UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
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or
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Commission
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(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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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Global Market | ||||
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Global Market | |||
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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 ☐ | ||
| 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 ☐
At October 28, 2022, 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,” “shall,” “should,” “could,” “intends,” “expects,” “plans,” “goals,” “projects,” “anticipates,” “believes,” “seeks,” “estimates,” “forecasts,” “predicts,” “possible,” “potential,” “target,” 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 March 14, 2022. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all of the risks and uncertainties that could have an impact on the forward-looking statements, including without limitation, risks and uncertainties relating to:
| ● | our ability to manage our growth, including acquiring, partnering with, and effectively integrating 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 and Series B 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 ongoing COVID-19 pandemic and the impact it may have on our operations, the demand for our services, our projected results of operations, financial performance or other financial metrics or any of the foregoing risks and economic activity in general; | |
| ● | our ability to keep and increase market acceptance of our products and services; | |
| ● | changes in domestic and foreign business, market, financial, political and legal conditions; and | |
| ● | other factors disclosed in this Quarterly Report on Form 10-Q or our other filings with the SEC. |
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations, beliefs and views as of the date of this Quarterly Report on Form 10-Q concerning future developments and their potential effects on our business. 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. We anticipate that subsequent events and developments may cause our assessments to change. 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 currently expect. The forward-looking statements contained herein should not be relied upon as representing our assessments as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CARECLOUD, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except share and per share amounts)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (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) | ||||||||
| Deferred payroll taxes | ||||||||
| Notes payable (current portion) | ||||||||
| Contingent consideration (current portion) | ||||||||
| Dividend payable | ||||||||
| Consideration payable | ||||||||
| Total current liabilities | ||||||||
| Notes payable | ||||||||
| Borrowings under line of credit | ||||||||
| Operating lease liability | ||||||||
| Deferred revenue | ||||||||
| Deferred tax liability | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 8) | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $ par value - authorized shares. Series A, issued and outstanding and shares at September 30, 2022 and December 31, 2021, respectively. Series B, issued and outstanding shares at September 30, 2022 | ||||||||
| Common stock, $ par value - authorized shares. Issued and shares at September 30, 2022 and December 31, 2021, respectively. Outstanding and shares at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Less: common shares held in treasury, at cost at September 30, 2022 and December 31, 2021 | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See notes to consolidated financial statements.
| 3 |
CARECLOUD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
($ in thousands, except share and per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| NET REVENUE | $ | $ | $ | $ | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Direct operating costs | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Change in contingent consideration | ( | ) | ( | ) | ||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Net loss on lease termination, impairment and unoccupied lease charges | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| OPERATING INCOME (LOSS) | ( | ) | ||||||||||||||
| OTHER: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense - net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES | ( | ) | ||||||||||||||
| Income tax provision (benefit) | ( | ) | ( | ) | ||||||||||||
| 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 consolidated financial statements.
| 4 |
CARECLOUD, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
($ in thousands)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| NET INCOME (LOSS) | $ | $ | $ | $ | ( | ) | ||||||||||
| OTHER COMPREHENSIVE LOSS, NET OF TAX | ||||||||||||||||
| Foreign currency translation adjustment (a) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | $ | $ | $ | ( | ) | ||||||||||
| (a) |
See notes to consolidated financial statements.
| 5 |
CARECLOUD, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND SEPTEMBER 30, 2021
($ in thousands, except for number of shares)
| Preferred Stock Series A | Preferred Stock Series B | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Treasury (Common) | Total Shareholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Stock | Equity | ||||||||||||||||||||||||||||||||||
| Balance - January 1, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | | |||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Redemption of Series A Preferred Stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Issuance of Series B Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Stock issuance costs | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Balance - April 1, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Redemption of Series A Preferred Stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of Series B Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Stock issuance costs | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Balance - July 1, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | - | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of Series B Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Stock issuance costs | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| 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 | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock issuance costs | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| 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 - 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 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
For all periods presented, the preferred stock dividends were paid monthly at the rate of $2.75 and $2.19 for Series A and Series B, respectively, per share per annum.
