UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 | ||
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 October 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 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 | $ | $ | ||||||
| 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 September 30, 2021 and December 31, 2020; issued and outstanding and shares at September 30, 2021 and December 31, 2020, respectively | ||||||||
| Common stock, $ par value - authorized shares at September 30, 2021 and December 31, 2020; issued and shares at September 30, 2021 and December 31, 2020, respectively; and shares outstanding at September 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 September 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 | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| NET REVENUE | $ | $ | $ | $ | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Direct operating costs | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Change in contingent consideration | - | ( | ) | - | ( | ) | ||||||||||
| Depreciation and amortization | ||||||||||||||||
| Loss on lease termination, impairment and unoccupied lease charges | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| OPERATING INCOME (LOSS) | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income - net | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax (benefit) provision | ( | ) | ( | ) | ||||||||||||
| NET INCOME (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 INCOME (LOSS) (UNAUDITED)
($ in thousands)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| NET INCOME (LOSS) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | ||||||||||||||||
| Foreign currency translation adjustment (a) | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| (a) |
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)
| 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 | 5,502,961 | $ | 15,140,589 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
| 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 - July 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| 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 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||
| Balance - September 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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Balance - July 1, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Exercise of common stock warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Issuance of stock under the Amended and Restated Equity Incentive Plan | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Issuance of preferred stock, net of fees and expenses | - | - | - | - | ||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Release of preferred stock from escrow | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||
| Balance - September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
For all periods presented, the preferred stock dividends were paid monthly at the rate of $2.75 per share per annum.
See notes to condensed consolidated financial statements.
| 6 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
($ 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 | ||||||||
| Gain on sale of assets | - | ( | ) | |||||
| Stock-based compensation expense | ||||||||
| Change in contingent consideration | - | ( | ) | |||||
| 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 | ( | ) | ( | ) | ||||
| Settlement of contingent obligation | - | ( | ) | |||||
| Net proceeds from issuance of preferred stock | - | |||||||
| Net cash provided by financing activities | ||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ( | ) | ( | ) | ||||
| NET (DECREASE) INCREASE IN 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 | $ | $ | ||||||
| Purchase of prepaid insurance with assumption of note | $ | $ | ||||||
| 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 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
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 $
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.
| 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 — 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 $
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 | $ | |||
| 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 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 | ||||
| Unbilled receivables | ||||
| 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. The goodwill from this acquisition is deductible
ratably for income tax purposes over fifteen years.
As
part of the acquisition, $
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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 $
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 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 | $ | |||
| 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 | $ | |||
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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. 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 $
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 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 | $ | |||
| 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 .
Revenue
earned from the clients obtained from the CCH acquisition was approximately $
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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
$
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| ($ in thousands except per share amounts) | ||||||||||||||||