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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 September 30, 2021

 

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.

(Exact name of registrant as specified in its charter)

 

Delaware   22-3832302

(State or other jurisdiction of

incorporation or organization)

 

 

(I.R.S. Employer

Identification Number)

 

7 Clyde Road

Somerset, New Jersey

 

 

08873

(Address of principal executive offices)

 

 

(Zip Code)

 

(732) 873-5133

(Registrant’s telephone number, including area code)

 

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

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 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

 

At October 29, 2021, the registrant had 14,874,631 shares of common stock, par value $0.001 per share, outstanding.

 

 

 

 
 

 

INDEX

 

  Page
   
Forward-Looking Statements 2
     
  PART I. FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements (Unaudited)  
  Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020 3
  Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 4
  Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020 5
  Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2021 and 2020 6
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 7
  Notes to Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
Item 3. Quantitative and Qualitative Disclosures about Market Risk 41
Item 4. Controls and Procedures 41
     
  PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 42
Item 1A. Risk Factors 42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42
Item 3. Defaults Upon Senior Securities 42
Item 4. Mine Safety Disclosures 42
Item 5. Other Information 42
Item 6. Exhibits

42

     
Signatures 43

 

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 offshore offices 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)

 

 

   September 30, 2021   December 31, 2020 
   (Unaudited)     
ASSETS        
Current assets:          
Cash  $8,313   $20,925 
Restricted cash   1,000    - 
Accounts receivable - net, of allowance for doubtful accounts of $369 and $522 at September 30, 2021 and December 31, 2020, respectively   18,094    12,089 
Contract asset   4,661    4,105 
Inventory   500    399 
Current assets - related party   13    13 
Prepaid expenses and other current assets   3,817    7,288 
Total current assets   36,398    44,819 
Property and equipment - net   5,108    4,921 
Operating lease right-of-use assets   7,108    7,743 
Intangible assets - net   32,143    29,978 
Goodwill   60,661    49,291 
Other assets   1,091    1,247 
TOTAL ASSETS  $142,509   $137,999 
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $5,803   $6,461 
Accrued compensation   3,390    2,590 
Accrued expenses   5,894    8,501 
Operating lease liability (current portion)   3,929    4,729 
Deferred revenue (current portion)   1,089    1,173 
Accrued liability to related party   -    1 
Deferred payroll taxes   927    927 
Notes payable (current portion)   590    401 
Dividend payable   3,843    4,241 
Consideration payable   1,000    - 
Total current liabilities   26,465    29,024 
Notes payable   24    41 
Contingent consideration   6,500    - 
Borrowings under line of credit   6,000    - 
Deferred payroll taxes   927    927 
Operating lease liability   5,026    6,297 
Deferred revenue   216    305 
Deferred tax liability   300    160 
Total liabilities   45,458    36,754 
COMMITMENTS AND CONTINGENCIES (NOTE 8)   -    - 
SHAREHOLDERS’ EQUITY:          
Preferred stock, $0.001 par value - authorized 7,000,000 shares at September 30, 2021 and December 31, 2020; issued and outstanding 5,295,414 and 5,475,279 shares at September 30, 2021 and December 31, 2020, respectively   5    5 
Common stock, $0.001 par value - authorized 29,000,000 shares at September 30, 2021 and December 31, 2020; issued 15,614,210 and 14,121,044 shares at September 30, 2021 and December 31, 2020, respectively; 14,873,411 and 13,380,245 shares outstanding at September 30, 2021 and December 31, 2020, respectively   16    14 
Additional paid-in capital   133,806    136,781 
Accumulated deficit   (34,575)   (33,889)
Accumulated other comprehensive loss   (1,539)   (1,004)
Less: 740,799 common shares held in treasury, at cost at September 30, 2021 and December 31, 2020   (662)   (662)
Total shareholders’ equity   97,051    101,245 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $142,509   $137,999 

 

See notes to condensed consolidated financial statements.

