UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark one)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission
File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
At July 30, 2023, 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 that 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 2, 2023. 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, a division of First-Citizens Bank & Trust Company, 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 Securities and Exchange Commission (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)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable - net | ||||||||
| 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) | ||||||||
| Notes payable (current portion) | ||||||||
| Dividend 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 7) | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $ par value - authorized shares. Series A, issued and outstanding shares at June 30, 2023 and December 31, 2022. Series B, issued and outstanding and shares at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Common stock, $ par value - authorized shares. Issued and shares at June 30, 2023 and December 31, 2022, respectively. Outstanding and shares at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Less: common shares held in treasury, at cost at June 30, 2023 and December 31, 2022 | ( | ) | ( | ) | ||||
| 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 | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 terminations and unoccupied lease charges | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| OPERATING (LOSS) INCOME | ( | ) | ( | ) | ||||||||||||
| OTHER: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income - net | ( | ) | ( | ) | ||||||||||||
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||||||||||
| Income tax provision | ||||||||||||||||
| NET (LOSS) INCOME | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| 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 (LOSS) INCOME (UNAUDITED)
($ in thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| NET (LOSS) INCOME | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | ||||||||||||||||
| Foreign currency translation adjustment (a) | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE (LOSS) INCOME | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| (a) |
See notes to consolidated financial statements.
| 5 |
CARECLOUD, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND JUNE 30, 2022
($ 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, 2023 before adoption of ASC 326 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Cumulative effect of adopting ASC 326 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - January 1, 2023 after adoption | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series B Preferred Stock | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Balance - April 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | - | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| 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 | $ | | $ | | $ | | $ | | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
For all periods presented, the preferred stock dividends were paid monthly at the rate of $ and $ 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 SIX MONTHS ENDED JUNE 30, 2023 AND 2022
($ in thousands)
| 2023 | 2022 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income 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 | ||||||||
| Gain on sale of assets | ( | ) | ||||||
| Stock-based compensation expense | ||||||||
| Change in contingent consideration | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract asset | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable and other liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Capitalized software | ( | ) | ( | ) | ||||
| 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 | ( | ) | ( | ) | ||||
| Stock issuance costs | ( | ) | ||||||
| Proceeds from issuance of Series B Preferred Stock, net of expenses | ||||||||
| Redemption of Series A Preferred Stock | ( | ) | ||||||
| Proceeds from line of credit | ||||||||
| Repayment of line of credit | ( | ) | ( | ) | ||||
| Net cash used in 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: | ||||||||
| Dividends declared, not paid | $ | $ | ||||||
| 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 SIX MONTHS ENDED JUNE 30, 2023
AND 2022 (UNAUDITED)
1. ORGANIZATION AND BUSINESS
CareCloud, Inc., (together with its consolidated subsidiaries, “CareCloud,” the “Company,” “we,” “us” and/or “our”) is a leading provider of technology-enabled services and solutions that redefine the healthcare revenue cycle. We provide technology-enabled revenue cycle management and a full suite of proprietary cloud-based solutions to healthcare providers, from small practices to enterprise medical groups, hospitals, and health systems throughout the United States. Healthcare organizations today operate in highly complex and regulated environments. Our suite of technology-enabled solutions helps our clients increase financial and operational performance, streamline clinical workflows, and improve the patient experience.
Our portfolio of proprietary software and business services includes: technology-enabled business solutions that maximize revenue cycle management and create efficiencies through platform agnostic AI-driven applications; cloud-based software that helps providers manage their practice and patient engagement while leveraging analytics to improve provider performance; digital health services to address value-based care and enable the delivery of remote patient care; healthcare IT professional services & staffing to address physician burnout, staffing shortages and leverage consulting expertise to transition into the next generation of healthcare; and, medical practice management services to assist medical providers with operating models and the tools needed to run their practice.
Our high-value business services, such as revenue cycle management, are often paired with our cloud-based software, premiere healthcare consulting and implementation services, and on-demand workforce staffing capabilities for high-performance medical groups and health systems nationwide.
CareCloud has its corporate office 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. During the second quarter of 2023, the Company formed a wholly owned subsidiary, CareCloud ME Health Consultancy LLC, in the United Arab Emirates, which has not yet begun operations.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES
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 June 30, 2023, the results of operations for the three and six months ended June 30, 2023 and 2022 and cash flows for the six months ended June 30, 2023 and 2022. 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.
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, 2022, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 2, 2023.
