UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20212022
or
| ☐ | 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
CareCloud, Inc.
(Formerly MTBC, 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
(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 | ||
| Global Market | ||||
Global Market | ||||
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 | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] ☐No [X]☒
At April 29, 2021, May 2, 2022, the registrant had 14,400,834 shares of common stock, par value $0.001 per share, outstanding.
INDEX
INDEX
| 1 |
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 25, 2021. March 14, 2022. 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 | |
| ● | 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 | |
| ● | 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 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 |
| ● | 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 | |
| ● | 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 achievements. Except as required by law, 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
CARECLOUD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except share and per share amounts)
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 20,995 | $ | 20,925 | ||||
| Accounts receivable - net, of allowance for doubtful accounts of $517 and $522 at March 31, 2021 and December 31, 2020, respectively | 12,419 | 12,089 | ||||||
| Contract asset | 4,375 | 4,105 | ||||||
| Inventory | 379 | 399 | ||||||
| Current assets - related party | 13 | 13 | ||||||
| Prepaid expenses and other current assets | 7,067 | 7,288 | ||||||
| Total current assets | 45,248 | 44,819 | ||||||
| Property and equipment - net | 5,323 | 4,921 | ||||||
| Operating lease right-of-use assets | 7,075 | 7,743 | ||||||
| Intangible assets - net | 29,166 | 29,978 | ||||||
| Goodwill | 49,291 | 49,291 | ||||||
| Other assets | 1,323 | 1,247 | ||||||
| TOTAL ASSETS | $ | 137,426 | $ | 137,999 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 4,734 | $ | 6,461 | ||||
| Accrued compensation | 2,040 | 2,590 | ||||||
| Accrued expenses | 10,215 | 8,501 | ||||||
| Operating lease liability (current portion) | 4,236 | 4,729 | ||||||
| Deferred revenue (current portion) | 1,225 | 1,173 | ||||||
| Accrued liability to related party | 1 | 1 | ||||||
| Deferred payroll taxes | 927 | 927 | ||||||
| Notes payable (current portion) | 167 | 401 | ||||||
| Dividend payable | 3,777 | 4,241 | ||||||
| Total current liabilities | 27,322 | 29,024 | ||||||
| Notes payable | 35 | 41 | ||||||
| Deferred payroll taxes | 927 | 927 | ||||||
| Operating lease liability | 5,220 | 6,297 | ||||||
| Deferred revenue | 285 | 305 | ||||||
| Deferred tax liability | 124 | 160 | ||||||
| Total liabilities | 33,913 | 36,754 | ||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 8) | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $0.001 par value - authorized 7,000,000 shares at March 31, 2021 and December 31, 2020; issued and outstanding 5,502,961 and 5,475,279 shares at March 31, 2021 and December 31, 2020, respectively | 6 | 5 | ||||||
| Common stock, $0.001 par value - authorized 29,000,000 shares at March 31, 2021 and December 31, 2020; issued 15,140,589 and 14,121,044 shares at March 31, 2021 and December 31, 2020, respectively; 14,399,790 and 13,380,245 shares outstanding at March 31, 2021 and December 31, 2020, respectively | 15 | 14 | ||||||
| Additional paid-in capital | 140,666 | 136,781 | ||||||
| Accumulated deficit | (35,853 | ) | (33,889 | ) | ||||
| Accumulated other comprehensive loss | (659 | ) | (1,004 | ) | ||||
| Less: 740,799 common shares held in treasury, at cost at March 31, 2021 and December 31, 2020 | (662 | ) | (662 | ) | ||||
| Total shareholders' equity | 103,513 | 101,245 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 137,426 | $ | 137,999 | ||||
See notes to condensed consolidated financial statements.
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
($ in thousands, except share and per share amounts)
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| NET REVENUE | $ | 29,768 | $ | 21,867 | ||||
| OPERATING EXPENSES: | ||||||||
| Direct operating costs | 18,060 | 13,567 | ||||||
| Selling and marketing | 1,890 | 1,581 | ||||||
| General and administrative | 5,624 | 5,593 | ||||||
| Research and development | 2,026 | 2,333 | ||||||
| Depreciation and amortization | 2,831 | 1,333 | ||||||
| Impairment and unoccupied lease charges | 1,018 | 297 | ||||||
| Total operating expenses | 31,449 | 24,704 | ||||||
| OPERATING LOSS | (1,681 | ) | (2,837 | ) | ||||
| OTHER: | ||||||||
| Interest income | 15 | 38 | ||||||
| Interest expense | (79 | ) | (118 | ) | ||||
| Other (expense) income - net | (220 | ) | 445 | |||||
| LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES | (1,965 | ) | (2,472 | ) | ||||
| Income tax (benefit) provision | (1 | ) | 30 | |||||
| NET LOSS | $ | (1,964 | ) | $ | (2,502 | ) | ||
| Preferred stock dividend | 3,128 | 2,643 | ||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (5,092 | ) | $ | (5,145 | ) | ||
| Net loss per common share: basic and diluted | $ | (0.36 | ) | $ | (0.42 | ) | ||
| Weighted-average common shares used to compute basic and diluted loss per share | 14,084,749 | 12,310,818 | ||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 9,136 | $ | 9,340 | ||||
| Restricted cash | 1,000 | 1,000 | ||||||
| Accounts receivable - net of allowance for doubtful accounts of $490 and $537 at March 31, 2022 and December 31, 2021, respectively | 18,493 | 17,006 | ||||||
| Contract asset | 4,645 | 4,725 | ||||||
| Inventory | 417 | 503 | ||||||
| Current assets - related party | 16 | 13 | ||||||
| Prepaid expenses and other current assets | 3,050 | 2,972 | ||||||
| Total current assets | 36,757 | 35,559 | ||||||
| Property and equipment - net | 5,396 | 5,404 | ||||||
| Operating lease right-of-use assets | 6,507 | 6,940 | ||||||
| Intangible assets - net | 30,487 | 30,778 | ||||||
| Goodwill | 61,186 | 61,186 | ||||||
| Other assets | 882 | 981 | ||||||
| TOTAL ASSETS | $ | 141,215 | $ | 140,848 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 5,833 | $ | 5,948 | ||||
| Accrued compensation | 2,857 | 4,251 | ||||||
| Accrued expenses | 5,998 | 5,091 | ||||||
| Operating lease liability (current portion) | 3,803 | 3,963 | ||||||
| Deferred revenue (current portion) | 1,140 | 1,085 | ||||||
| Deferred payroll taxes | 934 | 934 | ||||||
| Notes payable (current portion) | 95 | 344 | ||||||
| Contingent consideration (current portion) | 2,490 | 3,090 | ||||||
| Dividend payable | 3,950 | 3,856 | ||||||
| Consideration payable | 1,000 | 1,000 | ||||||
| Total current liabilities | 28,100 | 29,562 | ||||||
| Notes payable | 18 | 20 | ||||||
| Borrowings under line of credit | 6,000 | 8,000 | ||||||
| Operating lease liability | 3,929 | 4,545 | ||||||
| Deferred revenue | 390 | 341 | ||||||
| Deferred tax liability | 485 | 449 | ||||||
| Total liabilities | 38,922 | 42,917 | ||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 8) | — | — | ||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Preferred stock $par value - authorized shares. Series A, issued and outstanding and shares at March 31, 2022 and December 31, 2021, respectively. Series B, issued and outstanding shares at March 31, 2022 | 6 | 5 | ||||||
| Common stock, $par value - authorized shares. Issued and shares at March 31, 2022 and December 31, 2021, respectively. Outstanding and shares at March 31, 2022 and December 31, 2021, respectively. | 16 | 16 | ||||||
| Additional paid-in capital | 134,855 | 131,379 | ||||||
| Accumulated deficit | (29,913 | ) | (31,053 | ) | ||||
| Accumulated other comprehensive loss | (2,009 | ) | (1,754 | ) | ||||
| Less: common shares held in treasury, at cost at March 31, 2022 and December 31, 2021 | (662 | ) | (662 | ) | ||||
| Total shareholders’ equity | 102,293 | 97,931 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 141,215 | $ | 140,848 | ||||
See notes to condensed consolidated financial statements.
| 3 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSOPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 20212022 AND 20202021
($ in thousands)
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| NET LOSS | $ | (1,964 | ) | $ | (2,502 | ) | ||
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | ||||||||
| Foreign currency translation adjustment (a) | 345 | (590 | ) | |||||
| COMPREHENSIVE LOSS | $ | (1,619 | ) | $ | (3,092 | ) | ||
thousands, except share and per share amounts)
(a) No tax effect has been recorded as the Company recorded a valuation allowance against the tax benefit from its foreign currency translation adjustments.
| 2022 | 2021 | |||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| NET REVENUE | $ | 35,341 | $ | 29,768 | ||||
| OPERATING EXPENSES: | ||||||||
| Direct operating costs | 22,673 | 18,060 | ||||||
| Selling and marketing | 2,384 | 1,890 | ||||||
| General and administrative | 5,585 | 5,624 | ||||||
| Research and development | 985 | 2,026 | ||||||
| Change in contingent consideration | (600 | ) | — | |||||
| Depreciation and amortization | 2,940 | 2,831 | ||||||
| Net loss on lease termination, impairment and unoccupied lease charges | 158 | 1,018 | ||||||
| Total operating expenses | 34,125 | 31,449 | ||||||
| OPERATING INCOME (LOSS) | 1,216 | (1,681 | ) | |||||
| OTHER: | ||||||||
| Interest income | 5 | 15 | ||||||
| Interest expense | (100 | ) | (79 | ) | ||||
| Other income (expense) - net | 83 | (220 | ) | |||||
| INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES | 1,204 | (1,965 | ) | |||||
| Income tax provision (benefit) | 64 | (1 | ) | |||||
| NET INCOME (LOSS) | $ | 1,140 | $ | (1,964 | ) | |||
| Preferred stock dividend | 4,037 | 3,128 | ||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (2,897 | ) | $ | (5,092 | ) | ||
| Net loss per common share: basic and diluted | $ | (0.19 | ) | $ | (0.36 | ) | ||
| Weighted-average common shares used to compute basic and diluted loss per share | 14,992,147 | 14,084,749 | ||||||
See notes to condensed consolidated financial statements.
| 4 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYCOMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
($ in thousands)
| 2022 | 2021 | |||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| NET INCOME (LOSS) | $ | 1,140 | $ | (1,964 | ) | |||
| OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX | ||||||||
| Foreign currency translation adjustment (a) | (255 | ) | 345 | |||||
| COMPREHENSIVE INCOME (LOSS) | $ | 885 | $ | (1,619 | ) | |||
| (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 consolidated financial statements.
| 5 |
CARECLOUD, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND MARCH 31, 20202021
($ in thousands, except for number of shares)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, 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 equity incentive plan | 27,682 | 1 | 161,545 | - | (1 | ) | - | - | - | - | ||||||||||||||||||||||||||
| 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- 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 | |||||||||||||||||
| Preferred Stock Series A | Preferred Stock Series B | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Treasury (Common) | Total Shareholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Stock | Equity | ||||||||||||||||||||||||||||||||||
| Balance - January 1, 2022 | 5,299,227 | $ | 5 | — | $ | — | 15,657,641 | $ | 16 | $ | 131,379 | $ | (31,053 | ) | $ | (1,754 | ) | $ | (662 | ) | $ | 97,931 | ||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | 1,140 | — | — | 1,140 | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | (255 | ) | — | (255 | ) | |||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | 22,319 | — | — | — | 145,809 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | — | — | — | — | — | — | 887 | — | — | — | 887 | |||||||||||||||||||||||||||||||||
| Redemption of Series A Preferred Stock | (800,000 | ) | — | — | — | — | — | (20,000 | ) | — | — | — | (20,000 | ) | ||||||||||||||||||||||||||||||
| Issuance of Series B Preferred Stock | — | — | 1,150,372 | 1 | — | — | 26,637 | — | — | — | 26,638 | |||||||||||||||||||||||||||||||||
| Stock issuance costs | — | — | — | — | — | — | (11 | ) | — | — | — | (11 | ) | |||||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | — | — | — | (4,037 | ) | — | — | — | (4,037 | ) | |||||||||||||||||||||||||||||||
| Balance - March 31, 2022 | 4,521,546 | $ | 5 | 1,150,372 | $ | 1 | 15,803,450 | $ | 16 | $ | 134,855 | $ | (29,913 | ) | $ | (2,009 | ) | $ | (662 | ) | $ | 102,293 | ||||||||||||||||||||||
| Balance - January 1, 2021 | 5,475,279 | $ | 5 | — | $ | — | 14,121,044 | $ | 14 | $ | 136,781 | $ | (33,889 | ) | $ | (1,004 | ) | $ | (662 | ) | $ | 101,245 | ||||||||||||||||||||||
| Balance | 5,475,279 | $ | 5 | — | $ | — | 14,121,044 | $ | 14 | $ | 136,781 | $ | (33,889 | ) | $ | (1,004 | ) | $ | (662 | ) | $ | 101,245 | ||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | (1,964 | ) | — | — | (1,964 | ) | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | (1,964 | ) | — | — | (1,964 | ) | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | 345 | — | 345 | |||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | 27,682 | 1 | — | — | 161,545 | — | (1 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | — | — | — | — | — | — | 623 | — | — | — | 623 | |||||||||||||||||||||||||||||||||
| Stock issuance costs | — | — | — | — | — | — | (43 | ) | — | — | — | (43 | ) | |||||||||||||||||||||||||||||||
| Exercise of common stock warrants | — | — | — | — | 858,000 | 1 | 6,434 | — | — | — | 6,435 | |||||||||||||||||||||||||||||||||
| 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 | 5,502,961 | $ | 6 | — | $ | — | 15,140,589 | $ | 15 | $ | 140,666 | $ | (35,853 | ) | $ | (659 | ) | $ | (662 | ) | $ | 103,513 | ||||||||||||||||||||||
For all periods presented, the preferred stock dividends were paid monthly at the rate of $2.75 and $2.19 for Series A and Series B, respectively, per share per annum.
