UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

[X]☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017March 31, 2022

or

[  ]☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36529

MEDICAL TRANSCRIPTION BILLING, CORP.

CareCloud, Inc.

(Exact name of registrant as specified in its charter)

Delaware22-3832302

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

7 Clyde Road

Somerset, New Jersey

08873

(Address of principal executive offices)(Zip Code)

(732) 873-5133

(Registrant’s telephone number, including area code)

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

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

MTBCP

Nasdaq Global Market

8.75% Series B Cumulative Redeemable Perpetual Preferred Stock, par value $0.001 per share

MTBCO

Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X]☒ No [  ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer[   ]☐Accelerated filer[   ]☒
Non-AcceleratedNon-accelerated filer[  ]☐ (Do not check if a smaller reporting company)Smaller reporting company [X]☒
Emerging growth company [X]☐

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 7(a)(2)(B)13(a) of the SecuritiesExchange Act. [X]☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] ☐No [X]☒

At November 1, 2017,May 2, 2022, the registrant had 11,530,591 15,066,103 shares of common stock, par value $0.001 per share, outstanding.

 

 

 

INDEX

INDEX

Page
Forward-Looking Statements2
Forward Looking Statements2
PART I. FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements (unaudited)(Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2017March 31, 2022 and December 31, 201620213
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2022 and 201620214
Condensed Consolidated Statements of Comprehensive LossIncome (Loss) for the three and nine months ended September 30, 2017March 31, 2022 and 201620215
Condensed Consolidated StatementStatements of Shareholders’ Equity for the ninethree months ended September 30, 2017March 31, 2022 and 20216
Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2022 and 201620217
Notes to Condensed Consolidated Financial Statements8
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1825
Item 3.Quantitative and Qualitative Disclosures Aboutabout Market Risk2936
Item 4.Controls and Procedures2936
PART II. OTHER INFORMATION
Item 1.Legal Proceedings3138
Item 1A.Risk Factors3138
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds3138
Item 3.Defaults Upon Senior Securities3138
Item 4.Mine Safety Disclosures3138
Item 5.Other Information3138
Item 6.Exhibits3239
Signatures3240

1

 

Forward LookingForward-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“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 among other things, relate to our business strategy, goals and expectations concerning our products,anticipated future events, future results of operations prospects, plans and objectives of management. The words “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will” and similar terms and phrases are used toor future financial performance. In some cases, you can identify forward-looking statements in this presentation.by terminology such as “may,” “might,” “will,” “should,” “intends,” “expects,” “plans,” “goals,” “projects,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Our operations involve risks and uncertainties, many of which are outside of our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements reflecting management’s expectations for future financial performance and operating expenditures (including our ability to continue as a going concern, to raise additional capital and to succeed in our future operations), expected growth, profitability and business outlook, increased sales and marketing expenses, and the expected results from the integration of our acquisitions.

Forward-looking statements are only current predictions, are uncertain and are subject toinvolve substantial known and unknown risks, uncertainties, and other factors thatwhich may cause our (or our industry’s) actual results, levels of activity performance, or achievementsperformance to be materially different from those anticipatedany future results, levels of activity or performance expressed or implied by suchthese 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 lookingforward-looking statements as set forth under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 31, 2017.14, 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;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 retainpay our clients and revenue levels, including effectively migrating and keeping new clients acquired through business acquisitions and maintaining or growingmonthly preferred dividends to the revenue levelsholders of our newSeries A and existing clients;Series B preferred stock;
●our ability to attract and retain key officers and employees, including Mahmud Haq and other personnel critical to growing our business and integrating of our newly acquired businesses;
●our ability to raise capital and obtain and maintain financing on acceptable terms;
●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 maintainrespond to the uncertainty resulting from the ongoing COVID-19 pandemic and the impact it may have on our operations, the demand for our services, and economic activity in Pakistangeneral; and Sri Lanka in a manner that continues to enable us to offer competitively priced products and services;
●our ability to keep and increase market acceptance of our 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 and laws;
●our ability to protect and enforce intellectual property rights; and
●our ability to maintain and protect the privacy of client and patient information.services.

Although we believe that the expectations reflected in the forward-looking statements contained in this Quarterly Report on Form 10-Q are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we are under no duty to update or revise any of such forward-looking statements, whether as a result of new information, future events, or otherwise, after the date of this Quarterly Report on Form 10-Q.

 

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

All references to “MTBC,” “Medical Transcription Billing, Corp.,” “we,” “us,” “our” or the “Company” mean Medical Transcription Billing, Corp. and its subsidiaries, except where it is made clear that the term means only the parent company.

2

 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

MEDICAL TRANSCRIPTION BILLING, CORP.CARECLOUD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

  September 30,  December 31, 
  2017  2016 
  (Unaudited)    
ASSETS      
CURRENT ASSETS:        
Cash $2,789,382  $3,476,880 
Accounts receivable - net of allowance for doubtful accounts of $268,000 and $156,000 at September 30, 2017 and December 31, 2016, respectively  3,535,673   4,330,901 
Current assets - related party  25,203   13,200 
Prepaid expenses and other current assets  758,785   618,501 
Total current assets  7,109,043   8,439,482 
Property and equipment - net  1,424,732   1,588,937 
Intangible assets - net  2,997,211   5,833,706 
Goodwill  12,263,943   12,178,868 
Other assets  152,712   282,713 
TOTAL ASSETS $23,947,641  $28,323,706 
LIABILITIES AND SHAREHOLDERS' EQUITY        
CURRENT LIABILITIES:        
Accounts payable $1,017,774  $1,905,131 
Accrued compensation  848,571   2,009,911 
Accrued expenses  758,357   1,236,609 
Deferred rent (current portion)  79,150   61,437 
Deferred revenue (current portion)  52,145   41,666 
Accrued liability to related party  16,614   16,626 
Borrowings under line of credit  2,000,000   2,000,000 
Current portion of long-term debt  -   2,666,667 
Notes payable - other (current portion)  246,603   5,181,459 
Contingent consideration (current portion)  537,736   535,477 
Dividend payable  638,905   202,579 
Total current liabilities  6,195,855   15,857,562 
Long - term debt, net of discount and debt issuance costs  -   4,033,668 
Notes payable - other  137,550   166,184 
Deferred rent  371,273   433,186 
Deferred revenue  30,001   26,673 
Contingent consideration  131,957   394,072 
Deferred tax liability  510,530   345,530 
Total liabilities  7,377,166   21,256,875 
COMMITMENTS AND CONTINGENCIES (Note 8)        
SHAREHOLDERS' EQUITY:        
Preferred stock, par value $0.001 per share - authorized 2,000,000 shares; issued and outstanding 929,299 and 294,656 shares at September 30, 2017 and December 31, 2016, respectively  929   295 
Common stock, $0.001 par value - authorized 19,000,000 shares; issued 12,271,390 and 10,792,352 shares at September 30, 2017 and December 31, 2016, respectively; outstanding, 11,530,591 and 10,051,553 shares at September 30, 2017 and December 31, 2016, respectively  12,272   10,793 
Additional paid-in capital  40,985,992   26,038,063 
Accumulated deficit  (23,325,897)  (17,944,230)
Accumulated other comprehensive loss  (440,821)  (376,090)
Less: 740,799 common shares held in treasury, at cost at September 30, 2017 and December 31, 2016  (662,000)  (662,000)
Total shareholders' equity  16,570,475   7,066,831 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $23,947,641  $28,323,706 

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

  March 31,  December 31, 
  2022  2021 
  (Unaudited)    
ASSETS        
Current assets:        
Cash $9,136  $9,340 
Restricted cash  1,000   1,000 
Accounts receivable - net of allowance for doubtful accounts of $490 and $537 at March 31, 2022 and December 31, 2021, respectively  18,493   17,006 
Contract asset  4,645   4,725 
Inventory  417   503 
Current assets - related party  16   13 
Prepaid expenses and other current assets  3,050   2,972 
Total current assets  36,757   35,559 
Property and equipment - net  5,396   5,404 
Operating lease right-of-use assets  6,507   6,940 
Intangible assets - net  30,487   30,778 
Goodwill  61,186   61,186 
Other assets  882   981 
TOTAL ASSETS $141,215  $140,848 
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable $5,833  $5,948 
Accrued compensation  2,857   4,251 
Accrued expenses  5,998   5,091 
Operating lease liability (current portion)  3,803   3,963 
Deferred revenue (current portion)  1,140   1,085 
Deferred payroll taxes  934   934 
Notes payable (current portion)  95   344 
Contingent consideration (current portion)  2,490   3,090 
Dividend payable  3,950   3,856 
Consideration payable  1,000   1,000 
Total current liabilities  28,100   29,562 
Notes payable  18   20 
Borrowings under line of credit  6,000   8,000 
Operating lease liability  3,929   4,545 
Deferred revenue  390   341 
Deferred tax liability  485   449 
Total liabilities  38,922   42,917 
COMMITMENTS AND CONTINGENCIES (NOTE 8)  —  — 
SHAREHOLDERS’ EQUITY:        
Preferred stock $0.001 par value - authorized 7,000,000 shares. Series A, issued and outstanding 4,521,546 and 5,299,227 shares at March 31, 2022 and December 31, 2021, respectively. Series B, issued and outstanding 1,150,372 shares at March 31, 2022  6   5 
Common stock, $0.001 par value - authorized 29,000,000 shares. Issued 15,803,450 and 15,657,641 shares at March 31, 2022 and December 31, 2021, respectively. Outstanding 15,062,651 and 14,916,842 shares at March 31, 2022 and December 31, 2021, respectively.  16   16 
Additional paid-in capital  134,855   131,379 
Accumulated deficit  (29,913)  (31,053)
Accumulated other comprehensive loss  (2,009)  (1,754)
Less: 740,799 common shares held in treasury, at cost at March 31, 2022 and December 31, 2021  (662)  (662)
Total shareholders’ equity  102,293   97,931 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $141,215  $140,848 

See notes to condensed consolidated financial statements.

3

 

MEDICAL TRANSCRIPTION BILLING, CORP.CARECLOUD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

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

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
NET REVENUE $7,513,592  $5,341,002  $23,518,416  $15,663,687 
OPERATING EXPENSES:                
Direct operating costs  4,171,932   2,670,385   13,592,492   7,292,415 
Selling and marketing  228,991   274,796   853,460   838,721 
General and administrative  2,474,139   2,569,399   8,232,613   8,173,272 
Research and development  249,045   174,876   843,294   575,059 
Change in contingent consideration  -   (196,882)  151,423   (607,978)
Depreciation and amortization  664,441   1,118,282   3,637,131   3,536,940 
Restructuring charges  -   -   275,628   - 
Total operating expenses  7,788,548   6,610,856   27,586,041   19,808,429 
OPERATING LOSS  (274,956)  (1,269,854)  (4,067,625)  (4,144,742)
OTHER:                
Interest income  5,446   10,918   13,598   25,310 
Interest expense  (678,103)  (176,527)  (1,242,672)  (486,481)
Other income (expense) - net  32,494   (13,933)  107,364   (40,447)
LOSS BEFORE INCOME TAXES  (915,119)  (1,449,396)  (5,189,335)  (4,646,360)
Income tax provision  65,000   45,309   192,332   126,236 
NET LOSS $(980,119) $(1,494,705) $(5,381,667) $(4,772,596)
                 
Preferred stock dividend  652,697   231,473   1,283,151   549,945 
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $(1,632,816) $(1,726,178) $(6,664,818) $(5,322,541)
Loss per common share:                
Basic and diluted loss per share $(0.14) $(0.17) $(0.62) $(0.53)
Weighted-average basic and diluted shares outstanding  11,485,811   10,006,121   10,835,142   10,031,212 

  2022  2021 
  March 31, 
  2022  2021 
NET REVENUE $35,341  $29,768 
OPERATING EXPENSES:        
Direct operating costs  22,673   18,060 
Selling and marketing  2,384   1,890 
General and administrative  5,585   5,624 
Research and development  985   2,026 
Change in contingent consideration  (600)  — 
Depreciation and amortization  2,940   2,831 
Net loss on lease termination, impairment and unoccupied lease charges  158   1,018 
Total operating expenses  34,125   31,449 
OPERATING INCOME (LOSS)  1,216   (1,681)
OTHER:        
Interest income  5   15 
Interest expense  (100)  (79)
Other income (expense) - net  83   (220)
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES  1,204   (1,965)
Income tax provision (benefit)  64   (1)
NET INCOME (LOSS) $1,140  $(1,964)
         
Preferred stock dividend  4,037   3,128 
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $(2,897) $(5,092)
         
Net loss per common share: basic and diluted $(0.19) $(0.36)
Weighted-average common shares used to compute basic and diluted loss per share  14,992,147   14,084,749 

See notes to condensed consolidated financial statements.

4

 

MEDICAL TRANSCRIPTION BILLING, CORP.CARECLOUD, INC.

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

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
NET LOSS $(980,119) $(1,494,705) $(5,381,667) $(4,772,596)
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX                
Foreign currency translation adjustment (a)  (33,880)  1,489   (64,731)  12,305 
COMPREHENSIVE LOSS $(1,013,999) $(1,493,216) $(5,446,398) $(4,760,291)

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

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

  2022  2021 
  March 31, 
  2022  2021 
NET INCOME (LOSS) $1,140  $(1,964)
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX        
Foreign currency translation adjustment (a)  (255)  345 
COMPREHENSIVE INCOME (LOSS) $885  $(1,619)

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

See notes to condensed consolidated financial statements.

5

 

MEDICAL TRANSCRIPTION BILLING, CORP.CARECLOUD, INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF SHAREHOLDERS'SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2022 AND MARCH 31, 2021

($ in thousands, except for number of shares)

 Preferred Stock  Common Stock  Additional Paid-in  Accumulated  Accumulated Other Comprehensive  Treasury (Common)  Total Shareholders' 
 Shares Amount  Shares Amount  Capital  Deficit  Loss  Stock  Equity 
Balance - January 1, 2017  294,656  $295   10,792,352  $10,793  $26,038,063  $(17,944,230) $(376,090) $(662,000) $7,066,831 
Net loss  -   -   -   -   -   (5,381,667)  -   -   (5,381,667)
Foreign currency translation adjustment  -   -   -   -   -   -   (64,731)  -   (64,731)
Issuance of stock under the Amended and Restated Equity Incentive Plan  24,750   25   266,663   267   (267)  -   -   -   25 
Stock-based compensation, net of cash settlements  -   -   -   -   907,160   -   -   -   907,160 
Issuance of common stock, net of fees and expenses  -   -   1,000,000   1,000   1,971,065   -   -   -   1,972,065 
Issuance of common stock held as contingent consideration  -   -   212,375   212   331,464   -   -   -   331,676 
Issuance of preferred stock, net of fees and expenses  609,893   609   -   -   13,021,658   -   -   -   13,022,267 
Preferred stock dividends  -   -   -   -   (1,283,151)  -   -   -   (1,283,151)
Balance - September 30, 2017  929,299  $929   12,271,390  $12,272  $40,985,992  $(23,325,897) $(440,821) $(662,000) $16,570,475 

                                  
  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  5,299,227  $       5   —  $—   15,657,641  $16  $131,379  $(31,053) $(1,754) $(662) $97,931 
Net income  —   —   —   —   —   —   —   1,140   —   —   1,140 
Foreign currency translation adjustment  —   —   —   —   —   —   —   —   (255)  —   (255)
Issuance of stock under the equity incentive plan  22,319   —   —   —   145,809   —   —   —   —   —   — 
Stock-based compensation, net of cash settlements  —   —   —   —   —   —   887   —   —   —   887 
Redemption of Series A Preferred Stock  (800,000)  —   —   —   —   —   (20,000)  —   —   —   (20,000)
Issuance of Series B Preferred Stock  —   —   1,150,372   1   —   —   26,637   —   —   —   26,638 
Stock issuance costs  —   —   —   —   —   —   (11)  —   —   —   (11)
Preferred stock dividends  —   —   —   —   —   —   (4,037)  —   —   —   (4,037)
Balance - March 31, 2022  4,521,546  $5   1,150,372  $1   15,803,450  $16  $134,855  $(29,913) $(2,009) $(662) $102,293 
                                            
Balance - January 1, 2021  5,475,279  $5   —  $—   14,121,044  $14  $136,781  $(33,889) $(1,004) $(662) $101,245 
Balance  5,475,279  $5   —  $—   14,121,044  $14  $136,781  $(33,889) $(1,004) $(662) $101,245 
Net loss  —   —   —   —   —   —   —   (1,964)  —   —   (1,964)
Net income (loss)  —   —   —   —   —   —   —   (1,964)  —   —   (1,964)
Foreign currency translation adjustment  —   —   —   —   —   —   —   —   345   —   345 
Issuance of stock under the equity incentive plan  27,682   1   —   —   161,545   —   (1)  —   —   —   — 
Stock-based compensation, net of cash settlements  —   —   —   —   —   —   623   —   —   —   623 
Stock issuance costs  —   —   —   —   —   —   (43)  —   —   —   (43)
Exercise of common stock warrants  —   —   —   —   858,000   1   6,434   —   —   —   6,435 
Preferred stock dividends  —   —   —   —   —   —   (3,128)  —   —   —   (3,128)
Balance - March 31, 2021  5,502,961  $6   —  $—   15,140,589  $15  $140,666  $(35,853) $(659) $(662) $103,513 
Balance  5,502,961  $6   —  $—   15,140,589  $15  $140,666  $(35,853) $(659) $(662) $103,513 

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 condensed consolidated financial statements.