See notes to consolidated financial statements.
| 6 |
CARECLOUD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
($ in thousands)
| 2022 | 2021 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Lease amortization | ||||||||
| Deferred revenue | ( | ) | ||||||
| Provision for doubtful accounts | ||||||||
| Provision for deferred income taxes | ||||||||
| Foreign exchange loss (gain) | ( | ) | ||||||
| Interest accretion | ||||||||
| 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 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 | ( | ) | ( | ) | ||||
| Stock issuance costs | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from issuance of Series B Preferred Stock, net of expenses | ||||||||
| Proceeds from issuance of common stock, net of expenses | ||||||||
| Redemption of Series A Preferred Stock | ( | ) | ||||||
| Proceeds from line of credit | ||||||||
| Repayment of line of credit | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ( | ) | ( | ) | ||||
| NET DECREASE IN CASH AND RESTRICTED CASH | ( | ) | ( | ) | ||||
| CASH AND RESTRICTED CASH - Beginning of the period | ||||||||
| CASH AND RESTRICTED CASH - End of the period | $ | $ | ||||||
| SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Preferred stock cancelled in connection with an acquisition | $ | $ | ( | ) | ||||
| Contingent consideration | $ | $ | ||||||
| Dividends declared, not paid | $ | $ | ||||||
| Purchase of prepaid insurance with assumption of note | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION - Cash paid during the period for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
See notes to consolidated financial statements.
| 7 |
CARECLOUD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
AND 2021 (UNAUDITED)
1. ORGANIZATION AND BUSINESS
CareCloud, 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”). Both companies were subsequently merged and the surviving company was renamed Meridian Medical Management, Inc.
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.
2. BASIS OF PRESENTATION
The accompanying unaudited 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 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, 2022, the results of operations for the three and nine months ended September 30, 2022 and 2021 and cash flows for the nine months ended September 30, 2022 and 2021. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
| 8 |
The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 14, 2022.
Recent Accounting Pronouncements — From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently adopted and recently issued accounting pronouncements will not have a material impact on our consolidated financial position, results of operations and cash flows.
In June 2016, the FASB issued ASU 2016-13, including subsequent codification improvements, 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 consolidated financial statements.
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 Company adopted this guidance effective January 1, 2022. There was no impact on the consolidated financial statements as a result of this standard.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments are effective for public business entities for fiscal years beginning after December 15, 2022. The Company is in the process of determining if this update will have a significant impact on its consolidated financial statements.
| 9 |
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 were in the business of providing a broad range of specialty consulting services to hospitals and large healthcare groups, including certain consulting services related to healthcare IT application services and implementations, medical practice management, and revenue cycle management. The acquisition has been accounted for as a business combination.
A summary of the total consideration is as follows:
| 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 purchase price allocation.
| ($ 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 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. 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 $
| 10 |
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 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.
Pro forma financial information (Unaudited)
The
unaudited pro forma information below represents the consolidated results of operations as if the medSR acquisition occurred on January
1, 2021. The pro forma information has been included for comparative purposes and is not indicative of results of operations that the
Company would have had if the acquisition 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 combination. The difference
between the actual revenue and the pro forma revenue is approximately $
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| ($ in thousands, except per share amounts) | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| 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 nine months ended September 30, 2022 and the year ended December 31, 2021:
| Nine Months Ended | Year Ended | |||||||
| September 30, 2022 | December 31, 2021 | |||||||
| ($ in thousands) | ||||||||
| Beginning gross balance | $ | $ | ||||||
| Acquisition, net of adjustments | ||||||||
| Ending gross balance | $ | $ | ||||||
| 11 |
Intangible assets include customer contracts and relationships and covenants not-to-compete acquired in connection with acquisitions, as well as trademarks acquired and software costs. Intangible assets – net as of September 30, 2022, and December 31, 2021 consist of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| ($ in thousands) | ||||||||
| Contracts and relationships acquired | $ | $ | ||||||
| Capitalized software | ||||||||
| Non-compete agreements | ||||||||
| Other intangible assets | ||||||||
| Total intangible assets | ||||||||
| Less: Accumulated amortization | ||||||||
| Intangible assets - net | $ | $ | ||||||
Other
intangible assets primarily represent acquired software and purchased intangibles. Amortization expense was approximately $
As of September 30, 2022, future amortization scheduled to be expensed is as follows:
| Years ending December 31, | ($ in thousands) | |||
| 2022 (three months) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| ($ 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 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
At
September 30, 2022, the unvested equity restricted stock units (“RSUs”) as discussed in Note 12 and unexercised
warrants expiring between October 2022 and September 2023 with exercise prices between $
| 12 |
6. DEBT
SVB
— During October 2017, the Company opened a revolving line of credit with Silicon Valley Bank (“SVB”) under a three-year
agreement. The SVB credit facility is a secured revolving line of credit where borrowings are based on a formula of
In
connection with the original SVB debt agreement, the Company paid SVB approximately $
During January 2022, the agreement with SVB was modified to allow the Company to issue Series B Preferred Stock and pay monthly dividends on this stock, to use a portion of the offering proceeds to redeem a portion of the Series A Preferred Stock that is outstanding and to allow for the potential exchange of shares of Series A Preferred Stock for Series B Preferred Stock.