See notes to condensed consolidated financial statements.
| 6 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 20212022 AND 20202021
($ in thousands)
| 2021 | 2020 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (1,964 | ) | $ | (2,502 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 2,945 | 1,504 | ||||||
| Lease amortization | 728 | 684 | ||||||
| Deferred revenue | 32 | (89 | ) | |||||
| Provision for doubtful accounts | 192 | 281 | ||||||
| (Benefit) provision for deferred income taxes | (36 | ) | 15 | |||||
| Foreign exchange loss (gain) | 143 | (423 | ) | |||||
| Interest accretion | 139 | 167 | ||||||
| Gain on sale of assets | – | 2 | ||||||
| Stock-based compensation expense | 1,267 | 1,307 | ||||||
| Changes in operating assets and liabilities, net of businesses acquired: | ||||||||
| Accounts receivable | (522 | ) | (302 | ) | ||||
| Contract asset | (270 | ) | 38 | |||||
| Inventory | 20 | 5 | ||||||
| Other assets | (10 | ) | (110 | ) | ||||
| Accounts payable and other liabilities | (1,706 | ) | (4,461 | ) | ||||
| Net cash provided by (used in) operating activities | 958 | (3,884 | ) | |||||
| INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (695 | ) | (539 | ) | ||||
| Capitalized software | (1,524 | ) | (1,641 | ) | ||||
| Cash paid for acquisitions (net) | – | (11,853 | ) | |||||
| Net cash used in investing activities | (2,219 | ) | (14,033 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Preferred stock dividends paid | (3,592 | ) | (1,981 | ) | ||||
| Settlement of tax withholding obligations on stock issued to employees | (1,402 | ) | (820 | ) | ||||
| Repayments of notes payable, net | (241 | ) | (139 | ) | ||||
| Proceeds from exercise of warrants | 6,392 | – | ||||||
| Proceeds from line of credit | – | 9,750 | ||||||
| Net cash provided by financing activities | 1,157 | 6,810 | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | 174 | (492 | ) | |||||
| NET INCREASE (DECREASE) IN CASH | 70 | (11,599 | ) | |||||
| CASH - beginning of the period | 20,925 | 19,994 | ||||||
| CASH - end of the period | $ | 20,995 | $ | 8,395 | ||||
| SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Preferred stock issued in connection with an acquisition | $ | – | $ | 19,000 | ||||
| Dividends declared, not paid | $ | 3,777 | $ | 2,407 | ||||
| Warrants issued | $ | – | $ | 300 | ||||
| SUPPLEMENTAL INFORMATION - Cash paid during the period for: | ||||||||
| Income taxes | $ | 59 | $ | 6 | ||||
| Interest | $ | 16 | $ | 41 | ||||
thousands)
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 1,140 | $ | (1,964 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 3,080 | 2,945 | ||||||
| Lease amortization | 832 | 728 | ||||||
| Deferred revenue | 104 | 32 | ||||||
| Provision for doubtful accounts | 131 | 192 | ||||||
| Provision (benefit) for deferred income taxes | 36 | (36 | ) | |||||
| Foreign exchange (gain) loss | (52 | ) | 143 | |||||
| Interest accretion | 168 | 139 | ||||||
| Gain on sale of assets | (6 | ) | — | |||||
| Stock-based compensation expense | 887 | 1,267 | ||||||
| Change in contingent consideration | (600 | ) | — | |||||
| Changes in operating assets and liabilities, net of businesses acquired: | ||||||||
| Accounts receivable | (1,618 | ) | (522 | ) | ||||
| Contract asset | 80 | (270 | ) | |||||
| Inventory | 86 | 20 | ||||||
| Other assets | (97 | ) | (10 | ) | ||||
| Accounts payable and other liabilities | (1,084 | ) | (1,706 | ) | ||||
| Net cash provided by operating activities | 3,087 | 958 | ||||||
| INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (544 | ) | (695 | ) | ||||
| Capitalized software | (2,253 | ) | (1,524 | ) | ||||
| Net cash used in investing activities | (2,797 | ) | (2,219 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Preferred stock dividends paid | (3,943 | ) | (3,592 | ) | ||||
| Settlement of tax withholding obligations on stock issued to employees | (775 | ) | (1,402 | ) | ||||
| Repayments of notes payable, net | (251 | ) | (241 | ) | ||||
| Stock issuance costs | (11 | ) | (43 | ) | ||||
| Proceeds from exercise of warrants | — | 6,435 | ||||||
| Proceeds from issuance of Series B Preferred Stock, net of expenses | 26,638 | — | ||||||
| Redemption of Series A Preferred Stock | (20,000 | ) | — | |||||
| Proceeds from line of credit | 8,500 | — | ||||||
| Repayment of line of credit | (10,500 | ) | — | |||||
| Net cash (used in) provided by financing activities | (342 | ) | 1,157 | |||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (152 | ) | 174 | |||||
| NET (DECREASE) INCREASE IN CASH | (204 | ) | 70 | |||||
| CASH AND RESTRICTED CASH - Beginning of the period | 10,340 | 20,925 | ||||||
| CASH AND RESTRICTED CASH - End of the period | $ | 10,136 | $ | 20,995 | ||||
| SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Dividends declared, not paid | $ | 3,950 | $ | 3,777 | ||||
| SUPPLEMENTAL INFORMATION - Cash paid during the period for: | ||||||||
| Income taxes | $ | — | $ | 59 | ||||
| Interest | $ | 40 | $ | 16 | ||||
See notes to condensed consolidated financial statements.
CARECLOUD, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 20212022
AND 20202021 (UNAUDITED)
1. ORGANIZATION AND BUSINESS
CareCloud, Inc., formerly MTBC, Inc. (“CareCloud”, and together with its consolidated subsidiaries, the “Company”, “we”,“Company,” “we,” “us” and/or “our”) is a healthcare information technology company that offers an integratedprovides 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-scaleOur 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 managementcomplementary software tools and business services for privatehigh-performance medical groups and hospital-employed healthcare providers.health systems. CareCloud has its corporate offices in Somerset, New Jersey and maintains client support teams throughout the U.S., and offshore offices in Pakistan and Azad Jammu and Kashmir, a region administered by Pakistan (the “Pakistan Offices”), and in Sri Lanka.
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, the Company formed MTBC Private Limited (or “MTBC Pvt. Ltd.”), a 99.9%99.9% majority-owned subsidiary of CareCloud based in Pakistan. The remaining 0.01%0.1% of the shares of MTBC Pvt. Ltd. is owned by the founder and Executive Chairman of CareCloud. In 2016, 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”). MAC has a wholly owned subsidiary in Sri Lanka, RCM MediGain Colombo, Pvt. Ltd. In May 2018, the Company formed CareCloud Practice Management, Corp. (“CPM”), a Delaware corporation, to operate the medical practice management business acquired from Orion Healthcorp. During March 2021, the Company formed a new wholly-owned subsidiary, CareCloud Acquisition, Corp. which did not have any activity through March 31, 2021.
In January 2020, the Company purchased CareCloud Corporation, a company whose name we took. That company is now known as CareCloud Health, Inc. (“CCH”). In June 2020, 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 March 31, 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 March 31, 2021,2022, the results of operations for the three months ended March 31, 20212022 and 20202021 and cash flows for the three months ended March 31, 20212022 and 2020.2021. 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.
| 8 |
The condensed consolidated balance sheet as of December 31, 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, 2020,2021, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 25, 2021.March 14, 2022.
Recent Accounting Pronouncements— On February 14, 2018,From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently adopted and recently issued accounting pronouncements will not have a material impact on our consolidated financial position, results of operations and cash flows.
In June 2016, the FASB issued ASU 2018-02,2016-13, Income Statement-Reporting Comprehensive Income (Topic 220): ReclassificationFinancial Instruments – Credit Losses: Measurement of Certain Tax Effects from Accumulated Other Comprehensive IncomeCredit Losses on Financial Instruments. . These amendments provideThe 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 statement preparers with an optionassets and certain other instruments. It will apply to reclassify standard tax effects within accumulated other comprehensive incomeall entities. For trade receivables, loans and held-to-maturity debt securities, entities will be required to retained earnings in each period in which the effect of the changeestimate lifetime expected credit losses. This may result 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 resultearlier recognition of this standard.
credit losses. In June 2018,November 2019, the FASB issued ASU 2018-07, ImprovementsNo. 2019-10, which delays this standard’s effective date for SEC smaller reporting companies 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 on or after December 15, 2018, including interim periods within that fiscal year. There was no2022. The Company is in the process of determining if this update will have a significant impact on the condensed consolidated financial statements as a result of this standard.statements.
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 effective for public business entities for fiscal years beginning after December 15, 2020. The Company adopted this guidance effective January 1, 2021. There was no impact on the condensed consolidated financial 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. There was no impact on the consolidated financial statements as a result of this standard.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments are effective for public business entities for fiscal years beginning after December 15, 2022. The Company is in the process of investigatingdetermining if this update will have a significant impact on the condensed consolidated financial statements.
2020 Acquisitions3. ACQUISITIONS
2021 Acquisition
On June 16, 2020, the Company1, 2021, CAC entered into aan Asset and Stock Purchase Agreement (“Purchase Agreement”) with Meridian Billing Management Co., a Vermont corporation, Origin Holdings, Inc., a Delaware corporation,MedMatica and GMM II Holdings, LLC, a Delaware limited liability company (“Seller”), pursuantits sole shareholder. Pursuant to which the Company purchasedPurchase Agreement, CAC acquired (i) all of the issued and outstanding capital stock of Meridian fromSRS, a Delaware corporation, and (ii) all of the Seller. Meridian isMedMatica 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.
| 9 |
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 billing,practice management, and revenue cycle management, electronic medical records, medical coding and related services. These revenues have been included in the Company’s Healthcare IT segment.management. The acquisition has been accounted for as a business combination.
The total consideration paid at closing was $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 and a term of two 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 $4.8 million.
A summary of the total consideration is as follows:
SUMMARY OF TOTAL CONSIDERATION ON BUSINESS CONSIDERATION
| Meridian Purchase Price | ||||
| ($ in thousands) | ||||
| Cash | $ | 11,864 | ||
| Preferred stock | 5,000 | |||
| Warrants | 4,770 | |||
| Total purchase price | $ | 21,634 | ||
| medSR Purchase Price | ||||
| ($ in thousands) | ||||
| Cash | $ | 12,261 | ||
| Amounts held in escrow | 1,571 | |||
| Contingent consideration | 5,605 | |||
| Total purchase price | $ | 19,437 | ||
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. 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, 858,000 warrants were exercised at $7.50 each.
The Meridian acquisition added additional clients to the Company’s customer base and, similar to previous acquisitions, broadened the Company’s presence in the healthcare information technology industry through geographic expansion of its customer base and by increasing available customer relationship resources and specialized trained staff.
The Company engaged a third-partythird party valuation specialist to assist the Company in valuing the assets acquired and liabilities assumed from Meridian.MedMatica. The following table summarizes the preliminary purchase price allocation. The Company expects to finalize the purchase price allocation by the end of the second quarter of 2021 and is finalizing the projections and the valuation of the acquired assets and assumed liabilities. The preliminary purchase price allocation for Meridian is summarized as follows:
SCHEDULE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
| ($ in thousands) | ($ in thousands) | |||||||
| Accounts receivable | $ | 3,558 | $ | 2,696 | ||||
| Receivable from seller | 227 | |||||||
| Prepaid expenses | 704 | 102 | ||||||
| Contract asset | 881 | |||||||
| Unbilled receivables | 2,491 | |||||||
| Property and equipment | 426 | 84 | ||||||
| Operating lease right-of-use assets | 2,776 | |||||||
| Customer relationships | 12,900 | 3,100 | ||||||
| Technology | 900 | |||||||
| Acquired backlog | 490 | |||||||
| Goodwill | 13,789 | 11,931 | ||||||
| Accounts payable | (3,373 | ) | (539 | ) | ||||
| Accrued expenses & compensation | (3,932 | ) | (1,125 | ) | ||||
| Deferred revenue | (907 | ) | (20 | ) | ||||
| Operating lease liabilities | (6,025 | ) | ||||||
| Other current liabilities | (63 | ) | ||||||
| Total preliminary purchase price allocation | $ | 21,634 | ||||||
| Total purchase price allocation | $ | 19,437 | ||||||
The acquired accounts receivable areis recorded at fair value, which represents amounts that have subsequently been paid or arewere 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 assetsgoodwill from this acquisition is approximately threedeductible ratably for income tax purposes over fifteen years.