 

3
 

 

CARECLOUD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

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

 

 

   2021   2020   2021   2020 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
NET REVENUE  $38,304   $31,639   $102,137   $73,085 
OPERATING EXPENSES:                    
Direct operating costs   24,124    19,718    62,719    45,842 
Selling and marketing   2,375    1,571    6,469    4,778 
General and administrative   5,921    6,191    17,814    17,176 
Research and development   488    2,367    4,328    6,846 
Change in contingent consideration   -    (500)   -    (500)
Depreciation and amortization   3,547    3,206    9,505    6,944 
Loss on lease termination, impairment and unoccupied lease charges   424    321    1,664    681 
Total operating expenses   36,879    32,874    102,499    81,767 
OPERATING INCOME (LOSS)   1,425    (1,235)   (362)   (8,682)
OTHER:                    
Interest income   4    2    10    44 
Interest expense   (91)   (132)   (274)   (396)
Other (expense) income - net   (65)   (246)   (80)   84 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   1,273    (1,611)   (706)   (8,950)
Income tax (benefit) provision   (232)   62    (20)   18 
NET INCOME (LOSS)  $1,505   $(1,673)  $(686)  $(8,968)
                     
Preferred stock dividend   3,642    4,230    10,408    10,150 
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS  $(2,137)  $(5,903)  $(11,094)  $(19,118)
                     
Net loss per common share: basic and diluted  $(0.15)  $(0.46)  $(0.77)  $(1.53)
Weighted-average common shares used to compute basic and diluted loss per share   14,737,103    12,771,307    14,419,968    12,493,458 

 

See notes to condensed consolidated financial statements.

 

4
 

 

CARECLOUD, INC.

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

($ in thousands)

 

 

   2021   2020   2021   2020 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
NET INCOME (LOSS)  $1,505   $(1,673)  $(686)  $(8,968)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX                    
Foreign currency translation adjustment (a)   (475)   282    (535)   (292)
COMPREHENSIVE INCOME (LOSS)  $1,030   $(1,391)  $(1,221)  $(9,260)

 

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

 

See notes to condensed consolidated financial statements.

 

5
 

 

CARECLOUD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020

($ in thousands, except for number of shares)

 

 

   Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Stock   Equity 
   Preferred Stock   Common Stock   Additional
Paid-in
   Accumulated   Accumulated Other
Comprehensive
   Treasury
(Common)
   Total
Shareholders’
 
   Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Stock   Equity 
Balance - January 1, 2021   5,475,279   $5    14,121,044   $14   $136,781   $(33,889)  $(1,004)  $(662)  $101,245 
Net loss   -    -    -    -    -    (1,964)   -    -    (1,964)
Foreign currency translation adjustment   -    -    -    -    -    -    345    -    345 
Issuance of stock under the 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 - April 1, 2021   5,502,961   $6    15,140,589   $15   $140,666   $(35,853)  $(659)  $(662)  $103,513 
Net loss   -    -    -    -    -    (227)   -    -    (227)
Foreign currency translation adjustment   -    -    -    -    -    -    (405)   -    (405)
Issuance of stock under the Amended and Restated Equity Incentive Plan   4,244    -    33,724    -    -    -    -    -    - 
Issuance of common stock, net of fees and expenses   -    -    178,092    -    1,360    -    -    -    1,360 
Stock-based compensation, net of cash settlements   -    -    -    -    1,163    -    -    -    1,163 
Cancellation of shares held in escrow   (215,822)   (1)   -    -    (4,000)   -    -    -    (4,001)
Preferred stock dividends   -    -    -    -    (3,638)   -    -    -    (3,638)
Balance - June 30, 2021   5,291,383   $5    15,352,405   $15   $135,551   $(36,080)  $(1,064)  $(662)  $97,765 
                                              
Balance - July 1, 2021   5,291,383   $5    15,352,405   $15   $135,551   $(36,080)  $(1,064)  $(662)  $97,765 
Net income   -    -    -    -    -    1,505    -    -    1,505 
Foreign currency translation adjustment   -    -    -    -    -    -    (475)   -    (475)
Issuance of stock under the Amended and Restated Equity Incentive Plan   4,031    -    125,410    -    -    -    -    -    - 
Issuance of common stock, net of fees and expenses   -    -    136,395    1    1,168    -    -    -    1,169 
Stock-based compensation, net of cash settlements   -    -    -    -    729    -    -    -    729 
Preferred stock dividends   -    -    -    -    (3,642)   -    -    -    (3,642)
Balance - September 30, 2021   5,295,414   $5    15,614,210   $16   $133,806   $(34,575)  $(1,539)  $(662)  $97,051 
                                              
Balance- January 1, 2020   2,539,325   $2    12,978,485   $13   $69,403   $(25,075)  $(843)  $(662)  $42,838 
Net loss   -    -    -    -    -    (2,502)   -    -    (2,502)
Foreign currency translation adjustment   -    -    -    -    -    -    (590)   -    (590)
Issuance of stock under the equity incentive plan   28,870    -    129,607    -    -    -    -    -    - 
Issuance of preferred stock in connection with an acquisition   760,000    1    -    -    18,999    -    -    -    19,000 
Stock-based compensation, net of cash settlements   -    -    -    -    794    -    -    -    794 
Issuance of warrants in connection with an acquisition   -    -    -    -    300    -    -    -    300 
Preferred stock dividends   -    -    -    -    (2,643)   -    -    -    (2,643)
Balance - March 31, 2020   3,328,195   $3    13,108,092   $13   $86,853   $(27,577)  $(1,433)  $(662)  $57,197 
                                              
