UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark one)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
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| (Address of principal executive offices) |
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(Zip Code) |
(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 | ||
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.
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).
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 ☐ | ||
| Smaller reporting company | |||
| Emerging
growth company |
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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 ☐
At July 29, 2021, the registrant had shares of common stock, par value $0.001 per share, outstanding.
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. 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 acquired businesses into our infrastructure and avoiding legal exposure and liabilities associated with acquired companies and assets; | |
| ● | our ability to retain our clients and revenue levels, including effectively migrating new clients and maintaining or growing the revenue levels of our new and existing clients; | |
| ● | our ability to maintain operations in our Pakistan Offices and Sri Lanka in a manner that continues to enable us to offer competitively priced products and services; | |
| ● | our ability to keep pace with a rapidly changing healthcare industry; | |
| ● | our ability to consistently achieve and maintain compliance with a myriad of federal, state, foreign, local, payor and industry requirements, regulations, rules, laws and contracts; | |
| ● | our ability to maintain and protect the privacy of confidential and protected Company, client and patient information; | |
| ● | our ability to develop new technologies, upgrade and adapt legacy and acquired technologies to work with evolving industry standards and third-party software platforms and technologies, and protect and enforce all of these and other intellectual property rights; | |
| ● | our ability to attract and retain key officers and employees, and the continued involvement of Mahmud Haq as Executive Chairman and A. Hadi Chaudhry as Chief Executive Officer and President, all of which are critical to our ongoing operations, growing our business and integrating of our newly acquired businesses; | |
| ● | our ability to comply with covenants contained in our credit agreement with our senior secured lender, Silicon Valley Bank and other future debt facilities; | |
| ● | our ability to pay our monthly preferred dividends to the holders of our Series A Preferred Stock; | |
| ● | our ability to compete with other companies developing products and selling services competitive with ours, and who may have greater resources and name recognition than we have; | |
| ● | our ability to respond to the uncertainty resulting from the spread of the COVID-19 pandemic and the impact it may have on our operations, the demand for our services, and economic activity in general; and | |
| ● | our ability to keep and increase market acceptance of our products and services. |
Although we believe that the expectations reflected in the forward-looking statements contained in this Quarterly Report on Form 10-Q are reasonable, we cannot guarantee future results, levels of activity, performance, or 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.
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
CARECLOUD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except share and per share amounts)
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | - | |||||||
| Accounts receivable - net, of allowance for doubtful accounts of $ | ||||||||
| Contract asset | ||||||||
| Inventory | ||||||||
| Current assets - related party | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment - net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets - net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued expenses | ||||||||
| Operating lease liability (current portion) | ||||||||
| Deferred revenue (current portion) | ||||||||
| Accrued liability to related party | ||||||||
| Deferred payroll taxes | ||||||||
| Notes payable (current portion) | ||||||||
| Dividend payable | ||||||||
| Consideration payable | - | |||||||
| Total current liabilities | ||||||||
| Notes payable | ||||||||
| Contingent consideration | - | |||||||
| Borrowings under line of credit | - | |||||||
| Deferred payroll taxes | ||||||||
| Operating lease liability | ||||||||
| Deferred revenue | ||||||||
| Deferred tax liability | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 8) | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $ par value - authorized shares at June 30, 2021 and December 31, 2020; issued and outstanding and shares at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Common stock, $ par value - authorized shares at June 30, 2021 and December 31, 2020; issued and shares at June 30, 2021 and December 31, 2020, respectively; and shares outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Less: common shares held in treasury, at cost at June 30, 2021 and December 31, 2020 | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See notes to condensed consolidated financial statements.
| 3 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
($ in thousands, except share and per share amounts)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| NET REVENUE | $ | $ | $ | $ | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Direct operating costs | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Impairment and unoccupied lease charges | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| OPERATING LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) - net | ( | ) | ( | ) | ||||||||||||
| LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax provision (benefit) | ( | ) | ( | ) | ||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Preferred stock dividend | ||||||||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share: basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average common shares used to compute basic and diluted loss per share | ||||||||||||||||
See notes to condensed consolidated financial statements.
| 4 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
($ in thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX | ||||||||||||||||
| Foreign currency translation adjustment (a) | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| (a) |
See notes to condensed consolidated financial statements.
