)
Impairment and unoccupied lease charges														223			63			1,241			361
Adjusted EBITDA	$	4,212		$	2,594		$	5,170		$	5,315		$	5,656		$	191		$	9,346		$	958

Adjusted operating income and adjusted operating margin exclude the following elements which are included in GAAP operating income (loss):

●	●	Stock-based compensation expense includes cash-settled awards and the related taxes, based on changes in the stock price;
	●	Amortization of purchased intangible assets;
	●	Integration costs, such as severance amounts paid to employees from acquired businesses, and transaction costs, such as brokerage fees, pre-acquisition accounting costs and legal fees and exit costs related to contractual agreements; and
	●	~~Restructuring, impairment~~Impairment and unoccupied lease ~~charges; and~~
	●	~~Changes in contingent consideration.~~charges.

Set forth below is a presentation of our adjusted operating income and adjusted operating margin, which represents adjusted operating income as a percentage of net revenue, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
	($ in thousands)												($ in thousands)
Net revenue	$	31,639		$	16,851		$	73,085		$	48,681		$	34,065		$	19,579		$	63,834		$	41,446

GAAP net loss		(1,674	)		(138	)		(8,968	)		(1,204	)		(227	)		(4,792	)		(2,191	)		(7,294	)
Provision for income taxes		61			87			18			102
Provision (benefit) for income taxes														213			(74	)		212			(44	)
Net interest expense		130			32			352			82			113			142			177			222
Other expense (income) - net		246			688			(84	)		224			(205	)		114			15			(331	)
GAAP operating (loss) / income		(1,237	)		669			(8,682	)		(796	)
GAAP operating loss														(106	)		(4,610	)		(1,787	)		(7,447	)
GAAP operating margin		(3.9	)%		4.0	%		(11.9	)%		(1.6	)%		(0.3	)%		(23.5	)%		(2.8	)%		(18.0	)%

Stock-based compensation expense		1,763			775			4,951			2,325			1,735			1,881			3,002			3,188
Amortization of purchased intangible assets		2,690			512			5,751			1,549			2,175			2,046			4,311			3,061
Transaction and integration costs		609			464			1,709			1,403			617			455			849			1,100
Restructuring, impairment and unoccupied lease charges		321			136			682			136
Change in contingent consideration		(500	)		(280	)		(500	)		(344	)
Impairment and unoccupied lease charges														223			63			1,241			361
Non-GAAP adjusted operating income	$	3,646		$	2,276		$	3,911		$	4,273		$	4,644		$	(165	)	$	7,616		$	263
Non-GAAP adjusted operating margin		11.5	%		13.5	%		5.4	%		8.8	%		13.6	%		(0.8	)%		11.9	%		0.6	%

Adjusted net income and adjusted net income per share exclude the following elements which are included in GAAP net income (loss):

●	●	Foreign currency gains and losses and other non-operating expenditures;
	●	Stock-based compensation expense includes cash-settled awards and the related taxes, based on changes in the stock price;
●	●	Amortization of purchased intangible assets;
	●	Integration costs, such as severance amounts paid to employees from acquired businesses, and transaction costs, such as brokerage fees, pre-acquisition accounting costs and legal fees and exit costs related to contractual agreements;
	●	~~Restructuring, impairment~~Impairment and unoccupied lease charges; and
	●	~~Changes in contingent consideration; and~~
	●	Income tax expense (benefit) resulting from the amortization of goodwill related to our acquisitions.

No tax effect has been provided in computing non-GAAP adjusted net income and non-GAAP adjusted net income per share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes. The following table shows our reconciliation of GAAP net loss to non-GAAP adjusted net income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
	($ in thousands except for per share amounts)												($ in thousands)
GAAP net loss	$	(1,674	)	$	(138	)	$	(8,968	)	$	(1,204	)	$	(227	)	$	(4,792	)	$	(2,191	)	$	(7,294	)

Foreign exchange loss (gain) / other expense		296			704			(17	)		408
Foreign exchange loss / other expense														(146	)		111			97			(313	)
Stock-based compensation expense		1,763			775			4,951			2,325			1,735			1,881			3,002			3,188
Amortization of purchased intangible assets		2,690			512			5,751			1,549			2,175			2,046			4,311			3,061
Transaction and integration costs		609			464			1,709			1,403			617			455			849			1,100
Restructuring, impairment and unoccupied lease charges		321			136			682			136
Change in contingent consideration		(500	)		(280	)		(500	)		(344	)
Impairment and unoccupied lease charges														223			63			1,241			361
Income tax expense (benefit) related to goodwill		7			45			(93	)		30			163			(115	)		127			(100	)
Non-GAAP adjusted net income	$	3,512		$	2,218		$	3,515		$	4,303		$	4,540		$	(351	)	$	7,436		$	3

Set forth below is a reconciliation of our GAAP net loss attributable to common shareholders, per share to our non-GAAP adjusted net income per share:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
GAAP net loss attributable to common shareholders, per share	$	(0.46	)	$	(0.14	)	$	(1.53	)	$	(0.48	)	$	(0.27	)	$	(0.65	)	$	(0.63	)	$	(1.07	)
Impact of preferred stock dividend		0.33			0.13			0.85			0.38			0.25			0.27			0.48			0.48
Net loss per end-of-period share		(0.13	)		(0.01	)		(0.68	)		(0.10	)		(0.02	)		(0.38	)		(0.15	)		(0.59	)

Foreign exchange loss (gain) / other expense		0.02			0.06			(0.00	)		0.03
Foreign exchange loss / other expense														(0.01	)		0.01			0.01			(0.03	)
Stock-based compensation expense		0.14			0.06			0.38			0.19			0.12			0.15			0.21			0.26
Amortization of purchased intangible assets		0.20			0.04			0.44			0.13			0.15			0.15			0.30			0.25
Transaction and integration costs		0.06			0.04			0.13			0.12			0.04			0.04			0.06			0.09
Restructuring, impairment and unoccupied lease charges		0.02			0.01			0.05			0.01
Change in contingent consideration		(0.04	)		(0.02	)		(0.04	)		(0.03	)
Income tax (benefit) expense related to goodwill		0.00			0.00			(0.01	)		0.00
Impairment and unoccupied lease charges														0.02			0.01			0.07			0.03
Income tax expense (benefit) related to goodwill														0.01			(0.01	)		0.01			(0.01	)
Non-GAAP adjusted earnings per share	$	0.27		$	0.18		$	0.27		$	0.35		$	0.31		$	(0.03	)	$	0.51		$	0.00

End-of-period common shares		13,136,088			12,212,323			13,136,088			12,212,323			14,611,606			12,454,691			14,611,606			12,454,691
In-the-money warrants and outstanding unvested RSUs		4,910,423			464,335			4,910,423			464,335			2,628,747			4,295,561			2,628,747			4,295,561
Total fully diluted shares		18,046,511			12,676,658			18,046,511			12,676,658			17,240,353			16,750,252			17,240,353			16,750,252
Non-GAAP adjusted diluted earnings per share	$	0.19		$	0.17		$	0.19		$	0.34		$	0.26		$	(0.02	)	$	0.43		$	0.00

For purposes of determining non-GAAP adjusted earnings per share, the Company used the number of common shares outstanding at the end of ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. Non-GAAP adjusted diluted earnings per share was computed using an as-converted method and includes warrants that are in-the-money as of that date as well as outstanding unvested RSUs. Non-GAAP adjusted earnings per share and non-GAAP adjusted diluted earnings per share ~~does~~do not take into account dividends paid on ~~our preferred stock.~~Preferred Stock. No tax effect has been provided in computing non-GAAP adjusted earnings per share and non-GAAP adjusted diluted earnings per share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes.