6

 

MEDICAL TRANSCRIPTION BILLING, CORP.CARECLOUD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2022 AND 20162021

  2017  2016 
OPERATING ACTIVITIES:        
Net loss $(5,381,667) $(4,772,596)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  3,637,131   3,536,940 
Deferred rent  (38,544)  (28,032)
Deferred revenue  13,807   (32,912)
Provision for doubtful accounts  357,671   205,289 
Provision for deferred income taxes  165,000   114,893 
Foreign exchange (gain) loss  (27,145)  72,360 
Interest accretion and write-off of deferred financing costs  672,998   145,038 
Non-cash restructuring charges  17,001   - 
Stock-based compensation expense  333,854   765,595 
Change in contingent consideration  151,423   (607,978)
Acquisition settlements  -   (26,296)
Changes in operating assets and liabilities:        
Accounts receivable  437,557   (160,523)
Other assets  107,532   211,651 
Accounts payable and other liabilities  (1,754,255)  90,843 
Net cash used in operating activities  (1,307,637)  (485,728)
INVESTING ACTIVITIES:        
Capital expenditures  (499,988)  (319,870)
Cash paid for acquisitions  (205,000)  (1,425,000)
Net cash used in investing activities  (704,988)  (1,744,870)
FINANCING ACTIVITIES:        
Contingent consideration payments  (79,603)  (153,799)
Settlement of tax withholding obligations on stock issued to employees  (195,912)  (8,500)
Proceeds from issuance of common stock, net of placement costs  2,000,000   - 
Proceeds from issuance of preferred stock, net of placement costs  13,484,552   1,270,528 
Proceeds from long term debt, net of costs  -   1,908,141 
Repayments of debt obligations  (7,626,088)  (554,002)
Repayment of Prudential obligation  (5,000,000)  - 
Proceeds from line of credit  7,000,000   6,000,000 
Repayments of line of credit  (7,000,000)  (6,000,000)
Payment of registration statement and bank costs  (335,239)  (119,406)
Preferred stock dividends paid  (846,825)  (506,603)
Purchase of common shares  -   (546,145)
Net cash provided by financing activities  1,400,885   1,290,214 
EFFECT OF EXCHANGE RATE CHANGES ON CASH  (75,758)  11,317 
NET DECREASE IN CASH  (687,498)  (929,067)
CASH - Beginning of the period  3,476,880   8,039,562 
CASH - End of period $2,789,382  $7,110,495 
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:        
Vehicle financing obtained $30,746  $189,725 
Contingent consideration resulting from acquisitions $-  $678,368 
Dividends declared, not paid $638,905  $202,578 
Purchase of prepaid insurance through assumption of note $298,698  $313,577 
SUPPLEMENTAL INFORMATION - Cash paid during the period for:        
Income taxes $9,513  $32,816 
Interest $599,950  $321,530 

($ in thousands)

  March 31, 
  2022  2021 
OPERATING ACTIVITIES:        
Net income (loss) $1,140  $(1,964)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation and amortization  3,080   2,945 
Lease amortization  832   728 
Deferred revenue  104   32 
Provision for doubtful accounts  131   192 
Provision (benefit) for deferred income taxes  36   (36)
Foreign exchange (gain) loss  (52)  143 
Interest accretion  168   139 
Gain on sale of assets  (6)  — 
Stock-based compensation expense  887   1,267 
Change in contingent consideration  (600)  — 
Changes in operating assets and liabilities, net of businesses acquired:        
Accounts receivable  (1,618)  (522)
Contract asset  80   (270)
Inventory  86   20 
Other assets  (97)  (10)
Accounts payable and other liabilities  (1,084)  (1,706)
Net cash provided by operating activities  3,087   958 
INVESTING ACTIVITIES:        
Purchase of property and equipment  (544)  (695)
Capitalized software  (2,253)  (1,524)
Net cash used in investing activities  (2,797)  (2,219)
FINANCING ACTIVITIES:        
Preferred stock dividends paid  (3,943)  (3,592)
Settlement of tax withholding obligations on stock issued to employees  (775)  (1,402)
Repayments of notes payable, net  (251)  (241)
Stock issuance costs  (11)  (43)
Proceeds from exercise of warrants  —   6,435 
Proceeds from issuance of Series B Preferred Stock, net of expenses  26,638   — 
Redemption of Series A Preferred Stock  (20,000)  — 
Proceeds from line of credit  8,500   — 
Repayment of line of credit  (10,500)  — 
Net cash (used in) provided by financing activities  (342)  1,157 
EFFECT OF EXCHANGE RATE CHANGES ON CASH  (152)  174 
NET (DECREASE) INCREASE IN CASH  (204)  70 
CASH AND RESTRICTED CASH - Beginning of the period  10,340   20,925 
CASH AND RESTRICTED CASH - End of the period $10,136  $20,995 
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:        
Dividends declared, not paid $3,950  $3,777 
SUPPLEMENTAL INFORMATION - Cash paid during the period for:        
Income taxes $—  $59 
Interest $40  $16 

See notes to condensed consolidated financial statements.

7

 

MEDICAL TRANSCRIPTION BILLING, CORP.CARECLOUD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 MARCH 31, 2022

AND 20162021 (UNAUDITED)

1. OrganizationORGANIZATION AND BUSINESS

CareCloud, Inc., formerly MTBC, Inc. (“CareCloud”, and Business

Medical Transcription Billing, Corp. (and together with its consolidated subsidiaries, “MTBC” the “Company,” “we,” “us” and/or the “Company”“our”) is a healthcare information technology company that offers an integratedprovides a full suite of proprietary cloud-based electronic health records and practice management solutions, together with related business services, to healthcare providers.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. The Company’s services include full-scaleOur Software-as-a-Service (“SaaS”) platform includes revenue cycle management (“RCM”), practice management (“PM”), electronic health records,record (“EHR”), business intelligence, telehealth, patient experience management (“PXM”) solutions and other technology-driven practice managementcomplementary software tools and business services for privatehigh-performance medical groups and hospital-employed healthcare providers. MTBChealth systems. CareCloud has its corporate offices in Somerset, New Jersey and maintains account managementclient support teams in various USthroughout the U.S., and offshore offices and operates facilities in Pakistan and Azad Jammu and Kashmir, a region administered by Pakistan (the “Pakistan Offices”), and in Sri Lanka.

MTBCCareCloud 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, MTBCthe Company formed MTBC Private Limited (or “MTBC Pvt. Ltd.”), a 99.9%99.9% majority-owned subsidiary of MTBCCareCloud based in Pakistan. The remaining 0.01%0.1% of the shares of MTBC Pvt. Ltd. is owned by the founder and Chief Executive OfficerChairman of MTBC. MTBC formed MTBC-Europe Sp. z.o.o. (or “MTBC-Europe”), a wholly-owned subsidiary of MTBC based in Poland in 2015.CareCloud. In 2016, MTBCthe Company formed MTBC Acquisition Corp. (“MAC”), a Delaware corporation, in connection with its acquisition of substantially all of the assets of MediGain, LLC and its subsidiary, Millennium Practice Management Associates, LLC (together “MediGain)“MediGain”). MAC has a wholly-ownedwholly owned subsidiary in Sri Lanka, RCM MediGain Colombo, Pvt. Ltd. In conjunction withMay 2018, the Company formed CareCloud Practice Management, Corp. (“CPM”), a Delaware corporation, to operate the medical practice management business acquired from Orion Healthcorp.

In January 2020, the Company purchased CareCloud Corporation, a company whose name we took. That company is now known as CareCloud Health, Inc. (“CCH”). In June 2020, the Company purchased Meridian Billing Management Co. and its continued growthaffiliate Origin Holdings, Inc. (collectively “Meridian” and sometimes referred to as “Meridian Medical Management”).

During March 2021, the Company formed a new wholly-owned subsidiary, CareCloud Acquisition, Corp. (“CAC”). In June 2021, CAC purchased certain assets and assumed certain liabilities of its offshore operations in PakistanMedMatica Consulting Associates Inc., (“MedMatica”) and Sri Lanka, in April 2017, MTBC beganpurchased the winding downstock of its operations in IndiaSanta Rosa Staffing, Inc., (“SRS”). The assets and Poland. These operations have been terminatedliabilities of MedMatica were merged into SRS and the subsidiaries are being liquidated.company was renamed medSR, Inc. (“medSR”). See Note 3.

2. Liquidity

The Company previously adopted FASB Accounting Standard Codification (“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern, which requires that management evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued. Based upon the analysis set forth below, management believes there is no longer substantial doubt about the Company’s ability to continue as a going concern and to meet the obligations as they become due within the next twelve months.

As part of the evaluation, management considered that on September 30, 2017, the Company had$2.8 millionof cash and had positive working capital of $913,000. The loss before income taxes was$915,000for the three months ended September 30, 2017, of which$664,000represents non-cash depreciation and amortization and$463,000 of non-cash financing costs, which were written off as a result of the termination of the Opus Bank (“Opus”) credit agreement.

During the second and third quarter of 2017, the Company raised a total of$15.0 millionin net proceeds from a series of equity financings. In May 2017, the Company completed a registered direct offering of one million shares of its common stock at $2.30 per share, raising net proceeds of approximately $2.0 million. Between June and September 2017, the Company completed five public offerings of approximately 610,000 shares of its 11% Series A Cumulative Redeemable Perpetual Preferred Stock (the “Preferred Stock”) at $25.00 per share, raising net proceeds of approximately$13.0 million.

8

These equity financings improved the financial position of the Company and allowed us to repay the amount owed to Prudential during the third quarter. As a result of the common and preferred stock offerings, the Company’s cash position and the working capital deficit at the end of the second quarter improved to positive net working capital of$913,000at the end of the third quarter. At September 30, 2017, the total amount outstanding under the Opus credit line was $2 million and the Company has$2.8 millionof cash. In October 2017, the Company entered into a new credit facility with Silicon Valley Bank (“SVB”) and repaid and terminated its previous facility with Opus. The SVB credit facility is a $5 million secured revolving line of credit where borrowings are based on a formula of 200% of repeatable revenue adjusted by an annualized attrition rate as defined in the credit facility agreement. Under the SVB credit facility agreement, the facility currently available to the Company is in excess of $4 million. Management continues to focus on the Company’s overall profitability, including growing revenue and managing expenses, and expects that these efforts will continue to enhance our liquidity and financial position. The Company forecasts that cash flow from operations over the next 12 months will be positive and provide sufficient liquidity to the Company.Management has based its expectations on assumptions that may prove to be wrong.

3. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 8-03. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the Company’s financial position as of September 30, 2017,March 31, 2022, the results of operations for the three and nine months ended September 30, 2017March 31, 2022 and 20162021 and cash flows for the ninethree months ended September 30, 2017March 31, 2022 and 2016.2021. 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.

8

 

The condensed consolidated balance sheet as of December 31, 2016 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, 2016,2021, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2017.14, 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 May 2014,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”) 2014-09,2016-13 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 December 2019, the FASB issued ASU 2019-12, Revenue from Contracts with CustomersSimplifying the Accounting for Income Taxes(Topic 606). This ASU simplifies accounting for income taxes to reduce complexity in the accounting standards. The core principleamendments consist of this amendment is that an entity should recognize revenuethe removal of certain exceptions to depict the transfergeneral principles of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09, as amended by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12ASC 740 and ASU 2016-20, issome additional simplifications. The amendments are effective for annual reporting periodspublic business entities for fiscal years beginning after December 15, 2017, and interim periods therein. These ASUs can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption.2020. The Company plans to adopt Topic 606 using the modified retrospective method when it becomesadopted this guidance effective for the Company in the first quarter of 2018. We have assigned internal resources to assist in the evaluation of the potential impacts of this amendment. Implementation efforts to date have included a review of revenue agreements and the performance obligations contained therein, and review of our commercial terms and practices across our revenue streams and a comparison of our current revenue recognition procedures to those required under Topic 606. While the Company is continuing to assess the effects of the amendment, management currently believes that the new guidance will not have a materialJanuary 1, 2021. There was no impact on our revenue recognition policies, practices or systems. The Company is continuing to evaluate the effect that Topic 606 will have on its consolidated financial statements as a result of this standard.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and related disclosures,Other Options (Subtopic 470-20) and preliminary assessmentsDerivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments are subjectnot required to change. Webe implemented until 2022 for public entities. 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 finalizingdetermining if this update will have a significant impact on the analysisconsolidated financial statements.

3. ACQUISITIONS

2021 Acquisition

On June 1, 2021, CAC entered into an Asset and Stock Purchase Agreement (“Purchase Agreement”) with MedMatica and its sole shareholder. Pursuant to the Purchase Agreement, CAC acquired (i) all of the requirementsissued 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 Topic 606 and quantifying the effectsPurchase Agreement. The total cash consideration was $10 million plus a working capital adjustment of approximately $3.8 million. The Purchase Agreement also provides that if any, from the implementation which should be completed during the fourth quarter18-month period commencing on June 1, 2021 (the “Earn-Out Period”), certain EBITDA and revenue targets with respect to the assets and capital stock purchased under the Purchase Agreement are achieved, then CAC shall pay MedMatica an earn-out up to a maximum of 2017.$8 million. Further, if during the Earn-Out Period, certain additional and increased EBITDA and revenue targets with respect to the assets and capital stock purchased under the Purchase Agreement are achieved, then CAC shall pay MedMatica an additional earn-out, up to a maximum of $5 million.

9

 

In February 2016,MedMatica and SRS are in the FASB issued ASU No. 2016-02,Leases (Topic 842).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 new standard will require organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP — which requires only capital leases to be recognized on the balance sheet — the new ASU will require both types of leases to be recognized on the balance sheet. The amendments in this ASU are effective for financial statements issued for annual periods beginning after December 15, 2018 with earlier adoption permitted. The Company is currently evaluating the impact of this new standard.

In January 2017, the FASB issued ASU No. 2017-01Business Combinations(Topic 805):Clarifying the Definition of a Business. The ASU clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should beacquisition has been accounted for as acquisitions (or disposals) of assets or business. The amendments in this ASU provide a more robust framework to use in determining when a set of assets and activities is a business. The amendments provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. combination.

A summary of the total consideration is as follows:

SUMMARY OF TOTAL CONSIDERATION ON BUSINESS CONSIDERATION

medSR Purchase Price   
  ($ in thousands) 
Cash $12,261 
Amounts held in escrow  1,571 
Contingent consideration  5,605 
Total purchase price $19,437 

The ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.Upon adoption,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.

SCHEDULE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

  ($ in thousands) 
Accounts receivable $2,696 
Receivable from seller  227 
Prepaid expenses  102 
Unbilled receivables  2,491 
Property and equipment  84 
Customer relationships  3,100 
Acquired backlog  490 
Goodwill  11,931 
Accounts payable  (539)
Accrued expenses & compensation  (1,125)
Deferred revenue  (20)
Total purchase price allocation $19,437 

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 applybe an earn-out payment to the guidance inseller equal to such excess, up to $13 million. It was estimated that the probable payment will be approximately $5.6 million and this ASU when evaluating whether acquired assets and activities constitute a business.

Also in January 2017,amount was recorded as part of the FASB issued ASU No. 2017-04,Intangibles – Goodwill and Other(Topic 350): Simplifying the Accounting for Goodwill Impairment. The ASU modifies the accounting for goodwill impairment with the objective of simplifying the process of determining impairment levels. Specifically, the amendments in the ASU eliminate a step in the goodwill impairment test which requires companies to develop a hypothetical purchase price allocation when analyzing goodwill impairment. This eliminatesas contingent consideration. At March 31, 2022 and December 31, 2021, the need for companies to estimate the fair value of individual existing assets and liabilities within a reporting unit. Instead, goodwill impairment will now be the amount by which a reporting unit’s total carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other aspects of the goodwill impairment test process have remained the same. The ASU is effective for annual periods beginning in the year 2020, with early adoption permitted for any impairment tests after January 1, 2017. The Company has elected to early adopt ASU 2017-04. There is currently no impact on the condensed consolidated financial statements as a result of this adoption.

In May 2017, the FASB issued ASU No. 2017-09,Compensation - Stock Compensation: Scope of Modification Accounting(Topic 718), which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity will account for the effects of a modification unlessdetermined that the fair value of the modified award iscontingent consideration was approximately $2.5 million and $3.1 million, respectively, based in part on the sameactual operating results since the acquisition. The difference in the contingent consideration between December 31, 2021 and March 31, 2022 has been recorded as a change in contingent consideration in the original award, the vesting conditionsconsolidated statements of operations.

As part of the modified award are the same as the original award and the classificationacquisition, $1.5 million of the modified award as an equity instrument or liability instrument is the same as the original award. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The update is to be adopted prospectively to an award modified on or after the adoption date. Early adoption is permitted. The Company is currently evaluating the effect of this update but does not believe it will have a material impact on its consolidated financial statements and related disclosures.

4. ACQUISITIONS

2017 Acquisition

Effective July 1, 2017, the Company purchased substantially all of the assets of Washington Medical Billing, LLC (“WMB”), a Washington limited liability company. In accordance with the asset purchase agreement, the Company agreed to a non-refundable initial payment (the “Initial Payment Amount”) of $205,000. In addition to the Initial Payment Amount, the Company agreed to pay the sellers 22%, 23% and 24% of revenue collected from the WMB accountsprice was held in the first, second and third year, respectively, subsequent to the acquisition date to the extent such amounts in the aggregate exceed the Initial Payment Amount (the “WMB Installment Payments”). The WMB Installment Payments are escrow, which represented $500,000 to be paid quarterly commencing October, 2017. Based onupon the Company’sachievement of agreed-upon revenue forecast, it does not appear that there will be any WMB Installment Payments and thereforebacklog milestones, and the preliminary aggregate purchase price of WMB was determinedbalance to be $205,000.held for up to 18 monthsto satisfy certain indemnification obligations. During the third quarter of 2021, the initial portion of the escrow was settled whereby $250,000 was paid to the seller and $250,000 was offset against the working capital adjustment. An additional $71,000 that was held in escrow was also paid. The balance of the $1.0 million escrow is included in consideration payable and restricted cash in the consolidated balance sheets at December 31, 2021 and March 31, 2022. Approximately $12.3 million in cash was paid at closing.

10

 

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

Revenue earned from the clients obtained from the medSR acquisition on June 1, 2021 was approximately $7.3 million for the three months ended March 31, 2022.