| 5 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND JUNE 30, 2020
($ in thousands, except for number of shares)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Treasury (Common) | Total Shareholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount |
Capital |
Deficit | Loss | Stock | Equity | ||||||||||||||||||||||||||||
| Balance - January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | - | ( | ) | - | - | - | - | |||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Exercise of common stock warrants | - | - | - | - | ||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||
| Balance - March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Balance - April 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||
| Issuance of stock under the Amended and Restated Equity Incentive Plan | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Issuance of common stock, net of fees and expenses | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Cancellation of shares held in escrow | ( | ) | ( | ) | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||
| Balance - June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Balance- January 1, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Issuance of preferred stock in connection with an acquisition | - | - | - | - | ||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Issuance of warrants in connection with an acquisition | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||
| Balance - March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Balance- April 1, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Issuance of stock under the Amended and Restated Equity Incentive Plan | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Issuance of preferred stock in connection with the Meridian acquisition | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Issuance of preferred stock, net of fees and expenses | - | - | - | - | ||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Issuance of warrants in connection with the Meridian acquisition | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||
| Balance - June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
For all periods presented, the preferred stock dividends were paid monthly at the rate of $2.75 per share per annum.
See notes to condensed consolidated financial statements.
| 6 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
($ in thousands)
| 2021 | 2020 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Lease amortization | ||||||||
| Deferred revenue | ( | ) | ||||||
| Provision for doubtful accounts | ||||||||
| Provision (benefit) for deferred income taxes | ( | ) | ||||||
| Foreign exchange gain | ( | ) | ( | ) | ||||
| Interest accretion | ||||||||
| Stock-based compensation expense | ||||||||
| Adjustment of goodwill | - | |||||||
| Changes in operating assets and liabilities, net of businesses acquired: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract asset | ||||||||
| Inventory | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable and other liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Capitalized software | ( | ) | ( | ) | ||||
| Cash paid for acquisitions (net) | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Preferred stock dividends paid | ( | ) | ( | ) | ||||
| Settlement of tax withholding obligations on stock issued to employees | ( | ) | ( | ) | ||||
| Repayments of notes payable, net | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrants | - | |||||||
| Proceeds from issuance of common stock, net of expenses | - | |||||||
| Proceeds from line of credit | ||||||||
| Repayment from line of credit | - | ( | ) | |||||
| Net proceeds from issuance of preferred stock | - | |||||||
| Net cash provided by financing activities | ||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ( | ) | ( | ) | ||||
| NET DECREASE IN CASH AND RESTRICTED CASH | ( | ) | ( | ) | ||||
| CASH - beginning of the period | ||||||||
| CASH AND RESTRICTED CASH - end of the period | $ | $ | ||||||
| SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Preferred stock (cancelled) issued in connection with an acquisition | $ | ( | ) | $ | ||||
| Contingent consideration | $ | $ | ||||||
| Vehicle financing obtained | $ | $ | ||||||
| Dividends declared, not paid | $ | $ | ||||||
| Warrants issued | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION - Cash paid during the period for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
See notes to condensed consolidated financial statements.
| 7 |
CARECLOUD, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
AND 2020 (UNAUDITED)
1. ORGANIZATION AND BUSINESS
CareCloud, Inc., formerly MTBC, Inc. (“CareCloud”, and together with its consolidated subsidiaries, the “Company”, “we”, “us” and/or “our”) is a healthcare information technology company that provides a full suite of proprietary cloud-based solutions, together with related business services, to healthcare 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. Our Software-as-a-Service (“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. CareCloud has its corporate offices in Somerset, New Jersey and maintains client support teams throughout the U.S., in Pakistan and Azad Jammu and Kashmir (together, the “Pakistan Offices”), and in Sri Lanka.
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
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 2020, a New Jersey corporation, talkMD Clinicians, PA (“talkMD”), was formed by the wife of the Executive Chairman, who is a licensed physician, to provide telehealth services. talkMD was determined to be a variable interest entity (“VIE”) for financial reporting purposes because the entity will be controlled by the Company. As of June 30, 2021, talkMD had not yet commenced operations or had any transactions or agreements with the Company or otherwise.
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 June 30, 2021, the results of operations for the three months and six months ended June 30, 2021 and 2020 and cash flows for the six months ended June 30, 2021 and 2020. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.
| 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, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 25, 2021.
Recent Accounting Pronouncements — On February 14, 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. These amendments provide financial statement preparers with an option to reclassify standard tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recorded. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods therein. There was no impact on the condensed consolidated financial statements as a result of this standard.