Revenue earned from the clients obtained from the Meridian acquisition was approximately $8.9 million during the three months ended March 31, 2021.
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. (“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 CCH (the “Merger”), with 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 million paid in cash at closing, the assumption of a working capital deficiency of approximately $5.1 million and 760,000 shares of the Company’s Preferred Stock. The Merger Agreement providedpurchase agreement provides that if CCH’s 2020 revenues exceed $36 million,revenue and EBITDA over the next 18 months exceeds certain specified amounts, there will be an earn-out payment to the seller equal to such excess, up to $3 $13 million. Based onIt was estimated that the 2020 revenues, no earn-outprobable 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 and a term of two years, and the other 1,000,000 warrants have an exercise price per share of $10.00 and a term of three years.
A summary of the total consideration is as follows:
| CCH Purchase Price | ||||
| ($ 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 released upon the joint instruction of the Companyapproximately $5.6 million and Runway in accordance with the applicable escrow terms. Such shares were entitled to the monthly dividend, whichthis amount was to be paid when, and if, the shares were released. The Company 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 current quarter.
During July 2020, it was determined that 55,726 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 $102,000 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.
The Company’s Preferred Stock and warrants issuedrecorded as part of the Mergerpurchase price allocation as contingent consideration. At March 31, 2022 and December 31, 2021, the Company determined that the fair value of the contingent consideration were issuedwas approximately $2.5 million and $3.1 million, respectively, based in part on the actual operating results since the acquisition. The difference in the contingent consideration between December 31, 2021 and March 31, 2022 has been recorded as a transaction exempt from registration underchange in contingent consideration in the Securities Actconsolidated statements of 1933, as amended (the “Securities Act”). The warrants were valued usingoperations.
As part of the Black-Scholes method. The Company registered for resale underacquisition, $1.5 million of the Securities Actpurchase price was held in escrow, which represented $500,000 to be paid upon the Preferred Stockachievement of agreed-upon revenue and backlog milestones, and the securities underlyingbalance to be held for up to to satisfy certain indemnification obligations. During the warrants.third quarter of 2021, the initial portion of the escrow was settled whereby $250,000 was paid to the seller and $250,000 was offset against the working capital adjustment. An additional $71,000 that was held in escrow was also paid. The balance of the $1.0 million escrow is included in consideration payable and restricted cash in the consolidated balance sheets at December 31, 2021 and March 31, 2022. Approximately $12.3 million in cash was paid at closing.
| 10 |
The CCHweighted-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 $7.3 million for the three months ended March 31, 2022.
The medSR acquisition added additional clients to the Company’s customer base. The Company acquired CCH’s software technologybase and, related business. Similarsimilar to previous acquisitions, this transaction broadened the Company’s presence in the healthcare information technology industry through geographic expansion of its customer base and by increasing available customer relationship resources and specialized trained staff.
The Company engaged a third-party valuation specialist to assist the Company in valuing the assets acquired and liabilities assumed from CCH. The following table summarizes the purchase price allocation:
| ($ 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 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 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 three years.
Revenue earned from the clients obtained from the CCH acquisition was approximately $8.3 million and $7.6 million during the three months ended March 31, 2021 and March 31, 2020, respectively.
Pro forma financial information (Unaudited)
The unaudited pro forma information below represents the condensed consolidated results of operations as if the CCH and Meridian acquisitionsmedSR acquisition occurred on January 1, 2020.2021. 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 acquisitionsacquisition 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.combination. The difference between the actual revenue and the pro forma revenue is approximately $9.7 million of additional revenue recorded by medSR for the three months ended March 31, 2020 is approximately $10.9 million of additional revenue recorded by Meridian and approximately $600,000 recorded by CCH.2021. Other differences arise from amortizing purchased intangibles using the double declining balance method.
SCHEDULE OF BUSINESS ACQUISITION PRO FORMA INFORMATION
| 2022 | 2021 | |||||||||||
| Three Months Ended March 31, | ||||||||||||
| Three Months Ended March 31, 2020 | 2022 | 2021 | ||||||||||
| ($ in thousands except per share amounts) | ($ in thousands except per share amounts) | |||||||||||
| Total revenue | $ | 33,416 | $ | 35,341 | $ | 39,455 | ||||||
| Net loss | $ | (3,499 | ) | |||||||||
| Net income (loss) | $ | 1,237 | $ | (1,286 | ) | |||||||
| Net loss attributable to common shareholders | $ | (6,849 | ) | $ | (2,800 | ) | $ | (4,414 | ) | |||
| Net loss per common share | $ | (0.56 | ) | $ | (0.19 | ) | $ | (0.31 | ) | |||
4. GOODWILL AND INTANGIBLE 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 three months ended March 31, 20212022 and the year ended December 31, 2020:2021:
SCHEDULE OF INTANGIBLE ASSETS AND GOODWILL
| Three Months Ended | Year Ended | |||||||
| March 31, 2022 | December 31, 2021 | |||||||
| ($ in thousands) | ||||||||
| Beginning gross balance | $ | 61,186 | $ | 49,291 | ||||
| Acquisition, net of adjustments | — | 11,895 | ||||||
| Ending gross balance | $ | 61,186 | $ | 61,186 | ||||
| 11 |
| Three Months Ended | Year Ended | |||||||
| March 31, 2021 | December 31, 2020 | |||||||
| ($ in thousands) | ||||||||
| Beginning gross balance | $ | 49,291 | $ | 12,634 | ||||
| Acquisitions | - | 36,657 | ||||||
| Ending gross balance | $ | 49,291 | $ | 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 March 31, 20212022, and December 31, 20202021 consist of the following:
SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS
| Three Months Ended | Year Ended | |||||||||||||||
| March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||
| Contracts and relationships acquired | $ | 44,497 | $ | 44,497 | $ | 47,597 | $ | 47,597 | ||||||||
| Capitalized software | 7,284 | 5,760 | 15,387 | 13,196 | ||||||||||||
| Non-compete agreements | 1,236 | 1,236 | 1,236 | 1,236 | ||||||||||||
| Other intangible assets | 7,959 | 7,906 | 8,396 | 8,396 | ||||||||||||
| Total intangible assets | 60,976 | 59,399 | 72,616 | 70,425 | ||||||||||||
| Less: Accumulated amortization | 31,810 | 29,421 | 42,129 | 39,647 | ||||||||||||
| Intangible assets - net | $ | 29,166 | $ | 29,978 | $ | 30,487 | $ | 30,778 | ||||||||
Other intangible assets primarily represent software costs. Amortization expense was approximately $2.4 $2.5 million and $1.1 $2.4 million for the three months ended March 31, 20212022 and 2020,2021, respectively. The remaining weighted-average amortization period is approximately 3.4 years.three years.
As of March 31, 2021,2022, future amortization scheduled to be expensed is as follows:
SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS, FUTURE AMORTIZATION EXPENSE
| Years ending December 31, | ($ in thousands) | ($ in thousands) | ||||||
| 2021 (nine months) | $ | 7,255 | ||||||
| 2022 | 9,562 | |||||||
| 2022 (nine months) | $ | 10,272 | ||||||
| 2023 | 7,434 | 10,786 | ||||||
| 2024 | 3,265 | 6,765 | ||||||
| 2025 | 300 | 1,314 | ||||||
| 2026 | 300 | |||||||
| Thereafter | 1,350 | 1,050 | ||||||
| Total | $ | 29,166 | $ | 30,487 | ||||
5. NET LOSS PER COMMON SHARE
SCHEDULE OF LOSSES PER SHARE, BASIC AND DILUTED
| 2022 | 2021 | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| ($ in thousands, except share and per share amounts) | ($ in thousands, except share and per share amounts) | |||||||||||||||
| Basic and Diluted: | ||||||||||||||||
| Net loss attributable to common shareholders | $ | (5,092 | ) | $ | (5,145 | ) | $ | (2,897 | ) | $ | (5,092 | ) | ||||
| Weighted-average common shares used to compute basic and diluted loss per share | 14,084,749 | 12,310,818 | 14,992,147 | 14,084,749 | ||||||||||||
| Net loss attributable to common shareholders per share - Basic and Diluted | $ | (0.36 | ) | $ | (0.42 | ) | ||||||||||
| Net loss attributable to common shareholders per share - basic and diluted | $ | (0.19 | ) | $ | (0.36 | ) | ||||||||||
All unvested restricted stock units (“RSUs”) and unexercised warrants have been excluded from the above calculations as they were anti-dilutive. Vested RSUs, vested restricted shares and exercised warrants have been included in the above calculations.
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6. DEBT
SVB — During October 2017, the Company opened a revolving line of credit with SVBSilicon Valley Bank (“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. NothingDuring the third quarter of 2021, the credit line was drawn on this line of credit asfurther increased to $20 million and the term was extended for another year. As of March 31, 2021 and December 31, 2020.2022, there was $6 million borrowed under the credit facility, which was repaid in early April. Interest on the SVB revolving line of credit is currently charged at the prime rate plus 1.50%,1.50% with a minimum interest rate of 6.5%6.50%. There is also a fee of one-half of 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.subsidiaries. Future acquisitions are subject to approval by SVB.
In connection with the original SVB debt agreement, the Company paid SVB approximately $50,000 of fees upfront and issued warrants for SVB to purchase 125,000 shares of its common stock, and committed to pay an annual anniversary fee of $50,000 a year. Based on the terms in the original SVB credit agreement, these warrants have a strike price equal to $3.92. They have a five-year exercise window and net exercise rights, and were valued at $3.12 per warrant. As a result of the revision in the SVB credit line, which increased the credit line from $5 million to $10 million and reduced the interest rate by 25 basis points, the Company paid approximately $50,000 of fees upfront and issued an additional 28,489 warrants, with a strike price equal to $5.26, a five-year exercise window and net exercise rights. The additional warrants were valued at $3.58 per warrant. The SVB credit agreement contains various covenants and conditions governing the revolving line of credit. These covenants include a minimum level of adjusted EBITDA and a minimum liquidity ratio. At March 31, 2022 and 2021, the Company was in compliance with all covenants.
During January 2022, the agreement with SVB was modified to allow the Company to issue Series B Preferred Stock and pay monthly dividends on this stock, to use a portion of the offering proceeds to redeem a portion of the Series A Preferred Stock that is outstanding and to allow for the potential exchange of shares of Series A Preferred Stock for Series B Preferred Stock.
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 year termsand 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 currently 4.15% based on the annual renewal..
7. LEASES
We determine if an arrangement is a lease at inception. We have operating leases for office and temporary living space as well as for some office equipment. 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 sheets as of March 31, 20212022 and December 31, 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.2021. 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.
WeAs most of our leases do not provide an implicit rate, 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 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 certainwe believe that we willmay want the right to exercise that option. Leases with a term of less than 12 months are not recorded in the condensed consolidated balance 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.
| 13 |
If a lease is modified after the effective date, the operating lease ROU asset and liability isare re-measured using the current incremental borrowing rate. We review our incremental borrowing rate for our portfolio of leases on a quarterly basis. During the three months ended March 31, 2022 and 2021, there were $243,000approximately $263,000 and $243,000, respectively, of unoccupied lease charges for two of the Company’s facilities. There were no lease impairments or restructuring charges during the three months ended March 31, 2022 and 2021. During the quarter ended March 31, 2022, there was a gain on lease termination of approximately $105,000. During the three months ended March 31, 2020, a lease impairment of approximately $297,000 was recorded since the Company is no longer using one of its leased facilities.
In February 2021, the Company was able to settle one recorded approximately $775,000 of the lease obligations assumed in connection with the Meridian acquisition for an amount that approximated the remaining lease liability.impairment charges on a vendor contract.
We lease all of our facilities and some equipment. Lease expense is included in direct operating costs and general and administrative expenses in the condensed consolidated statements of operations based on the nature of the expense. As of March 31, 2021,2022, we had 3634 leased properties, five in Medical Practice Management and 3129 in Healthcare IT, with remaining terms ranging from less than one year to fivefifteen years. Our lease terms are determined taking into account lease renewal options, the Company’s anticipated operating plans and leases that are on a month-to-month basis. WeThe Company also havehas some related party leases – see Note 9.