Vehicle
Financing Notes — The Company financed certain vehicle purchases both in the United States and in Pakistan. The vehicle financing
notes have three to
Insurance
Financing — The Company finances certain insurance purchases over the term of the policy life. The interest rate charged is
currently
7. LEASES
We determine if an arrangement is a lease at inception. We have operating leases for office and temporary living space as well as for some office equipment. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liability and non-current operating lease liability in our consolidated balance sheets as of September 30, 2022 and December 31, 2021. The Company does not have any finance leases.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rates, which are derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our bank financing arrangements, geographical location and collateralization of assets when calculating our incremental borrowing rates.
Our lease terms include options to extend the lease when we believe that we may want the right to exercise that option. Leases with a term of less than 12 months are not recorded in the consolidated balance sheets. Our lease agreements do not contain any residual value guarantees. For real estate leases, we account for the lease and non-lease components as a single lease component. Some leases include escalation clauses and termination options that are factored in the determination of the lease payments when appropriate.
| 13 |
If
a lease is modified after the effective date, the operating lease ROU asset and liability are re-measured using the current incremental
borrowing rate. We review our incremental borrowing rate for our portfolio of leases on a quarterly basis. During the three and nine
months ended September 30, 2022, there were approximately $
During
the three and nine months ended September 30, 2022, a facility lease was terminated in conjunction with the Company ceasing its document
storage services resulting in additional costs of approximately $
During
the third quarter of 2021, the Company decided to terminate one of its leases in Pakistan which expired as of the end of the year. The
Company did not renew this lease and consolidated its employees into the remaining facilities. As a result of the termination, the Company
incurred a loss of approximately $
Lease expense is included in direct operating costs and general and administrative expenses in the consolidated statements of operations based on the nature of the expense. As of September 30, 2022, we had 32 leased properties, five in Medical Practice Management and 27 in Healthcare IT, with remaining terms ranging from less than one year to fourteen years. Our lease terms are determined taking into account lease renewal options, the Company’s anticipated operating plans and leases that are on a month-to-month basis. The Company also has some related party leases – see Note 9.
The components of lease expense were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| ($ 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, 2022 or the beginning of the lease was less than 12 months. Variable lease costs include utilities, real estate taxes and common area maintenance costs.
| 14 |
Supplemental balance sheet information related to leases is as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| ($ 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 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 is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| ($ 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, excluding impairments and terminations | $ | $ | $ | $ | ||||||||||||
Maturities of lease liabilities are as follows:
| Operating leases - Years ending December 31, | ($ in thousands) | |||
| 2022 (three months) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease obligations | ||||
| Less: current obligations | ( | ) | ||
| Long-term lease obligations | $ | |||
| 15 |
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings — On May 30, 2018, the Superior Court of New Jersey, Chancery Division, Somerset County (the “Chancery Court”) denied CareCloud’s and MTBC Acquisition Corp.’s (“MAC’s”) request to enjoin an arbitration proceeding demanded by Randolph Pain Relief and Wellness Center (“RPRWC”) related to RCM services provided by parties unaffiliated with CareCloud or MAC. On June 15, 2018, CareCloud and MAC filed an appeal of the Chancery Court’s decision with the New Jersey Superior Court, Appellate Division. On July 19, 2018, the Chancery Court ordered that the arbitration be stayed pending CareCloud’s and MAC’s appeal. On appeal, CareCloud and MAC contended they were never party to the billing services agreement giving rise to the arbitration claim, did not assume the obligations of Millennium Practice Management Associates, Inc. (“MPMA”) under such agreement, and any agreement to arbitrate disputes arising under such agreement did not apply to CareCloud or MAC as RPRWC terminated the agreement before the applicable asset purchase agreement took effect. On January 30, 2019, the parties conducted oral arguments before the Appellate Division.
On April 23, 2019, the Appellate Division affirmed in part and reversed in part the trial court’s order. The Appellate Division upheld the portion of the trial court’s order requiring MAC to participate in the arbitration based on the trial court’s finding that MAC had assumed MPMA’s contractual responsibilities. The Appellate Division reversed the trial court’s order requiring CareCloud to participate in the arbitration on the grounds that insufficient facts had been provided by RPRWC from which the court could conclude CareCloud was required to participate in the arbitration. As a result, the Appellate Division remanded the issue of whether Company is required to participate in the arbitration back to the trial court for further proceedings.