In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. This ASU simplifies the accounting for nonemployee share-based payments by aligning it with the accounting for share-based payments to employees, with exceptions. Under this guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date, which may lower their cost and reduce volatility in the income statement. Awards to nonemployees are measured by estimating the fair value of the equity instruments to be issued, rather than the fair value of the goods or services received or the fair value of the equity instruments issued, whichever can be measured more reliably. Entities need to consider the probability that a performance condition will be satisfied when an award contains such condition. The guidance is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. There was no impact on the condensed consolidated financial statements as a result of this standard.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes to reduce complexity in the accounting standards. The amendments consist of the removal of certain exceptions to the general principles of ASC 740 and some additional simplifications. The amendments are effective for public business entities for fiscal years beginning after December 15, 2020. 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. The Company is in the process of investigating if this update will have a significant impact on the condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The guidance in Accounting Standards Update (“ASU”) 2016-13 replaces the incurred loss impairment methodology under current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It will apply to all entities. For trade receivables, loans and held-to-maturity debt securities, entities will be required to estimate lifetime expected credit losses. This may result in the earlier recognition of credit losses. In November 2019, the FASB issued ASU No. 2019-10, which delays this standard’s effective date for SEC smaller reporting companies to the fiscal years beginning on or after December 15, 2022. The Company is in the process of investigating if this update will have a significant impact on the condensed consolidated financial statements.
3. ACQUISITIONS
2021 Acquisition
On
June 1, 2021, CAC entered into an Asset and Stock Purchase Agreement (“Purchase Agreement”) with MedMatica and its sole shareholder.
Pursuant to the Purchase Agreement, CAC acquired (i) all of the issued and outstanding capital stock of SRS, a Delaware corporation,
and (ii) all of the MedMatica assets that were used in MedMatica’s and SRS’ business. Certain MedMatica liabilities
were also assumed under the Purchase Agreement. The total cash consideration was $
MedMatica and SRS are in the business of providing a broad range of specialty consulting services to hospitals and large healthcare groups, including certain consulting services related to healthcare IT application services and implementations, medical practice management, and revenue cycle management. The acquisition has been accounted for as a business combination.
| 9 |
A summary of the total consideration is as follows:
| medSR Purchase Price | ||||
| ($ in thousands) | ||||
| Cash | $ | |||
| Amounts held in escrow | ||||
| Contingent consideration | ||||
| Total purchase price | $ | |||
The Company engaged a third party valuation specialist to assist the Company in valuing the assets acquired and liabilities assumed from MedMatica. The following table summarizes the preliminary purchase price allocation. The Company expects to finalize the purchase price allocation during the third or fourth quarter of 2021 and is finalizing the projections and the valuation of the acquired assets and assumed liabilities.
The preliminary purchase price allocation for medSR is summarized as follows:
| ($ in thousands) | ||||
| Accounts receivable | $ | |||
| Receivable from seller | ||||
| Prepaid expenses | ||||
| Contract asset | ||||
| Property and equipment | ||||
| Customer relationships | ||||
| Acquired backlog | ||||
| Goodwill | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses & compensation | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Total preliminary purchase price allocation | $ | |||
The
acquired accounts receivable is recorded at fair value which represents amounts that have subsequently been paid or were expected to
be paid by clients. The fair value of customer relationships was based on the estimated discounted cash flows generated by these intangibles.
The goodwill represents the Company’s ability to have an expanded local presence in additional markets and operational synergies
that we expect to achieve that would not be available to other market participants. A portion of the goodwill from this acquisition is
deductible ratably for income tax purposes over fifteen years.
As
part of the acquisition, $
The
weighted-average amortization period of the acquired intangible assets is approximately
Revenue
earned from the clients obtained from the medSR acquisition on June 1, 2021 was approximately $
| 10 |
The medSR acquisition added additional clients to the Company’s customer base and, similar to previous acquisitions, broadened the Company’s presence in the healthcare information technology industry through expansion of its customer base and by increasing available customer relationship resources and specialized trained staff.
2020 Acquisitions
On June 16, 2020, the Company entered into a Stock Purchase Agreement with Meridian Billing Management Co., a Vermont corporation, Origin Holdings, Inc., a Delaware corporation, and GMM II Holdings, LLC, a Delaware limited liability company (“Seller”), pursuant to which the Company purchased all of the issued and outstanding capital stock of Meridian from the Seller. Meridian is in the business of providing medical billing, revenue cycle management, electronic medical records, medical coding and related services. These revenues have been included in the Company’s Healthcare IT segment. The acquisition has been accounted for as a business combination.
The
total consideration paid at closing was $
A summary of the total consideration is as follows:
| Meridian Purchase Price | ||||
| ($ in thousands) | ||||
| Cash | $ | |||
| Preferred stock | ||||
| Warrants | ||||
| Total purchase price | $ | |||
Of the Preferred Stock consideration, 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.