The components of lease expense were as follows:
SCHEDULE OF LEASE EXPENSE
| 2022 | 2021 | |||||||||||||||
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||
| Operating lease cost | $ | 1,057 | $ | 800 | $ | 972 | $ | 1,057 | ||||||||
| Short-term lease cost | 22 | 9 | 40 | 22 | ||||||||||||
| Variable lease cost | 6 | 13 | 9 | 6 | ||||||||||||
| Total- net lease cost | $ | 1,085 | $ | 822 | $ | 1,021 | $ | 1,085 | ||||||||
Short-term lease cost represents leases that were not capitalized as the lease term as of the later of January 1, 20212022 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 wasis as follows:
SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES
| March 31, 2022 | December 31, 2021 | |||||||
| ($ in thousands) | ||||||||
| Operating leases: | ||||||||
| Operating lease ROU assets, net | $ | 6,507 | $ | 6,940 | ||||
| Current operating lease liabilities | $ | 3,803 | $ | 3,963 | ||||
| Non-current operating lease liabilities | 3,929 | 4,545 | ||||||
| Total operating lease liabilities | $ | 7,732 | $ | 8,508 | ||||
| Operating leases: | ||||||||
| ROU assets | $ | 7,366 | $ | 10,535 | ||||
| Asset lease expense | (832 | ) | (3,574 | ) | ||||
| Foreign exchange loss | (27 | ) | (21 | ) | ||||
| ROU assets, net | $ | 6,507 | $ | 6,940 | ||||
| Weighted average remaining lease term (in years): | ||||||||
| Operating leases | 4.54 | 4.26 | ||||||
| Weighted average discount rate: | ||||||||
| Operating leases | 6.74 | % | 6.76 | % | ||||
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| March 31, 2021 | December 31, 2020 | |||||||
| ($ in thousands) | ||||||||
| Operating leases: | ||||||||
| Operating lease ROU assets, net | $ | 7,075 | $ | 7,743 | ||||
| Current operating lease liabilities | $ | 4,236 | $ | 4,729 | ||||
| Non-current operating lease liabilities | 5,220 | 6,297 | ||||||
| Total operating lease liabilities | $ | 9,456 | $ | 11,026 | ||||
| Operating leases: | ||||||||
| ROU assets | $ | 7,792 | $ | 10,648 | ||||
| Asset lease expense | (728 | ) | (2,889 | ) | ||||
| Foreign exchange gain (loss) | 11 | (16 | ) | |||||
| ROU assets, net | $ | 7,075 | $ | 7,743 | ||||
| Weighted average remaining lease term (in years): | ||||||||
| Operating leases | 2.83 | 2.71 | ||||||
| Weighted average discount rate: | ||||||||
| Operating leases | 6.78 | % | 6.76 | % | ||||
Supplemental cash flow and other information related to leases wasis as follows:
SCHEDULE OF SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION RELATED TO LEASES
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash flows from operating leases | $ | 1,396 | $ | 679 | $ | 1,212 | $ | 1,396 | ||||||||
| ROU assets obtained in exchange for lease liabilities: | ||||||||||||||||
| Operating leases, net of impairment and terminations | $ | 211 | $ | 3,617 | $ | 427 | $ | 211 | ||||||||
Maturities of lease liabilities are as follows:
| Operating leases - Year ending December 31, | ($ in thousands) | |||
| 2021 (nine months) | $ | 3,661 | ||
| 2022 | 3,941 | |||
| 2023 | 1,790 | |||
| 2024 | 570 | |||
| 2025 | 309 | |||
| 2026 | 42 | |||
| Total lease payments | 10,313 | |||
| Less: imputed interest | (857 | ) | ||
| Total lease obligations | 9,456 | |||
| Less: current obligations | (4,236 | ) | ||
| Long-term lease obligations | $ | 5,220 | ||
As of March 31, 2021, we have one operating lease commitment that has not yet commenced with an aggregate gross lease liability of approximately $1.6 million.SCHEDULE OF MATURITIES OF LEASE LIABILITIES
| Operating leases - Years ending December 31, | ($ in thousands) | |||
| 2022 (nine months) | $ | 3,359 | ||
| 2023 | 2,366 | |||
| 2024 | 1,075 | |||
| 2025 | 514 | |||
| 2026 | 232 | |||
| Thereafter | 1,756 | |||
| Total lease payments | 9,302 | |||
| Less: imputed interest | (1,570 | ) | ||
| Total lease obligations | 7,732 | |||
| Less: current obligations | (3,803 | ) | ||
| Long-term lease obligations | $ | 3,929 | ||
8. 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 CareCloud, Inc. (“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. CareCloud and MAC jointly moved inMay 30, 2018, the Superior Court of New Jersey, Chancery Division, Somerset County (the “Chancery Court”) denied the Company’s and MTBC Acquisition Corp.’s (“MAC’s”) request to enjoin an arbitration proceeding demanded by Randolph Pain Relief and Wellness Center (“RPRWC”) related to RCM services provided by parties unaffiliated with the Arbitration onCompany and MAC. On June 15, 2018, the groundsCompany and MAC filed an appeal of the Chancery Court’s decision with the New Jersey Superior Court, Appellate Division. On July 19, 2018, the Chancery Court ordered that neitherthe arbitration be stayed pending the Company’s and MAC’s appeal. On appeal, the Company and MAC contended they were anever party to the billing services agreement.agreement giving rise to the arbitration claim, did not assume the obligations of Millennium Practice Management Associates, Inc. (“MPMA”) under such agreement, and any agreement to arbitrate disputes arising under such agreement did not apply to the Company or MAC as RPRWC terminated the agreement before the APA took effect. On MayJanuary 30, 2018,2019, the Chancery Court denied that motion and CareCloud and MAC appealed. The Chancery Court orderedparties conducted oral arguments before the Arbitration stayed pending the appeal. Appellate Court.
On April 23, 2019, the Appellate Division affirmed in part and reversed in part the trial court’s order. The Appellate Division upheld the portion of the trial court’s order requiring MAC to participate in the arbitration based on the trial court’s finding that MAC had assumed MPMA’s contractual responsibilities. The Appellate Division reversed the Chancery Court’s rulingtrial court’s order requiring the Company to participate in the arbitration on the grounds that CareCloudinsufficient facts had been provided by RPRWC from which the court could conclude the Company was required to participate in the arbitration. As a result, the Appellate Division remanded the issue of whether Company is required to participate in the Arbitration and remandedarbitration back to the casetrial court 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. proceedings.
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The parties completed discovery in the remanded matter on November 29, 2019, and thereafter both CareCloudthe Company and RPRWC filed cross-motions for summary judgementjudgment in their favor. On February 6, 2020, the Chancery Court denied RPRWC’s motion for summary judgment and granted CareCloud’s motionthe Company’s cross-motion for summary judgment, holdingjudgment. The Chancery Court held that CareCloudthe Company cannot be compelled to participate in the Arbitration. RPRWC has informed CareCloudthe Company 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.MAC. 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 In its arbitration demand RPRWC seeks compensatory damagesalleges that MPMA, a subsidiary of $6.6 million, plus costs, for MPMA’s alleged breachMediGain, LLC, breached the terms of the billing services agreement. agreement the parties had entered into and sought compensatory damages of $6.6 million and costs.
On June 12,May 28, 2020, in response to a directive from the arbitrator handling the matter conducted a scheduling conference with the parties in order to establish deadlines for the parties to exchange discovery requests and responses. During the conference, the arbitrator directed RPRWC to produce statement of damages on which it bases its claim. RPRWC disclosed aits statement of damages to MAC in which iton June 12, 2020. RPRWC’s June 12, 2020 statement of damages increased its alleged damages from $6.6 $6.6 million and costs to $20 $20 million and costs. On July 24, 2020, RPRWC disclosed a declaration to MAC, in which RPRWC estimates its damages to be approximately $11 $11 million plus costs. RPRWC then served expert reports in November 2021. Plaintiff’s expert analyzed only a minute portion of the claims alleged to have been mishandled and then extrapolated damages to be in the range of $9.8 million to $10.8 million; however, this is unrealistically based on an alleged 90-100% collection rate on charges. MAC intendshas served an expert report refuting the methodology used by RPRWC’s expert, the allegations of mishandling and the calculated damages. This matter is currently being prepared for an arbitration hearing which is currently scheduled on several dates in June 2022.
While the allegations of breach of contract made by RPRWC are the subject of the ongoing legal proceedings, MAC believes RPRWC’s allegations lack merit on numerous grounds. The Company and MAC plan to vigorously defend against RPRWC’s claims. If RPRWC is successfulclaim and in the Arbitration, CareCloud and MACevent of a loss, if any, they anticipate the award wouldloss to be substantially less than the amount claimed.
Through the CCH transaction, we acquired its 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 has continued to cooperate with the inquiry as CCH has historically done since the commencement of the investigation in July of 2018. This element was considered as part of the transaction as $4 $4 million of the transaction’s consideration was held in escrow for the resolution of this investigation. 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. The Company has accrued $4.2 $4.2 million to resolve this investigation, of which up to $4 including the $4 million is thein escrow, which has beenwas recorded as an indemnification asset which is included in the condensed consolidated balance sheets at December 31, 2020 and March 31, 2021 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 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 $4,000 $5,000 and $5,000 $4,000 for the three months ended March 31, 20212022 and 2020,2021, respectively. As of March 31, 2021,2022, and December 31, 2020,2021, the receivable balance due from this customer was approximately $1,000 $2,000 and $2,000,$3,000, respectively.
The Company iswas a party to a nonexclusive aircraft dry lease agreement with Kashmir Air, Inc. (“KAI”), which iswas owned by the Executive Chairman. The Company recorded an expense of approximately $30,000 and $41,000 $30,000 for the three month periodsmonths ended March 31, 2021 and 2020. As of both March 31, 2021 and December 31, 2020, the Company had a liability outstanding to KAI of approximately $1,000, which is included in accrued liability to related party in the condensed consolidated balance sheets.2021. The lease for the current aircraft was entered intorenewed as of April 1, 20192021 and has been included in the ROU asset and operating lease liability at Decemberterminated on August 31, 2020 and2021. As of March 31, 2021.2022, there was no liability outstanding to KAI.
| 16 |
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 and an apartment for temporary housing in Dubai, the UAE, from the Executive Chairman. The related party rent expense for both the three months ended March 31, 20212022 and 20202021 was approximately $47,000$51,000 and $47,000, respectively, and is included in direct operating costs and general and administrative expense in the condensed consolidated statements of operations. During the three months ended March 31, 2022 and 2021, the Company spent approximately $289,000 $288,000 and $289,000 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 $16,000 and $13,000 as of both March 31, 20212022 and December 31, 2020.2021, respectively.
Included in the ROU asset at March 31, 2021 and December 31, 20202022 is approximately $216,000 and $283,000, respectively, $438,000 applicable to the related party leases. Included in the current and non-current operating lease liability at March 31, 20212022 is approximately $142,000 $173,000 and $85,000,$261,000, respectively, applicable to the related party leases. At
Included in the ROU asset at December 31, 2020,2021 is approximately $483,000 applicable to the related party leases. Included in the current and non-current operating lease liability at December 31, 2021 is approximately $174,000 and $305,000, respectively, applicable to the related party leases was approximately $202,000 and $92,000, respectively.leases.
During the first quarter of 2020, talkMD Clinicians, PA, a New Jersey corporation, talkMD Clinicians, PA (“talkMD”), was formed to provide telehealth services. This entity is owned by the wife of the Executive Chairman, since anwho is a licensed physician, to provide telehealth services. talkMD was determined to be a variable interest entity providing medical services must(“VIE”) for financial reporting purposes because the entity will be ownedcontrolled by the Company. As of March 31, 2022, talkMD had not yet commenced operations.
10. SHAREHOLDERS’ EQUITY
During the current quarter, the Company sold shares of 8.75% Series B Cumulative Redeemable Perpetual Preferred Stock (“Series B Preferred Stock”) and received net proceeds of approximately $25.5 million. The Series B Preferred Stock is listed on the Nasdaq Global Market under the symbol “MTBCO.” Dividends on the Series B Preferred Stock of approximately $annually per share are cumulative from the date of issue and are payable each month when, as and if declared by the Company’s Board of Directors. On March 18, 2022, the Company used a physician. portion of the proceeds from selling Series B Preferred Stock and redeemed shares of Series A Preferred Stock for $per share, plus all accrued and unpaid dividends to, but not including, the redemption date.
Commencing on February 15, 2024 and prior to February 15, 2025, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $per share, plus all accrued and unpaid dividends to, but not including, the redemption date. On or after February 15, 2025 and prior to February 15, 2026, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $per share, plus all accrued and unpaid dividends to, but not including, the redemption date. On or after February 15, 2026 and prior to February 15, 2027, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $per share, plus all accrued and unpaid dividends to, but not including, the redemption date. On or after February 15, 2027, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $per share, plus all accrued and unpaid dividends to, but not including, the redemption date.
The Company did not have any transactions withhas the right to sell up to $35 million of its Series B Preferred Stock using an “at-the-market” facility (“ATM”). The underwriter receives 3% of the gross proceeds. During the first quarter of 2022, the Company sold shares of Series B Preferred Stock under its ATM and received net proceeds of approximately $1.2 million. The Company also has the right to sell up to $50 million of its common stock using a second ATM facility. The underwriters of the common stock ATM also receive 3% of the gross proceeds. During the first quarter of 2022, shares of common stock were issued under this entity since its formation.ATM.