Key Metrics

In addition to the line items in our condensed consolidated financial statements, we regularly review the following metrics. We believe information on these metrics is useful for investors to understand the underlying trends in our business.

Providers and Practices Served: As of ~~September~~June 30, ~~2020,~~2021, we provided services to an estimated universe of more than40,000 providers (which we define as physicians, nurses, nurse practitioners, physician assistants and other clinical staff that render bills for their services), representing approximately ~~2,700~~ 2,600 independent medical practices and hospitals. In addition, we served approximately 200 clients who were not medical practices, but are service organizations who serve the healthcare community. The foregoing numbers include clients leveraging any of our products or services and are based in part upon estimates in cases where the precise number of practices or providers is unknown.

Sources of Revenue

Revenue: We primarily derive our revenues from ~~revenue cycle management services and bundled services,~~subscription-based technology-enabled business solutions, reported in our Healthcare IT segment, which isare typically billed as a percentage of payments collected by our customers. This fee includes RCM, as well as the ability to use our EHR, ~~and~~ practice management system and other software as part of the bundled fee. These ~~bundled fees are included in revenue cycle management revenue. These services~~solutions accounted for approximately ~~64%~~ 80% and 83% of our revenues during ~~both~~ the three months ended ~~September~~June 30, 2021 and 2020, respectively, and ~~2019,~~83% and ~~61%~~ ~~and 67%~~82% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019, respectively. Software-as-a-service fees, for clients not utilizing revenue cycle management services, accounted for approximately~~ ~~12%~~ ~~and~~ ~~15%~~ ~~of revenue during the three and nine months ended September 30,~~ 2020, respectively. Other Healthcare IT services, including printing and mailing operations, group purchasing and professional services, represented approximately 12% and ~~13%~~5% of ~~revenu~~esrevenues for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~11%~~ 8% and ~~12%~~5% for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively.

We earned approximately ~~11%~~ 8% and ~~23%~~12% of our revenue from medical practice management services during the three months ended ~~September~~June 30, 2021 and 2020, respectively, and ~~2019,~~9% and ~~12% and 21%~~13% for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019, respectively.~~respectively. This revenue represents fees based on our actual costs plus a percentage of the operating profit and is reported in our Medical Practice Management segment.

Operating Expenses

Direct Operating Costs. Direct operating cost consists primarily of salaries and benefits related to personnel who provide services to our customers, claims processing costs, costs to operate the three managed practices, including facility lease costs, supplies, insurance and other direct costs related to our services. Costs associated with the implementation of new customers are expensed as incurred. The reported amounts of direct operating costs do not include depreciation and amortization, which are broken out separately in the condensed consolidated statements of operations.

Selling and Marketing Expense. Selling and marketing expense consists primarily of compensation and benefits, commissions, travel and advertising expenses.

General and Administrative Expense. General and administrative expense consists primarily of personnel-related expense for administrative employees, including compensation, benefits, travel, facility lease costs and insurance, software license fees and outside professional fees.

Research and Development Expense. Research and development expense consists primarily of personnel-related costs and third-party contractor costs.

Contingent Consideration. Contingent consideration represents the portion of consideration payable to the sellers of some of our acquisitions, the amount of which is based on the achievement of defined performance measures contained in the purchase agreements. Contingent consideration is adjusted to fair value at the end of each reporting period.

Depreciation and Amortization Expense. Depreciation expense is charged using the straight-line method over the estimated lives of the assets ranging from three to ~~ten~~five years. Amortization expense is charged on either an accelerated or on a straight-line basis over a period of three or four years for most intangible assets acquired in connection with acquisitions including those intangibles related to the group purchasing services. Amortization expense related to the value of our medical practice management clients is amortized on a straight-line basis over a period of twelve years.

~~Restructuring,~~ Impairment and Unoccupied Lease Charges. ~~Restructuring charges represent the remaining lease costs for a facility no longer used by the Company as the employees were transferred to another Company facility.~~ Impairment charges represent charges recorded for a leased facility no longer being used by the ~~Company.~~ Company and a non-cancellable vendor contract where the services are no longer being used.

Unoccupied lease charges represent the portion of lease and related costs for vacant space not being utilized by the Company. The Company is marketing both the unused facility and the unused space for sub-lease.

Interest and Other Income (Expense). Interest expense consists primarily of interest costs related to our line of credit, term loans and amounts due in connection with acquisitions, offset by interest income. Other income (expense) results primarily from foreign currency transaction gains (losses) and income earned from temporary cash investments.

Income Tax. In preparing our condensed consolidated financial statements, we estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred income tax assets and liabilities. Although the Company is forecasting a return to profitability, it incurred losses historically and there is uncertainty regarding future U.S. taxable income, which makes realization of a deferred tax asset difficult to support in accordance with ASC 740. Accordingly, a valuation allowance has been recorded against all deferred tax assets as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Critical Accounting Policies and Estimates

The critical accounting policies and estimates used in the preparation of our condensed consolidated financial statements that we believe affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements presented in this Report are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Leases:

~~We adopted ASU 2016-02:~~ ~~Leases~~ ~~(Topic 842) as of January 1, 2019.~~ We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liability (current portion) and operating lease liability (noncurrent portion) in ~~our~~the condensed consolidated balance ~~sheet~~sheets at ~~September~~June 30, 2021 and December 31, 2020. The Company does not have any finance leases.

We use our estimated incremental borrowing rates, which are derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to bank financing arrangements, geographical location and collateralization of assets when calculating our incremental borrowing rates.

Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of less than 12 months are not recorded in the condensed consolidated balance sheet. Our lease agreements do not contain any residual value guarantees. For real estate leases, we account for the leased and non-leased components as a single lease component. Some leases include escalation clauses and termination options that are factored into the determination of the future lease payments when appropriate.

Capitalized software costs:

All of our software is considered internal use for accounting purposes, as we do not market or sell our software. As a result, we capitalize certain costs associated with the creation of internally-developed software for internal use. The total of these costs is recorded in Intangible assets - net in our condensed consolidated balance sheets.

We capitalized costs incurred during the application development stage related to our internal use software. Costs incurred during the application development phase are capitalized only when we believe it is probable that the development will result in new or additional functionality. The types of costs capitalized during the application development phase consist of employee compensation, employee benefits and employee stock- based compensation. Costs related to the preliminary project stage and post-implementation activities are expensed as incurred. Capitalized internal-use software is amortized on a straight-line basis over its estimated useful life when the asset has been placed in service for general availability.

Significant judgments related to internally-developed software include determining whether it is probable that projects will result in new or additional functionality; concluding on when the application development phase starts and ends; and deciding which costs, especially employee compensation costs, should be capitalized. Additionally, there is judgment applied to the useful lives of capitalized software; we have concluded that the useful lives for capitalized internally-developed software is three years.