The preliminary purchase price allocation for WMB was performed by the Company and is summarized as follows:

Customer relationships $120,000 
Goodwill  85,000 
  $205,000 

The WMBmedSR acquisition added additional clients to the Company’s customer base and, similar to previous acquisitions, broadened the Company’s presence in the healthcare information technology industry through geographic expansion of its customer base and by increasing available customer relationship resources and specialized trained staff.

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

Revenue earned from the WMB acquisition was approximately $165,000 during the quarter ended September 30, 2017.

2016 Acquisitions

On February 15, 2016 (the “GCB Closing Date”), the Company entered into an asset purchase agreement with Gulf Coast Billing, Inc. (“GCB”), pursuant to which the Company purchased substantially all of the assets of GCB. The aggregate final purchase price for GCB was$1,480,000which consisted of cash of$1,250,000and contingent consideration of$230,000. During the quarter ended June 30, 2017, an agreement was reached with GCB that no additional contingent consideration will be paid.

On May 2, 2016 (the “RMB Closing Date”), the Company entered into an asset purchase agreement with Renaissance Medical Billing, LLC (“RMB”), pursuant to which the Company purchased substantially all of the assets of RMB. In accordance with the RMB asset purchase agreement, the Company paid $175,000 in initial cash consideration (“RMB Initial Payment”), on the RMB Closing Date. In addition, the Company will pay RMB twenty-seven percent (27%) of the revenue earned and received from the acquired RMB accounts for three years, less the RMB Initial Payment which will be deducted in full from the required payments (the “RMB Installment Payments”) before any additional payment is made to the seller. The aggregate purchase price for RMB was$325,000which consisted of cash of $175,000 and contingent consideration of$150,000. Through September 30, 2017, approximately $24,000 of contingent consideration payments have been made.

Effective July 1, 2016 (the “WFS Closing Date”), the Company entered into an asset purchase agreement with WFS Services, Inc. (“WFS”), pursuant to which the Company purchased substantially all of the assets of WFS. In accordance with the WFS asset purchase agreement, the Company did not pay any initial cash consideration on the WFS Closing Date but will make monthly payments of $5,000 for three years beginning July, 2016 subject to proportionate adjustment if annualized revenues decrease below a threshold specified in the APA. In addition, each quarter the Company will pay WFS fifty percent (50%) of Adjusted EBITDA, as defined in the WFS asset purchase agreement, generated from the WFS customer accounts acquired for three years. The aggregate purchase price of WFS was determined to be $298,000, which was recorded as contingent consideration. Through September 30, 2017, $60,000 of contingent consideration payments have been made.

On October 3, 2016, MAC acquired substantially all of the assets of MediGain. Since MediGain was in default of its obligations to Prudential prior to the acquisition, MAC purchased 100% of MediGain’s senior secured debt from Prudential.

The debt was collateralized by substantially all of MediGain’s assets, so immediately after purchasing the debt, MAC entered into a strict foreclosure agreement with MediGain transferring substantially all the assets (including accounts receivable, fixed assets, client relationships, and MediGain’s wholly-owned subsidiaries in India and Sri Lanka) to MAC in satisfaction of the outstanding obligations under the senior secured notes. The aggregate purchase price was $7 million which consisted of $2 million in cash paid at closing and $5 million, plus interest, which was paid during the third quarter of 2017.

11

MediGain, GCB, RMB and WFS are collectively referred to as the “2016 Acquisitions.” Revenue earned from the 2016 Acquisitions was approximately $4.1 million and $12.8 million during the three and nine months ended September 30, 2017, respectively.

Pro forma financial information (Unaudited)

The unaudited pro forma information below represents condensedthe consolidated results of operations as if the 2016 Acquisitions and the WMB AcquisitionmedSR acquisition occurred on January 1, 2016.2021. The pro forma information has been included for comparative purposes and is not indicative of results of operations ofthat the Company would have had if the acquisitionsacquisition 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 $9.7 million of additional revenue recorded by medSR for the three months ended March 31, 2021. Other differences arise from amortizing purchased intangibles using the double declining balance method.

SCHEDULE OF BUSINESS ACQUISITION PRO FORMA INFORMATION

 Three Months Ended Nine Months Ended  2022  2021 
 September 30, September 30,  Three Months Ended March 31, 
 2017 2016 2017 2016  2022  2021 
 ($ in thousands, except per share data)  ($ in thousands except per share amounts) 
Total revenue $7,514  $9,984  $24,036  $32,895  $35,341  $39,455 
Net income (loss) $1,237  $(1,286)
Net loss attributable to common shareholders $(1,581) $(4,316) $(6,584) $(13,830) $(2,800) $(4,414)
Net loss per common share $(0.14) $(0.43) $(0.61) $(1.38) $(0.19) $(0.31)

5.GOODWILL AND INTANGIBLE ASSETS-NET

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 ninethree months ended September 30, 2017March 31, 2022 and the year ended December 31, 2016:2021:

SCHEDULE OF INTANGIBLE ASSETS AND GOODWILL

  Three Months Ended  Year Ended 
  March 31, 2022  December 31, 2021 
  ($ in thousands) 
Beginning gross balance $61,186  $49,291 
Acquisition, net of adjustments  —   11,895 
Ending gross balance $61,186  $61,186 

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  September 30, 2017  December 31, 2016 
Beginning gross balance $12,178,868  $8,971,994 
Acquisitions  85,075   3,206,874 
Ending gross balance $12,263,943  $12,178,868 

Intangible assets include customer contracts and relationships and covenants not-to-compete acquired in connection with acquisitions, as well as trademarks acquired and software purchase and development costs and trademarks acquired.costs. Intangible assets -– net as of September 30, 2017March 31, 2022, and December 31, 20162021 consist of the following:

SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS

 March 31, 2022  December 31, 2021 
 September 30, 2017 December 31, 2016  ($ in thousands) 
Contracts and relationships acquired $16,491,300  $16,371,375  $47,597  $47,597 
Capitalized software  15,387   13,196 
Non-compete agreements  1,236,377   1,236,377   1,236   1,236 
Other intangible assets  1,482,864   1,289,339   8,396   8,396 
Total intangible assets  19,210,541   18,897,091   72,616   70,425 
Less: Accumulated amortization  (16,213,330)  (13,063,385)  42,129   39,647 
Intangible assets - net $2,997,211  $5,833,706  $30,487  $30,778 

Other intangible assets primarily represent software costs. Amortization expense wasapproximately $3.2 $2.5 million for both the nine months ended September 30, 2017 and 2016, and $508,000 and $1.0 $2.4 million for the three months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. The weighted-average amortization period is three years.years.

As of September 30, 2017,March 31, 2022, future amortization expense scheduled to be expensed is as follows:

SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS, FUTURE AMORTIZATION EXPENSE

Years ending December 31, ($ in thousands) 
2022 (nine months) $10,272 
2023  10,786 
2024  6,765 
2025  1,314 
2026  300 
Thereafter  1,050 
Total $30,487 

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5. NET LOSS PER COMMON SHARE

Years ending    
December 31    
2017 (three months)  $493,264 
2018   1,601,110 
2019   827,033 
2020   75,804 
Total  $2,997,211 

6.NET LOss per COMMON share

The following table presentsreconciles the weighted-average shares outstanding for basic and diluted net loss per share for the three and nine months ended September 30, 2017March 31, 2022 and 2016:2021:

SCHEDULE OF LOSSES PER SHARE, BASIC AND DILUTED

 2022  2021 
 Three Months Ended Nine Months Ended  March 31, 
 September 30, September 30,  2022  2021 
  2017  2016  2017  2016  ($ in thousands, except share and per share amounts) 
Basic and Diluted:                        
Net loss attributable to common shareholders $(1,632,816) $(1,726,178) $(6,664,818) $(5,322,541) $(2,897) $(5,092)
Weighted average shares applicable to common shareholders used in computing basic and diluted loss per share  11,485,811   10,006,121   10,835,142   10,031,212 
Net loss attributable to common shareholders per share - Basic and Diluted $(0.14) $(0.17) $(0.62) $(0.53)
Weighted-average common shares used to compute basic and diluted loss per share  14,992,147   14,084,749 
Net loss attributable to common shareholders per share - basic and diluted $(0.19) $(0.36)

All unvested restricted sharestock units (“RSUs”), the 200,000 and unexercised warrants granted to Opus in 2015 and 2016 and the two million warrants issued during the second quarter of 2017 as part of the sale of common stock have been excluded from the above calculations as they were anti-dilutive.anti-dilutive. Vested RSUs, and vested restricted shares and exercised warrants have been included in the above calculations.

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7.Debt

6. DEBT

OpusSVB —On September 2, 2015, During October 2017, the Company entered intoopened a credit agreement with Opus. Opus extended a credit facility totaling $10 million to the Company, inclusive of $8 million of term loans and a $2 million revolving line of credit.credit with Silicon Valley Bank (“SVB”) under a three-year agreement. The Company’s obligationsSVB credit facility is a secured revolving line of credit where borrowings are based on a formula of 200% of repeatable revenue adjusted by an annualized attrition rate as defined in the credit agreement. During the third quarter of 2018, the credit line was increased from $5 million to Opus were$10 million and the term was extended for an additional year. During the third quarter of 2021, the credit line was further increased to $20 million and the term was extended for another year. As of March 31, 2022, there was $6 million borrowed under the credit facility, which was repaid in early April. Interest on the SVB revolving line of credit is currently charged at the prime rate plus 1.50% with a minimum rate of 6.50%. There is also a fee of one-half of 1% annually for the unused portion of the credit line.The debt is secured by substantially all of the Company’s domestic assets and 65%65% of the shares in its offshore subsidiaries. During October 2017,Future acquisitions are subject to approval by SVB.

In connection with the Opus credit facility was replaced. See Note 15.

Interest expenseoriginal SVB debt agreement, the Company paid SVB approximately $50,000 of fees upfront and issued warrants for SVB to purchase 125,000 shares of its common stock, and committed to pay an annual anniversary fee of $50,000 a year. Based on the terms in the consolidated statements of operations for both the threeoriginal SVB credit agreement, these warrants have a strike price equal to $3.92. They have a five-year exercise window and nine months ended September 30, 2017 includes $463,000 of deferred financing costs whichnet exercise rights, and were written off asvalued at $3.12 per warrant. As a result of the terminationrevision in the SVB credit line, which increased the credit line from $5 million to $10 million and reduced the interest rate by 25 basis points, the Company paid approximately $50,000 of fees upfront and issued an additional 28,489 warrants, with a strike price equal to $5.26, a five-year exercise window and net exercise rights. The additional warrants were valued at $3.58 per warrant. The SVB credit agreement contains various covenants and conditions governing the revolving line of credit. These covenants include a minimum level of adjusted EBITDA and a minimum liquidity ratio. At March 31, 2022 and 2021, the Company was in compliance with all covenants.

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 Opus credit agreement.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.

Prudential Deferred Purchase Price — During the current quarter, the entire amount due to Prudential of $5 million was paid, including $270,000 of accrued interest, which fully satisfied the amount owed.

Vehicle Financing Notes — The Company financed certain vehicle purchases both in the United States and in Pakistan. The vehicle financing notes have three to six year termsand were issued at current market rates.

Insurance Financing — The Company finances certain insurance purchases over the term of the policy life. The interest rate charged is 5.25%currently 4.15%.

8.Commitments and Contingencies

7. LEASES

Legal Proceedings —

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 March 31, 2022 and December 31, 2021. The Company is subjectdoes not have any finance leases.

ROU assets represent our right to legal proceedingsuse an underlying asset for the lease term and claimslease 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 have arisenare 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 ordinary course of businessconsolidated balance sheets.Our lease agreements do not contain any residual value guarantees. For real estate leases, we account for the lease and have not been fully adjudicated. These actions, when ultimately concludednon-lease components as a single lease component. Some leases include escalation clauses and determined, will not,termination options that are factored in the opinion of management, have a material adverse effect upon the consolidated financial position, results of operations, or cash flowsdetermination of the Company.lease payments when appropriate.

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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 months ended March 31, 2022 and 2021, there were approximately $263,000 and $243,000, respectively, of unoccupied lease charges for two of the Company’s facilities. There were no lease impairments or restructuring charges during the three months ended March 31, 2022 and 2021. During the quarter ended March 31, 2022, there was a gain on lease termination of approximately $105,000. During the three months ended March 31, 2021, the Company recorded approximately $775,000 of impairment charges on a vendor contract.

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 March 31, 2022, we had 34 leased properties, five in Medical Practice Management and 29 in Healthcare IT, with remaining terms ranging from less than one year to fifteen 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:

SCHEDULE OF LEASE EXPENSE

  2022  2021 
  Three Months Ended
March 31,		 
  2022  2021 
  ($ in thousands) 
 Operating lease cost $972  $1,057 
 Short-term lease cost  40   22 
 Variable lease cost  9   6 
 Total- net lease cost $1,021  $1,085 

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.

Supplemental balance sheet information related to leases is as follows:

SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES

  March 31, 2022  December 31, 2021 
  ($ in thousands) 
Operating leases:        
Operating lease ROU assets, net $6,507  $6,940 
         
Current operating lease liabilities $3,803  $3,963 
Non-current operating lease liabilities  3,929   4,545 
Total operating lease liabilities $7,732  $8,508 
         
Operating leases:        
ROU assets $7,366  $10,535 
Asset lease expense  (832)  (3,574)
Foreign exchange loss  (27)  (21)
ROU assets, net $6,507  $6,940 
         
Weighted average remaining lease term (in years):        
Operating leases  4.54   4.26 
Weighted average discount rate:        
Operating leases  6.74%  6.76%

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Supplemental cash flow and other information related to leases is as follows:

SCHEDULE OF SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION RELATED TO LEASES

  Three Months Ended
March 31,		 
  2022  2021 
  ($ in thousands) 
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows from operating leases $1,212  $1,396 
         
ROU assets obtained in exchange for lease liabilities:        
Operating leases, net of impairment and terminations $427  $211 

Maturities of lease liabilities are as follows:

SCHEDULE OF MATURITIES OF LEASE LIABILITIES

Operating leases - Years ending December 31, ($ in thousands) 
2022 (nine months) $3,359 
2023  2,366 
2024  1,075 
2025  514 
2026  232 
Thereafter  1,756 
Total lease payments  9,302 
Less: imputed interest  (1,570)
Total lease obligations  7,732 
Less: current obligations  (3,803)
Long-term lease obligations $3,929 

Leases8. COMMITMENTS AND CONTINGENCIES

Legal Proceedings— On May 30, 2018, the Superior Court of New Jersey, Chancery Division, Somerset County (the “Chancery Court”) denied the Company’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 the Company and MAC. On June 15, 2018, the Company 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 the Company’s and MAC’s appeal. On appeal, the Company 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 the Company or MAC as RPRWC terminated the agreement before the APA took effect. On January 30, 2019, the parties conducted oral arguments before the Appellate Court.

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 the Company to participate in the arbitration on the grounds that insufficient facts had been provided by RPRWC from which the court could conclude the Company 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.

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The parties completed discovery in the remanded matter on November 29, 2019, and thereafter both the Company 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 the Company’s cross-motion for summary judgment. The Chancery Court held that the Company cannot be compelled to participate in the Arbitration. RPRWC has informed the Company 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 $6.6 million and costs.

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 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 $6.6 million and costs to $20 million and costs. On July 24, 2020, RPRWC disclosed a declaration to MAC, in which RPRWC estimates its damages to be approximately $11 million plus costs. RPRWC then served expert reports in November 2021. Plaintiff’s expert analyzed only a minute portion of the claims alleged to have been mishandled and then extrapolated damages to be in the range of $9.8 million to $10.8 million; however, this is unrealistically based on an alleged 90-100% collection rate on charges. MAC has served an expert report refuting the methodology used by RPRWC’s expert, the allegations of mishandling and the calculated damages. This matter is currently being prepared for an arbitration hearing which is currently scheduled on several dates in June 2022.

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. The Company and MAC plan to vigorously defend against RPRWC’s claim and in the event of a loss, if any, they anticipate the loss to be substantially less than the amount claimed.

Through the CCH transaction, we acquired its software technology and related business, of which certain elements were, at the time of the acquisition, subject to a civil investigation to determine pre-acquisition compliance with certain federal regulatory requirements. This element was considered as part of the transaction as $4 million of the transaction’s consideration was held in escrow for the resolution of this investigation. Following the closing of the transaction, the Company continued to cooperate with the inquiry as CCH had historically done since the commencement of the investigation in July of 2018. The Company accrued $4.2 million to resolve this investigation, including the $4 million in escrow, which was recorded as an indemnification asset which is included in the consolidated balance sheets at December 31, 2020 in prepaid expenses and other current assets with an offsetting amount in accrued expenses. The Company settled the obligation in April 2021 substantially within the range covered by the escrowed funds.

From time to time, we may become involved in other legal proceedings arising in the ordinary course of our business. Including the proceedings 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.

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 $5,000 and $4,000 for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, and December 31, 2021, the receivable balance due from this customer was approximately $2,000 and $3,000, respectively.

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 $30,000 for the three months ended March 31, 2021. The lease for the aircraft was renewed as of April 1, 2021 and terminated on August 31, 2021. As of March 31, 2022, there was no liability outstanding to KAI.

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The Company leases certain office spaceits corporate offices in New Jersey, its temporary housing for its foreign visitors, a printing and other facilities under operating leases expiring through 2021. Certain of these leases contain renewal options.

Future minimum lease payments under non-cancelable operating leasesmailing facility and its backup operations center in Bagh, Pakistan and an apartment for office space as of September 30, 2017 are as follows:

Years Ending   
December 31 Total 
2017 (three months) $68,994 
2018  304,357 
2019  163,179 
Total $536,530 

Total rentaltemporary housing in Dubai, the UAE, from the Executive Chairman. The related party rent expense for the three months ended March 31, 2022 and 2021 was approximately $51,000 and $47,000, respectively, and is included in direct operating costs and general and administrative expense in the condensed consolidated statements of operations, amounted to approximately $690,000 and $581,000 for the nine months ended September 30, 2017 and 2016, respectively, and approximately $237,000 and $202,000 foroperations. During the three months ended September 30, 2017March 31, 2022 and 2016, respectively.