The
parties completed discovery in the remanded matter on November 29, 2019, and thereafter both CareCloud and RPRWC filed cross-motions
for summary judgment in their favor. On February 6, 2020, the Chancery Court denied RPRWC’s motion for summary judgment and granted
CareCloud’s cross-motion for summary judgment. The Chancery Court held 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. On March 25, 2020, the Chancery Court lifted the stay of arbitration relative to RPRWC and MAC. In
its arbitration demand, RPRWC alleges that MPMA, a subsidiary of MediGain, LLC, breached the terms of the billing services agreement
the parties had entered into and sought compensatory damages of $
On
May 28, 2020, the arbitrator handling the matter conducted a scheduling conference with the parties in order to establish deadlines for
the parties to exchange discovery requests and responses. During the conference, the arbitrator directed RPRWC to produce a statement
of damages on which it bases its claim. RPRWC disclosed its statement of damages to MAC on June 12, 2020. RPRWC’s June 12, 2020
statement of damages increased its alleged damages from $
While
the allegations of breach of contract made by RPRWC are the subject of the ongoing legal proceedings, MAC believes RPRWC’s
allegations lack merit on numerous grounds. MAC continues to vigorously defend against RPRWC’s claim and is currently awaiting
the arbitrator’s ruling. Based on RPRWC’s most recent calculation of its claimed damages, the possible loss arising from
this matter may be between $
From time to time, we may become involved in other legal proceedings arising in the ordinary course of our business. Including the proceeding described above, we are not presently a party to any legal proceedings that, in the opinion of our management, would individually or taken together have a material adverse effect on our business, consolidated results of operations, financial position or cash flows of the Company.
| 16 |
9. RELATED PARTIES
The
Company had sales to a related party, a physician who is the wife of the Executive Chairman. Revenues from this customer were approximately
$
The
Company was a party to a nonexclusive aircraft dry lease agreement with Kashmir Air, Inc. (“KAI”), which was owned by the
Executive Chairman. The Company recorded an expense of approximately $
The
Company leases its corporate offices in New Jersey, its temporary housing for its foreign visitors, a printing and mailing facility and
its backup operations center in Bagh, Pakistan and an apartment for temporary housing in Dubai, the UAE, from the Executive Chairman.
The related party rent expense for the nine months ended September 30, 2022 and 2021 was approximately $
Included
in the ROU asset at September 30, 2022 is approximately $
Included
in the ROU asset at December 31, 2021 is approximately $
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, 2022, talkMD had not yet commenced
operations. Cumulatively, the Company has paid approximately $
| 17 |
10. SHAREHOLDERS’ EQUITY
During
2022, the Company sold shares of
Commencing on February 15, 2024 and prior to February 15, 2025, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $ per share, plus all accrued and unpaid dividends to, but not including, the redemption date. On or after February 15, 2025 and prior to February 15, 2026, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $ per share, plus all accrued and unpaid dividends to, but not including, the redemption date. On or after February 15, 2026 and prior to February 15, 2027, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $ per share, plus all accrued and unpaid dividends to, but not including, the redemption date. On or after February 15, 2027, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $ per share, plus all accrued and unpaid dividends to, but not including, the redemption date.
The
Company has the right to sell up to $
During
the nine months ended September 30, 2021,
11. REVENUE
Introduction
The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers. All revenue is recognized as our performance obligations are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under ASC 606. For revenue cycle management services, the Company recognizes revenue when services begin on medical billing claims, which is generally upon receipt of the claim from the provider. The Company estimates the value of the consideration it will earn over the remaining contractual period as services are provided and recognizes the fees over the term; this estimation involves predicting the amounts our clients will ultimately collect associated with the services they provided. Certain significant estimates, such as payment-to-charge ratios, effective billing rates and the estimated contractual payment periods are required to measure revenue cycle management revenue under the standard.
Most of our current contracts with customers contain a single performance obligation. For contracts where we provide multiple services, such as where we perform multiple ancillary services, each service represents its own performance obligation. The standalone selling prices are based on the contractual price for the service.
We apply the portfolio approach as permitted by ASC 606 as a practical expedient to contracts with similar characteristics and we use estimates and assumptions when accounting for those portfolios. Our contracts generally include standard commercial payment terms. We have no significant obligations for refunds, warranties or similar obligations and our revenue does not include taxes collected from our customers.
| 18 |
Disaggregation of Revenue from Contracts with Customers
We derive revenue from five primary sources: (1) technology-enabled business solutions, (2) professional services, (3) printing and mailing services, (4) group purchasing services and (5) medical practice management services.
The following table represents a disaggregation of revenue for the three and nine months ended September 30:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Healthcare IT: | ||||||||||||||||
| Technology-enabled business solutions | $ | $ | $ | $ | ||||||||||||
| Professional services | ||||||||||||||||
| Printing and mailing services | ||||||||||||||||
| Group purchasing services | ||||||||||||||||