Company management employs its best estimates and assumptions in determining the appropriateness of the judgments noted above on a project-by-project basis during initial capitalization as well as subsequent measurement. While we believe that our approach to estimates and judgments is reasonable, actual results could differ, and such differences could lead to an increase or decrease in expense.

As of ~~September~~June 30, ~~2020,~~2021 and December 31, ~~2019~~2020, the carrying amounts of internally-developed capitalized software was $~~8.6~~8.2 millionand ~~$538,000,~~$5.5 million, respectively. The increase in the capitalized software costs ~~was primarily due to~~represents the ~~CareCloud and Meridian acquisitions.~~continued investment in proprietary technology.

There have been no material changes in our critical accounting policies and estimates from those described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on February ~~28, 2020.~~25, 2021.

Results of Operations

The following table sets forth our consolidated results of operations as a percentage of total revenue for the periods shown:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Net revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses:
Direct operating costs		62.3	%		62.5	%		62.7	%		65.3	%		60.3	%		64.1	%		60.5	%		63.0	%
Selling and marketing		5.0	%		2.1	%		6.5	%		2.2	%		6.5	%		8.3	%		6.4	%		7.7	%
General and administrative		19.6	%		26.4	%		23.5	%		28.3	%		18.4	%		27.5	%		18.6	%		26.5	%
Research and development		7.5	%		1.0	%		9.4	%		1.3	%		5.3	%		11.0	%		6.0	%		10.8	%
Change in contingent consideration		(1.6	)%		(1.7	)%		(0.7	)%		(0.7	)%
Depreciation and amortization		10.1	%		4.8	%		9.5	%		4.9	%		9.2	%		12.3	%		9.3	%		9.0	%
Restructuring, impairment and unoccupied lease charges		1.0	%		0.8	%		0.9	%		0.3	%
Impairment and unoccupied lease charges														0.7	%		0.3	%		1.9	%		0.9	%
Total operating expenses		103.9	%		95.9	%		111.8	%		101.6	%		100.4	%		123.5	%		102.7	%		117.9	%

Operating (loss) income		(3.9	)%		4.1	%		(11.8	)%		(1.6	)%
Operating loss														(0.4	)%		(23.5	)%		(2.7	)%		(17.9	)%

Interest expense - net		0.4	%		0.2	%		0.5	%		0.2	%		0.3	%		0.7	%		0.3	%		0.5	%
Other (expense) income - net		(0.8	)%		(4.1	)%		0.1	%		(0.5	)%
Other income (expense) - net														0.6	%		(0.6	)%		(0.0	)%		0.8	%
Loss before income taxes		(5.1	)%		(0.2	)%		(12.2	)%		(2.3	)%		(0.1	)%		(24.8	)%		(3.0	)%		(17.6	)%
Income tax provision		0.2	%		0.5	%		0.0	%		0.2	%
Income tax provision (benefit)														0.6	%		(0.4	)%		0.3	%		(0.1	)%
Net loss		(5.3	)%		(0.7	)%		(12.2	)%		(2.5	)%		(0.7	)%		(24.4	)%		(3.3	)%		(17.5	)%

Comparison of the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020:

Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2020 2019 Amount Percent 2020 2019 Amount Percent
Net revenue $ 31,638,616 $ 16,851,328 $ 14,787,288 88 % $ 73,084,575 $ 48,681,038 $ 24,403,537 50 %

	Three Months Ended June 30,				Change					Six Months Ended June 30,				Change
	2021		2021		Amount		Percent			2021		2020		Amount		Percent
	($ in thousands)
Net revenue	$	34,065	$	19,579	$	14,486		74	%	$	63,834	$	41,446	$	22,388		54	%

Net Revenue. Net revenue of ~~$31.6~~$34.1 million and ~~$73.1~~$63.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively increased by ~~$14.8~~$14.5 million or ~~88%~~ 74% and ~~$24.4~~$22.4 million or ~~50%~~ 54% from net revenue of $~~16.9~~19.6 million and $~~48.7~~41.4 million for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively.~~2020. Revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 includes approximately $~~19.1~~ 21.3 million and $~~37.6~~ 38.5 million~~, respectively,~~ from customers acquired in the ~~Etransmedia, CareCloud~~medSR, CCH and Meridian acquisitions. Revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 includes ~~$20.4~~$27.1 million and ~~$44.9~~$53.0 million relating to ~~RCM and bundled services, $3.9~~technology-enabled business solutions, $3.5 million and ~~$11.3~~$4.1 million related to ~~SaaS~~professional services and ~~$3.4~~$3.0 million and ~~$8.9~~$5.7 million for medical practice management ~~services, respectively.~~services.

	Three Months Ended												Nine Months Ended												Three Months Ended June 30,				Change						Six Months Ended June 30,				Change
	September 30,						Change						September 30,						Change						2021		2020		Amount			Percent			2021		2020		Amount			Percent
	2020			2019			Amount			Percent			2020			2019			Amount			Percent			($ in thousands)
Direct operating costs	$	19,718,381		$	10,535,629		$	9,182,752			87	%	$	45,841,788		$	31,779,564		$	14,062,224			44	%	$	20,534	$	12,557	$	7,977			64	%	$	38,595	$	26,123	$	12,472			48	%
Selling and marketing		1,571,423			347,568			1,223,855			352	%		4,777,818			1,091,524			3,686,294			338	%		2,204		1,625		579			36	%		4,094		3,206		888			28	%
General and administrative		6,191,008			4,451,975			1,739,033			39	%		17,176,593			13,757,805			3,418,788			25	%		6,269		5,393		876			16	%		11,893		10,986		907			8	%
Research and development		2,366,560			175,758			2,190,802			1246	%		6,846,014			648,822			6,197,192			955	%		1,813		2,146		(333	)		(16	)%		3,839		4,479		(640	)		(14	)%
Change in contingent consideration		(500,000	)		(279,565	)		(220,435	)		79	%		(500,000	)		(343,768	)		(156,232	)		45	%
Depreciation		382,343			237,574			144,769			61	%		944,427			668,916			275,511			41	%		533		288		245			85	%		994		562		432			77	%
Amortization		2,823,662			576,636			2,247,026			390	%		5,999,278			1,738,195			4,261,083			245	%		2,595		2,117		478			23	%		4,965		3,176		1,789			56	%
Restructuring, impairment and unoccupied lease charges		320,575			136,332			184,243			135	%		681,400			136,332			545,068			400	%
Impairment and unoccupied lease charges																										223		63		160			254	%		1,241		361		880			244	%
Total operating expenses	$	32,873,953		$	16,181,907		$	16,692,045			103	%	$	81,767,318		$	49,477,390		$	32,289,928			65	%	$	34,171	$	24,189	$	9,982			41	%	$	65,621	$	48,893	$	16,728			34	%

Direct Operating Costs. Direct operating costs of ~~$19.7~~$20.5 million and ~~$45.8~~$38.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021 increased by ~~$9.2~~$8.0 million or ~~87%~~ 64% and ~~$14.1~~$12.5 million or ~~44%~~ 48% compared to direct operating costs of $~~10.5~~12.6 million and $~~31.8~~26.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively.~~2020. During the three and six months ended ~~September~~June 30, ~~2020,~~2021, salary costs increased by $~~5.1~~4.8 millionand $8.4 million, and outsourcing and processing costs increased by ~~$3.6~~$2.5 million~~. During the nine months ended September 30, 2020, salary costs increased by~~ ~~$6.8~~and $3.4 million, ~~and outsourcing and processing costs increased by~~ ~~$6.3 million~~.respectively. The increase in the costs for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 were primarily related to the ~~CareCloud~~CCH, Meridian and ~~Meridian~~medSR acquisitions.