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.
| 11 |
The Company engaged a third-party valuation specialist to assist the Company in valuing the assets acquired and liabilities assumed from Meridian. The following table summarizes the purchase price allocation:
| ($ in thousands) | ||||
| Accounts receivable | $ | |||
| Prepaid expenses | ||||
| Contract asset | ||||
| Property and equipment | ||||
| Operating lease right-of-use assets | ||||
| Customer relationships | ||||
| Technology | ||||
| Goodwill | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses & compensation | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Operating lease liabilities | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Total purchase price allocation | $ | |||
The acquired accounts receivable is recorded at fair value which represents amounts that have subsequently been paid or were expected to be paid by clients. The fair value of customer relationships was based on the estimated discounted cash flows generated by these intangibles. The goodwill 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
Revenue
earned from the clients obtained from the Meridian acquisition was approximately $
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 $
A summary of the total consideration is as follows:
| CCH Purchase Price | ||||
| ($ in thousands) | ||||
| Cash | $ | |||
| Preferred stock | ||||
| Warrants | ||||
| Contingent consideration | ||||
| Total purchase price | $ | |||
| 12 |
Of
the Preferred Stock consideration, shares were placed in escrow for up to months, and an additional shares were placed
in escrow for up to months, in both cases, to satisfy indemnification obligations of the seller for losses arising from certain specified
contingent liabilities. Shares net of such losses were released upon the joint instruction of the Company and Runway in accordance with
the applicable escrow terms. Such shares were entitled to the monthly dividend, which 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 $
It
was determined that 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 $
The Company’s Preferred Stock and warrants issued as part of the Merger consideration were issued in a transaction exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). The warrants were valued using the Black-Scholes method. The Company registered for resale under the Securities Act the Preferred Stock and the securities underlying the warrants.
The CCH acquisition added additional clients to the Company’s customer base. The Company acquired CCH’s software technology and related business. Similar to previous acquisitions, this transaction broadened the Company’s presence in the healthcare information technology industry through geographic expansion of its customer base and by increasing available customer relationship resources and specialized trained staff.
The Company engaged a third-party valuation specialist to assist the Company in valuing the assets acquired and liabilities assumed from CCH. The following table summarizes the purchase price allocation:
| ($ in thousands) | ||||
| Accounts receivable | $ | |||
| Prepaid expenses | ||||
| Contract asset | ||||
| Property and equipment | ||||
| Operating lease right-of-use assets | ||||
| Customer relationships | ||||
| Trademark | ||||
| Software | ||||
| Goodwill | ||||
| Other long term assets | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Current loan payable | ( | ) | ||
| Operating lease liabilities | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Total purchase price allocation | $ | |||
The acquired accounts receivable is recorded at fair value which represents amounts that have subsequently been paid or were expected to be paid by clients. The fair value of customer relationships was based on the estimated discounted cash flows generated by these intangibles. The goodwill 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 $
| 13 |
Pro forma financial information (Unaudited)
The
unaudited pro forma information below represents the condensed consolidated results of operations as if the CCH, Meridian and medSR acquisitions
occurred on January 1, 2020. The pro forma information has been included for comparative purposes and is not indicative of results of
operations that the Company would have had if the acquisitions occurred on the above date, nor is it necessarily indicative of future
results. The unaudited pro forma information reflects material, non-recurring pro forma adjustments directly attributable to the business
combinations. The difference between the actual revenue and the pro forma revenue is approximately $
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| ($ in thousands except per share amounts) | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
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 six months ended June 30, 2021 and the year ended December 31, 2020:
| Six Months Ended | Year Ended | |||||||
| June 30, 2021 | December 31, 2020 | |||||||
| ($ in thousands) | ||||||||
| Beginning gross balance | $ | $ | ||||||
| Acquisitions | ||||||||
| Ending gross balance | $ | $ | ||||||
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 June 30, 2021 and December 31, 2020 consist of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| ($ in thousands) | ||||||||
| Contracts and relationships acquired | $ | $ | ||||||
| Capitalized software | ||||||||
| Non-compete agreements | ||||||||
| Other intangible assets | ||||||||
| Total intangible assets | ||||||||
| Less: Accumulated amortization | ||||||||
| Intangible assets - net | $ | $ | ||||||
| 14 |
Amortization
expense was approximately $
As of June 30, 2021, future amortization scheduled to be expensed is as follows:
| Years ending | ||||
| December 31, | ($ in thousands) | |||
| 2021 (six months) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total | $ | |||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| ($ in thousands, except share and per share amounts) | ||||||||||||||||
| Basic and Diluted: | ||||||||||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average common shares used to compute basic and diluted loss per share | ||||||||||||||||
| Net loss attributable to common shareholders per share - Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
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.