Balance- April 1, 2020   3,328,195   $3    13,108,092   $13   $86,853   $(27,577)  $(1,433)  $(662)  $57,197 
Net loss   -    -    -    -    -    (4,792)   -    -    (4,792)
Foreign currency translation adjustment   -    -    -    -    -    -    16    -    16 
Issuance of stock under the Amended and Restated Equity Incentive Plan   4,803    -    87,398    -    -    -    -    -    - 
Issuance of preferred stock in connection with the Meridian acquisition   200,000    -    -    -    5,000    -    -    -    5,000 
Issuance of preferred stock, net of fees and expenses   828,000    1    -    -    19,013    -    -    -    19,014 
Stock-based compensation, net of cash settlements   -    -    -    -    1,439    -    -    -    1,439 
Issuance of warrants in connection with the Meridian acquisition   -    -    -    -    4,770    -    -    -    4,770 
Preferred stock dividends   -    -    -    -    (3,277)   -    -    -    (3,277)
Balance - June 30, 2020   4,360,998   $4    13,195,490   $13   $113,798   $(32,369)  $(1,417)  $(662)  $79,367 
                                              
Balance - July 1, 2020   4,360,998   $4    13,195,490   $13   $113,798   $(32,369)  $(1,417)  $(662)  $79,367 
Net loss   -    -    -    -    -    (1,673)   -    -    (1,673)
Foreign currency translation adjustment   -    -    -    -    -    -    282    -    282 
Exercise of common stock warrants   -    -    399,349    -    2,995    -    -    -    2,995 
Issuance of stock under the Amended and Restated Equity Incentive Plan   5,475    -    282,048    -    -    -    -    -    - 
Issuance of preferred stock, net of fees and expenses   1,104,000    1    -    -    25,529    -    -    -    25,530 
Stock-based compensation, net of cash settlements   -    -    -    -    1,456    -    -    -    1,456 
Release of preferred stock from escrow   -    -    -    -    (1,392)   -    -    -    (1,392)
Preferred stock dividends   -    -    -    -    (4,230)   -    -    -    (4,230)
Balance - September 30, 2020   5,470,473   $5    13,876,887   $13   $138,156   $(34,042)  $(1,135)  $(662)  $102,335 

 

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 NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

($ in thousands)

 

 

   2021   2020 
OPERATING ACTIVITIES:          
Net loss  $(686)  $(8,968)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Depreciation and amortization   9,853    6,816 
Lease amortization   2,191    2,134 
Deferred revenue   (193)   160 
Provision for doubtful accounts   465    296 
Provision (benefit) for deferred income taxes   140    (93)
Foreign exchange gain   (87)   (63)
Interest accretion   599    511 
Gain on sale of assets   -    (2)
Stock-based compensation expense   4,006    4,951 
Change in contingent consideration   -    (500)
Adjustment of goodwill   36    - 
Changes in operating assets and liabilities, net of businesses acquired:          
Accounts receivable   (1,363)   (1,209)
Contract asset   (556)   (274)
Inventory   (101)   186 
Other assets   (135)   106 
Accounts payable and other liabilities   (6,959)   (8,384)
Net cash provided by (used in) operating activities   7,210    (4,333)
INVESTING  ACTIVITIES:          
Purchase of property and equipment   (1,992)   (1,289)
Capitalized software   (5,277)   (3,767)
Cash paid for acquisitions (net)   (12,582)   (23,716)
Net cash used in investing activities   (19,851)   (28,772)
FINANCING  ACTIVITIES:          
Preferred stock dividends paid   (10,806)   (7,798)
Settlement of tax withholding obligations on stock issued to employees   (2,096)   (1,847)
Repayments of notes payable, net   (745)   (430)
Proceeds from exercise of warrants   6,391    2,995 
Proceeds from issuance of common stock, net of expenses   2,528    - 
Proceeds from line of credit   11,000    19,500 
Repayment from line of credit   (5,000)   (19,500)
Settlement of contingent obligation   -    (1,325)
Net proceeds from issuance of preferred stock   -    44,544 
Net cash provided by financing activities   1,272    36,139 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (243)   (188)
NET (DECREASE) INCREASE IN CASH   (11,612)   2,846 
CASH - beginning of the period   20,925    19,994 
CASH AND RESTRICTED CASH - end of the period  $9,313   $22,840 
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:          
Preferred stock (cancelled) issued in connection with an acquisition  $(4,000)  $24,000 
Contingent consideration  $6,500   $- 
Vehicle financing obtained  $-   $28 
Dividends declared, not paid  $3,843   $4,097 
Purchase of prepaid insurance with assumption of note  $967   $668 
Warrants issued  $-   $5,070 
SUPPLEMENTAL INFORMATION - Cash paid during the period for:          
Income taxes  $237   $64 
Interest  $55   $150 