Selling and Marketing Expense. Selling and marketing expense of $~~1.6~~2.2 million and $~~4.8~~4.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021 increased by $~~1.2 million~~ 579,000 or ~~352%~~ 36% and $~~3.7 million~~ 888,000 or ~~338%~~ 28% from selling and marketing expense of ~~$348,000~~$1.6 million and ~~$1.1~~$3.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively.~~2020. The increase was primarily related to additional emphasis on sales and marketing activities which began as a result of the ~~CareCloud~~CCH acquisition.

General and Administrative Expense. General and administrative expense of ~~$6.2~~$6.3 million and ~~$17.2~~ $11.9million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021 increased by ~~$1.7million~~ $876,000 or ~~39%~~16% and ~~$3.4~~ ~~million~~ $907,000 or ~~25%~~8% compared to the same ~~periods~~period in ~~2019.~~2020. The increase in general and administrative expense was primarily related to ~~additional salaries, facility costs~~the CCH, Meridian and ~~professional fees as a result of the CareCloud and Meridian~~medSR acquisitions.

Research and Development Expense. Research and development expense of ~~$2.4~~$1.8 million and ~~$6.8~~ $3.8million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively, increased~~2021 decreased by ~~$2.2 million~~ $333,000 and ~~$6.2 million~~ $640,000 from research and development expense of ~~$176,000~~$2.1 million and ~~$649,000~~$4.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively.~~2020. The ~~increase~~decrease primarily represented additional ~~salaries and outsourced development expenses.~~capitalization of software costs. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company capitalized approximately $~~1.1~~1.7 million and ~~$3.8~~$3.3 million ~~respectively,~~ of development costs in connection with its internal-use ~~software.~~software, respectively.

~~Contingent Consideration.~~Depreciation. ~~The change in contingent consideration~~ Depreciation of $533,000 and $994,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, was ($500,000) compared to ($279,565)~~ 2021 increased by $245,000 or 85% and ~~($343,768)~~$432,000 or 77% from the depreciation of $288,000 and $562,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively. The change in~~ 2020, was the result of the Company determining that the CareCloud seller would not be entitled to all of the $1.0 million of contingent consideration initially recorded. The 2019 amounts resulted from favorable settlements of the amount due to the owners of companies previously acquired.

~~Depreciation.~~ ~~Depreciation of~~ ~~$382,000~~ ~~and~~ ~~$944,000~~ ~~for the three and nine months ended September 30, 2020, respectively, increased by~~ ~~$145,000~~ or ~~61%~~ ~~and~~ ~~$276,000~~ or ~~41%~~ ~~from depreciation of $238,000 and $669,000 for the three and nine months ended September 30, 2019, respectively,~~ primarily due to the property and equipment acquired as part of the ~~CareCloud acquisitions~~MedMatica, CCH and Meridian acquisitions.

Amortization Expense. Amortization expense of $~~2.8~~2.6 million and $~~6.0~~5.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021, respectively increased by $~~2.2~~478,000 or 23% and $1.8 million or ~~390%~~ ~~and~~ ~~$4.3 million~~ or ~~245%~~ 56% from amortization expense of ~~$577,000~~$2.1 million and ~~$1.7~~$3.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively.~~2020. The increase was primarily related to the intangible assets acquired from the ~~CareCloud~~MedMatica, CCH and Meridian acquisitions.

~~Restructuring,~~ Impairment and Unoccupied ~~lease~~Lease Charges. ~~Restructuring charges represent the remaining lease costs for a facility no longer used by the Company as the employees were transferred to another Company facility.~~ Impairment charges represent charges recorded for a leased facility no longer being used by the Company and the impairment of a vendor contract assumed in the CCH acquisition where the provided services are no longer being used by the Company. Unoccupied lease charges represent the portion of lease and related costs for space not being utilized by the Company. The Company is marketing both the unused facility and the unused space for sub-lease.

	Three Months Ended												Nine Months Ended												Three Months Ended June 30,						Change						Six Months Ended June 30,						Change
	September 30,						Change						September 30,						Change						2021			2020			Amount			Percent			2021			2020			Amount			Percent
	2020			2019			Amount			Percent			2020			2019			Amount			Percent			($ in thousands)
Interest income	$	2,431		$	57,272		$	(54,841	)		(96	)%	$	44,112		$	202,969		$	(158,857	)		(78	)%	$	2		$	4		$	(2	)		(50	)%	$	6		$	42		$	(36	)		(86	)%
Interest expense		(132,373	)		(88,925	)		(43,448	)		49	%		(396,154	)		(284,883	)		(111,271	)		39	%		(115	)		(146	)		31			21	%		(183	)		(264	)		81			31	%
Other (expense) income - net		(246,347	)		(688,342	)		441,995			(64	)%		84,464			(224,151	)		308,615			(138	)%
Income tax provision		61,965			86,970			(25,005	)		(29	)%		17,549			101,790			(84,241	)		(83	)%
Other income (expense) - net																										205			(114	)		319			280	%		(15	)		331			(346	)		(105	)%
Income tax expense (benefit) provision																										213			(74	)		(287	)		(388	)%		212			(44	)		(256	)		(582	)%

Interest Income. Interest income of $2,000 and $~~44,000~~ 6,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, decreased by $~~55,000~~ 2,000 or ~~96%~~ 50% and $~~159,000~~ 36,000 or ~~78%~~ 86% from interest income of ~~$57,000~~$4,000 and ~~$203,000~~$42,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. The interest income represents interest earned on temporary cash investments.

Interest Expense. Interest expense of $~~132,000~~ 115,000 and $~~396,000~~ 183,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, ~~increased~~decreased by $~~43,000~~ 31,000 or ~~49%~~ 21% and $~~111,000~~ 81,000 or ~~39%~~ 31% from interest expense of ~~$89,000~~$146,000 and ~~$285,000~~$264,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. ~~The increase was primarily due to the utilization of the line of credit during 2020.~~ Interest expense includes the amortization of deferred financing costs, which was ~~$144,000~~ $71,000 and $96,000 during ~~both~~ the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019.~~respectively.

Other Income (Expense) ~~Income~~ - net. Other income (expense) ~~income~~ - net was ($~~246,000~~) 205,000 and ~~$84,000~~ ($15,000) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively compared to other ~~expense~~income (expense) - net of ~~$688,000~~($114,000) and ~~$224,000~~$331,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. Other income (expense) ~~income~~ primarily represents foreign currency transaction gains and other expense primarily represents foreign currency transaction losses. These transaction gains and losses result from revaluing intercompany accounts whenever the exchange rate varies and are recorded in the condensed consolidated statements of operations.