Acquisitions —In connection with some2021, the Company spent approximately $288,000 and $289,000 to upgrade the related party leased facilities. Current assets-related party in the consolidated balance sheets includes security deposits related to the leases of the Company’s acquisitions, contingent consideration corporate offices in the amount of approximately $16,000 and $13,000 as of September 30, 2017 is payableMarch 31, 2022 and December 31, 2021, respectively.

Included in the form of cash with payment terms through 2019. Depending onROU asset at March 31, 2022 is approximately $438,000 applicable to the termsrelated party leases. Included in the current and non-current operating lease liability at March 31, 2022 is approximately $173,000 and $261,000, respectively, applicable to the related party leases.

Included in the ROU asset at December 31, 2021 is approximately $483,000 applicable to the related party leases. Included in the current and non-current operating lease liability at December 31, 2021 is approximately $174,000 and $305,000, respectively, applicable to the related party leases.

During 2020, a New Jersey corporation, talkMD Clinicians, PA (“talkMD”), was formed by the wife of the agreement, ifExecutive 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 performance measures areentity will be controlled by the Company. As of March 31, 2022, talkMD had not achieved,yet commenced operations.

10. SHAREHOLDERS’ EQUITY

During the current quarter, the Company may pay less than the recorded amount, and if the performance measures are exceeded, the Company may pay more than the recorded amount.

9.SHAREHOLDERS’ EQUITY TRANSACTIONS

In August 2017, the Company completed two public preferred stock offerings whereby a total of 60,195 sold 1,100,810 shares of its8.75% Series B Cumulative Redeemable Perpetual Preferred Stock were sold at $25.00 per share. As a result of this sale, the Company(“Series B Preferred Stock”) and received net proceeds of approximately $1.3 $25.5 million. In September 2017, the Company completed two public preferred stock offerings whereby a total of 255,000 shares of itsThe Series B Preferred Stock were sold at $25.00 per share. As a result of this sale,is listed on the Company received net proceeds of approximately $5.6 million.Nasdaq Global Market under the symbol “MTBCO.” Dividends on the Series B Preferred Stock of $2.75 approximately $2.19 annually per share are cumulative from the date of issue and are payable each month when, as and if declared by the Company’s Board of Directors. AsOn March 18, 2022, the Company used a portion of September 30, 2017, the Board of Directors has declared monthly dividends on theproceeds from selling Series B Preferred Stock payable through November 2017.and redeemed 800,000 shares of Series A Preferred Stock for $25.00 per share, plus all accrued and unpaid dividends to, but not including, the redemption date.

Commencing on or after November 4, 2020, the CompanyFebruary 15, 2024 and prior to February 15, 2025, we may redeem, at itsour option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $25.00 $25.75 per share, plus all accrued and unpaid dividends to, but not including, the redemption date. TheOn or after February 15, 2025 and prior to February 15, 2026, we may redeem, at our option, the Series B Preferred Stock, has no stated maturity, is not subject to any sinking fundin whole or other mandatoryin part, at a cash redemption and is not convertible into or exchangeable for anyprice of the Company’s other securities. Holders of the Preferred Stock have no voting rights except for limited voting rights if dividends payable on the Preferred Stock are in arrears for eighteen or more consecutive or non-consecutive monthly dividend periods. If the Company were to liquidate, dissolve or wind up, the holders of the Preferred Stock will have the right to receive $25.00 $25.50 per share, plus any accumulatedall accrued and unpaid dividends to, but not including, the dateredemption 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 payment, before any payment is made$25.25 per share, plus all accrued and unpaid dividends to, but not including, the holdersredemption 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 $25.00 per share, plus all accrued and unpaid dividends to, but not including, the redemption date.

The Company has the right to sell up to $35 million of its Series B Preferred Stock using an “at-the-market” facility (“ATM”). The underwriter receives 3% of the gross proceeds. During the first quarter of 2022, the Company sold 49,562 shares of Series B Preferred Stock under its ATM and received net proceeds of approximately $1.2 million. The Company also has the right to sell up to $50 million of its common stock using a second ATM facility. The underwriters of the common stock. stock ATM also receive 3% of the gross proceeds. During the first quarter of 2022, 0shares of common stock were issued under this ATM.

During the three months ended March 31, 2021, 858,000 common stock warrants were exercised at $7.50 each resulting in gross proceeds of $6,435,000.

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11. REVENUE

Introduction

The Preferred StockCompany accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers. All revenue is listedrecognized 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 Nasdaq Capital Market under the trading symbol “MTBCP.”

10.Related PARTIES

The Company had sales to a related party, a physician who is the wife of the CEO. Revenues from this customer were approximately $12,000 and $13,000contractual price for the nine months ended September 30, 2017service.

We apply the portfolio approach as permitted by ASC 606 as a practical expedient to contracts with similar characteristics and 2016, respectively,we use estimates and approximately $4,000assumptions 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 $5,000our revenue does not include taxes collected from our customers.

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 months ended SeptemberMarch 31:

SCHEDULE OF DISAGGREGATION OF REVENUE

  2022  2021 
  Three Months Ended March 31, 
  2022  2021 
  ($ in thousands) 
Healthcare IT:        
Technology-enabled business solutions $23,242  $25,845 
Professional services  8,314   617 
Printing and mailing services  463   383 
Group purchasing services  134   188 
Medical Practice Management:        
Medical practice management services  3,188   2,735 
Total $35,341  $29,768 
Revenues $35,341  $29,768 

Technology-enabled business solutions:

Revenue derived on an on-going basis from our technology-enabled solutions is typically billed as a percentage of payments collected by our customers.

Revenue cycle management services are the recurring process of submitting and following up on claims with health insurance companies in order for the healthcare providers to receive payment for the services they rendered. The Company typically invoices customers on a monthly basis based on the actual collections received by its customers and the agreed-upon rate in the sales contract. The fee for these services typically includes use of practice management software and related tools (on a SaaS basis), electronic health records (on a SaaS basis), medical billing services and use of mobile health solutions. We consider the services to be one performance obligation since the promises are not distinct in the context of the contract. The performance obligation consists of a series of distinct services that are substantially the same and have the same periodic pattern of transfer to our customers.

In many cases, our clients may terminate their agreements with 90 days’ notice without cause, thereby limiting the term in which we have enforceable rights and obligations, although this time period can vary between clients. Our payment terms are normally net 30 2017days. Although our contracts typically have stated terms of one or more years, under ASC 606 our contracts are considered month-to-month and 2016, respectively. As of September 30, 2017 and December 31, 2016, the receivable balance due from this customer was approximately $1,500 and $1,600, respectively.accordingly, there is no financing component.

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For the majority of our revenue cycle management contracts, the total transaction price is variable because our obligation is to process an unknown quantity of claims, as and when requested by our customers over the contract period. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with variable consideration is subsequently resolved. Estimates to determine variable consideration, such as payment to charge ratios, effective billing rates, and the estimated contractual payment periods, are updated at each reporting date. Revenue is recognized over the performance period using the input method.

Our proprietary, cloud-based practice management application automates the labor-intensive workflow of a medical office in a unified and streamlined SaaS platform. The Company has a large number of clients who utilize the Company’s practice management software, electronic health records software, patient experience management solutions, business intelligence software and/or robotic process automation software on a SaaS basis, but who do not utilize the Company’s revenue cycle management services. SaaS fees may be fixed based on the number of providers, or may be variable.

The medical billing clearinghouse service takes claim information from customers, checks the claims for errors and sends this information electronically to insurance companies. The Company invoices customers on a monthly basis based on the number of claims submitted and the agreed-upon rate in the agreement. This service is provided to medical practices and providers to medical practices who are not revenue cycle management customers. The performance obligation is satisfied once the relevant submissions are completed.

Additional services such as coding, credentialing and transcription are sometimes rendered in connection with the delivery of revenue cycle management and related medical services. The Company invoices customers monthly, based on the actual amount of services performed at the agreed-upon rate in the contract. These services are only offered to revenue cycle management customers. These services do not represent a material right because the services are optional to the customer and customers electing these services are charged the same price for those services as if they were on a standalone basis. Each individual coding, credentialing or transcription transaction processed represents a performance obligation, which is satisfied over time as that individual service is rendered.

Professional services:

Our professional services include an extensive set of services including EHR vendor-agnostic optimization and activation, project management, IT transformation consulting, process improvement, training, education and staffing for large healthcare organizations including health systems and hospitals. Revenue is recorded monthly on a time and materials or a fixed rate basis. This is a separate performance obligation from any RCM or SaaS services provided, for which the Company receives and records monthly fees. The performance obligation is satisfied over time as the professional services are rendered.

Printing and mailing services:

The Company provides printing and mailing services for both revenue cycle management customers and a non- revenue cycle management customer, and invoices on a monthly basis based on the number of prints, the agreed-upon rate per print and the postage incurred. The performance obligation is satisfied once the printing and mailing is completed.

19

Group purchasing services:

The Company provides group purchasing services which enable medical providers to purchase various vaccines directly from selected pharmaceutical companies at a partydiscounted price. Currently, there are approximately 4,000 medical providers who are members of the program. Revenue is recognized as the vaccine shipments are made to the medical providers. Fees from the pharmaceutical companies are paid either quarterly or annually and the Company adjusts its revenue accrual at the time of payment. The Company makes significant judgments regarding the variable consideration which we expect to be entitled to for the group purchasing services which includes the anticipated shipments to the members enrolled in the program, anticipated volumes of purchases made by the members, and the changes in the number of members. The amounts recorded are constrained by estimates of decreases in shipments and loss of members to avoid a nonexclusive aircraft dry lease agreementsignificant revenue reversal in the subsequent period. The only performance obligation is to provide the pharmaceutical companies with Kashmir Air, Inc. (“KAI”),the medical providers who want to become members in order to purchase vaccines. The performance obligation is satisfied once the medical provider agrees to purchase a specific quantity of vaccines and the medical provider’s information is forwarded to the vaccine suppliers. The Company records a contract asset for revenue earned and not paid as the ultimate payment is conditioned on achieving certain volume thresholds.

For all of the above revenue streams other than group purchasing services, revenue is recognized over time, which is ownedtypically one month or less, which closely matches the point in time that the customer simultaneously receives and consumes the benefits provided by the CEO. Company. For the group purchasing services, revenue is recognized at a point in time. Each service is substantially the same and has the same periodic pattern of transfer to the customer. Each of the services provided above is considered a separate performance obligation.

Medical practice management services:

The Company also provides medical practice management services under long-term management service agreements to three medical practices. We provide the medical practices with the nurses, administrative support, facilities, supplies, equipment, marketing, RCM, accounting, and other non-clinical services needed to efficiently operate their practices. Revenue is recognized as the services are provided to the medical practices. Revenue recorded an expensein the consolidated statements of approximately $96,000 for bothoperations represents the nine months ended September 30, 2017 and 2016 and approximately $32,000 for both the three months ended September 30, 2017 and 2016. Asreimbursement of September 30, 2017 and December 31, 2016,costs paid by the Company hadfor the practices and the management fee earned each month for managing the practice. The management fee is based on either a liability outstanding to KAIfixed fee or a percentage of the net operating income.

The Company assumes all financial risk for the performance of the managed medical practices. Revenue is impacted by the amount of the costs incurred by the practices and their operating income. The gross billing of the practices is impacted by billing rates, changes in current procedural terminology code reimbursement and collection trends which in turn impacts the management fee that the Company is entitled to. Billing rates are reviewed at least annually and adjusted based on current insurer reimbursement practices. The performance obligation is satisfied as the management services are provided.

Our contracts for medical practice management services have approximately $17,000,an additional 20 years remaining and are only cancellable under very limited circumstances. The Company receives a management fee each month for managing the day-to-day business operations of each medical group as a fixed fee or a percentage payment of the net operating income which is included in accrued liability to related partyrevenue in the condensed consolidated balance sheets.

The Company leases its corporate offices, temporary housing for its foreign visitors and a storage facility in New Jersey and its backup operations center in Bagh, Pakistan, from the CEO. The related party rent expense for the nine months ended September 30, 2017 and 2016 was approximately $141,000 and $131,000, respectively,and $47,000 and $43,000 for the three months ended September 30, 2017 and 2016, respectively, and is included in direct operating costs and general and administrative expense in the condensed consolidated statements of operations. Current assets-related party

Our medical practice management services obligations consist of a series of distinct services that are substantially the same and have the same periodic pattern of transfer to our customers. Revenue is recognized over time, however for reporting and convenience purposes, the management fee is computed at each month end.

Information about contract balances:

As of March 31, 2022, the estimated revenue expected to be recognized in the future related to the remaining revenue cycle management performance obligations outstanding was approximately $4.4 million. We expect to recognize substantially all of the revenue for the remaining performance obligations over the next three months. Approximately $228,000 of the contract asset represents revenue earned, but not yet paid, from the group purchasing services.

Amounts that we are entitled to collect under the applicable contract are recorded as accounts receivable. Invoicing is performed at the end of each month when the services have been provided. The contract asset includes our right to payment for services already transferred to a customer when the right to payment is conditional on something other than the passage of time. For example, contracts for revenue cycle management services where we recognize revenue over time but do not have a contractual right to payment until the customer receives payment of their claim from the insurance provider. The contract asset also includes the revenue accrued, not received, for the group purchasing services.

20

Changes in the contract asset are recorded as adjustments to net revenue. The changes primarily result from providing services to revenue cycle management customers that result in additional consideration and are offset by our right to payment for services becoming unconditional and changes in the revenue accrued for the group purchasing services. The contract asset for our group purchasing services is reduced when we receive payments from vaccine manufacturers and is increased for revenue earned, not received. The opening and closing balances of the Company’s accounts receivable, contract asset and deferred revenue are as follows:

SCHEDULE OF ACCOUNTS RECEIVABLE, CONTRACT ASSET AND DEFERRED REVENUE

  Accounts Receivable, Net  Contract Asset  Deferred Revenue (current)  

Deferred Revenue

(long term)

 
  ($ in thousands) 
Balance as of January 1, 2022 $17,006  $4,725  $1,085  $341 
Increase (decrease), net  1,487   (80)  55   49 
Balance as of March 31, 2022 $18,493  $4,645  $1,140  $390 
                 
Balance as of January 1, 2021 $12,089  $4,105  $1,173  $305 
Beginning balance $12,089  $4,105  $1,173  $305 
Increase (decrease), net  330   270   52   (20)
Balance as of March 31, 2021 $12,419  $4,375  $1,225  $285 
Ending balance $12,419  $4,375  $1,225  $285 

Deferred commissions:

Our sales incentive plans include commissions payable to employees and third parties at the time of initial contract execution that are capitalized as incremental costs to obtain a contract. The capitalized commissions are amortized over the period the related services are transferred. As we do not offer commissions on contract renewals, we have determined the amortization period to be the estimated client life, which is three years. Deferred commissions were approximately $846,000 and $1.0 million at March 31, 2022 and 2021, respectively, and are included in the other assets amounts in the consolidated balance sheets includes security deposits related to the leases of the Company’s corporate offices in the amount of approximately $13,000 as of both September 30, 2017 and December 31, 2016. The September 30, 2017 balance also includes prepaid rent paid to the CEO of approximately $12,000.sheets.

11.STOCK-BASED COMPENSATION

12. STOCK-BASED COMPENSATION

In April 2014, the Company adopted the Medical Transcription Billing, Corp. 2014 Equity Incentive Plan (the “2014 Plan”), reserving a total of 1,351,000 shares of common stock for grants to employees, officers, directors and consultants. During April 2017, the 2014 Plan was amended and restated whereby an additional 1,500,000 shares of common stock and 100,000 shares of Series A Preferred Stock were added to the plan for future issuance. The name of the 2014 Plan was changed to the Amendedamended and restated on April 14, 2017 (the “Amended and Restated Equity Incentive Plan (the “Incentive Plan”). As During 2018, an additional 200,000 of September 30,2017, 1,238,734 Series A Preferred Stock were added to the plan for future issuance. In May 2020, an additional 2,000,000 shares of common stock and 67,000 an additional 300,000 shares of Series A Preferred Stock were added to the 2014 Plan for future issuance. Some of the Series A Preferred Stock shares were subsequently redesignated as Series B Preferred Stock and were removed from the 2014 Plan. As of March 31, 2022, 856,479 shares of common stock and 38,454 shares of Series A Preferred Stock are available for grant. Permissible awards include incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”),RSUs, performance stock and cash-settled awards and other stock-based awards in the discretion of the Compensation Committee of the Board of Directors including unrestricted stock grants.

The equity basedequity-based RSUs contain a provision in which the units shall immediately vest and become converted into common shares at the rate of one common share per RSU, immediately after a change in control, as defined in the award agreement.

21

 

Common and preferred stock RSUs

In February 2022, the Compensation Committee approved executive bonuses to be paid in shares of Series B Preferred Stock, with the number of shares and the amount based on specified criteria being achieved during the year 2022. The addition of the Series B Preferred Stock to the Amended and Restated Equity Incentive Plan is subject to shareholder approval at the Annual Meeting. The actual amount of shares will be settled in early 2023 based on the achievement of the specified criteria. For the three months ended March 31, 2022, an expense of approximately $134,000 was recorded for these bonuses based on the value of the shares at the grant date and recognized over the service period. The portion of the stock compensation expense to be used for the payment of withholding and payroll taxes is included in accrued compensation in the consolidated balance sheets. The balance of the stock compensation expense has been recorded as additional paid-in capital.