6. DEBT
SVB
— During October 2017, the Company opened a revolving line of credit with SVB under a three-year agreement. The SVB credit
facility is a secured revolving line of credit where borrowings are based on a formula of
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 terms and were issued at current market rates.
Insurance
Financing — The Company finances certain insurance purchases over the term of the policy life. The interest rate charged is
| 15 |
7. LEASES
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liability and non-current operating lease liability in our condensed consolidated balance sheets as of June 30, 2021 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. 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 our bank financing arrangements, geographical location and collateralization of assets when calculating our incremental borrowing rates.
Our lease terms include options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of less than 12 months are not recorded in the condensed consolidated balance sheets. Our lease agreements do not contain any residual value guarantees. For real estate leases, we account for the lease and non-lease components as a single lease component. Some leases include escalation clauses and termination options that are factored in the determination of the lease payments when appropriate.
If
a lease is modified after the effective date, the operating lease ROU asset and liability is re-measured using the current incremental
borrowing rate. During the six months ended June 30, 2021, there were $
In February 2021, the Company was able to settle one of the lease obligations assumed in connection with the Meridian acquisition for an amount that approximated the remaining lease liability.
We
lease all of our facilities and some equipment. Lease expense is included in direct operating costs and general and administrative expenses
in the condensed consolidated statements of operations based on the nature of the expense. As of June 30, 2021, we had 40 leased properties,
six in Medical Practice Management and 34 in Healthcare IT, with remaining terms ranging from less than
The components of lease expense were as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Variable lease cost | ||||||||||||||||
| Total- net lease cost | $ | $ | $ | $ | ||||||||||||
Short-term lease cost represents leases that were not capitalized as the lease term as of the later of January 1, 2021 or the beginning of the lease was less than 12 months. Variable lease costs include utilities, real estate taxes and common area maintenance costs.
| 16 |
Supplemental balance sheet information related to leases was as follows:
| June 30, 2021 | December 31, 2020 | |||||||
| ($ in thousands) | ||||||||
| Operating leases: | ||||||||
| Operating lease ROU assets, net | $ | $ | ||||||
| Current operating lease liabilities | $ | $ | ||||||
| Non-current operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Operating leases: | ||||||||
| ROU assets | $ | $ | ||||||
| Asset lease expense | ( | ) | ( | ) | ||||
| Foreign exchange gain (loss) | ( | ) | ||||||
| ROU assets, net | $ | $ | ||||||
| Weighted average remaining lease term (in years): | ||||||||
| Operating leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
Supplemental cash flow and other information related to leases was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | ||||||||||||
| ROU assets obtained in exchange for lease liabilities: | ||||||||||||||||
| Operating leases, net of impairment and terminations | $ | $ | $ | $ | ||||||||||||
Maturities of lease liabilities are as follows:
| Operating leases - Year ending December 31, | ($ in thousands) | |||
| 2021 (six months) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease obligations | ||||
| Less: current obligations | ( | ) | ||
| Long-term lease obligations | $ | |||
As
of June 30, 2021, we have one operating lease commitment that has not yet commenced with an aggregate gross lease liability of approximately
$
| 17 |
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 in the Superior Court of New Jersey, Chancery Division, Somerset County (the “Chancery Court”) to enjoin the Arbitration on the grounds that neither were a party to the billing services agreement. On May 30, 2018, the Chancery Court denied that motion and CareCloud and MAC appealed. The Chancery Court ordered the Arbitration stayed pending the appeal.
On April 23, 2019, the Appellate Division reversed the Chancery Court’s ruling that CareCloud is required to participate in the Arbitration and remanded the case for further proceedings before the Chancery Court on that issue. The Appellate Division upheld the Chancery Court’s ruling that MAC was required to participate in the Arbitration. The parties completed discovery in the remanded matter, and both CareCloud and RPRWC filed cross-motions for summary judgement in their favor. On February 6, 2020, the Chancery Court denied RPRWC’s motion for summary judgment and granted CareCloud’s motion for summary judgment, holding that CareCloud cannot be compelled to participate in the Arbitration. RPRWC has informed CareCloud that it does not intend to appeal the Chancery Court’s ruling and that it intends to move forward solely against MAC in the Arbitration. On March 25, 2020, the Chancery Court lifted the stay of arbitration relative to RPRWC and MAC.
Due
to conflicting information provided by RPRWC, it is unclear what the extent of the claimed damages are in this matter which at this time
appear to be entirely speculative. According to its arbitration demand,