Income Tax Provision. The provision for income taxes was ~~$62,000~~ $213,000 and ~~$18,000~~ $212,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively compared to an income tax ~~provision~~benefits of ~~$87,000~~$74,000 and ~~$102,000~~$44,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020, respectively. As a result of the Company incurring a tax loss for ~~2020~~2021 and ~~2019,~~2020, which has an indefinite life under the current Federal tax rules, the federal deferred tax liability was offset against the federal net operating loss to the extent allowable in ~~2020~~2021 and ~~2019.~~2020. The current income tax provision for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was approximately ~~$55,000~~$51,000 and ~~$111,000~~$86,000 and primarily relates to state minimum taxes and foreign income taxes. The Company has incurred cumulative losses historically and there is uncertainty regarding future U.S. taxable income, which makes realization of a deferred tax losses difficult to support in accordance with ASC 740. Accordingly, a valuation allowance was recorded against all deferred tax assets at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Liquidity and Capital Resources

Borrowings under the SVB facility are based on 200% of repeatable revenue, reduced by an annualized attrition rate as defined in the agreement. As of June 30, 2021, $5.0 million was drawn on the SVB facility which was fully repaid in July 2021.

During the ~~nine~~three and six months ended ~~September~~June 30, ~~2020,~~2021, there was ~~negative~~positive cash flow from operations of approximately $~~4.3~~ 1.1 millionand $2.1 million, ~~primarily because the Company assumed approximately $5.1 million and $4.8 million of net payables as part of its acquisitions of CareCloud and Meridian,~~ respectively. ~~Even though a portion of the purchase price was retained by the Company to pay these expenses which relate to prior periods, these payments are treated as cash used in operations.~~ As of ~~September~~June 30, ~~2020,~~2021, the Company had approximately $~~22.8~~9.5 million in cash with $5.0 million drawn on its line of credit, and positive working capital of $~~17.9~~8.0 million. The line of credit was fully repaid in July 2021.

During April and July 2020, the Company sold ~~828,000~~1,932,000 shares of its Series A Preferred Stock and received net proceeds of approximately ~~$19.0~~$44.6 million, after issuance expenses. A portion of these proceeds was used to fully repay the line of credit outstanding at March 31 and June 30, 2020.

During ~~July 2020,~~the first quarter of 2021, 858,000 warrants for common stock issued to Midcap Funding as part of the consideration for the Meridian acquisition were exercised at an exercise price of $7.50 per warrant. The Company received net proceeds of approximately $6.4 million.

During June 2021, the Company sold ~~1,104,000~~178,092 shares of ~~its series A Preferred Stock~~common stock and received net proceeds of approximately ~~$25.6~~$1.4 million, after issuance expenses. ~~A portion of these proceeds was used to repay the line of credit outstanding at June 30, 2020.~~

~~During the nine months ended September 30, 2020, the Company paid a total of $23.7 million in cash as part of the CareCloud and Meridian purchase consideration.~~

The following table summarizes our cash flows for the periods presented:

Three Months Ended
September 30, Nine Months Ended
September 30, Change
2020 2019 2020 2019 Amount Percent
Net cash (used in) provided by operating activities $ (449,356 ) $ 1,440,872 $ (4,332,770 ) $ 4,753,801 $ (9,086,571 ) (191 )%
Net cash used in investing activities (14,738,773 ) (422,430 ) (28,771,969 ) (2,926,650 ) (25,845,319 ) 883 %
Net cash provided by (used in) financing activities 29,329,212 1,719,201 36,138,798 (2,538,807 ) 38,677,605 (1,523 )%
Effect of exchange rate changes on cash 303,482 666,528 (188,307 ) 226,370 (414,677 ) (183 )%
Net increase (decrease) in cash $ 14,444,565 $ 3,404,171 $ 2,845,752 $ (485,286 ) $ 3,331,038 (686 )%

	Three Months Ended June 30,						Six Months Ended June 30,						Change
	2021			2020			2021			2020			Amount			Percent
	($ in thousands)
Net cash provided by (used in) operating activities	$	1,123		$	955		$	2,081		$	(2,928	)	$	5,009			171	%
Net cash used in investing activities		(14,780	)		(13,122	)		(16,999	)		(27,155	)		10,156			37	%
Net cash provided by financing activities		2,434			16,249			3,591			23,058			(19,467	)		(84	)%
Effect of exchange rate changes on cash		(270	)		55			(96	)		(437	)		341			78	%
Net (decrease) increase in cash and restricted cash	$	(11,493	)	$	4,137		$	(11,423	)	$	(7,462	)	$	(3,961	)		(53	)%

The loss before income taxes was $~~1.6~~14,000 and $2.0 million ~~and~~ ~~$9.0 million~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, which included $~~3.2~~3.1 million and $~~6.9~~6.0 million of non-cash depreciation and amortization, respectively. The loss before income taxes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$51,000~~$4.9 million and ~~$1.1~~$7.3 million, respectively, which included ~~$814,000~~$2.4 million and ~~$2.4~~$3.7 million of non-cash depreciation and amortization, respectively.

During 2021, the Company paid approximately $4.2 million in cash to resolve a civil investigation for which one of the subsidiaries it acquired in 2020 has been subject to since July 2018. Of this amount, $4.0 million came from escrowed shares of preferred stock that the Company held that were subsequently cancelled.

Operating Activities

Cash ~~used in operating activities was~~ ~~$4.3 million~~ ~~for the nine months ended September 30, 2020 and cash~~ provided by operating activities was ~~$4.8~~$2.1 million for the six months ended June 30, 2021 and cash used by operations was $2.9 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. During both the three and six months ended June 30, 2021, approximately $4.2 million of cash from operations was used to settle a pre-existing contingent liability from the CCH acquisition, which resulted in an equivalent reduction in the value of consideration paid. The ~~increase~~decrease in the net loss of $~~7.8~~5.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 as compared to the same period in ~~2019 included~~2020 was accompanied by the following changes in non-cash items: an increase in depreciation and amortization expense of ~~$4.4~~$2.5 million,~~, an increase~~ a decrease in stock-based compensation expense of ~~$2.6 million,~~$186,000, a change in the ~~benefit~~provision (benefit) for deferred income taxes of ~~$128,000~~$226,000 and ~~an increase~~a decrease in interest accretion of ~~$129,000.~~$43,000.

The net change in operating assets and liabilities was $~~9.6~~6.9 million. Accounts payable, accrued compensation and accrued expenses decreased by $~~8.4~~6.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to a decrease of $~~698,000~~ 5.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 as the Company paid past due amounts ~~from~~which existed at the ~~CareCloud~~time of the CCH and Meridian acquisitions. Accounts receivable ~~increase~~increased by $~~1.2~~1.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared with ~~an increase~~a decrease of $~~127,000~~ 1.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the change in the lease liabilities is included in this amount.

Investing Activities

Capital expenditures were $~~1.3~~1.5 million and $817,000 for ~~both~~ the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019. Capital expenditures were~~ ~~$472,000~~ ~~and $194,000 for the three months ended September 30,~~ 2020, ~~and 2019,~~ respectively. The capital expenditures for the ~~three and nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 primarily represented computer equipment purchased and leasehold improvements for the Pakistan ~~offices.~~Offices. Software development costs of $~~1.1~~3.3 million and ~~$3.8~~$2.6 million~~, respectively,~~ for the ~~three and nine~~six months ended ~~September~~June 30, 2021 and 2020, respectively, were capitalized in connection with the development of software for providing ~~revenue cycle management services and software-as-a-service offerings.~~technology-enabled business solutions.