The following table summarizes the RSU transactions related to the common and preferred stock under the Equity Incentive Plan for the three months ended March 31, 2022 and 2021:

DISCLOSURE OF SHARE-BASED COMPENSATION ARRANGEMENTS BY SHARE-BASED PAYMENT AWARD

  Common Stock  Series A Preferred Stock  Series B Preferred Stock 
Outstanding and unvested shares at January 1, 2022  418,039   34,000   — 
Granted  360,398   —   34,000 
Vested  (208,817)  (34,000)  — 
Forfeited  (25,494)  —   — 
Outstanding and unvested shares at March 31, 2022  544,126   —   34,000 
             
Outstanding and unvested shares at January 1, 2021  382,435   44,000   — 
Granted  395,100   34,000   — 
Vested  (226,525)  (44,000)  — 
Forfeited  (5,023)  —   — 
Outstanding and unvested shares at March 31, 2021  545,987   34,000   — 

The liability for the cash-settled awards and the liability for withheld taxes in connection with the equity awards was approximately $417,000 and $1.0 million at March 31, 2022 and December 31, 2021, respectively, and is included in accrued compensation in the consolidated balance sheets. During the third quarter of 2017, a total of 200,000 RSUsended March 31, 2022, approximately $13,000was paid in connection with the cash-settled awards. NaNamounts were granted equally topaid in connection with cash-settled awards during the four outside members of the Board of directors and a total of 300,000 RSUs were granted equally to three executive officers. The RSUs vest over the next two years, at six month intervals.quarter ended March 31, 2021.

Stock-based compensation expense

The Company recognizes compensation expense on a straight-line basis over the total requisite service period for the entire award. For stock awards classified as equity, the market price of our common stock or Preferred Stockpreferred stock on the date of grant is used in recording the fair value of the award.award and includes the related taxes. For stock awards classified as a liability, the earned amount is marked to market based on the end of period common stock price.

The following table summarizes the components of share-based compensation expense for the three and nine months ended September 30, 2017March 31, 2022 and 2016:2021:

Stock-based compensation included in the Condensed Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
Consolidated Statement ofOperations: 2017  2016  2017  2016 
Direct operating costs $1,705  $3,571  $7,162  $8,909 
General and administrative  124,789   131,077   318,870   731,690 
Research and development  (675)  3,767   7,822   6,910 
Selling and marketing  -   5,378   -   18,086 
Total stock-based compensation expense $125,819  $143,793  $333,854  $765,595 

SCHEDULE OF EMPLOYEE SERVICE SHARE-BASED COMPENSATION, ALLOCATION OF RECOGNIZED PERIOD COSTS

Stock-based compensation included in Three Months Ended March 31, 
the consolidated statements of operations: 2022  2021 
  ($ in thousands) 
Direct operating costs $217  $305 
General and administrative  380   624 
Research and development  70   137 
Selling and marketing  220   201 
Total stock-based compensation expense $887  $1,267 

13. INCOME TAXES

The income tax expense for the three months ended March 31, 2022 was approximately $64,000 comprised of a current tax expense of $28,000 and a deferred tax expense of $36,000. The income tax benefit for the three months ended March 31, 2021 was approximately $1,000, comprised of a current tax expense of $35,000 and a deferred tax benefit of $36,000.

1522

 

The following table summarizes the RSU and restricted stock transactions related to the common stock under the Incentive Plan for the nine months ended September 30, 2017:

Outstanding and unvested at January 1, 2017406,959
Granted528,000
Vested(327,159)
Forfeited(29,331)
Outstanding and unvested at September 30, 2017578,469

Of the total outstanding and unvested at September 30, 2017, 548,334 RSUs and restricted stock awards are classified as equity and 30,135 RSUs are classified as a liability.

The liability for the cash-settled awards was approximately $17,000 and $31,000 at September 30, 2017 and December 31, 2016, respectively, and is included in accrued compensation in the condensed consolidated balance sheets.

12.INCOME TAXES

The deferredcurrent income tax provision for the ninethree months ended September 30, 2017March 31, 2022 and 20162021 primarily relates to state minimum taxes and foreign income taxes. The deferred tax provision (benefit) for the three ended March 31, 2022 and 2021 relates to the book and tax difference of amortization on indefinite-lived intangibles, primarily goodwill. To the extent allowable, the federal deferred tax provision has been offset by the indefinite life net operating loss.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. Several new corporate tax provisions were included in the CARES Act, including, but not limited to, the following: increasing the limitation threshold for determining deductible interest expense, class life changes to qualified improvements (in general - from 39 years to 15 years), and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years.The Company has evaluated the income tax provisions of goodwill.

Althoughthe CARES Act and determined the impact to be either immaterial or not applicable. Under the CARES Act, the Company is forecasting a returntook advantage of the payroll tax deferral provision. As of both March 31, 2022 and December 31, 2021, the Company has deferred approximately $934,000of payroll taxes. This amount needs to profitability, itbe repaid by December 31, 2022.

The Company has incurred cumulative losses, which make realization of a deferred tax asset difficult to support in accordance with ASC 740. Accordingly, a valuation allowance has been recorded against allthe Federal and state deferred tax assets as of September 30, 2017March 31, 2022 and December 31, 2016. Some2021.

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market participant assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair values of assets and liabilities required to be measured at fair value are categorized based upon the level of judgement associated with the inputs used to measure their value in one of the Federal NOL carry forward is currently subject to certain utilization limitations under Section 382 of the Internal Revenue Code.following three categories:

The Company’s plan to repatriate earningsLevel 1: Inputs are unadjusted quoted prices in its foreign locations to the United States requires that U.S. federal income taxes be provided on the Company’s earnings in those foreign locations. For state tax purposes, the Company’s foreign earnings generally are not taxed due to an exemption available in states where the Company currently transacts business.

13.RESTRUCTURING CHARGES

Duringactive markets for identical assets or liabilities. We held no Level 1 financial instruments at March 2017, the Company decided to close its operations in Poland and India. In connection with the closing of these subsidiaries, in the first quarter of 2017, the Company expensed approximately $276,000 of restructuring charges representing primarily employee severance costs, remaining lease and termination fees, disposal of property and equipment and professional fees. The remaining amounts to be paid of approximately $19,000 are included in accrued expenses in the condensed consolidated balance sheet as of September 30, 2017.

14.FAIR VALUE OF FINANCIAL INSTRUMENTS

As of September 30, 2017 and31, 2022 or December 31, 2016, the carrying amounts of receivables, accounts2021.

Level 2: Quoted prices for similar instruments in active markets with inputs that are observable, either directly or indirectly. Our Level 2 financial instruments include notes payable accrued expenses and the amount due to Prudential (at December 31, 2016 only) approximated their estimated fair values because of the short term nature of these financial instruments.

Fair value measurements-Level 2

Our notes payablewhich are carried at cost and approximate fair value since the interest rates being charged approximate market rates. The fair value of our term loans at December 31, 2016 was approximately $7.3 million. The Company’s outstanding borrowings under

Level 3: Unobservable inputs are significant to the line of credit with Opus had a carrying value of $2 million as of both September 30, 2017 and December 31, 2016. The fair value of the outstanding borrowings with Opus underasset or liability, and include situations where there is little, if any, market activity for the term loans at December 31, 2016 and the line of credit at December 31, 2016 and September 30, 2017 approximated the carrying value, as these borrowings bore interest based on prevailing variable market rates currently available at those dates. As a result, the Company categorizes these borrowings asasset or liability. Our Level 2 in3 instrument includes the fair value hierarchy.

16

Contingent Consideration

The Company’sof contingent consideration of approximately $670,000 and $930,000 as of September 30, 2017 and December 31, 2016, respectively, are Level 3 liabilities.related to completed acquisitions. The fair value at March 31, 2022 is based on discounted cash flow analysis reflecting the likelihood of achieving specified performance measures or events and captures the contractual nature of the contingent consideration at September 30, 2017 and December 31, 2016 was primarily driven by changes in revenue estimates related to the acquisitions during 2015 and 2016, the price of the Company’s common stock on the Nasdaq Capital Market (only for the December 31, 2016 contingent consideration amount),contingencies, the passage of time and the associated discount rate. Due to the numberAs of factors used to determine contingent consideration, it is not possible to determine a range of outcomes. Subsequent adjustments to the fair value ofMarch 31, 2022, the contingent consideration liability will continue to be recorded in the Company’s results of operations until all contingencies are settled.is valued using a Monte Carlo simulation model.

The following table provides a reconciliation of the beginning and ending balances for the contingent consideration measured at fair value using significant unobservable inputs (Level 3):

SCHEDULE OF FAIR VALUE, LIABILITIES MEASURED ON RECURRING BASIS, UNOBSERVABLE INPUT RECONCILIATION

 

Fair Value Measurement at
Reporting Date Using Significant
Unobservable Inputs, Level 3

 
 Fair Value Measurement at Reporting
Date Using Significant Unobservable
Inputs, Level 3		  Three Months Ended March 31, 
 Nine Months Ended September 30,  2022  2021 
 2017 2016  ($ in thousands) 
Balance - January 1, $929,549  $1,172,508  $3,090  $             — 
Acquisitions  -   678,368   —   — 
Change in fair value  151,423   (607,978)  (600)  — 
Settlement in the form of shares issued  (331,676)  - 
Payments  (79,603)  (153,799)  —   — 
Balance - September 30, $669,693  $1,089,099 
Balance - March 31, $2,490  $— 

15. SUBSEQUENT EVENT

During October 2017, the Opus credit facility was replaced with a $5 million revolving line of credit from SVB. Interest on the SVB revolving line of credit is charged at the prime rate plus 1.75%. There is also a fee of one-half of 1% for the unused portion of the credit line. Available borrowings are subject to 200% of repeatable revenue as defined, reduced by an annualized attrition rate. The debt is secured by all of the Company’s domestic assets and 65% of the shares in its offshore facilities.Future acquisitions are subject to approval by SVB.

In connection with the SVB debt agreement, the Company paid approximately $90,000 of fees upfront and issued warrants for SVB to purchase 125,000 shares of its common stock, and committed to pay an annual anniversary fee of $50,000 a year. The warrants have a strike price equal to the highest volume weighted average price per share for any five consecutive trading days during the thirty consecutive trading-day period commencing on the fifteenth trading day immediately preceding the date of the loan agreement. They have a five-year exercise window, piggyback registration and net exercise rights, and will be valued once the strike price is determined. The SVB credit agreement contains various covenants and conditions governing the revolving line of credit.

1723

 

15. SEGMENT REPORTING

The Company’s Chief Executive Officer and Executive Chairman jointly serve as the Chief Operating Decision Maker (“CODM”), organize the Company, manage resource allocations and measure performance among 2operating and reportable segments: (i) Healthcare IT and (ii) Medical Practice Management.

The Healthcare IT segment includes revenue cycle management, SaaS solutions and other services. The Medical Practice Management segment includes the management of three medical practices. Each segment is considered a reporting unit. The CODM evaluates financial performance of the business units on the basis of revenue and direct operating costs excluding unallocated amounts that are mainly corporate overhead costs. Our CODM does not evaluate operating segments using asset or liability information. The accounting policies of the segments are the same as those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 14, 2022. The following table presents revenues, operating expenses and operating income (loss) by reportable segment:

SCHEDULE OF REVENUES, OPERATING EXPENSES AND OPERATING INCOME (LOSS) BY REPORTABLE SEGMENT

  Three Months Ended March 31, 2022 
  ($ in thousands) 
  Healthcare IT  

Medical

Practice Management

  

Unallocated Corporate

Expenses

  Total 
Net revenue $32,153  $3,188  $—  $35,341 
Operating expenses:                
Direct operating costs  20,011   2,662   —   22,673 
Selling and marketing  2,376   8   —   2,384 
General and administrative  3,400   437   1,748   5,585 
Research and development  985   —   —   985 
Change in contingent consideration  (600)  —   —   (600)
Depreciation and amortization  2,852   88   —   2,940 
Net loss on lease termination, impairment and unoccupied lease charges  158   —   —   158 
Total operating expenses  29,182   3,195   1,748   34,125 
Operating income (loss) $2,971  $(7) $(1,748) $1,216 

  Three Months Ended March 31, 2021 
  ($ in thousands) 
  Healthcare IT  

Medical

Practice Management

  

Unallocated Corporate

Expenses

  Total 
Net revenue $27,033  $2,735  $—  $29,768 
Operating expenses:                
Direct operating costs  15,987   2,073   —   18,060 
Selling and marketing  1,882   8   —   1,890 
General and administrative  3,426   520   1,678   5,624 
Research and development  2,026   —   —   2,026 
Depreciation and amortization  2,749   82   —   2,831 
Impairment charges and unoccupied lease charges  1,018   —   —   1,018 
Total operating expenses  27,088   2,683   1,678   31,449 
Operating (loss) income $(55) $52  $(1,678) $(1,681)

16. SUBSEQUENT EVENT

Effective April 1, 2022, the Company created a new subsidiary in Azad Jammu and Kashmir called MTBC Bagh (Private) Limited. This entity is 99.8% owned by CareCloud, Inc. and will include all of the revenues, costs, assets and liabilities for the local operations.

24

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our consolidated financial condition and results of operations for the three and nine months ended September 30, 2017March 31, 2022 and 20162021, and other factors that are expected to affect our prospective financial condition. The following discussion and analysis should be read together with our Condensed Consolidated Financial Statements and related notes beginning on page 4 of this Quarterly Report on Form 10-Q.

Some of the statements set forth in this section are forward-looking statements relating to our future results of operations. Our actual results may vary from the results anticipated by these statements. Please see “Forward-Looking Statements” on page 2 of this Quarterly Report on Form 10-Q.

OverviewCOVID-19 Pandemic

MTBCWhile the COVID-19 pandemic did not materially adversely affect the Company’s consolidated financial results and operations during the three months ended March 31, 2022, economic and health conditions in the United States and across most of the globe continue to change. The Company expanded its telehealth operations, which is an alternative to office visits. However, not all physicians are using telehealth and not to the same extent as previous office visits.

The COVID-19 pandemic affected the Company’s operations in 2021 and may continue to do so indefinitely in the future. The pandemic may have an impact on the Company’s business, operations, and financial results and conditions, directly and indirectly, including, without limitation, impacts on the health of the Company’s management and employees, its operations, marketing and sales activities, and on the overall economy. The spread of the virus did not adversely affect the health and availability of our employees and staff. The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve and the outcomes are uncertain.

Due to the above circumstances and as described generally in this Quarterly Report on Form 10-Q, the Company’s consolidated results of operations for the three months ended March 31, 2022 may not necessarily be indicative of the results to be expected for the full fiscal year. The Company is not aware of any certain event or circumstance that would require an update to its estimates or judgements or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates could change in the future as new information about future developments is obtained. Management cannot predict the future impact of the COVID-19 pandemic on the Company’s consolidated operations nor on economic conditions generally, including the effects on patient visits. The ultimate extent of the effects of the COVID-19 pandemic on the Company is uncertain and will depend on highly unpredictable factors such as the ultimate geographic spread of the disease, the severity of the disease, the duration of outbreak, and the effectiveness of any further developments globally and nationally. The Company will actively monitor the situation and take further action that is in the best interest of our employees, customers, partners, and stockholders.

Overview

The Company is a healthcare information technology company that provides a fully integrated suite of proprietary web-basedSoftware-as-a-Service offerings (“SaaS”) and technology-enabled business solutions, which are often bundled, but are occasionally provided individually, together with related business services to healthcare providers.providers and hospitals throughout the United States. Our integrated Software-as-a-Service (or SaaS)SaaS platform is designed to help our customers increase revenues, streamline workflowsincludes revenue cycle management (“RCM”), practice management (“PM”), electronic health record (“EHR”), business intelligence, telehealth, patient experience management (“PXM”) solutions and make better business and clinical decisions, while reducing administrative burdens and operating costs. We are able to deliver our leading solutions at very competitive prices because we leverage our proprietarycomplementary software which automates our workflows and increases efficiency, together with our highly educated and specialized offshore workforce of more than 1,700 team members at labor costs that we believe to be approximately one-tenth the cost of comparable U.S.

Our flagship offering, PracticePro, empowers healthcare practices with the core softwaretools and business services they need to address industry challenges on one unified SaaS platform. We deliver powerful, integratedfor high-performance medical groups and easy-to-use ‘big practice solutions’ to small and medium practices, which enable them to efficiently operate their businesses, manage clinical workflows and receive timely payment for their services. PracticePro consists of:health systems.

At a high level, these solutions can be categorized as follows:

●Practice managementTechnology-enabled business solutions, which are often bundled but are occasionally provided individually, including:

○EHRs, which are easy to use, integrated with our business services or offered as Software-as-a-Service (“SaaS”) solutions, and allow our healthcare provider clients to deliver better patient care, document their clinical visits effectively and thus potentially qualify for government incentives, reduce documentation errors and reduce paperwork;
○PM software and related tools, which facilitate thesupport our clients’ day-to-day operation of a medical practice;business operations and workflows;

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●Electronic health records (or EHR), which are easy to use, highly ranked, and allow our clients to reduce paperwork and qualify for government incentives;
○●Revenue cycle management (or RCM) services, which include end-to-end medical billing, analytics, and related services; and
●Mobile Health (or mHealth)(“mHealth”) solutions, including smartphone applications that assist patients and healthcare providers in the provision of healthcare services;
○Telehealth solutions, which allow healthcare providers to conduct remote patient visits;
○Healthcare claims clearinghouse, which enables our clients to electronically scrub and submit claims to, and process payments from, insurance companies;
○Business intelligence, customized applications, interfaces and a variety of other technology solutions that support our healthcare clients;
○RCM services, which include end-to-end medical billing, eligibility, analytics, and related services, all of which can often be provided either with our technology platform or through a third-party system; and
○Professional services consisting of application and advisory services, revenue cycle services, data analytic services and educational training services.

●Medical practice management services are provided to medical practices. In this service model, we provide the medical practice with appropriate facilities, equipment, supplies, support services, nurses and administrative support staff. We also provide management, bill-paying and financial advisory services.

Our solutions enable clients to increase financial and operational performance, streamline clinical workflows, get better insight through data, and make better business and clinical decisions, resulting in improvement in patient care and collections while reducing administrative burdens and operating costs.