During the three months ended March 31, 2021, 858,000 common stock warrants were exercised at $7.50 each resulting in gross proceeds of $6,435,000.
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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,For revenue cycle management services, the Company recognizes revenue when the revenue cycle management services begin on the medical billing claims, which is generally upon receipt of the claim from the provider. For revenue cycle management services, theThe 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.the standard.
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. SellingThe standalone selling prices are based on the contractual price for the service, which approximates the stand alone selling price.service.
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 revenue from eightfive primary sources: revenue cycle management services, SaaS(1) technology-enabled business solutions, (2) professional services, ancillary services, group purchasing services,(3) printing and mailing services, and clearinghouse and EDI (electronic data interchange)(4) group purchasing services and (5) medical practice management services.
The following table represents a disaggregation of revenue for the three months ended March 31:
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| ($ in thousands) | ||||||||
| Healthcare IT: | ||||||||
| Revenue cycle management services | $ | 19,448 | $ | 13,190 | ||||
| SaaS solutions | 5,261 | 3,614 | ||||||
| Professional services | 617 | 391 | ||||||
| Ancillary services | 984 | 721 | ||||||
| Group purchasing services | 188 | 177 | ||||||
| Printing and mailing services | 383 | 429 | ||||||
| Clearinghouse and EDI services | 152 | 319 | ||||||
| Practice Management: | ||||||||
| Practice management services | 2,735 | 3,026 | ||||||
| Total | $ | 29,768 | $ | 21,867 | ||||
SCHEDULE OF DISAGGREGATION OF REVENUE
| 2022 | 2021 | |||||||
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| ($ in thousands) | ||||||||
| Healthcare IT: | ||||||||
| Technology-enabled business solutions | $ | 23,242 | $ | 25,845 | ||||
| Professional services | 8,314 | 617 | ||||||
| Printing and mailing services | 463 | 383 | ||||||
| Group purchasing services | 134 | 188 | ||||||
| Medical Practice Management: | ||||||||
| Medical practice management services | 3,188 | 2,735 | ||||||
| Total | $ | 35,341 | $ | 29,768 | ||||
| Revenues | $ | 35,341 | $ | 29,768 | ||||
Technology-enabled business solutions:
Revenue cycle management services:derived on an on-going basis from our technology-enabled solutions is typically billed as a percentage of payments collected by our customers.
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. The Company typically invoices 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 typically includes use of practice management software and related tools (on a software-as-a-service (“SaaS”)SaaS basis), electronic health records (on a SaaS basis), medical billing services and use of mobile health solutions. 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 daysdays’ 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.
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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:
Our proprietary, cloud-based practice management application automates the labor-intensive workflow of a medical office in a unified and streamlined SaaS platform. The Company has a large number of clients who utilize the Company’s practice management software, electronic health records software, patient experience management solutions, business intelligence software and/or robotic process automation software on a SaaS basis, but who do not utilize the Company’s revenue cycle management services. SaaS fees may be fixed based on the number of providers, or may be variable.
Other revenue streams:
The medical billing clearinghouse service takes claim information from customers, checks the claims for errors and sends this information electronically to insurance companies. The Company also provides implementation and professional services to certaininvoices customers and records revenue monthly on a timemonthly basis based on the number of claims submitted and materials or a fixedthe agreed-upon rate basis.in the agreement. This service is a separate performance obligation from anyprovided to medical practices and providers to medical practices who are not revenue cycle management SaaS, clearinghouse and recurring EDI services provided, for which the Company receives and records monthly fees.customers. The performance obligation is satisfied over time asonce the implementation or professional servicesrelevant submissions are rendered.completed.
Ancillary services representAdditional services such as coding, credentialing and transcription that are sometimes 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 uponagreed-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 ancillary servicecoding, credentialing or transcription transaction processed represents a performance obligation, which is satisfied over time as that individual service is rendered.
Professional services:
Our professional services include an extensive set of services including EHR vendor-agnostic optimization and activation, project management, IT transformation consulting, process improvement, training, education and staffing for large healthcare organizations including health systems and hospitals. Revenue is recorded monthly on a time and materials or a fixed rate basis. This is a separate performance obligation from any RCM or 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.
Printing and mailing services:
The Company provides printing and mailing services for both revenue cycle management customers and a 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.
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Group purchasing services:
The Company 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. Fees from the pharmaceutical companies are paid 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 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. 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.
For all of the above revenue streams other than group purchasing services, 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. 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.
PracticeMedical 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 collections, together with amounts related to the group purchasing services. As of March 31, 2021,2022, the estimated revenue expected to be recognized in the future related to the remaining revenue cycle management performance obligations outstanding was approximately $4.1 $4.4 million. We expect to recognize substantially all of the revenue for the remaining performance obligations over the next three months.months. Approximately $227,000 $228,000 of the contract asset represents revenue earned, but not yet paid, from the group purchasing services.
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.
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The contract asset was approximately $4.4 million and $2.9 million as of March 31, 2021 and 2020, respectively.
Changes in the contract asset are recorded as adjustments to net revenue. The changes primarily result from providing services to revenue cycle management customers that result in additional consideration and are offset by our right to payment for services becoming unconditional and changes in the revenue accrued for the group purchasing services. The contract asset for our group purchasing services is reduced when we receive payments from vaccine manufacturers and is increased for revenue earned, not received. Deferred revenue represents sign-up fees received from customers that are amortized over three years. The opening and closing balances of the Company’s accounts receivable, contract asset and deferred revenue are as follows for the three months ended March 31, 2021 and 2020:follows:
SCHEDULE OF ACCOUNTS RECEIVABLE, CONTRACT ASSET AND DEFERRED REVENUE
| Accounts Receivable, Net | Contract Asset | Deferred Revenue (current) | Deferred Revenue (long term) | Accounts Receivable, Net | Contract Asset | Deferred Revenue (current) | Deferred Revenue (long term) | |||||||||||||||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | 17,006 | $ | 4,725 | $ | 1,085 | $ | 341 | ||||||||||||||||||||||||
| Increase (decrease), net | 1,487 | (80 | ) | 55 | 49 | |||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | 18,493 | $ | 4,645 | $ | 1,140 | $ | 390 | ||||||||||||||||||||||||
| Balance as of January 1, 2021 | $ | 12,089 | $ | 4,105 | $ | 1,173 | $ | 305 | $ | 12,089 | $ | 4,105 | $ | 1,173 | $ | 305 | ||||||||||||||||
| Beginning balance | $ | 12,089 | $ | 4,105 | $ | 1,173 | $ | 305 | ||||||||||||||||||||||||
| Increase (decrease), net | 330 | 270 | 52 | (20 | ) | 330 | 270 | 52 | (20 | ) | ||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | 12,419 | $ | 4,375 | $ | 1,225 | $ | 285 | $ | 12,419 | $ | 4,375 | $ | 1,225 | $ | 285 | ||||||||||||||||
| Balance as of January 1, 2020 | $ | 6,995 | $ | 2,385 | $ | 20 | $ | 19 | ||||||||||||||||||||||||
| CCH acquisition | 2,299 | 538 | - | 269 | ||||||||||||||||||||||||||||
| Increase (decrease), net | 21 | (38 | ) | 4 | (92 | ) | ||||||||||||||||||||||||||
| Balance as of March 31, 2020 | $ | 9,315 | $ | 2,885 | $ | 24 | $ | 196 | ||||||||||||||||||||||||
| Ending balance | $ | 12,419 | $ | 4,375 | $ | 1,225 | $ | 285 | ||||||||||||||||||||||||
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 CCH.years. Deferred commissions were approximately $1.0million $846,000 and $411,000$1.0 million at March 31, 20212022 and 2020,2021, respectively, and are included in the other assets amounts in the condensed consolidated balancesheets.
In April 2014, the Company adopted the Medical Transcription Billing, Corp. 2014 Equity Incentive Plan (the “2014 Plan”), reserving 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 shares of Series A 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 of preferred sharesSeries A Preferred Stock were added to the plan for future issuance. In May 2020, an additional shares of common stock and an additional shares of Series A Preferred Stock were added to the plan2014 Plan for future issuance. Some of the Series A Preferred Stock shares were subsequently redesignated as Series B Preferred Stock and were removed from the 2014 Plan. As of March 31, 2021, 1,327,937 2022, shares of common stock and 332,153 shares of Series A 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.
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Common and preferred stock RSUs
In January 2021,February 2022, the Compensation Committee approved executive bonuses to be paid in shares of Series B Preferred Stock, with the number of shares and the amount based on specified criteria being achieved during the year 2021.2022. The addition of the Series B Preferred Stock to the Amended and Restated Equity Incentive Plan is subject to shareholder approval at the Annual Meeting. The actual amount of shares will be settled in early 20222023 based on the achievement of the specified criteria. For the three months ended March 31, 2021,2022, an expense of approximately $154,000, $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.
| Common Stock | Preferred Stock | |||||||
| Outstanding and unvested shares at January 1, 2021 | 382,435 | 44,000 | ||||||
| Granted | 395,100 | 37,922 | ||||||
| Vested | (226,525 | ) | (47,922 | ) | ||||
| Forfeited | (5,023 | ) | - | |||||
| Outstanding and unvested shares at March 31, 2021 | 545,987 | 34,000 | ||||||
| Outstanding and unvested shares at January 1, 2020 | 451,085 | 44,000 | ||||||
| Granted | 326,175 | 44,000 | ||||||
| Vested | (176,334 | ) | (44,000 | ) | ||||
| Forfeited | (18,958 | ) | - | |||||
| Outstanding and unvested shares at March 31, 2020 | 581,968 | 44,000 | ||||||
OfDISCLOSURE OF SHARE-BASED COMPENSATION ARRANGEMENTS BY SHARE-BASED PAYMENT AWARD
| Common Stock | Series A Preferred Stock | Series B Preferred Stock | ||||||||||
| Outstanding and unvested shares at January 1, 2022 | 418,039 | 34,000 | — | |||||||||
| Granted | 360,398 | — | 34,000 | |||||||||
| Vested | (208,817 | ) | (34,000 | ) | — | |||||||
| Forfeited | (25,494 | ) | — | — | ||||||||
| Outstanding and unvested shares at March 31, 2022 | 544,126 | — | 34,000 | |||||||||
| Outstanding and unvested shares at January 1, 2021 | 382,435 | 44,000 | — | |||||||||
| Granted | 395,100 | 34,000 | — | |||||||||
| Vested | (226,525 | ) | (44,000 | ) | — | |||||||
| Forfeited | (5,023 | ) | — | — | ||||||||
| Outstanding and unvested shares at March 31, 2021 | 545,987 | 34,000 | — | |||||||||
The liability for the total outstandingcash-settled awards and unvested common stock RSUsthe liability for withheld taxes in connection with the equity awards was approximately $417,000 and $1.0 million at March 31, 2022 and December 31, 2021, 532,987 RSUs are classified as equityrespectively, and 13,000 RSUs are classified as a liability. All ofis included in accrued compensation in the preferred stock RSUs are classified as equity.consolidated balance sheets. During the quarter ended March 31, 2022, approximately $13,000was paid in connection with the cash-settled awards. NaNamounts were paid in connection with cash-settled awards during the quarter ended March 31, 2021.
Stock-based compensation expense
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 $320,000 and $976,000 at March 31, 2021 and December 31, 2020, respectively, and is included in accrued compensation in the condensed consolidated balance sheets.
SCHEDULE OF EMPLOYEE SERVICE SHARE-BASED COMPENSATION, ALLOCATION OF RECOGNIZED PERIOD COSTS
| Stock-based compensation included in the condensed consolidated statements of operations: | Three Months Ended March 31, | |||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Stock-based compensation included in | Three Months Ended March 31, | |||||||||||||||
| the consolidated statements of operations: | 2022 | 2021 | ||||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||
| Direct operating costs | $ | 305 | $ | 171 | $ | 217 | $ | 305 | ||||||||
| General and administrative | 624 | 851 | 380 | 624 | ||||||||||||
| Research and development | 137 | 76 | 70 | 137 | ||||||||||||
| Selling and marketing | 201 | 209 | 220 | 201 | ||||||||||||
| Total stock-based compensation expense | $ | 1,267 | $ | 1,307 | $ | 887 | $ | 1,267 | ||||||||
13. INCOME TAXES
The income tax expense for the three months ended March 31, 2022 was approximately $64,000 comprised of a current tax expense of $28,000 and a deferred tax expense of $36,000. The income tax benefit for the three months ended March 31, 2021 was approximately $1,000,$1,000, comprised of a current tax expense of $35,000 $35,000 and a deferred tax benefit of $36,000.$36,000.
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The current income tax provision for the three months ended March 31, 20212022 and 20202021 primarily relates to state minimum taxes and foreign income taxes. The deferred tax provision (benefit) provision for the three months ended March 31, 20212022 and 20202021 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 both March 31, 20212022 and December 31, 2020,2021, the Company has deferred approximately $1.9 million $934,000of payroll taxes. This amount needs to be repaid 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 March 31, 20212022 and December 31, 2020.2021.
