The accompanying unaudited condensed consolidated financial statements have been prepared by MTBC 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 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the Company’s financial position as of June 30, 2014, the results of operations for the three and six months ended June 30, 2014 and 2013 and cash flows for the six months ended June 30, 2014 and 2013.  The results of operations for the three and six months ended June 30, 2014 and 2013 are not necessarily indicative of the results to be expected for the full year. When preparing financial statements in conformity with GAAP, we 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

The condensed consolidated balance sheet as of December 31, 2013 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, 2013, which are included in the Company’s prospectus dated July 22, 2014, filed with the Securities and Exchange Commission (“SEC”) on July 23, 2014.

 

On April 4, 2014, the Company split its common stock 8.65 shares for one. All share and per share amounts have been adjusted for the stock split effective April 4, 2014. All share data information presented within the condensed consolidated financial statements gives effect to the stock split.

Current Business Conditions – For the six months ended June 30, 2014 and the year ended December 31, 2013, the Company incurred an operating loss of $710,525 and $127,516, respectively, a net loss of $673,073 and $177,996, respectively, and the working capital deficiency on June 30, 2014 was approximately $2.5 million. The net loss for the six months ended June 30, 2014 was partially the result of a $183,976 foreign exchange loss (part of other income), and additional salaries and professional fees to prepare for pending growth from three acquisitions that were consummated concurrent with the IPO.

 

The working capital deficiency is primarily the result of the indebtedness incurred in connection with the acquisitions entered into during 2012 and 2013, as well as the $1.9 million of deferred initial public offering costs and $420,000 of expensed professional fees that relate to acquisitions and preparation to become a public company. The Company’s line of credit with TD Bank has a limit of $1.2 million and the Company had no further availability under the line as of June 30, 2014. The line of credit renews annually, and currently matures on November 29, 2014. The Company has received a support letter from the holder of the Company’s convertible note, which demonstrates the investor’s commitment to provide financial support, in the form of purchasing stock, additional convertible notes, or some other instrument, at an interest rate determined by such investor, of up to $1.2 million, if and as needed, to enable by the Company to continue as a going concern until May 31, 2015. The Company’s majority shareholder has also committed, if necessary, to contribute additional capital of up to $400,000. As a result of the completion of the IPO, the Company does not anticipate drawing on these commitments.

 

During the three months ending June 30, 2014, the Company borrowed $165,000 from its majority shareholder, which was subsequently repaid following the closing of the IPO.

 

Initial Public Offering Costs — Initial public offering costs consist primarily of professional fees, principally of legal and accounting costs, and other costs such as printing and registration costs incurred in connection with the IPO. As of June 30, 2014 and December 31, 2013, the Company incurred $1,866,691 and $1,312,850, respectively, of costs directly attributable to the IPO, which have been deferred and recorded in other assets in the condensed consolidated balance sheets as of such dates. The deferred costs will be offset against the offering proceeds in the Company’s financial statements for the period in which the IPO closed. The Company incurred various professional fees of $138,988 and $143,734 during the six months ended June 30, 2014 and 2013, respectively, and $73,394 and $143,734 during the three months ended June 30, 2014 and 2013, respectively, that were not directly attributable to the IPO and were included in general and administrative expenses in the condensed consolidated statements of operations.

 

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 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which contains authoritative guidance that implements a common revenue model that will enhance comparability across industries and require enhanced disclosures. The new standard introduces a five-step principles-based process to determine the timing and amount of revenue ultimately expected to be received by the customer. This amendment will be effective for the Company’s interim and annual consolidated financial statements for fiscal 2018 with either retrospective or modified retrospective treatment applied. The Company is currently evaluating the impact that this guidance may have on the condensed consolidated financial statements upon implementation. Early adoption is not permitted.

 

In July 2013, the FASB issued ASU No. 2013-11, “Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. This amendment clarifies the guidance on the presentation of an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. ASU No. 2013-11 is effective for fiscal periods beginning after December 15, 2013. The Company’s adoption of this guidance did not have a material impact on the condensed consolidated financial statements.

Statement of Cash Flows– Subsequent to the issuance of the condensed consolidated financial statements for the six months ended June 30, 2013, the Company determined that the presentation of IPO-related expenses on the consolidated statement of cash flows for the six months ended June 30, 2013 were incorrectly included in “Net Cash provided by operating activities”. Accordingly, the Company has restated certain amounts in the statement of cash flows for the six months ended June 30, 2013 as follows:

  

Line Item		As Previously Reported			Adjustment			As Restated
Operating activities:
Changes in operating assets and liabilities:
Other assets		$	(182,551)		$	240,000		$	57,449
Net cash provided by operating activities		$	48,618		$	240,000		$	288,618
Financing activities:
IPO-related costs		$	-		$	(240,000)		$	(240,000)
Net cash provided by financing activities		$	627,310		$	(240,000)		$	387,310

 

The Company has evaluated the effect of the incorrect presentation, both quantitatively and qualitatively, and concluded that it does not have a material impact on, or require amendment to, any previously filed financial statements