The modernization of the healthcare industry is transforming nearly every aspect of a healthcare organization from policy to providers, clinical care to member services, devices to data, and ultimately the quality of the patient’s experience as a healthcare consumer. We create elegant, user-friendly applications that solve many of the challenges facing healthcare organizations. We partner with organizations to develop customized, best-in-class solutions to solve their specific challenges while ensuring they also meet future regulatory and organizational requirements and market demands.

We are able to deliver our industry-leading solutions at very competitive prices because we leverage a combination of our proprietary software, which automates our workflows and increases efficiency, together with our team of approximately 700 experienced health industry experts throughout the United States. These experts are supported by our highly educated and specialized offshore workforce of approximately 3,400 team members at labor costs that we believe are approximately one-tenth the cost of comparable U.S. employees. Our unique business model also allowed us to become a leading consolidator in our industry sector, gaining us a reputation for acquiring and positively transforming distressed competitors into profitable operations of CareCloud.

Adoption of our technology-enabled business solutions typically requires little or no upfront expenditure by a provider.client. Additionally, for most of our solutions and customers, our financial performance is linked directly to the financial performance of our clients, becauseas the vast majority of our revenues are based on a percentage of our clients’ collections. The standard feefees we charge for our complete, integrated, end-to-end solution isare very competitive and among the lowest in the industry. We estimate that we currently provide services to approximately 40,000 providers, (which we define as physicians, nurses, nurse practitioners, physician assistants and other clinical staff that render bills for their services) practicing in approximately 2,600 independent medical practices and hospitals representing 80 specialties and subspecialties in 50 states. In addition, we serve approximately 200 clients that are not medical practices, but are primarily service organizations who serve the healthcare community. The foregoing numbers include clients leveraging any of our products or services, and are based, in part, upon estimates where the precise number of practices or providers is unknown.

During the third quarterWe service clients ranging from small practices, consisting of 2017,one to ten providers, to large practices with over 2,300 providers operating in multiple states, to community hospitals.

On January 8, 2020, through a merger with a subsidiary, the Company introduced two new products – talkEHR,acquired CareCloud Corporation, a voice enabled electronic health records (EHR) solutionDelaware corporation which was subsequently renamed CareCloud Health, Inc. (“CCH”), which has developed a highly acclaimed cloud-based platform including EHR, PM and EnrollmentPlus, a SaaS solution that streamlines the insurance enrollment workflow.

patient experience capabilities. The Company haspaid $11.9 million in cash, assumed a clearinghouse service which allows clients to track claim statusworking capital deficiency of approximately $5.1 million and includes services such as batch electronic claimissued 760,000 shares of the Company’s Series A Preferred Stock and payment transaction clearingtwo million warrants for the purchase of the Company’s common stock at prices of $7.50 for two years and web access$10.00 per share for claim corrections. The Company also has an EDI service which provides a centralized electronic data interchange management system to record, manage and control the exchange of information. In addition, the Company has a printing and mailing operation.three years.

Our growth strategy involves both acquisitive and organic growth. Both prongs of our strategy have yielded positive results for us historically.

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With regardOn June 16, 2020, the Company purchased all of the issued and outstanding capital stock of Meridian Billing Management Co. and its affiliate Origin Holdings, Inc. (collectively, “Meridian,” and sometimes referred to our acquisition strategy, we believeas “Meridian Medical Management”), a former GE Healthcare IT company that it is becoming increasingly difficult for traditional RCM companies to meet the growing technology and business service needs ofdelivers advanced healthcare providers without a significant investment in information technology infrastructure.solutions and services. The RCM service industryCompany paid $11.9 million in cash, issued 200,000 shares of the Company’s Series A Preferred Stock and warrants to purchase 2,250,000 of the Company’s common stock with an exercise price per share of $7.50 for two years and assumed Meridian’s negative working capital and certain long-term lease liabilities where the space is highly fragmented,either not being utilized or will be vacated shortly, with many localan aggregate value of approximately $4.8 million.

On June 1, 2021, CareCloud Acquisition Corp (“CAC”), a wholly-owned subsidiary, entered into an Asset and regional RCM companies serving small medical practices. We believe thatStock Purchase Agreement (the “Purchase Agreement”) with MedMatica Consulting Associates, Inc., (“MedMatica”) whereby CAC purchased the industry is ripe for consolidationassets of MedMatica and that we can achieve significant growth through acquisitions.

Our investment in salesthe stock of its wholly-owned subsidiary Santa Rosa Staffing, Inc. (“SRS”). MedMatica and marketing during 2017 has helped us sign new customers which we expect will accelerate organic growth. First, we actively partner with industry participants who cross-market ourSRS provide a broad range of specialty consulting services to hospitals and large healthcare groups, including certain consulting services related to healthcare IT applications services and otherwise provide referrals. Second, our newly launched talkEHR is a free product, but is designed to encourage users to upgradeimplementations, practice management, and revenue cycle management. The total consideration paid at closing was $10 million in cash, net of $1.5 million of escrow withheld. A working capital adjustment of approximately $3.8 million was also paid at closing. The Purchase Agreement provides that if during the 18-month period commencing on June 1, 2021 (“the “Earn-Out Period”), CAC’s EBITDA and revenue targets are achieved, then CAC shall pay an earn-out up to a revenue-generating, premium billing solution. Sincemaximum of $8 million (the “Base Earn-Out”). If during the third quarter launchEarn-Out Period, CAC’s additional and increased EBITDA and revenue targets are achieved, then CAC shall pay an additional earn-out, up to a maximum of talkEHR, more than 200 providers$5 million (the “Additional Earn-Out”, collectively, with the Base Earn-Out, the “Earn-Out”). CAC will have signed-upthe right to offset the Earn-Out against any claim for talkEHRwhich CAC is entitled to indemnification under the Purchase Agreement and a few have already upgraded to our premium billing. As we move forward, we intend to continue to strategically promote talkEHR to new users, while encouraging providers who have already signed-up to actively use talkEHRagainst damages for breaches by the seller of the non-competition and non-solicitation provisions in their day-to-day practice and upgrade to our premium billing solution. Third, a key part of our organic growth strategy for larger groups involves active attendance and participation in industry tradeshows.the Purchase Agreement.

Our offshore operations in the Pakistan Offices and Sri Lanka accounted for approximately 29%11% and 32%12% of total expenses for the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. A significant portion of those foreign expenses were personnel-related costs (approximately 79% and 75%81% for the ninethree months ended September 30, 2017March 31, 2022 and 2016, respectively)approximately 80% for the three months ended March 31, 2021). Because personnel-related costs are significantly lower in Pakistan and Sri Lanka than in the U.S. and many other offshore locations, we believe our offshore operations give us a competitive advantage over many industry participants. All of the medical billing companies that we have acquired use domestic labor or subcontractors from higher cost locations to provide all or a substantial portion of their services. We are able to achieve significant cost reductions as we shift these labor costsand leverage technology to reduce manual work and strategically transition a portion of the remaining manual tasks to our offshore operations.

On October 3, 2016, MTBC Acquisition, Corp. (“MAC”), a newly formed, a wholly-owned subsidiary of MTBC, acquired substantially all the medical billing business and assets of MediGain, LLC, a Texas limited liability company, and its subsidiary Millennium Practice Management Associates, LLC, a New Jersey limited liability company (“Millennium”) (together “MediGain”). In connection with this acquisition, MTBC expects to generate at least $10 million of annual revenue from the customers acquired. Although there is no assurance that the customers will remain with MTBC, the Company expects that this acquisition will continue to be accretive to earnings during the remainder of 2017. During the fourth quarter of 2016 and the first three quarters of 2017, we made significant progress at integrating the acquired operations with MTBC, buthighly-specialized, cost-efficient team in the short term, we had a significant number of additional U.S.-based employees from MediGain. This cost, as well as costs from MediGain’s operations in IndiaU.S., the Pakistan Offices and its offshore subcontractors, impacted MTBC’s expenses during the fourth quarter of 2016 and the first quarter of 2017.Sri Lanka.

Key Performance Measures

We consider numerous factors in assessing our performance. Key performance measures used by management, including adjusted EBITDA, adjusted operating income, adjusted operating margin, adjusted net income and adjusted net income per share, are non-GAAP financial measures, which we believe better enable management and investors to analyze and compare the underlying business results from period to period.

These non-GAAP financial measures should not be considered in isolation, or as a substitute for or superior to, financial measures calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of our business as determined in accordance with GAAP. We compensate for these limitations by analyzing current and future results on a GAAP basis as well as a non-GAAP basis, and we provide reconciliations from the most directly comparable GAAP financial measures to the non-GAAP financial measures. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.

Adjusted EBITDA, adjusted operating income, adjusted operating margin, adjusted net income and adjusted net income per share provide an alternative view of performance used by management and we believe that an investor’s understanding of our performance is enhanced by disclosing these adjusted performance measures.

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Adjusted EBITDA excludes the following elements which are included in GAAP net income (loss):

●Income tax expense (benefit) or the cash requirements to pay our taxes;
●Interest expense, or the cash requirements necessary to service interest on principal payments, on our debt;
●Foreign currency gains and losses and asset impairment charges and other non-operating expenditures;
●Stock-based compensation expense including customer incentivesincludes cash-settled awards and the related fees, and cash-settled awards,taxes, based on changes in the stock price;
●Non-cash depreciationDepreciation and amortization charges, and does not reflect any cash requirements for replacement for capital expenditures;charges;
●Integration costs, such as severance amounts paid to employees from acquired businesses, and transaction costs, such as brokerage fees, pre-acquisition accounting costs and legal fees and exit costs related to terminating leases and other contractual agreements, costs related to specific transactions and restructuring charges arising from discontinued operations; andagreements;
●ChangesNet loss on lease termination, impairment and unoccupied lease charges; and
●Change in contingent consideration.

Set forth below is a presentation of our adjusted EBITDA for the three and nine months ended September 30, 2017March 31, 2022 and 2016:2021:

 Three Months Ended Nine Months Ended 
 September 30, September 30,  Three Months Ended March 31, 
 2017 2016 2017 2016  2022  2021 
 ($ in thousands)  ($ in thousands) 
Net revenue $7,514  $5,341  $23,519  $15,664  $35,341  $29,768 
                        
GAAP net loss $(980) $(1,495) $(5,382) $(4,773)
GAAP net income (loss)  1,140   (1,964)
                        
Provision for income taxes  65   45   192   126 
Provision (benefit) for income taxes  64   (1)
Net interest expense  673   166   1,229   461   95   64 
Foreign exchange / other expense  (24)  14   (34)  40 
Foreign exchange loss / other expense  (56)  244 
Stock-based compensation expense  126   194   334   816   887   1,267 
Depreciation and amortization  664   1,118   3,637   3,537   2,940   2,831 
Integration and transaction costs  85   285   636   609 
Transaction and integration costs  102   232 
Net loss on lease termination, impairment and unoccupied lease charges  158   1,018 
Change in contingent consideration  -   (197)  151   (608)  (600)  - 
Adjusted EBITDA $609  $130  $763  $208  $4,730  $3,691 

Adjusted operating income and adjusted operating margin exclude the following elements whichthat are included in GAAP operating income (loss):

●Stock-based compensation expense including customer incentivesincludes cash-settled awards and the related fees, and cash-settled awards,taxes, based on changes in the stock price;
●Amortization of purchased intangible assets;
●Integration costs, such as severance amounts paid to employees from acquired businesses, and transaction costs, such as brokerage fees, pre-acquisition accounting costs and legal fees and exit costs related to terminating leases and other contractual agreements, costs related to specific transactions and restructuring charges arising from discontinued operations; andagreements;
●ChangesNet loss on lease termination, impairment and unoccupied lease charges; and
●Change in contingent consideration.

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Set forth below is a presentation of our adjusted operating income and adjusted operating margin, which represents adjusted operating income as a percentage of net revenue, for the three and nine months ended September 30, 2017March 31, 2022 and 2016:2021:

  Three Months Ended March 31, 
  2022  2021 
  ($ in thousands) 
Net revenue $35,341  $29,768 
         
GAAP net income (loss)  1,140   (1,964)
Provision (benefit) for income taxes  64   (1)
Net interest expense  95   64 
Other (income) expense - net  (83)  220 
GAAP operating income (loss)  1,216   (1,681)
GAAP operating margin  3.4%  (5.6%)
         
Stock-based compensation expense  887   1,267 
Amortization of purchased intangible assets  1,805   2,135 
Transaction and integration costs  102   232 
Net loss on lease termination, impairment and unoccupied lease charges  158   1,018 
Change in contingent consideration  (600)  - 
Non-GAAP adjusted operating income $3,568  $2,971 
Non-GAAP adjusted operating margin  10.1%  10.0%

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
  ($ in thousands) 
Net revenue $7,514  $5,341  $23,519  $15,664 
                 
GAAP net loss $(980) $(1,495) $(5,382) $(4,773)
Provision for income taxes  65   45   192   126 
Net interest expense  673   166   1,229   461 
Other (income) expense - net  (32)  14   (107)  40 
GAAP operating loss  (274)  (1,270)  (4,068)  (4,146)
GAAP operating margin  (3.6%)  (23.8%)  (17.3%)  (26.5%)
                 
Stock-based compensation expense  126   194   334   816 
Amortization of purchased intangible assets  419   949   2,881   3,077 
Integration and transaction costs  85   285   636   609 
Change in contingent consideration  -   (197)  151   (608)
Non-GAAP adjusted operating income $356  $(39) $(66) $(252)
Non-GAAP adjusted operating margin  4.7%  (0.7%)  (0.3%)  (1.6%)

Adjusted net income and adjusted net income per share exclude the following elements which are included in GAAP net income (loss):

●Foreign currency gains and losses and asset impairment charges and other non-operating expenditures;
●Stock-based compensation expense including customer incentivesincludes cash-settled awards and the related fees, and cash-settled awards,taxes, based on changes in the stock price;
●Amortization of purchased intangible assets;
●Integration costs, such as severance amounts paid to employees from acquired businesses, orand transaction costs, such as brokerage fees, pre-acquisition accounting costs and legal fees and exit costs related to terminating leases and other contractual agreements, costs related to specific transactions and restructuring charges arising from discontinued operations;agreements;
●ChangesNet loss on lease termination, impairment and unoccupied lease charges;
●Change in contingent consideration; and
●Income tax expense (benefit) resulting from the amortization of goodwill related to our acquisitions.

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No tax effect has been provided in computing non-GAAP adjusted net income and non-GAAP adjusted net income per share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes.The following table shows our reconciliation of GAAP net loss to non-GAAP adjusted net income for the three and nine months ended September 30, 2017March 31, 2022 and 2016:2021:

  Three Months Ended March 31, 
  2022  2021 
  ($ in thousands except for per share amounts) 
GAAP net income (loss) $1,140  $(1,964)
         
Foreign exchange loss / other expense  (56)  244 
Stock-based compensation expense  887   1,267 
Amortization of purchased intangible assets  1,805   2,135 
Transaction and integration costs  102   232 
Net loss on lease termination, impairment and unoccupied lease charges  158   1,018 
Change in contingent consideration  (600)  - 
Income tax expense (benefit) related to goodwill  36   (36)
Non-GAAP adjusted net income $3,472  $2,896 

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  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
  ($ in thousands) 
GAAP net loss $(980) $(1,495) $(5,382) $(4,773)
                 
Foreign exchange / other expense  (24)  14   (34)  40 
Stock-based compensation expense  126   194   334   816 
Amortization of purchased intangible assets  419   949   2,881   3,077 
Integration and transaction costs  85   285   636   609 
Change in contingent consideration  -   (197)  151   (608)
Income tax expense related to goodwill  55   42   165   115 
Non-GAAP adjusted net income $(319) $(208) $(1,249) $(724)

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
GAAP net loss per share $(0.14) $(0.17) $(0.62) $(0.53)
                 
GAAP net loss per end-of-period share  (0.09)  (0.15)  (0.47)  (0.46)
Foreign exchange / other expense  0.00   0.00   0.00   0.00 
Stock-based compensation expense  0.01   0.02   0.03   0.08 
Amortization of purchased intangible assets  0.04   0.10   0.25   0.30 
Integration and transaction costs  0.01   0.03   0.06   0.06 
Change in contingent consideration  -   (0.02)  0.01   (0.06)
Income tax expense related to goodwill  0.00   0.00   0.01   0.01 
Non-GAAP adjusted net income per share $(0.03) $(0.02) $(0.11) $(0.07)
                 
End-of-period shares  11,530,591   10,295,370   11,530,591   10,295,370 

Set forth below is a reconciliation of our GAAP net loss attributable to common shareholders, per share to our non-GAAP adjusted net income per share:

  Three Months Ended March 31, 
  2022  2021 
GAAP net loss attributable to common shareholders, per share $(0.19) $(0.36)
Impact of preferred stock dividend  0.27   0.22 
Net income (loss) per end-of-period share  0.08   (0.14)
         
Foreign exchange loss / other expense  0.00   0.02 
Stock-based compensation expense  0.06   0.09 
Amortization of purchased intangible assets  0.11   0.14 
Transaction and integration costs  0.01   0.02 
Net loss on lease termination, impairment and unoccupied lease charges  0.01   0.07 
Change in contingent consideration  (0.04)  0.00 
Income tax expense (benefit) related to goodwill  0.00   0.00 
Non-GAAP adjusted earnings per share $0.23  $0.20 
         
End-of-period common shares  15,062,651   14,399,790 
In-the-money warrants and outstanding unvested RSUs  790,926   2,698,127 
Total fully diluted shares  15,853,577   17,097,917 
Non-GAAP adjusted diluted earnings per share $0.22  $0.17 

For purposes of determining non-GAAP adjusted net incomeearnings per share, the Company used the number of common shares outstanding at the end of September 30, 2017March 31, 2022 and 2016, including shares which were issued but have2021. Non-GAAP adjusted diluted earnings per share was computed using an as-converted method and includes warrants that are in-the-money as of that date as well as outstanding unvested RSUs. Non-GAAP adjusted earnings per share and non-GAAP adjusted diluted earnings per share do not been settled, and considered contingent consideration. Accordingly, the end-of-period diluted common shares include 248,625 of contingently issuable shares at September 30, 2016.take into account dividends paid on Preferred Stock. No tax effect has been provided in computing non-GAAP adjusted net incomeearnings per share and non-GAAP adjusted net incomediluted earnings per common share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes.