As14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market participant assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair values of assets and liabilities required to be measured at fair value are categorized based upon the level of judgement associated with the inputs used to measure their value in one of the following three categories:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. We held no Level 1 financial instruments at March 31, 2021, and2022 or December 31, 2020, the carrying amounts of accounts receivable, accounts2021.
Level 2: Quoted prices for similar instruments in active markets with inputs that are observable, either directly or indirectly. Our Level 2 financial instruments include notes 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 payablewhich are carried at cost and approximate fair value since the interest rates being charged approximate market rates. As a result,
Level 3: Unobservable inputs are significant to the Company categorizes these borrowings as Level 2 in the fair value hierarchy.
Contingent Consideration
The Company’s contingent consideration is a Level 3 liability. The fair value of the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Our Level 3 instrument includes the fair value of contingent consideration is primarily driven by changes in revenue estimates related to acquisitions,completed acquisitions. The fair value at March 31, 2022 is based on discounted cash flow analysis reflecting the likelihood of achieving specified performance measures or events and captures the contractual nature of the contingencies, the passage of time and the associated discount rate. As of DecemberMarch 31, 2020,2022, the contingent consideration liability was fully settled and there was no additional contingent consideration during the three months ended March 31, 2021.is valued using a Monte Carlo simulation model.
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):
SCHEDULE OF FAIR VALUE, LIABILITIES MEASURED ON RECURRING BASIS, UNOBSERVABLE INPUT RECONCILIATION
Fair Value Measurement at | ||||||||
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| ($ in thousands) | ||||||||
| Balance - January 1, | $ | 3,090 | $ | — | ||||
| Acquisitions | — | — | ||||||
| Change in fair value | (600 | ) | — | |||||
| Payments | — | — | ||||||
| Balance - March 31, | $ | 2,490 | $ | — | ||||
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| Fair Value Measurement at Reporting Date Using Significant Unobservable Inputs, Level 3 | ||||
| Three Months Ended March 31, 2020 | ||||
| ($ in thousands) | ||||
| Balance - January 1, | $ | - | ||
| Acquisition | 1,050 | |||
| Change in fair value | - | |||
| Payments | - | |||
| Balance - March 31, | $ | 1,050 | ||
Both our15. SEGMENT REPORTING
The Company’s Chief Executive Officer and Executive Chairman jointly serve as the Chief Operating Decision Maker (“CODM”), organize the Company, manage resource allocations and measure performance among two 2operating 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 whichthat 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, 20202021 filed with the SEC on February 25, 2021.March 14, 2022. The following tables presenttable presents revenues, operating expenses and operating income (loss) income by reportable segment:
| Three Months Ended March 31, 2021 | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||
| Healthcare IT | Practice Management | Unallocated Corporate Expenses | Total | |||||||||||||
| Net revenue | $ | 27,033 | $ | 2,735 | $ | - | $ | 29,768 | ||||||||
| Operating expenses: | ||||||||||||||||
| Direct operating costs | 15,987 | 2,073 | - | 18,060 | ||||||||||||
| Selling and marketing | 1,882 | 8 | - | 1,890 | ||||||||||||
| General and administrative | 3,426 | 520 | 1,678 | 5,624 | ||||||||||||
| Research and development | 2,026 | - | - | 2,026 | ||||||||||||
| Depreciation and amortization | 2,749 | 82 | - | 2,831 | ||||||||||||
| Impairment and unoccupied lease charges | 1,018 | - | - | 1,018 | ||||||||||||
| Total operating expenses | 27,088 | 2,683 | 1,678 | 31,449 | ||||||||||||
| Operating (loss) income | $ | (55 | ) | $ | 52 | $ | (1,678 | ) | $ | (1,681 | ) | |||||
SCHEDULE OF REVENUES, OPERATING EXPENSES AND OPERATING INCOME (LOSS) BY REPORTABLE SEGMENT
| Three Months Ended March 31, 2022 | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||
| Healthcare IT | Medical Practice Management | Unallocated Corporate Expenses | Total | |||||||||||||
| Net revenue | $ | 32,153 | $ | 3,188 | $ | — | $ | 35,341 | ||||||||
| Operating expenses: | ||||||||||||||||
| Direct operating costs | 20,011 | 2,662 | — | 22,673 | ||||||||||||
| Selling and marketing | 2,376 | 8 | — | 2,384 | ||||||||||||
| General and administrative | 3,400 | 437 | 1,748 | 5,585 | ||||||||||||
| Research and development | 985 | — | — | 985 | ||||||||||||
| Change in contingent consideration | (600 | ) | — | — | (600 | ) | ||||||||||
| Depreciation and amortization | 2,852 | 88 | — | 2,940 | ||||||||||||
| Net loss on lease termination, impairment and unoccupied lease charges | 158 | — | — | 158 | ||||||||||||
| Total operating expenses | 29,182 | 3,195 | 1,748 | 34,125 | ||||||||||||
| Operating income (loss) | $ | 2,971 | $ | (7 | ) | $ | (1,748 | ) | $ | 1,216 | ||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||
| Healthcare IT | Medical Practice Management | Unallocated Corporate Expenses | Total | |||||||||||||
| Net revenue | $ | 27,033 | $ | 2,735 | $ | — | $ | 29,768 | ||||||||
| Operating expenses: | ||||||||||||||||
| Direct operating costs | 15,987 | 2,073 | — | 18,060 | ||||||||||||
| Selling and marketing | 1,882 | 8 | — | 1,890 | ||||||||||||
| General and administrative | 3,426 | 520 | 1,678 | 5,624 | ||||||||||||
| Research and development | 2,026 | — | — | 2,026 | ||||||||||||
| Depreciation and amortization | 2,749 | 82 | — | 2,831 | ||||||||||||
| Impairment charges and unoccupied lease charges | 1,018 | — | — | 1,018 | ||||||||||||
| Total operating expenses | 27,088 | 2,683 | 1,678 | 31,449 | ||||||||||||
| Operating (loss) income | $ | (55 | ) | $ | 52 | $ | (1,678 | ) | $ | (1,681 | ) | |||||
16. SUBSEQUENT EVENT
Effective April 1, 2022, the Company created a new subsidiary in Azad Jammu and Kashmir called MTBC Bagh (Private) Limited. This entity is 99.8% owned by CareCloud, Inc. and will include all of the revenues, costs, assets and liabilities for the local operations.
| Three Months Ended March 31, 2020 | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||
| Healthcare IT | Practice Management | Unallocated Corporate Expenses | Total | |||||||||||||
| Net revenue | $ | 18,841 | $ | 3,026 | $ | - | $ | 21,867 | ||||||||
| Operating expenses: | ||||||||||||||||
| Direct operating costs | 11,166 | 2,401 | - | 13,567 | ||||||||||||
| Selling and marketing | 1,572 | 9 | - | 1,581 | ||||||||||||
| General and administrative | 3,881 | 556 | 1,156 | 5,593 | ||||||||||||
| Research and development | 2,333 | - | - | 2,333 | ||||||||||||
| Depreciation and amortization | 1,254 | 79 | - | 1,333 | ||||||||||||
| Impairment charges | 297 | - | - | 297 | ||||||||||||
| Total operating expenses | 20,503 | 3,045 | 1,156 | 24,704 | ||||||||||||
| Operating loss | $ | (1,662 | ) | $ | (19 | ) | $ | (1,156 | ) | $ | (2,837 | ) | ||||
As discussed in Note 8, during April 2021 the Company settled a civil investigation substantially within the range of the funds held in escrow.
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 months ended March 31, 20212022 and 2020,2021, 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 4 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 quarterthree months ended March 31, 2021,2022, economic and health conditions in the United States and across most of the globe 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 affectingaffected the Company’s operations in the first quarter,2021 and may continue to do so indefinitely thereafter.in the future. 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 months ended March 31, 2021 are2022 may not necessarily be 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 fullfuture 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.
Overview
Overview
CareCloud, Inc. (“CareCloud” and together with its consolidated subsidiaries, the “Company”, “we”, “us” and/or “our”)The Company is a healthcare information technology company that provides a full suite of proprietary cloud-basedSoftware-as-a-Service offerings (“SaaS”) and technology-enabled business solutions, which are often bundled, but are occasionally provided individually, together with related business services to healthcare providers and hospitals throughout the United States. Our Software-as-a-Service (“SaaS”)integrated SaaS 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 for high-performance medical groups and health systems.
At a high level, these solutions can be categorized as follows:
| ● | ||
| ○ | EHRs, which are easy to use, integrated with our business services or offered as Software-as-a-Service (“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; |
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| ○ | 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 | ||
| ○ | 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; and | ||
| ○ | Professional services consisting of application and advisory services, revenue cycle services, data analytic services and educational training services. |
| ● | Medical |
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;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 600700 experienced health industry experts throughout the United States. These experts are supported by our highly educated and specialized offshore workforce of approximately 3,2003,400 team members at labor costs that we believe are approximately one-tenth the cost of comparable U.S. employees. Our uniqueunique 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 CareCloud.CareCloud.
Adoption of our RCMtechnology-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 thanapproximately 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 2,600 independent medical practices and hospitals representing 80 specialties and subspecialties in 50 states. In addition, we serve approximately 200 clients whichthat 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 large practices with over 2,0002,300 providers operating in multiple states, to community hospitals.
On January 8, 2020, through a merger with a subsidiary, the Company acquired CareCloud Corporation, a Delaware corporation which was subsequently renamed CareCloud Health, IncInc. (“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.
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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”“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 $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 12% 11% and 11%12% of total expenses for the three months ended March 31, 20212022 and 2020,2021, respectively. A significant portion of those foreign expenses were personnel-related costs (approximately 80% 81% for both the three months ended March 31, 20212022 and 2020)approximately 80% for the three months ended March 31, 2021). 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.