 

See notes to condensed consolidated financial statements.

 

7
 

 

CARECLOUD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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., 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% majority-owned subsidiary of CareCloud based in Pakistan. The remaining 0.01% 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.

 

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 September 30, 2021, talkMD had not yet commenced operations. During September 2021, the Company made arrangements to have the income tax returns prepared for talkMD and will advance the funds for the required taxes. The aggregate amount to be advanced is approximately $3,500.

 

2. BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 8-03. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the Company’s financial position as of September 30, 2021, the results of operations for the three months and nine months ended September 30, 2021 and 2020 and cash flows for the nine months ended September 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.

 

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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 — 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 determining 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 determining if this update will have a significant impact on the condensed consolidated financial statements.

 

3. ACQUISITIONS

 

2021 Acquisition

 

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

 

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

 

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A summary of the total consideration is as follows:

 

medSR Purchase Price

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

 

The Company engaged a third party valuation specialist to assist the Company in valuing the assets acquired and liabilities assumed from MedMatica. The following table summarizes the preliminary purchase price allocation. The Company expects to finalize the purchase price allocation during the 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  $2,705 
Receivable from seller   396 
Prepaid expenses   108 
Unbilled receivables   2,402 
Property and equipment   94 
Customer relationships   4,500 
Acquired backlog   500 
Goodwill   11,406 
Accounts payable   (536)
Accrued expenses & compensation   (1,223)
Deferred revenue   (20)
Total preliminary purchase price allocation  $20,332 

 

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

 

As part of the acquisition, $1.5 million of the purchase price was held in escrow, which represents $500,000 to be paid upon the achievement of agreed upon achievement of certain revenue and backlog milestones, and the balance will be held up to 18 months to satisfy certain indemnification obligations. During the current quarter, 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. The balance of the $1.0 million escrow is included in consideration payable and restricted cash in the condensed consolidated balance sheet at September 30, 2021. Approximately $12.3 million in cash was paid at closing.

 

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

 

Revenue earned from the clients obtained from the medSR acquisition on June 1, 2021 was approximately $6.3 million and $9.0 million during the three and nine months ended September 30, 2021, respectively.

 

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 $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:

 

Meridian Purchase Price

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

 

Of the Preferred Stock consideration, 100,000 shares were held in escrow for up to one month pending completion of technical migration and customer acceptance. 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 the Preferred Stock and the securities underlying the warrants for resale under the Securities Act.

 

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.

 

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

 

The acquired accounts receivable 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 Meridian acquisition was approximately $9.4 million and $28.1 million during the three and nine months ended September 30, 2021, respectively, and was approximately $10.0 million and $11.4 million during the three and nine months ended September 30, 2020, respectively.

 

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 provided that if CCH’s 2020 revenues exceed $36 million, there will be an earn-out payment to the seller equal to such excess, up to $3 million. Based on the 2020 revenues, no earn-out payment was required. Additional consideration included warrants to purchase 2,000,000 shares of the Company’s common stock, 1,000,000 of which have an exercise price per share of $7.50 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 

 

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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. The escrowed 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 $513,000 relating to the 160,000 shares held in escrow were reversed during the first quarter of 2021. The shares held in escrow were forfeited to cover the cost of the settlement.

 

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

 

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

 

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  $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 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 $8.8 million during the three months ended September 30, 2021 and approximately $26.0 million during the nine months ended September 30, 2021. Revenue from these clients was approximately $8.2 million during the three months ended September 30, 2020 and approximately $23.2 million during the nine months ended September 30, 2020.

 

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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 $17.8 million of additional revenue primarily recorded by medSR for the nine months ended September 30, 2021. Other differences arise from amortizing purchased intangibles using the double declining balance method.

 

   2021   2020   2021   2020 
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2021   2020   2021   2020 
   ($ in thousands except per share amounts)