Key Metrics

In addition to the line items in our consolidated financial statements, we regularly review the following key metrics to evaluate our business, measure our performance, identify trends in our business, prepare financial projections, make strategic business decisions, and assess market share trends and working capital needs.metrics. We believe information on these metrics is useful for investors to understand the underlying trends in our business.

Set forth below are our key operating and financial metrics for RCM customers using our platform, which excludes acquired customers who have not migrated to our platform as well as customers of our clearinghouse, EDI and other services. Revenue from practices using our proprietary platform accounted for approximately 47% of our revenue for the nine months ended September 30, 2017 and approximately 75% of our revenue for the nine months ended September 30, 2016.

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First Pass Acceptance Rate: We define first pass acceptance rate as the percentage of claims submitted electronically by us, through our platform, to insurers and clearinghouses that are accepted on the first submission and are not rejected for reasons such as insufficient information or improper coding. Our first-time acceptance rate was approximately 96% for the twelve months ended September 30, 2017 and 2016, which compares favorably to the average of the top twelve payers of approximately 95%, as reported by the American Medical Association.

First Pass Resolution Rate: First pass resolution rate measures the percentage of primary claims that are favorably adjudicated and closed upon a single submission. Our first pass resolution rate was approximately 94% for the twelve months ended September 30, 2017 and 2016.

Days in Accounts Receivable: Days in accounts receivable measures the median number of days between the day a claim is submitted by us on behalf of our customer, and the date the claim is paid to our customer. Our clients’ median days in accounts receivable was approximately 36 days for primary care and 41 days for combined specialties for the twelve months ended September 30, 2017, and approximately 31 days for primary care and 39 days for combined specialties for the twelve months ended September 30, 2016, as compared to the national average of 36 and 40 days, respectively, as reported by the Medical Group Management Association in 2016.

Providers and Practices Served: As of September 30, 2017,March 31, 2022, we provided RCM and related services to an estimated universe of approximately 2,60040,000 providers (which we define as physicians, nurses, nurse practitioners, physician assistants and other clinical staff that render bills for their services), representing approximately 740 practices.2,600 independent medical practices and hospitals. In addition, we served approximately 230200 clients who were not medical practices, but are service organizations who serve the healthcare community. AsThe foregoing numbers include clients leveraging any of September 30, 2016, we served approximately 1,820our products or services and are based in part upon estimates in cases where the precise number of practices or providers representing approximately 740 practices.is unknown.

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Sources of Revenue

 

Revenue:We primarily derive our revenues from revenue cycle management services,subscription-based technology-enabled business solutions, reported in our Healthcare IT segment, which are typically billed as a percentage of payments collected by our customers. This fee includes RCM, as well as the ability to use our electronic health recordsEHR, practice management system and practice managementother software as part of the bundled fee. These paymentssolutions accounted for approximately 89% of our revenues during both the three66% and nine months ended September 30, 2017, and 85% and 86%87% of our revenues during the three and nine months ended September 30, 2016,March 31, 2022 and 2021, respectively. Other healthcare IT services, including printing and mailing operations, group purchasing and professional services, represented approximately 25% and 4% of revenues for the three months ended March 31, 2022 and 2021, respectively.

We earned approximately 2%9% and 9% of our revenue from clearinghouse and EDI clientsmedical practice management services during both the three and nine months ended September 30, 2017,March 31, 2022 and 3%2021. This revenue represents fees based on our actual costs plus a percentage of the operating profit and is reported in our revenue from clearinghouse and EDI clients for both the three and nine months ended September 30, 2016. We earned approximately 5% and 4% of our revenue from printing and mailing operations during the three and nine months ended September 30, 2017, respectively, and 6% and 2% of our revenue from printing and mailing operations during the three and nine months ended September 30, 2016, respectively.Medical Practice Management segment.

Operating Expenses

 

Direct Operating Costs.Direct operating cost consists primarily of salaries and benefits related to personnel who provide services to our customers, claims processing costs, costs to operate the three managed practices, including facility lease costs, supplies, insurance and other direct costs related to our services. Costs associated with the implementation of new customers are expensed as incurred. The reported amounts of direct operating costs do not include depreciation and amortization, which are broken out separately in the condensed consolidated statements of operations.

Selling and Marketing Expense.Selling and marketing expense consists primarily of compensation and benefits, commissions, travel and advertising expenses.

Research and Development Expense.Research and development expense consists primarily of personnel-related costs and third-party contractor costs.

General and Administrative Expense.General and administrative expense consists primarily of personnel-related expense for administrative employees, including compensation, benefits, travel, occupancyfacility lease costs and insurance, software license fees and outside professional fees.

Research and Development Expense. Research and development expense consists primarily of personnel-related costs, software expense and third-party contractor costs.

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Contingent Consideration.Contingent consideration represents the amountportion of consideration payable to the sellers of some of our acquisitions, the amount of which is based on the achievement of defined performance measures contained in the purchase agreements. Contingent consideration is adjusted to fair value at the end of each reporting period.

Depreciation and Amortization Expense.Depreciation expense is charged using the straight-line method over the estimated lives of the assets ranging from three to five years. Amortization expense is charged on either an accelerated or on a straight-line basis over a period of three or four years for most intangible assets acquired in connection with acquisitions.acquisitions including those intangibles related to the group purchasing services. Amortization expense related to the value of our medical practice management clients is amortized on a straight-line basis over a period of twelve years.

Net loss on lease termination, Impairment and Unoccupied Lease Charges. Net loss on lease termination represents the write-off of leasehold improvements and gains or losses as the result of early lease terminations. Impairment charges represent charges recorded for a leased facility no longer being used by the Company and a non-cancellable vendor contract where the services are no longer being used. Unoccupied lease charges represent the portion of lease and related costs for vacant space not being utilized by the Company.

Interest and Other Income (Expense). Interest expense consists primarily of interest costs related to our working capital line of credit, term loans and amounts due in connection with acquisitions, offset by interest income. Our otherOther income (expense) results primarily from foreign currency transaction gains (losses). and income earned from temporary cash investments.

Income Tax. In preparing our condensed consolidated financial statements, we estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred income tax assets and liabilities. Although the Company is forecasting a return to profitability, it incurred cumulative losses historically and there is uncertainty regarding future U.S. taxable income, which makemakes realization of a deferred tax asset difficult to support in accordance with ASC 740. Accordingly, a valuation allowance has been recorded against all deferred tax assets as of September 30, 2017March 31, 2022 and December 31, 2016.2021.

Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in accordance with GAAP. The preparation of these financial statements requires us to make estimatescritical accounting policies and assumptions about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expense and related disclosures. We base our estimates, assumptions and judgments on historical experience, current trends and various other factors that we believe to be reasonable under the circumstances. The accounting estimates used in the preparation of our condensed consolidated financial statements that we believe affect our more significant judgments and estimates used in the preparation of our consolidated financial statements presented in this Report are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

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Leases:

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liability (current portion) and operating lease liability (noncurrent portion) in the consolidated balance sheets at March 31, 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.

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 bank financing arrangements, geographical location and collateralization of assets when calculating our incremental borrowing rates.

Our lease term includes options to extend the lease when it is reasonably certain that we will changeexercise that option. Leases with a term of less than 12 months are not recorded in the consolidated balance sheet. Our lease agreements do not contain any residual value guarantees. For real estate leases, we account for the leased and non-leased components as a single lease component. Some leases include escalation clauses and termination options that are factored into the determination of the future lease payments when appropriate.

Capitalized software costs:

All of our software is considered internal use for accounting purposes, as we do not market or sell our software. As a result, we capitalize certain costs associated with the creation of internally-developed software for internal use. The total of these costs is recorded in Intangible assets – net in our consolidated balance sheets.

We capitalized costs incurred during the application development stage related to our internal use software. Costs incurred during the application development phase are capitalized only when we believe it is probable that the development will result in new events occur,or additional functionality. The types of costs capitalized during the application development phase consist of employee compensation, employee benefits and employee stock- based compensation. Costs related to the preliminary project stage and post-implementation activities are expensed as more experienceincurred. Capitalized internal-use software is acquired,amortized on a straight-line basis over its estimated useful life when the asset has been placed in service for general availability.

Significant judgments related to internally-developed software include determining whether it is probable that projects will result in new or additional functionality; concluding on when the application development phase starts and ends; and deciding which costs, especially employee compensation costs, should be capitalized. Additionally, there is judgment applied to the useful lives of capitalized software; we have concluded that the useful lives for capitalized internally-developed software is three years.

Company management employs its best estimates and assumptions in determining the appropriateness of the judgments noted above on a project-by-project basis during initial capitalization as additional information is obtained andwell as subsequent measurement. While we believe that our operating environment changes. On a regular basis, we review our accounting policies,approach to estimates assumptions and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty,is reasonable, actual results could differ, from our assumptions and estimates, and such differences could be material.lead to an increase or decrease in expense.

As of March 31, 2022 and December 31, 2021, the carrying amounts of internally-developed capitalized software in use was $13.1 million and $11.6 million, respectively. The methods, estimates and judgments that we useincrease in applying our accounting policies have a significant impact on our results of operations. the capitalized software costs represents the continued investment in proprietary technology.

There have been no material changes in our critical accounting policies and estimates from those described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2016,2021, filed with the SEC on March 31, 2017.14, 2022.

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Results of Operations

The following table sets forth our consolidated results of operations as a percentage of total revenue for the periods shown.shown:

  Three Months Ended March 31, 
  2022  2021 
Net revenue  100.0%  100.0%
Operating expenses:        
Direct operating costs  64.2%  60.7%
Selling and marketing  6.7%  6.3%
General and administrative  15.8%  18.9%
Research and development  2.8%  6.8%
Change in contingent consideration  (1.7%)  0.0%
Depreciation and amortization  8.3%  9.5%
Net loss on lease termination, impairment and unoccupied lease charges  0.4%  3.4%
Total operating expenses  96.5%  105.6%
         
Operating income (loss)  3.5%  (5.6%)
         
Interest expense - net  0.3%  0.2%
Other income (expense) - net  0.2%  (0.7%)
Income (loss) before income taxes  3.4%  (6.5%)
Income tax provision (benefit)  0.2%  (0.0%)
Net income (loss)  3.2%  (6.5%)

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  2017  2016  2017  2016 
Net revenue  100.0%  100.0%  100.0%  100.0%
Operating expenses:                
Direct operating costs  55.5%  50.0%  57.8%  46.6%
Selling and marketing  3.0%  5.1%  3.6%  5.4%
General and administrative  32.9%  48.1%  35.0%  52.2%
Change in contingent consideration  0.0%  (3.7%)  0.6%  (3.9%)
Research and development  3.3%  3.3%  3.6%  3.7%
Depreciation and amortization  8.8%  20.9%  15.5%  22.6%
Restructuring charges  0.0% 0.0% 1.2% 0.0%
Total operating expenses  103.5%  123.7%  117.3%  126.6%
                 
Operating loss  (3.5%)  (23.7%)  (17.3%)  (26.6%)
                 
Interest expense - net  9.0%  3.1%  5.2%  2.9%
Other income (expense) - net  0.4%  (0.3%)  0.5%  (0.3%)
Loss before income taxes  (12.1%)  (27.1%)  (22.0%)  (29.8%)
Income tax provision  0.9%  0.8%  0.8%  0.8%
Net loss (13.0%)  (27.9%)  (22.8%)  (30.6%)

Comparison of the three and nine months ended September 30, 2017March 31, 2022 and 20162021

  

Three Months Ended

September 30,

  Change  Nine Months Ended
September 30,		  Change 
  2017  2016  Amount  Percent  2017  2016  Amount  Percent 
Revenue $7,513,592  $5,341,002  $2,172,590   41% $23,518,416  $15,663,687  $7,854,729   50%
  Three Months Ended
March 31,		  Change 
  2022  2021  Amount  Percent 
  ($ in thousands) 
Net revenue $35,341  $29,768  $5,573   19%

Net Revenue.TotalNet revenue of $7.5 million and $23.5$35.3 million for the three and nine months ended September 30, 2017March 31, 2022 increased by $2.2$5.6 million or 41% and $7.9 million or 50%19% from net revenue of $5.3 million and $15.7$29.8 million for the three and nine months ended September 30, 2016. Total revenueMarch 31, 2021. Revenue for the three and nine months ended September 30, 2017 includedMarch 31, 2022 includes approximately $4.1$7.3 million and $12.8 million of revenue from customers we acquired fromin the 2016 Acquisitions (primarily MediGain), offset by attrition from customers.medSR acquisition. Revenue for the three months ended March 31, 2022 includes $23.2 million relating to technology-enabled business solutions, $8.3 million related to professional services and $3.2 million for medical practice management services.

  Three Months Ended
September 30,		  Change  Nine Months Ended
September 30,		  Change 
  2017  2016  Amount  Percent  2017  2016  Amount  Percent 
Direct operating costs $4,171,932  $2,670,385  $1,501,547   56% $13,592,492  $7,292,415  $6,300,077   86%
Selling and marketing  228,991   274,796   (45,805)  (17%)  853,460   838,721   14,739   2%
General and administrative  2,474,139   2,569,399   (95,260)  (4%)  8,232,613   8,173,272   59,341   1%
Research and development  249,045   174,876   74,169   42%  843,294   575,059   268,235   47%
Change in contingent consideration  -   (196,882)  196,882   100%  151,423   (607,978)  759,401   125%
Depreciation  156,237   128,743   27,494   21%  484,429   369,204   115,225   31%
Amortization  508,204   989,539   (481,335)  (49%)  3,152,702   3,167,736   (15,034)  (0%)
Restructuring charges  -   -   -  100%  275,628   -   275,628  100%
Total operating expenses $7,788,548  $6,610,856  $1,177,692  18% $27,586,041  $19,808,429  $7,777,612  39%

  Three Months Ended
March 31,		  Change 
  2022  2021  Amount  Percent 
  ($ in thousands) 
Direct operating costs $22,673  $18,060  $4,613   26%
Selling and marketing  2,384   1,890   494   26%
General and administrative  5,585   5,624   (39)  (1%)
Research and development  985   2,026   (1,041)  (51%)
Change in contingent consideration  (600)  -   (600)  (100%)
Depreciation  449   460   (11)  (2%)
Amortization  2,491   2,371   120   5%
Net loss on lease termination, impairment and unoccupied lease charges  158   1,018   (860)  (84%)
Total operating expenses $34,125  $31,449  $2,676   9%

Direct Operating Costs.Direct operating costs of $4.2 million and $13.6$22.7 million for the three and nine months ended September 30, 2017, respectively,March 31, 2022 increased by $1.5$4.6 million or 56% and $6.3 million or 86% from26% compared to direct operating costs of $2.7 million and $7.3$18.1 million for the three and nine months ended September 30, 2016, respectively. The MediGain acquisition increased salary costs by $912,000 and $3.3 million in the U.S. and $172,000 and $733,000 in India and Sri Lanka and operational outsourcing costs by $107,000 and $466,000 duringMarch 31, 2021. During the three and nine months ended September 30, 2017, respectively. Postage and deliveryMarch 31, 2022, salary costs increased by $243,000$1.9 million, and $690,000outsourcing and processing costs increased by $2.3 million. The increase in these costs for the three and nine months ended September 30, 2017, respectively,March 31, 2022 were primarily duerelated to the acquisition of WFS. Salary and other related expenses in Pakistan increased by $332,000 and $1.1 million for the three and nine months ended September 30, 2017, respectively, as a result of the additional employees in Pakistan hired to service customers of the 2016 Acquisitions.medSR acquisition.

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Selling and Marketing Expense.Selling and marketing expense of $229,000 and $853,000$2.4 million for the three and nine months ended September 30, 2017, respectively, decreased by $46,000 or 17% andMarch 31, 2022 increased by $15,000$494,000 or 2%26% from selling and marketing expense of $275,000 and $839,000 for the three and nine months ended September 30, 2016, respectively.

General and Administrative Expense.General and administrative expense of $2.5$1.9 million for the three months ended September 30, 2017March 31, 2021. The increase was primarily related to additional emphasis on sales and marketing activities.

General and Administrative Expense. General and administrative expense of $5.6 million for the three months ended March 31, 2022 decreased by $95,000 or 4% and for the nine months ended September 30, 2017, general and administrative expenses of $8.2 million increased by $59,000$39,000 or 1% compared to the same period in 2016.three months ended March 31, 2021. The reductionthree-month decrease in general and administrative expense for the three months ended September 30, 2017 was primarily related to an overall decrease in expenses offset by an increase in salaries and wages due to reduced salary costs and professional fees. The increase for the nine months ended September 30, 2017 compared to the same period in 2016 relates to additional salary costs from the MediGainmedSR acquisition. The integration of acquired businesses resulted in expense reductions related to the closing of offices and reducing third party expenses such as computer expenses, accommodation costs, office costs, and insurance expenses, which offset increased general and administrative resulting from the acquisitions.

Research and Development Expense. Research and development expense of $249,000 and $843,000$985,000 for the three and nine months ended September 30, 2017, respectively, increasedMarch 31, 2022 decreased by $74,000 or 42% and $268,000 or 47%approximately $1.0 million from research and development expense of $175,000 and $575,000$2.0 million for the three and nine months ended September 30, 2016, respectively, as a resultMarch 31, 2021. The decrease represents less maintenance work on platforms generating revenue and more resources dedicated to development of adding additional technical employeesnew technology which is not yet in Pakistan performingcommercial use. During the three months ended March 31, 2022 and 2021, the Company capitalized approximately $2.3 million and $1.5 million of development costs in connection with its internal-use software, development work.respectively.