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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; | |
| ● | ||
| ● | Change in contingent consideration. |
Set forth below is a presentation of our adjusted EBITDA for the three months ended March 31, 20212022 and 2020:2021:
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||
| Net revenue | $ | 29,768 | $ | 21,867 | $ | 35,341 | $ | 29,768 | ||||||||
| GAAP net loss | (1,964 | ) | (2,502 | ) | ||||||||||||
| GAAP net income (loss) | 1,140 | (1,964 | ) | |||||||||||||
| (Benefit) provision for income taxes | (1 | ) | 30 | |||||||||||||
| Provision (benefit) for income taxes | 64 | (1 | ) | |||||||||||||
| Net interest expense | 64 | 80 | 95 | 64 | ||||||||||||
| Foreign exchange loss / other expense | 244 | (424 | ) | (56 | ) | 244 | ||||||||||
| Stock-based compensation expense | 1,267 | 1,307 | 887 | 1,267 | ||||||||||||
| Depreciation and amortization | 2,831 | 1,333 | 2,940 | 2,831 | ||||||||||||
| Transaction and integration costs | 232 | 646 | 102 | 232 | ||||||||||||
| Impairment and unoccupied lease charges | 1,018 | 297 | ||||||||||||||
| Net loss on lease termination, impairment and unoccupied lease charges | 158 | 1,018 | ||||||||||||||
| Change in contingent consideration | (600 | ) | - | |||||||||||||
| Adjusted EBITDA | $ | 3,691 | $ | 767 | $ | 4,730 | $ | 3,691 | ||||||||
Adjusted operating income and adjusted operating margin exclude the following elements whichthat 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; | |
| ● | ||
| ● | Change in contingent consideration. |
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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 months ended March 31, 20212022 and 2020:2021:
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||
| Net revenue | $ | 29,768 | $ | 21,867 | $ | 35,341 | $ | 29,768 | ||||||||
| GAAP net loss | (1,964 | ) | (2,502 | ) | ||||||||||||
| (Benefit) provision for income taxes | (1 | ) | 30 | |||||||||||||
| GAAP net income (loss) | 1,140 | (1,964 | ) | |||||||||||||
| Provision (benefit) for income taxes | 64 | (1 | ) | |||||||||||||
| Net interest expense | 64 | 80 | 95 | 64 | ||||||||||||
| Other expense (income) - net | 220 | (445 | ) | |||||||||||||
| GAAP operating (loss) / income | (1,681 | ) | (2,837 | ) | ||||||||||||
| Other (income) expense - net | (83 | ) | 220 | |||||||||||||
| GAAP operating income (loss) | 1,216 | (1,681 | ) | |||||||||||||
| GAAP operating margin | (5.6 | %) | (13.0 | %) | 3.4 | % | (5.6 | %) | ||||||||
| Stock-based compensation expense | 1,267 | 1,307 | 887 | 1,267 | ||||||||||||
| Amortization of purchased intangible assets | 2,135 | 1,015 | 1,805 | 2,135 | ||||||||||||
| Transaction and integration costs | 232 | 646 | 102 | 232 | ||||||||||||
| Impairment and unoccupied lease charges | 1,018 | 297 | ||||||||||||||
| Net loss on lease termination, impairment and unoccupied lease charges | 158 | 1,018 | ||||||||||||||
| Change in contingent consideration | (600 | ) | - | |||||||||||||
| Non-GAAP adjusted operating income | $ | 2,971 | $ | 428 | $ | 3,568 | $ | 2,971 | ||||||||
| Non-GAAP adjusted operating margin | 10.0 | % | 2.0 | % | 10.1 | % | 10.0 | % | ||||||||
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; | |
| ● | ||
| ● | Change 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 months ended March 31, 20212022 and 2020:2021:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| ($ in thousands except for per share amounts) | ||||||||
| GAAP net income (loss) | $ | 1,140 | $ | (1,964 | ) | |||
| Foreign exchange loss / other expense | (56 | ) | 244 | |||||
| Stock-based compensation expense | 887 | 1,267 | ||||||
| Amortization of purchased intangible assets | 1,805 | 2,135 | ||||||
| Transaction and integration costs | 102 | 232 | ||||||
| Net loss on lease termination, impairment and unoccupied lease charges | 158 | 1,018 | ||||||
| Change in contingent consideration | (600 | ) | - | |||||
| Income tax expense (benefit) related to goodwill | 36 | (36 | ) | |||||
| Non-GAAP adjusted net income | $ | 3,472 | $ | 2,896 | ||||
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| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| ($ in thousands except for per share amounts) | ||||||||
| GAAP net loss | $ | (1,964 | ) | $ | (2,502 | ) | ||
| Foreign exchange loss / other expense | 244 | (424 | ) | |||||
| Stock-based compensation expense | 1,267 | 1,307 | ||||||
| Amortization of purchased intangible assets | 2,135 | 1,015 | ||||||
| Transaction and integration costs | 232 | 646 | ||||||
| Impairment and unoccupied lease charges | 1,018 | 297 | ||||||
| Income tax (benefit) expense related to goodwill | (36 | ) | 15 | |||||
| Non-GAAP adjusted net income | $ | 2,896 | $ | 354 | ||||
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 March 31, | Three Months Ended March 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| GAAP net loss attributable to common shareholders, per share | $ | (0.36 | ) | $ | (0.42 | ) | $ | (0.19 | ) | $ | (0.36 | ) | ||||
| Impact of preferred stock dividend | 0.22 | 0.22 | 0.27 | 0.22 | ||||||||||||
| Net loss per end-of-period share | (0.14 | ) | (0.20 | ) | ||||||||||||
| Net income (loss) per end-of-period share | 0.08 | (0.14 | ) | |||||||||||||
| Foreign exchange loss / other expense | 0.02 | (0.03 | ) | 0.00 | 0.02 | |||||||||||
| Stock-based compensation expense | 0.09 | 0.11 | 0.06 | 0.09 | ||||||||||||
| Amortization of purchased intangible assets | 0.14 | 0.08 | 0.11 | 0.14 | ||||||||||||
| Transaction and integration costs | 0.02 | 0.05 | 0.01 | 0.02 | ||||||||||||
| Impairment and unoccupied lease charges | 0.07 | 0.02 | ||||||||||||||
| Income tax (benefit) expense related to goodwill | (0.00 | ) | 0.00 | |||||||||||||
| Net loss on lease termination, impairment and unoccupied lease charges | 0.01 | 0.07 | ||||||||||||||
| Change in contingent consideration | (0.04 | ) | 0.00 | |||||||||||||
| Income tax expense (benefit) related to goodwill | 0.00 | 0.00 | ||||||||||||||
| Non-GAAP adjusted earnings per share | $ | 0.20 | $ | 0.03 | $ | 0.23 | $ | 0.20 | ||||||||
| End-of-period common shares | 14,399,790 | 12,367,293 | 15,062,651 | 14,399,790 | ||||||||||||
| In-the-money warrants and outstanding unvested RSUs | 2,698,127 | 708,600 | 790,926 | 2,698,127 | ||||||||||||
| Total fully diluted shares | 17,097,917 | 13,075,893 | 15,853,577 | 17,097,917 | ||||||||||||
| Non-GAAP adjusted diluted earnings per share | $ | 0.17 | $ | 0.03 | $ | 0.22 | $ | 0.17 | ||||||||
For purposes of determining non-GAAP adjusted earnings per share, the Company used the number of common shares outstanding at the end of March 31, 20212022 and 2020.2021. 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 do not take into account dividends paid on 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 March 31, 2021,2022, we provided services to an estimated universe of more thanapproximately 40,000 providers (which we define as physicians, nurses, nurse practitioners, physician assistants and other clinical staff that render bills for their services), representing approximately 2,600 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.
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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 servicessolutions accounted for approximately 65% 66% and 60%87% of our revenues during the three months ended March 31, 20212022 and 2020, respectively. Software-as-a-service fees, for clients not utilizing revenue cycle management services, accounted for approximately 18% and 17% of revenue during the three months ended March 31, 2021, and 2020, respectively. Other Healthcarehealthcare IT services, including printing and mailing operations, group purchasing and professional services, represented approximately 8% 25% and 9%4% of revenuesrevenues for the three months ended March 31, 2022 and 2021, and 2020, respectively.
We earned approximately 9% and 14%9% of our revenue from medical practice management services during both the three months ended March 31, 20212022 and 2020, respectively.2021. 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, software expense 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 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.
Net loss on lease termination, Impairment and Unoccupied Lease Charges. Net loss on lease termination represents the write-off of leasehold improvements and gains or losses as the result of early lease terminations. Impairment charges represent charges recorded for a leased facility no longer being used by the 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 March 31, 20212022 and December 31, 2020.2021.
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, 2020.2021.
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Leases:
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 condensedthe consolidated balance sheets at March 31, 20212022 and December 31, 2020.2021. 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. 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 March 31, 20212022 and December 31, 2020,2021, the carrying amounts of internally-developed capitalized software in use was $6.8$13.1 million and $5.5$11.6 million, respectively. The increase in the capitalized software costs represents the 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, 2020,2021, filed with the SEC on February 25, 2021.March 14, 2022.
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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 March 31, | Three Months Ended March 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Net revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| Operating expenses: | ||||||||||||||||
| Direct operating costs | 60.7 | % | 62.0 | % | 64.2 | % | 60.7 | % | ||||||||
| Selling and marketing | 6.3 | % | 7.2 | % | 6.7 | % | 6.3 | % | ||||||||
| General and administrative | 18.9 | % | 25.6 | % | 15.8 | % | 18.9 | % | ||||||||
| Research and development | 6.8 | % | 10.7 | % | 2.8 | % | 6.8 | % | ||||||||
| Change in contingent consideration | (1.7 | %) | 0.0 | % | ||||||||||||
| Depreciation and amortization | 9.5 | % | 6.1 | % | 8.3 | % | 9.5 | % | ||||||||
| Impairment and unoccupied lease charges | 3.4 | % | 1.4 | % | ||||||||||||
| Net loss on lease termination, impairment and unoccupied lease charges | 0.4 | % | 3.4 | % | ||||||||||||
| Total operating expenses | 105.6 | % | 113.0 | % | 96.5 | % | 105.6 | % | ||||||||
| Operating loss | (5.6 | %) | (13.0 | %) | ||||||||||||
| Operating income (loss) | 3.5 | % | (5.6 | %) | ||||||||||||
| Interest expense - net | 0.2 | % | 0.4 | % | 0.3 | % | 0.2 | % | ||||||||
| Other (expense) income - net | (0.7 | %) | 2.0 | % | ||||||||||||
| Loss before income taxes | (6.5 | %) | (11.4 | %) | ||||||||||||
| Income tax (benefit) provision | (0.0 | %) | 0.1 | % | ||||||||||||
| Net loss | (6.5 | %) | (11.5 | %) | ||||||||||||
| Other income (expense) - net | 0.2 | % | (0.7 | %) | ||||||||||||
| Income (loss) before income taxes | 3.4 | % | (6.5 | %) | ||||||||||||
| Income tax provision (benefit) | 0.2 | % | (0.0 | %) | ||||||||||||
| Net income (loss) | 3.2 | % | (6.5 | %) | ||||||||||||
Comparison of the three months ended March 31, 20212022 and 20202021
| Three Months Ended March 31, | Change | |||||||||||||||
| 2021 | 2020 | Amount | Percent | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Net revenue | $ | 29,768 | $ | 21,867 | $ | 7,901 | 36 | % | ||||||||
| Three Months Ended March 31, | Change | |||||||||||||||
| 2022 | 2021 | Amount | Percent | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Net revenue | $ | 35,341 | $ | 29,768 | $ | 5,573 | 19 | % | ||||||||
Net Revenue. Net revenue of $29.8$35.3 million for the three months ended March 31, 2021,2022 increased by $7.9$5.6 million or 36% 19% from net revenue of $21.9$29.8 million for the three months ended March 31, 2020.2021. Revenue for the three months ended March 31, 20212022 includes approximately $17.2$7.3 million from customers acquired in the CCH and Meridian acquisitions.medSR acquisition. Revenue for the three months ended March 31, 20212022 includes $19.4$23.2 million relating to RCM and bundled services, $5.3technology-enabled business solutions, $8.3 million related to SaaSprofessional services and $2.7$3.2 million for medical practice management services.
| Three Months Ended March 31, | Change | |||||||||||||||
| 2021 | 2020 | Amount | Percent | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Direct operating costs | $ | 18,060 | $ | 13,567 | $ | 4,493 | 33 | % | ||||||||
| Selling and marketing | 1,890 | 1,581 | 309 | 20 | % | |||||||||||
| General and administrative | 5,624 | 5,593 | 31 | 1 | % | |||||||||||
| Research and development | 2,026 | 2,333 | (307 | ) | (13 | %) | ||||||||||
| Depreciation | 460 | 275 | 185 | 67 | % | |||||||||||
| Amortization | 2,371 | 1,058 | 1,313 | 124 | % | |||||||||||
| Impairment and unoccupied lease charges | 1,018 | 297 | 721 | 243 | % | |||||||||||
| Total operating expenses | $ | 31,449 | $ | 24,704 | $ | 6,745 | 27 | % | ||||||||
| Three Months Ended March 31, | Change | |||||||||||||||
| 2022 | 2021 | Amount | Percent | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Direct operating costs | $ | 22,673 | $ | 18,060 | $ | 4,613 | 26 | % | ||||||||
| Selling and marketing | 2,384 | 1,890 | 494 | 26 | % | |||||||||||
| General and administrative | 5,585 | 5,624 | (39 | ) | (1 | %) | ||||||||||
| Research and development | 985 | 2,026 | (1,041 | ) | (51 | %) | ||||||||||
| Change in contingent consideration | (600 | ) | - | (600 | ) | (100 | %) | |||||||||
| Depreciation | 449 | 460 | (11 | ) | (2 | %) | ||||||||||
| Amortization | 2,491 | 2,371 | 120 | 5 | % | |||||||||||
| Net loss on lease termination, impairment and unoccupied lease charges | 158 | 1,018 | (860 | ) | (84 | %) | ||||||||||
| Total operating expenses | $ | 34,125 | $ | 31,449 | $ | 2,676 | 9 | % | ||||||||
Direct Operating Costs. Direct operating costs of $18.1$22.7 million for the three months ended March 31, 20212022 increased by $4.5$4.6 million or 33% 26% compared to direct operating costs of $13.6$18.1 million for the three months ended March 31, 2020.2021. During the three months ended March 31, 2021,2022, salary costs increased by $3.6$1.9 million,, and outsourcing and processing costs increased by $984,000.$2.3 million. The increase in thethese costs for the three months ended March 31, 20212022 were primarily related to the CCH and Meridian acquisitions.medSR acquisition.
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Selling and Marketing Expense. Selling and marketing expense of $1.9 million for the three months ended March 31, 2021 increased by $309,000 or 20% from selling and marketing expense of $1.6$2.4 million for the three months ended March 31, 2020.2022 increased by $494,000 or 26% from selling and marketing expense of $1.9 million for the three months ended March 31, 2021. The increase was primarily related to additional emphasis on sales and marketing activities which began as a result of the CCH acquisition.activities.
General and Administrative Expense. General and administrative expense of $5.6 million for the three months ended March 31, 2021 increased2022 decreased by $31,000 $39,000 or 1% compared to the same period in 2020.three months ended March 31, 2021. The increasethree-month decrease in general and administrative expense was primarily related to an overall decrease in expenses offset by an increase in salaries and wages due to the CCH and Meridian acquisitions.medSR acquisition.
Research and Development Expense. Research and development expense of $985,000 for the three months ended March 31, 2022 decreased by approximately $1.0 million from research and development expense of $2.0 million for the three months ended March 31, 2021. The decrease represents less maintenance work on platforms generating revenue and more resources dedicated to development of new technology which is not yet in commercial use. During the three months ended March 31, 2022 and 2021, the Company capitalized approximately $2.3 million and $1.5 million of development costs in connection with its internal-use software, respectively.
Change in Contingent Consideration. The change of $600,000 for the three months ended March 31, 2022 reflects the estimated decrease in the fair value of the contingent consideration from the medSR acquisition.