Financing Activities

Cash provided by financing activities during the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, was $~~36.1~~3.6 million and ~~cash used in financing activities was~~ $~~2.5~~23.1 million~~for the nine months ended September 30, 2019.~~, respectively. The Company received $~~44.5~~6.4 million ~~and $3.7~~from the exercise of common stock warrants, $1.4 million from the sale of ~~Series A Preferred Stock~~common stock and $5.0 million from the line of credit during the ~~nine~~six months ended ~~September~~June 30, ~~2020 and 2019, respectively.~~2021. Cash used in financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 included $~~7.8~~7.2 million of preferred stock dividends, $~~430,000~~ 391,000 of repayments for debt obligations and $~~1.3~~1.6 million ~~of settlement of contingent obligation and $1.8 million~~ of tax withholding obligations paid in connection with stock awards issued to employees. Cash used in financing activities for ~~nine~~the six months ended ~~September~~June 30, ~~2019~~2020 included $4.5 million of preferred stock dividends, ~~$290,000~~$186,000 of repayment for debt obligations and ~~$1.3~~$1.0 million of tax withholding obligations paid in connection with stock awards issued to employees.

Contractual Obligations and Commitments

We have contractual obligations under our line of credit. We also maintain operating leases for property and certain office equipment. We were in compliance with all SVB covenants as of ~~September~~June 30, ~~2020.~~2021. For additional information, see Contractual Obligations and Commitments under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on February ~~28, 2020.~~25, 2021.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2020~~2021, and ~~2019,~~2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.During 2020, a New Jersey corporation, talkMD Clinicians, PA (“talkMD”), was formed by the wife of the Executive Chairman, who is a licensed physician, to provide telehealth services. talkMD was determined to be a variable interest entity (“VIE”) for financial reporting purposes because the entity will be controlled by the Company. As of June 30, 2021, talkMD had not yet commenced operations or had any transactions or agreements with the Company or otherwise. We do not engage in off-balance sheet financing arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by 17 C.F.R. 229.10(f)(1) and are not required to provide information under this item, pursuant to Item 305(e) of Regulation S-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, based on the 2013 framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2020~~2021 as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures, as of ~~September~~June 30, ~~2020,~~2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For the year ended December 31, 2021, the Company will be required to have an attestation by its independent accountants regarding the effectiveness of its internal controls over financial reporting. Additionally, for the year ended December 31, 2021, the Company will become an accelerated filer.

Part II. Other Information

Item 1. Legal Proceedings

See discussion of legal proceedings in “Note 8, Commitments And Contingencies” of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report, which is incorporated by reference herein.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, ~~and the risk factor noted below,~~ you should carefully consider the factors discussed in Part I—Item 1A. “Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on February ~~28, 2020,~~25, 2021, which could materially affect our business, financial condition and/or future results and may be further impacted by the coronavirus pandemic. The risks described in our Annual Report on Form 10-K ~~and herein~~ are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, cash flows and/or future results.

~~Our business, financial condition, results of operations and growth could be harmed by the effects of the COVID-19 pandemic.~~

We are subject to risks related to the public health crises such as the global pandemic associated with the coronavirus (COVID-19). In December 2019, a novel strain of coronavirus, SARS-CoV-2, was reported to have surfaced in Wuhan, China. Since then, SARS-CoV-2, and the resulting disease COVID-19, has spread to most countries, and all 50 states within the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Further, the President of the United States declared the COVID-19 pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency disaster response, and under the Defense Production Act, the legislation ~~that facilitates the production of goods and services necessary for national security and for other purposes~~. Numerous governmental jurisdictions, including the State of New Jersey where we maintain our principal executive offices, and those in which many of our U.S. and international offices are based, have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Most states and the federal government, including the State of New Jersey, together with foreign jurisdictions in which we have operations centers, have declared a state of emergency related to the spread of COVID-19. Such orders or restrictions, and the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among other effects, thereby negatively impacting our customers, employees, and offices, among others. We may experience further limitations on employee resources in the future, including because of sickness of employees or their families. These challenges have been, and are anticipated to continue being, particularly difficult to manage in foreign jurisdictions in which we have offices due to, among other things, a reduced ability to enable efficient and secure work-from-home.

Health care organizations around the world, including our health care provider customers, have faced and will continue to face, substantial challenges in treating patients with COVID-19, such as the diversion of staff and resources from ordinary functions to the treatment of COVID-19, supply, resource and capital shortages and overburdening of staff and resource capacity. In the United States, governmental authorities have also recommended, and in certain cases required, that elective, specialty and other procedures and appointments, including certain primary care services, be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19. These measures and challenges will likely continue for the duration of the pandemic, which is uncertain, and will disproportionately harm the results of operations, liquidity and financial condition of these health care organizations and our health care provider customers. As a result, our health care provider customers may seek contractual accommodations from us in the future. To the extent such health care provider customers experience challenges and difficulties, it will adversely affect our business operation and results of operations. We note, for example, that approximately ~~64% of our revenue is directly tied to the cash collected by our health care provider customers, which means that our~~ short-term revenue has and is expected to decline as less patients visit their doctors during periods of social distancing. Further, a recession or prolonged economic contraction as a result of COVID-19 pandemic could also harm the business and results of operations of our enterprise customers, resulting in potential business closures, layoffs of employees and a significant increase in unemployment in the United States and elsewhere which may continue even after the pandemic. The occurrence of any such events may lead to reduced income for customers and reduced size of workforces, which could reduce our revenue and harm our business, financial condition and results of operations.

The widespread COVID-19 pandemic has resulted in, and may continue to result in, significant volatility and uncertainty in U.S and international financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock and Preferred Stock.

Further, given the dislocation and government-imposed travel related limitations as a consequence of the COVID-19 pandemic, our ability to complete acquisitions in the near-term may be delayed. Future acquisitions may be subject to difficulties in evaluating potential acquisition targets as a result of the inability to accurately predict the duration or long-term economic and business consequences resulting from the COVID-19 pandemic.

In addition, any difficulties we may experience in connection with the integration of CareCloud or Meridian could delay or prevent us from realizing such expected benefits and enhancing our business, and our business, financial condition and results of operation could be materially and adversely impacted. While we are working diligently to accelerate integration activities, the employee disruptions and communication challenges created by the COVID-19 pandemic present particular challenges to our integration of CareCloud and Meridian and could make it difficult to effectively and timely complete our integration goals.

The global outbreak of COVID-19 continues to rapidly evolve. We have taken steps intended to mitigate the effects of the pandemic and to protect our global workforce including, but not limited to: moving a significant portion of our workforce to remote operations, enacting social distancing and hygiene guidelines set forth by the Centers for Disease Control and Prevention and World Health Organization at our offices, and discontinuing company travel and events, among others. Although we believe we have taken the appropriate actions, we cannot guarantee that these measures will mitigate all or any negative effects of the pandemic. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We cannot at this time precisely predict what effects the COVID-19 outbreak will have on our business, results of operations and financial condition, including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the pandemic and the governmental responses to the pandemic. However, we will continue to monitor the COVID-19 situation closely.