Significant Accounting Policies — During the six months ended June 30, 2023, there were no changes to the Company’s significant accounting policies, other than the adoption of ASU 2016-13 discussed below, from its disclosures in the Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 2, 2023.
| 8 |
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, 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 adopted this guidance on January 1, 2023 using a modified retrospective adoption
methodology, whereby the cumulative impact of all prior periods is recorded in accumulated deficit or other impacted balance sheet items
upon adoption. The impact to the accumulated deficit as of January 1, 2023 for the allowance related to accounts receivable was a charge
of approximately $
In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements – Issue 2. The amendments in this update require that leasehold improvements associated with common control leases be: (1) amortized by the lessee over the useful life of the leasehold improvements to the common control group as long as the lessee controls the use of the underlying asset through a lease and (2) accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The amendments in this update are effective for fiscal years beginning after December 15, 2023. The Company does not expect this update to have a material impact on the consolidated financial statements.
3. GOODWILL AND INTANGIBLE ASSETS-NET
The following is the summary of the carrying amount of goodwill for the six months ended June 30, 2023 and the year ended December 31, 2022:
| Six Months Ended | Year Ended | |||||||
June 30, 2023 | December 31, 2022 | |||||||
| ($ in thousands) | ||||||||
| Beginning gross balance | $ | $ | ||||||
| Acquisitions | ||||||||
| Ending gross balance | $ | $ | ||||||
Intangible assets – net as of June 30, 2023 and December 31, 2022 consist of the following:
| June 30, 2023 | December 31, 2022 | |||||||
| ($ in thousands) | ||||||||
| Contracts and relationships acquired | $ | $ | ||||||
| Capitalized software | ||||||||
| Non-compete agreements | ||||||||
| Other intangible assets | ||||||||
| Total intangible assets | ||||||||
| Less: Accumulated amortization | ||||||||
| Intangible assets - net | $ | $ | ||||||
| 9 |
Capitalized
software represents payroll and development costs incurred for internally developed software. Other intangible assets primarily represent
purchased intangibles. Amortization expense was approximately $
As of June 30, 2023, future amortization scheduled to be expensed is as follows:
| Years ending December 31, | ($ in thousands) | |||
| 2023 (six months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ | |||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| ($ 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
June 30, 2023, the unvested equity restricted stock units (“RSUs”) as discussed in Note 11 and unexercised
warrants expiring between July 2023 and September 2023 with exercise prices between $
5. DEBT
Bank
Debt —The Company has a revolving line of credit with Silicon Valley Bank (“SVB”). The Company’s credit facility
is a secured revolving line of credit where borrowings are based on a formula of
As
of June 30, 2023 and December 31, 2022, there was $
| 10 |
In
connection with the original SVB debt agreement, the Company paid SVB approximately $
During March 2023, SVB became a division of First-Citizens Bank & Trust Company. The agreements that governed the former SVB relationship remain in place. There was no change to the terms of the credit agreement.
The
Company maintains cash balances at SVB in excess of the FDIC insurance coverage limits. The Company performs periodic evaluations of
the relative credit standing of this financial institution to ensure its credit worthiness. As of June 30, 2023 and December 31, 2022,
the Company held cash of approximately $
Vehicle
Financing Notes — The Company financed certain vehicle purchases in the United States. The vehicle financing notes have
Insurance
Financing — The Company finances certain insurance purchases over the term of the policy life. The interest rate charged is
currently
6. 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 June 30, 2023 and December 31, 2022. The Company does not have any finance leases.
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. We review our incremental borrowing rate on a quarterly basis.
Our
lease terms include options to extend the lease when we believe that we may want the right to exercise that option.
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. During the three and six months ended June 30, 2023, there were approximately $
| 11 |
During
the six months ended June 30, 2023, the Miami office lease that we assumed in connection with an acquisition ended, and we entered into
a new lease arrangement with the landlord for significantly less office space. Charges of approximately $
Lease expense is included in direct operating costs, general and administrative expense, selling and marketing expense and research and development expense in the consolidated statements of operations based on the nature of the expense. 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 8.
The components of lease expense were as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| ($ 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, 2023 or the beginning of the lease was less than 12 months. Variable lease costs include utilities, real estate taxes and common area maintenance costs.
Supplemental balance sheet information related to leases is as follows:
June 30, 2023 | December 31, 2022 | |||||||
| ($ 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 | % | % | ||||||
| 12 |
Supplemental cash flow and other information related to leases is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||