Depreciation. Depreciation of $449,000 for the three months ended March 31, 2022 decreased by $307,000 $11,000 or 2% from research and developmentthe depreciation of $460,000 for the three months ended March 31, 2021.
Amortization Expense. Amortization expense of $2.3$2.5 million for the three months ended March 31, 2020. The decreased primarily represented additional capitalization of software costs. During the three months ended March 31, 2021, the Company capitalized approximately $1.5 million of development costs in connection with its internal-use software.
Depreciation. Depreciation of $460,000 for the three months ended March 31, 20212022 increased by $185,000 $120,000 or 67% from the depreciation of $275,000 for the three months ended March 31, 2020, primarily due to the property and equipment acquired as part of the CCH and Meridian acquisitions.
Amortization Expense. Amortization expense of $2.4 million for the three months ended March 31, 2021 increased by $1.3 million or 124% 5% from amortization expense of $1.1$2.4 million for the three months ended March 31, 2020.2021. The increase was primarily related to the intangible assets acquired from the CCHmedSR acquisition as well as amortization of software which was previously capitalized and Meridian acquisitions.now placed into use.
Net loss on lease termination, Impairment and Unoccupied Lease Charges.Net loss on lease termination represents the write-off of leasehold improvements and gains or losses as the result of early lease terminations. Impairment charges represent charges recorded for a leased facility no longer being used by the Company and the impairment of a non-cancellable vendor contract assumed in the CCH acquisition where the provided services are no longer being used by the Company.used. Unoccupied lease charges represent the portion of lease and related costs for that portion of the space that is vacant and not being utilized by the Company. The Company is marketing bothwas able to turn back to the landlord one of the unused facility and the unused space for sub-lease.facilities effective January 1, 2022.
| Three Months Ended March 31, | Change | Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||
| 2021 | 2020 | Amount | Percent | 2022 | 2021 | Amount | Percent | |||||||||||||||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||||||||||||||||||
| Interest income | $ | 15 | $ | 38 | $ | (23 | ) | (61 | %) | $ | 5 | $ | 15 | $ | (10 | ) | (67 | )% | ||||||||||||||
| Interest expense | (79 | ) | (118 | ) | 39 | (33 | %) | (100 | ) | (79 | ) | (21 | ) | (27 | )% | |||||||||||||||||
| Other (expense) income - net | (220 | ) | 445 | (665 | ) | (149 | %) | |||||||||||||||||||||||||
| Income tax (benefit) provision | (1 | ) | 30 | (31 | ) | (103 | %) | |||||||||||||||||||||||||
| Other income (expense) - net | 83 | (220 | ) | 303 | 138 | % | ||||||||||||||||||||||||||
| Income tax provision (benefit) | 64 | (1 | ) | (65 | ) | (6,500 | )% | |||||||||||||||||||||||||
Interest Income. Interest income of $15,000 $5,000 for the three months ended March 31, 20212022 decreased by $23,000 or 61% $10,000 from interest income of $38,000$15,000 for the three months ended March 31, 2020.2021. The interest income represents interest earned on temporary cash investments.
Interest Expense. Interest expense of $79,000 $100,000 for the three months ended March 31, 2021 decreased2022 increased by $39,000 $21,000 or 33% 27% from interest expense of $118,000$79,000 for the three months ended March 31, 2020.2021. Interest expense includes the amortization of deferred financing costs, which was $36,000$30,000 and $48,000$36,000 during the three months ended March 31, 2022 and 2021, and 2020, respectively.
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Other Income (Expense) Income -– net. Other (expense) income -– net was ($220,000)$83,000 for the three months ended March 31, 20212022 compared to other income -expense – net of $445,000$220,000 for the three months ended March 31, 2020.2021. 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.Provision (Benefit). The provision for income taxes was $64,000 for the three months ended March 31, 2022 compared to the benefit for income taxes wasof $1,000 for the three months ended March 31, 2021, compared to an income tax provision of $30,000 for the three months ended March 31, 2020.2021. As a result of the Company incurring a tax loss for 2021 and 2020, which hashaving certain net operating losses with 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 20212022 and 2020.2021. The current income tax provisionexpense for the three months ended March 31, 20212022 was approximately $35,000$28,000 and primarily relates toincludes 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 March 31, 20212022 and December 31, 2020.2021.
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.
During the three months ended March 31, 2021,2022, there was positive cash flow from operations of approximately $958,000. As of$3.1 million and at March 31, 2021,2022, the Company had approximately $21.0$10.1 million in cash with nothing drawn on its line of credit,and restricted cash and positive working capital of $17.9$8.7 million. The Company has a revolving line of credit with SVB, and, as of March 31, 2022, there was a $6 million.
balance outstanding, which was repaid in early April. During April 2020,the three months ended March 31, 2022, the Company sold 828,0001,150,372 shares of its Series AB Preferred Stock and receivedraised $26.6 million in net proceeds of approximately $19.0 million, after issuancefees and expenses. A portion of these proceeds was used to fully repay the line of credit outstanding at March 31, 2020.
During July 2020, the Company sold 1,104,000 shares of its series A Preferred Stock and received net proceeds of approximately $25.6 million, after issuance expenses. A portion of these proceeds was used to repay the line of credit outstanding at June 30, 2020.
During the current quarter, 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 $7.50 per warrant.
The following table summarizes our cash flows for the periods presented:
| Three Months Ended March 31, | Change | |||||||||||||||
| 2021 | 2020 | Amount | Percent | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 958 | $ | (3,884 | ) | $ | 4,842 | (125 | %) | |||||||
| Net cash used in investing activities | (2,219 | ) | (14,033 | ) | 11,814 | (84 | %) | |||||||||
| Net cash provided by financing activities | 1,157 | 6,810 | (5,653 | ) | (83 | %) | ||||||||||
| Effect of exchange rate changes on cash | 174 | (492 | ) | 666 | (135 | %) | ||||||||||
| Net increase (decrease) in cash | $ | 70 | $ | (11,599 | ) | $ | 11,669 | (101 | %) | |||||||
Three Months Ended March 31, | Change | |||||||||||||||
| 2022 | 2021 | Amount | Percent | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Net cash provided by operating activities | $ | 3,087 | $ | 958 | $ | 2,129 | 222 | % | ||||||||
| Net cash used in investing activities | (2,797 | ) | (2,219 | ) | (578 | ) | (26 | )% | ||||||||
| Net cash (used in) provided by financing activities | (342 | ) | 1,157 | (1,499 | ) | (130 | )% | |||||||||
| Effect of exchange rate changes on cash | (152 | ) | 174 | (326 | ) | (187 | % | |||||||||
| Net (decrease) increase in cash and restricted cash | $ | (204 | ) | $ | 70 | $ | (274 | ) | (391 | )% | ||||||
Income before income taxes was $1.2 million for the three months ended March 31, 2022, which included $2.9 million of non-cash depreciation and amortization. The loss before income taxes was $2.0 million for the three months ended March 31, 2021 which included $2.8 million of non-cash depreciation and amortization. The loss before taxes for the three and ended March 31, 2020 was $2.5$2.0 million, which included $1.3$2.8 million of non-cash depreciation and amortization.
During 2021, the Company currently estimates that it will need to pay approximately $4.2 million to resolve a civil investigation which one of the subsidiaries it acquired in 2020 has been subject to since July 2018. Of this amount, $4.0 million will come from escrowed shares of preferred stock that the Company holds.
Operating Activities
Cash provided by operating activities was $958,000 $3.1 million and $958,000 during the three months ended March 31, 2022 and 2021, respectively. The increase in net income of $3.1 million included the following changes in non-cash items: increase in depreciation and amortization of $135,000, decrease in stock-based compensation of $380,000, and an increase in the change in contingent consideration of $600,000. Revenue increased by $5.6 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, and cash usedoperating expenses increased by operating activities was $3.9$2.7 million duringfor the three months ended March 31, 2020. The decrease insame period, primarily due to the net lossacquisition of $538,000 medSR.
Accounts receivable increased by $1.6 million for the three months ended March 31, 2021 as2022 compared to the same period in 2020 was accompanied by the following changes in non-cash items:with an increase in depreciation and amortization expense of $1.4 million, a decrease in stock-based compensation expense of $40,000, a change in$522,000 for the benefit for deferred income taxes of $51,000 and a decrease in interest accretion of $28,000.
The net change in operating assets and liabilities was $2.5 million.three months ended March 31, 2021. Accounts payable, accrued compensation and accrued expenses decreased by $1.7$1.1 million during the three months ended March 31, 2022 compared with a decrease of $1.7 million for the three months ended March 31, 2021 compared to a decrease of $4.52021.
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Investing Activities
Net cash used in investing activities was $2.8 million and $2.2 million for the three months ended March 31, 2020 as the Company paid past due amounts from the CCH2022 and Meridian acquisitions. Accounts receivable increased by $522,000 2021, respectively. Capital expenditures were $544,000 and $695,000 for the three months ended March 31, 2021 compared with an increase of $302,000 for the three months ended March 31, 2020. For the three months ended March 31, 20212022 and 2020, the change in the lease liabilities is included in this amount.
Investing Activities
Capital expenditures were $695,000 and $539,000 for the three months ended March 31, 2021, and 2020, respectively. The capital expenditures for the three months ended March 31, 20212022 and 20202021 primarily represented computer equipment purchased and lease holdleasehold improvements for the Pakistan offices.Offices. Software development costs of $1.5$2.3 million and $1.6$1.5 million for the three months ended March 31, 20212022 and 2020,2021, 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 providedNet cash used by financing activities was $342,000 during the three months ended March 31, 20212022 and 2020cash provided by financing activities was $1.2$1.2 millionand $6.8 million, respectively. The Company received $6.4 million from the exercise of common stock warrants during the three months ended March 31, 2021. The Company received net proceeds from the sale of Series B Preferred Stock of $26.6 million of which $20.0 million was used to redeem 800,000 shares of Series A Preferred Stock. Net repayments on the credit line were $2.0 million. Cash used in financing activities during the three months ended March 31, 20212022 included $3.6$3.9 million of preferred stock dividends, $241,000 $251,000 of repayments for debt obligations and $1.4 million $775,000 of tax withholding obligations paid in connection with stock awards issued to employees. Cash used in financing activities for the three months ended March 31, 20202021 included $2.0$3.6 million of preferred stock dividends, $139,000$241,000 of repayment for debt obligations and $820,000$1.4 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.credit. We were in compliance with all SVB covenants as of March 31, 2021.2022. We also maintain operating leases for property and certain office equipment. 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, 2020,2021, filed with the SEC on February 25, 2021.March 14, 2022.
Off-Balance Sheet Arrangements
As of March 31, 2021,2022, and 2020,2021, 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 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 March 31, 2021,2022, 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.operations.
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 March 31, 20212022 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.
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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 March 31, 2021,2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective atbecause of the reasonable assurance level.material weakness in our internal control over financial reporting as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The material weakness was due to a lack of controls over the completeness and accuracy of key inputs related to the measurement of a non-routine transaction.
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)l5d-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.
Remediation of a Material Weakness in Internal Control over Financial Reporting
We recognize the importance of the control environment as it sets the overall tone for the Company and is the foundation for all other components of internal control. Consequently, we designed and implemented remediation measures to address the material weakness previously identified and enhanced our internal control over financial reporting. In light of the material weakness, we enhanced our processes and controls to verify the completeness and accuracy of key inputs related to non-routine transactions by requiring more detailed reviews by experienced staff and increased communication among our personnel and third party professionals with whom we consult regarding such transactions. The foregoing actions, which we believe remediated the material weakness in internal control over financial reporting, were completed as of March 31, 2022.
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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.
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 25, 2021,March 14, 2022, 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 65% 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 CCH 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 CCH 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 25, 2021, remain unclear.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.Issuer Redemption of Equity Securities
Period | Total number of shares of Series A Preferred Stock redeemed | Average price paid per share of Series A Preferred Stock | Total number of shares redeemed as part of publicly announced plans or programs | |||||||||
| January 1-31, 2022 | - | - | - | |||||||||
| February 1-28, 2022 | - | - | - | |||||||||
| March 1-31, 2022 | 800,000 | (1) | $25.1375 | (1) | 800,000 | (1) | ||||||
| Total | 800,000 | $25.1375 | 800,000 | |||||||||
(1) On February 15, 2022, we announced that we would redeem 800,000 shares of our Series A Preferred Stock. On March 18, 2022, we redeemed 800,000 shares of our Series A Preferred Stock for a cash redemption price of $25.00 per share, plus all accrued and unpaid dividends to, but not including, the redemption date of March 18, 2022 in an amount equal to $.1375 per share, for a total payment of $25.1375 per share.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
| 38 |
Not applicable.
*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.
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.
| CareCloud, Inc. | ||
| By: | /s/ A. Hadi Chaudhry | |
| A. Hadi Chaudhry | ||
| Chief Executive Officer | ||
| Date: May | ||
| By: | /s/ Bill Korn | |
| Bill Korn | ||
| Chief Financial Officer | ||
| Date: May | ||