In addition, given the inherent uncertainty surrounding COVID-19 due to rapidly changing governmental directives, public health challenges and economic disruption and the duration of the foregoing, the potential impact that COVID-19 could have on the Risk Factors described in Part I—Item 1A. “Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on February 28, 2020, remain unclear.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

~~Not applicable.~~

Item 6. Exhibits

Exhibit Number		Exhibit Description

2.1		Asset and Stock Purchase Agreement by and among CareCloud Acquisition, Corp., MedMatica Consulting Associates, Inc., and Jerold Howell, dated June 1, 2021 (filed as Exhibit ~~Description~~2.1 to the Company’s Form 8-K filed on June 2, 2021, and incorporated herein by reference).

~~10.1~~2.2		~~Underwriting~~Non-Competition and Non-Solicitation Agreement ~~dated July 16, 2020~~ by and ~~between the Company~~among Santa Rosa Consulting, Inc., SureTest Holdings, LLC, Laura O’Toole, Mark Scruggs, Raleigh Brewer, Thomas Watford, and ~~B. Riley FBR, Inc. as representative of several underwriters named therein~~CareCloud Acquisition, Corp., dated June 1, 2021 (filed as Exhibit ~~1.1~~2.2 to the Company’s Form 8-K filed on ~~July 17, 2020,~~June 2, 2021, and incorporated herein by reference).

~~10.2~~2.3		~~Joinder and Fourth Loan Modification~~Transition Services Agreement ~~dated September 21, 2020,~~ by and ~~between the Company~~among CareCloud Acquisition, Corp., MedMatica Consulting Associates, Inc., and ~~SVB~~Jerold Howell, dated June 1, 2021 (filed as Exhibit ~~1.1~~2.3 to the Company’s Form 8-K filed on ~~September 25, 2020,~~June 2, 2021, and incorporated herein by reference).

31.1		Certification of the Company’s Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), of the Securities Exchange Act of 1934, as amended.
31.2
~~31.2~~		Certification of the Company’s Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), of the Securities Exchange Act of 1934, as amended.
32.1*
32.1*		Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
32.2*		Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance
~~101.INS~~101.SCH		~~XBRL Instance~~

~~101.SCH~~		XBRL Taxonomy Extension Schema
101.CAL
~~101.CAL~~		XBRL Taxonomy Extension Calculation Linkbase
101.LAB
~~101.LAB~~		XBRL Taxonomy Extension Label Linkbase
101.PRE
~~101.PRE~~		XBRL Taxonomy Extension Presentation Linkbase
101.DEF
~~101.DEF~~		XBRL Taxonomy Extension Definition Linkbase

*The certifications on Exhibit 32 hereto are not deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

4439

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	~~MTBC,~~CareCloud, Inc.

	By:	/s/ ~~Stephen Snyder~~A. Hadi Chaudhry
		~~Stephen Snyder~~A. Hadi Chaudhry
		Chief Executive Officer
		Date: ~~November 9, 2020~~August 5, 2021

	By:	/s/ Bill Korn
		Bill Korn
		Chief Financial Officer
		Date: ~~November 9, 2020~~August 5, 2021

4540

	Preferred Stock				Common Stock				Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Treasury (Common)			Total Shareholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Loss			Stock			Equity
Balance - January 1, 2020		2,539,325	$	2,539		12,978,485	$	12,979	$	69,403,366		$	(25,075,545	)	$	(843,014	)	$	(662,000	)	$	42,838,325
Net loss		-		-		-		-		-			(2,501,770	)		-			-			(2,501,770	)
Foreign currency translation adjustment		-		-		-		-		-			-			(590,286	)		-			(590,286	)
Issuance of stock under the Amended and Restated Equity Incentive Plan		28,870		29		129,607		129		(158	)		-			-			-			-
Issuance of preferred stock in connection with the CareCloud acquisition		760,000		760		-		-		18,999,240			-			-			-			19,000,000
Stock-based compensation, net of cash settlements		-		-		-		-		793,606			-			-			-			793,606
Issuance of warrants in connection with the CareCloud acquisition		-		-		-		-		300,000			-			-			-			300,000
Preferred stock dividends		-		-		-		-		(2,642,916	)		-			-			-			(2,642,916	)
Balance - March 31, 2020		3,328,195	$	3,328		13,108,092	$	13,108	$	86,853,138		$	(27,577,315	)	$	(1,433,300	)	$	(662,000	)	$	57,196,959

Balance - April 1, 2020		3,328,195	$	3,328		13,108,092	$	13,108	$	86,853,138		$	(27,577,315	)	$	(1,433,300	)	$	(662,000	)	$	57,196,959
Net loss		-		-		-		-		-			(4,792,505	)		-			-			(4,792,505	)
Foreign currency translation adjustment		-		-		-		-		-			-			16,027			-			16,027
Issuance of stock under the Amended and Restated Equity Incentive Plan		4,803		5		87,398		88		(93	)		-			-			-			-
Issuance of preferred stock in connection with the Meridian acquisition		200,000		200		-		-		4,999,800			-			-			-			5,000,000
Issuance of preferred stock, net of fees and expenses		828,000		828		-		-		19,013,319			-			-			-			19,014,147
Stock-based compensation, net of cash settlements		-		-		-		-		1,438,908			-			-			-			1,438,908
Issuance of warrants in connection with the Meridian acquisition		-		-		-		-		4,770,000			-			-			-			4,770,000
Preferred stock dividends		-		-		-		-		(3,276,917	)		-			-			-			(3,276,917	)
Balance - June 30, 2020		4,360,998	$	4,361		13,195,490	$	13,196	$	113,798,155		$	(32,369,820	)	$	(1,417,273	)	$	(662,000	)	$	79,366,619

Balance - July 1, 2020		4,360,998		4,361		13,195,490		13,196		113,798,155			(32,369,820	)		(1,417,273	)		(662,000	)		79,366,619
Net loss		-		-		-		-		-			(1,673,590	)		-			-			(1,673,590	)
Foreign currency translation adjustment		-		-		-		-		-			-			281,824			-			281,824
Exercise of common stock warrants		-		-		399,349		399		2,994,718			-			-			-			2,995,117
Issuance of stock under the Amended and Restated Equity Incentive Plan		5,475		5		282,048		282		(287	)		-			-			-			-
Issuance of preferred stock, net of fees and expenses		1,104,000		1,104		-		-		25,529,126			-			-			-			25,530,230
Stock-based compensation, net of cash settlements		-		-		-		-		1,457,012			-			-			-			1,457,012
Release of preferred stock from escrow		-		-		-		-		(1,392,187	)		-			-			-			(1,392,187	)
Preferred stock dividends		-		-		-		-		(4,229,808	)		-			-			-			(4,229,808	)
Balance - September 30, 2020		5,470,473	$	5,470		13,876,887	$	13,877	$	138,156,729		$	(34,043,410	)	$	(1,135,449	)	$	(662,000	)	$	102,335,217

Balance- January 1, 2019		2,136,289	$	2,136		12,570,557	$	12,571	$	65,142,460		$	(24,203,745	)	$	(1,421,068	)	$	(662,000	)	$	38,870,354
Net loss		-		-		-		-		-			(295,691	)		-			-			(295,691	)
Foreign currency translation adjustment		-		-		-		-		-			-			209,345			-			209,345
Issuance of stock under the Amended and Restated Equity Incentive Plan		26,160		26		179,984		180		(206	)		-			-			-			-
Stock-based compensation, net of cash settlements		-		-		-		-		523,556			-			-			-			523,556
Tax withholding obligations on stock issued to employees		-		-		-		-		(800,271	)		-			-			-			(800,271	)
Preferred stock dividends		-		-		-		-		(1,492,700	)		-			-			-			(1,492,700	)
Balance - March 31, 2019		2,162,449	$	2,162		12,750,541	$	12,751	$	63,372,839		$	(24,499,436	)	$	(1,211,723	)	$	(662,000	)	$	37,014,593

Balance- April 1, 2019		2,162,449	$	2,162		12,750,541	$	12,751	$	63,372,839		$	(24,499,436	)	$	(1,211,723	)	$	(662,000	)	$	37,014,593
Net loss		-		-		-		-		-			(770,972	)		-			-			(770,972	)
Foreign currency translation adjustment		-		-		-		-		-			-			(762,563	)		-			(762,563	)
Issuance of stock under the Amended and Restated Equity Incentive Plan		-		-		18,500		18		(18	)		-			-			-			-
Stock-based compensation, net of cash settlements		-		-		-		-		473,387			-			-			-			473,387
Tax withholding obligations on stock issued to employees		-		-		-		-		(58,536	)		-			-			-			(58,536	)
Preferred stock dividends		-		-		-		-		(1,486,706	)		-			-			-			(1,486,706	)
Balance - June 30, 2019		2,162,449	$	2,162		12,769,041	$	12,769	$	62,300,966		$	(25,270,408	)	$	(1,974,286	)	$	(662,000	)	$	34,409,203

Balance - July 1, 2019		2,162,449		2,162		12,769,041		12,769		62,300,966			(25,270,408	)		(1,974,286	)		(662,000	)		34,409,203
Net loss		-		-		-		-		-			(137,544	)		-			-			(137,544	)
Foreign currency translation adjustment		-		-		-		-		-			-			701,992			-			701,992
Issuance of stock under the equity incentive plan		-		-		184,081		184		(184	)		-			-			-			-
Issuance of preferred stock, net of fees and expenses		145,184		146		-		-		3,718,960			-			-			-			3,719,106
Stock-based compensation, net of cash settlements		-		-		-		-		326,803			-			-			-			326,803
Preferred stock dividends		-		-		-		-		(1,602,831	)		-			-			-			(1,602,831	)
Balance - September 30, 2019		2,307,633	$	2,308		12,953,122	$	12,953	$	64,743,714		$	(25,407,952	)	$	(1,272,294	)	$	(662,000	)	$	37,416,729

Meridian Purchase Price

Cash	$	11,863,724
Preferred stock		5,000,000
Warrants		4,770,000
Total purchase price	$	21,633,724

Accounts receivable	$	3,557,926
Prepaid expenses		703,732
Contract asset		881,111
Property and equipment		425,993
Operating lease right-of-use assets		2,775,949
Customer relationships		12,900,000
Technology		900,000
Goodwill		13,448,548
Accounts payable		(3,373,212	)
Accrued expenses & compensation		(3,591,380	)
Deferred revenue		(907,077	)
Operating lease liabilities		(6,024,616	)
Other current liabilities		(63,250	)
Total preliminary purchase price allocation	$	21,633,724

CareCloud Purchase Price

Cash	$	11,852,526
Preferred stock		19,000,000
Warrants		300,000
Contingent consideration		1,000,000
Total purchase price	$	32,152,526

Accounts receivable	$	2,298,716
Prepaid expenses		1,277,990
Contract asset		537,722
Property and equipment		402,970
Operating lease right-of-use assets		2,858,626
Customer relationships		8,000,000
Trademark		800,000
Software		4,800,000
Goodwill		22,868,078
Other long term assets		539,560
Accounts payable		(6,942,710	)
Accrued expenses		(2,080,977	)
Current loan payable		(79,655	)
Operating lease liabilities		(2,858,544	)
Deferred revenue		(269,250	)
Total purchase price allocation	$	32,152,526

Customer relationships	$	856,000
Accounts receivable		547,377
Contract asset		139,169
Operating lease right-of-use assets		1,224,480
Property and equipment		91,277
Goodwill		39,901
Operating lease liabilities		(1,224,480	)
Accrued expenses		(73,724	)
Total	$	1,600,000

	Three Months Ended September 30, 2020
	Healthcare IT			Practice Management		Unallocated Corporate Expenses			Total
Net revenue	$	28,191,057		$	3,447,559	$	-		$	31,638,616
Operating expenses:
Direct operating costs		17,147,137			2,571,244		-			19,718,381
Selling and marketing		1,563,255			8,168		-			1,571,423
General and administrative		4,173,350			468,172		1,549,486			6,191,008
Research and development		2,366,560			-		-			2,366,560
Change in contingent consideration		(500,000	)		-		-			(500,000	)
Depreciation and amortization		3,126,508			79,497		-			3,206,005
Impairment and unoccupied lease charges		320,575			-		-			320,575
Total operating expenses		28,197,385			3,127,081		1,549,486			32,873,952
Operating (loss) income	$	(6,328	)	$	320,478	$	(1,549,486	)	$	(1,235,336	)

	Nine Months Ended September 30, 2019
	Healthcare IT			Practice Management		Unallocated Corporate Expenses			Total
Net revenue	$	38,518,361		$	10,162,677	$	-		$	48,681,038
Operating expenses:
Direct operating costs		23,912,120			7,867,444		-			31,779,564
Selling and marketing		1,065,750			25,774		-			1,091,524
General and administrative		8,549,122			1,504,506		3,704,177			13,757,805
Research and development		648,822			-		-			648,822
Change in contingent consideration		(343,768	)		-		-			(343,768	)
Depreciation and amortization		2,170,204			236,907		-			2,407,111
Restructuring and impairment charges		136,332			-		-			136,332
Total operating expenses		36,138,582			9,634,631		3,704,177			49,477,390
Operating income (loss)	$	2,379,779		$	528,046	$	(3,704,177	)	$	(796,352	)

	Three Months Ended September 30, 2019
	Healthcare IT			Practice Management		Unallocated Corporate Expenses			Total
Net revenue	$	12,938,042		$	3,913,286	$	-		$	16,851,328
Operating expenses:
Direct operating costs		7,508,208			3,027,421		-			10,535,629
Selling and marketing		339,603			7,965		-			347,568
General and administrative		2,791,573			548,746		1,111,656			4,451,975
Research and development		175,758			-		-			175,758
Change in contingent consideration		(279,565	)		-		-			(279,565	)
Depreciation and amortization		735,133			79,077		-			814,210
Restructuring and impairment charges		136,332			-		-			136,332
Total operating expenses		11,407,042			3,663,209		1,111,656			16,181,907
Operating income (loss)	$	1,531,000		$	250,077	$	(1,111,656	)	$	669,421