Change in Contingent Consideration.The change in contingent consideration of $151,000 during$600,000 for the ninethree months ended September 30, 2017 and $197,000 and $608,000 duringMarch 31, 2022 reflects the three and nine months ended September 30, 2016, respectively, relates to the changeestimated decrease in the fair value of the contingent consideration from acquisitions. The expense for the nine months ended September 30, 2017 resulted from an increase in the price of the Company’s common stock for the Practicare shares that were held in escrow and released during June 2017.medSR acquisition.

Depreciation.Depreciation of $156,000 and $484,000$449,000 for the three and nine months ended September 30, 2017, respectively, increased by $27,000 or 21% and $115,000 or 31% from depreciation of $129,000 and $369,000 for the three and nine months ended September 30, 2016, respectively, primarily as a result of additional property and equipment purchases and the acquisition of property and equipment from the MediGain acquisition.

Amortization Expense.Amortization expense of $508,000 and $3.2 million for the three and nine months ended September 30, 2017, respectively, decreased by $481,000 and $15,000 from amortization expense of $990,000 and $3.2 million for the three and nine months ended September 30, 2016, respectively. This decrease during the three months ended September 30, 2017 resultedMarch 31, 2022 decreased by $11,000 or 2% from the intangible assets acquired in connection with our 2014 acquisitions becoming fully amortized. The Company generally amortizes intangible assets over three years.

Restructuring Charges. In connection with the closingdepreciation of its subsidiaries in Poland and India, as of March 31, 2017, the Company accrued approximately $276,000 of restructuring charges representing primarily employee severance costs, remaining lease and termination fees and professional fees. The Company anticipates that the liquidation will be completed in early 2018. A substantial amount of the work performed by these locations was transferred to the Pakistan facility. The Company will also be using an outside contractor to perform some of the work previously performed by the Indian subsidiary. As a result of closing the Poland and India facilities, the Company will no longer need to fund the costs of these facilities.

26

  Three Months Ended
September 30,		  Change  Nine Months Ended
September 30,		  Change 
  2017  2016  Amount  Percent  2017  2016  Amount  Percent 
Interest income $5,446  $10,918  $(5,472)  (50%) $13,598  $25,310  $(11,712)  (46%)
Interest expense  (678,103)  (176,527)  (501,576)  (284%)  (1,242,672)  (486,481)  (756,191)  (155%)
Other income (expense) - net  32,494   (13,933)  46,427   333%  107,364   (40,447)  147,811   365%
Income tax provision  65,000   45,309   19,691   43%  192,332   126,236   66,096   52%

Interest Income.Interest income of $5,000 and $14,000$460,000 for the three and nine months ended September 30, 2017, respectively, decreased by $5,000 or 50% and $12,000 or 46% from interest income of $11,000 and $25,000 for the three and nine months ended September 30, 2016, respectively. Interest income primarily represents late fees from customers.March 31, 2021.

InterestAmortization Expense.InterestAmortization expense of $678,000 and $1.2 million for the three and nine months ended September 30, 2017, respectively, increased by $502,000 or 284% and $756,000 or 155% from interest expense of $177,000 and $486,000 for the three and nine months ended September 30, 2016, respectively. This increase was primarily due to additional interest costs on borrowings under our term loans and line of credit and amounts related to the MediGain acquisition. Also, included in the 2017 interest expense is $463,000 of deferred financing costs related to the Opus credit agreement, which were written off as a result of the loans being paid off and the agreement terminated two years earlier than anticipated.

Other Income (Expense) - net.Other income - net was $32,000 and $107,000 for the three and nine months ended September 30, 2017, respectively, compared to other expense - net of $14,000 and $40,000 for the three and nine months ended September 30, 2016, respectively. Included in other income (expense) are foreign currency transaction gains (losses) primarily resulting from transactions in foreign currencies other than the functional currency. These transaction gains and losses are recorded in the condensed consolidated statements of operations related to the recurring measurement and settlement of such transactions. Other income for the nine months ended September 30, 2017 also includes $59,000 in cash received, net of obligations assumed, from the former owners of an acquired business as compensation for early termination of a client contract.

Income Tax Provision.There was a $65,000 and $192,000 provision for income taxes for the three and nine months ended September 30, 2017, respectively, an increase of $20,000 or 43% and $66,000 or 52% compared to the provision for income taxes of $45,000 and $126,000 for the three and nine months ended September 30, 2016, respectively. Included in the nine month ended September 30, 2017 and 2016 tax provisions are $165,000 and $115,000, respectively, deferred income tax provisions related to the amortization of goodwill. The increase in the income tax provisions is due to additional deferred income taxes relating to the Company’s acquisitions. The pre-tax loss decreased from $1.4$2.5 million for the three months ended September 30, 2016,March 31, 2022 increased by $120,000 or 5% from amortization expense of $2.4 million for the three months ended March 31, 2021. The increase was primarily related to $915,000 and increased from $4.6 million to $5.2 millionthe intangible assets acquired from the ninemedSR acquisition as well as amortization of software which was previously capitalized and now placed into use.

Net loss on lease termination, Impairment and Unoccupied Lease Charges. Net loss on lease termination represents the write-off of leasehold improvements and gains or losses as the result of early lease terminations. Impairment charges represent charges recorded for a leased facility no longer being used by the Company and a non-cancellable vendor contract where the services are no longer being used. Unoccupied lease charges represent the portion of lease and related costs for that portion of the space that is vacant and not being utilized by the Company. The Company was able to turn back to the landlord one of the unused facilities effective January 1, 2022.

  Three Months Ended
March 31,		  Change 
  2022  2021  Amount  Percent 
  ($ in thousands) 
Interest income $5  $15  $(10)  (67)%
Interest expense  (100)  (79)  (21)  (27)%
Other income (expense) - net  83   (220)  303   138%
Income tax provision (benefit)  64   (1)  (65)  (6,500)%

Interest Income. Interest income of $5,000 for the three months ended September 30, 2016March 31, 2022 decreased by $10,000 from interest income of $15,000 for the three months ended March 31, 2021. The interest income represents interest earned on temporary cash investments.

Interest Expense. Interest expense of $100,000 for the three months ended March 31, 2022 increased by $21,000 or 27% from interest expense of $79,000 for the three months ended March 31, 2021. Interest expense includes the amortization of deferred financing costs, which was $30,000 and $36,000 during the three months ended March 31, 2022 and 2021, respectively.

34

Other Income (Expense) – net. Other income – net was $83,000 for the three months ended March 31, 2022 compared to other expense – net of $220,000 for the three months ended March 31, 2021. Other income (expense) primarily represents foreign currency transaction gains and other expense primarily represents foreign currency transaction losses. These transaction gains and losses result from revaluing intercompany accounts whenever the exchange rate varies and are recorded in the consolidated statements of operations.

Income Tax Provision (Benefit). The provision for income taxes was $64,000 for the three months ended March 31, 2022 compared to the same period in 2017. Althoughbenefit for income taxes of $1,000 for the three months ended March 31, 2021. As a result of the Company is forecasting a returnhaving certain net operating losses with an indefinite life under the current Federal tax rules, the federal deferred tax liability was offset against the federal net operating loss to profitability, itthe extent allowable in 2022 and 2021. The current income tax expense for the three months ended March 31, 2022 was approximately $28,000 and includes state minimum taxes and foreign income taxes. The Company has incurred three years of cumulative losses historically and there is uncertainty regarding future U.S. taxable income, which makemakes realization of a deferred tax assetlosses difficult to support in accordance with ASC 740. Accordingly, a valuation allowance was recorded against all deferred tax assets at September 30, 2017March 31, 2022 and 2016.December 31, 2021.

Liquidity and Capital Resources

During the three months ended March 31, 2022, there was positive cash flow from operations of $3.1 million and at March 31, 2022, the Company had $10.1 million in cash and restricted cash and positive working capital of $8.7 million. The Company hadhas a cash balance of $2.8 million at September 30, 2017, and an outstanding balance of $2.0 million drawn on its revolving credit facility with Opus Bank (“Opus”).

During October 2017, the Company repaid and closed its Opus credit facility and replaced it with a $5 million revolving line of credit with Silicon Valley Bank (“SVB”). Borrowings under the SVB, facility are based on amounts on 200%and, as of repeatable revenue and adjusted for an annualized recurring churn rate. Under the SVB agreement, the facility currently available to the Company is in excess of $4.0 million.

During the nine months ended September 30, 2017,March 31, 2022, there was negative cash flow from operations of approximately $1.3a $6 million as the Company integrated its 2016 Acquisitions, the largest ofbalance outstanding, which was MediGain.repaid in early April. During the three months ended September 30, 2017, cash flow used by operations was $619,000. IncludedMarch 31, 2022, the Company sold 1,150,372 shares of Series B Preferred Stock and raised $26.6 million in this amount is $270,000 of interest paid to Prudential.net proceeds after fees and expenses.

27

The following table summarizes our cash flows:flows for the periods presented:

 Three Months Ended
September 30,		 Nine Months Ended
September 30,		  

Three Months Ended

March 31,

  Change 
 2017 2016 2017 2016  2022  2021  Amount  Percent 
Net cash used in operating activities $(618,752) $(169,023) $(1,307,637) $(485,728)
 ($ in thousands)   
Net cash provided by operating activities $3,087  $958  $2,129   222%
Net cash used in investing activities  (359,773)  (127,461)  (704,988)  (1,744,870)  (2,797)  (2,219)  (578)  (26)%
Net cash (used in) provided by financing activities  (1,990,525)  783,673   1,400,885   1,290,214   (342)  1,157   (1,499)  (130)%
Effect of exchange rate changes on cash  (52,054)  4,385   (75,758)  11,317   (152)  174   (326)  (187%
Net (decrease) increase in cash $(3,021,104) $491,574  $(687,498) $(929,067)
Net (decrease) increase in cash and restricted cash $(204) $70  $(274)  (391)%

In September 2015,Income before income taxes was $1.2 million for the Company secured a $10 million credit facility from Opus, including an $8 million term loan and a $2 million revolving line of credit. During October 2017, the credit facility with Opus was repaid and terminated, and replaced with a $5 million revolving line of credit from SVB. The Company has available in excess of $4.0 million under the SVB facility.

The Company had $2.8three months ended March 31, 2022, which included $2.9 million of cashnon-cash depreciation and had positive working capital of $913,000 at September 30, 2017.amortization. The loss before income taxes was $915,000 for the three months ended September 30, 2017,March 31, 2021 was $2.0 million, which included $2.8 million of which $664,000 was non-cash depreciation and amortization. Additionally, the non-cash write-off of the deferred financing costs due to early the termination of the Opus credit agreement was $463,000.

Management achieved extensive expense reductions following the acquisition of MediGain in October 2016. The cost cutting included closing certain domestic and foreign facilities, eliminating reliance on subcontractors, and reducing non-essential personnel where work could be performed by offshore employees more cost-effectively. Direct operating and general and administrative costs decreased by $1.9 million and $1.8 million, respectively from the fourth quarter of 2016 to the third quarter of 2017. This represented reductions of 32% and 42%, respectively.

During the second and third quarter of 2017, the Company completed several equity financings totaling approximately $15.0 million in net proceeds.

Collectively, these developments dramatically improved the financial position of the Company. Management continues to focus on the Company’s overall profitability, including growing revenue and managing expenses, and expects that these efforts will continue to enhance our liquidity and financial position, allowing us to run our business, and comply with all bank covenants.

Operating Activities

Although revenueCash provided by operating activities was $3.1 million and $958,000 during the three months ended March 31, 2022 and 2021, respectively. The increase in net income of $3.1 million included the following changes in non-cash items: increase in depreciation and amortization of $135,000, decrease in stock-based compensation of $380,000, and an increase in the change in contingent consideration of $600,000. Revenue increased by $7.9$5.6 million for the ninethree months ended September 30, 2017March 31, 2022 compared to the ninethree months ended September 30, 2016,March 31, 2021, and operating expenses increased by $7.8$2.7 million for the same period, primarily due to the acquisition of MediGain inmedSR.

Accounts receivable increased by $1.6 million for the fourth quarter of 2016. Cash used in operating activities was $1.3 million during the ninethree months ended September 30, 2017, compared to $486,000 during the nine months ended September 30, 2016. The increase in the net loss of $609,000 included the following changes in non-cash items: additional depreciation and amortization of $100,000, additional provision for doubtful accounts of $152,000, additional interest accretion of $528,000 and a change in contingent consideration of $759,000, offset by a decrease in stock compensation expense of $432,000 and a change in working capital of $1.4 million.

Accounts receivable decreased by $438,000 for the nine months ended September 30, 2017,March 31, 2022 compared with an increase of $161,000$522,000 for the ninethree months ended September 30, 2016.March 31, 2021. Accounts payable, accrued compensation and accrued expenses decreased $1.8by $1.1 million during the three months ended March 31, 2022 compared with a decrease of $1.7 million for the ninethree months ended September 30, 2017 (primarily due to the payment of liabilities assumed in connection with the MediGain acquisition and the reduction in the use of outside contractors) compared to an increase of $91,000 for the nine months ended September 30, 2016.March 31, 2021.

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Investing Activities

CashNet cash used in investing activities duringwas $2.8 million and $2.2 million for the ninethree months ended September 30, 2017 was $705,000, a decrease of $1.0 million compared to $1.7 million duringMarch 31, 2022 and 2021, respectively. Capital expenditures were $544,000 and $695,000 for the ninethree months ended September 30, 2016. DuringMarch 31, 2022 and 2021, respectively. The capital expenditures for the ninethree months ended September 30, 2017, $205,000 was paidMarch 31, 2022 and 2021 primarily represented computer equipment purchased and leasehold improvements for the Pakistan Offices. Software development costs of $2.3 million and $1.5 million for the three months ended March 31, 2022 and 2021, respectively, were capitalized in connection with the acquisitiondevelopment of WMB. During the nine months ended September 30, 2016, $1.25 million and $175,000 was paid in connection with the acquisitions of GCB and RMB, respectively.software for providing technology-enabled business solutions.

Financing Activities

CashNet cash used by financing activities was $342,000 during the three months ended March 31, 2022 and cash provided by financing activities during the nine months ended September 30, 2017 was $1.4 million, compared to $1.3$1.2 million during the ninethree months ended September 30, 2016.March 31, 2021. The Company received net proceeds from the sale of Series B Preferred Stock of $26.6 million of which $20.0 million was used to redeem 800,000 shares of Series A Preferred Stock. Net repayments on the credit line were $2.0 million. Cash provided byused in financing activities during the ninethree months of 2017 includes $13.0ended March 31, 2022 included $3.9 million of net proceeds from issuing approximately 610,000 shares of preferred stock $2.0 million raised from issuing one million shares of common stock, offset by $7.6 milliondividends, $251,000 of repayments for debt obligations a $5 million paymentand $775,000 of tax withholding obligations paid in connection with stock awards issued to Prudential and $847,000 of preferred stock dividends.employees. Cash provided byused in financing activities for ninethe three months ended September 30, 2016March 31, 2021 included $2$3.6 million of additional borrowings on the Opus line of credit, offset by $554,000 repayment of debt obligations, $507,000 of preferred stock dividends, and $546,000$241,000 of repurchases of common stock. Average borrowings from our revolving line of credit were $178,000repayment for the nine months ended September 30, 2016, compared todebt obligations and $1.4 million for the nine months ended September 30, 2017.of tax withholding obligations paid in connection with stock awards issued to employees.

During October 2017, the Company replaced its Opus credit facility with a $5 million revolving line of credit from SVB. Borrowings under the credit facility are based on 200% of repeatable revenue reduced by an annualized attrition rate, as defined in the agreement. The Company currently has in excess of $4 million available on the SVB credit line.

Contractual Obligations and Commitments

We have contractual obligations under our line of credit and related to contingent considerationcredit. We were in connectioncompliance with the acquisitions made in 2015 and 2016.all SVB covenants as of March 31, 2022. We also maintain operating leases for property and certain office equipment. For additional information, see Contractual Obligations and Commitments under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2021, filed with the SEC on March 31, 2017.14, 2022.

Off-Balance Sheet Arrangements

As of September 30, 2017March 31, 2022, and 2016,2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Other than our operating leasesDuring the first quarter of 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 office space, computer equipment and other property, we dofinancial reporting purposes because the entity will be controlled by the Company. As of March 31, 2022, talkMD had not engage in off-balance sheet financing arrangements.yet commenced operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by 17C.F.R.17 C.F.R. 229.10(f)(1) and are not required to provide information under this item, pursuant to Item 305(e) of Regulation S-K.

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, based on the 2013 framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2017March 31, 2022 as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

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Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’scompany’s management, including its principal executive and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

DuringBased on the current quarter, we have finalizedevaluation of our disclosure controls and procedures, as of March 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective because of the integration and validation of controls for MediGain into the internal control practices for the Company.

Except as described above in the preceding paragraph, during the quarter ended September 30, 2017, there was no changematerial weakness in our internal control over financial reporting as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The material weakness was due to a lack of controls over the completeness and accuracy of key inputs related to the measurement of a non-routine transaction.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and l5d-15(f) of the Exchange Act) that hasoccurred during our most recent fiscal quarter that have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

Remediation of a Material Weakness in Internal Control over Financial Reporting

We recognize the importance of the control environment as it sets the overall tone for the Company and is the foundation for all other components of internal control. Consequently, we designed and implemented remediation measures to address the material weakness previously identified and enhanced our internal control over financial reporting. In light of the material weakness, we enhanced our processes and controls to verify the completeness and accuracy of key inputs related to non-routine transactions by requiring more detailed reviews by experienced staff and increased communication among our personnel and third party professionals with whom we consult regarding such transactions. The foregoing actions, which we believe remediated the material weakness in internal control over financial reporting, were completed as of March 31, 2022.

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Part II. Other Information

Item 1. Legal Proceedings

 

From time to time, we may become involved inSee discussion of legal proceedings arising in “Note 8, Commitments And Contingencies” of the ordinary course of our business. We are not presently a partyNotes to any legal proceedings that,Consolidated Financial Statements in the opinion of our management, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.this Quarterly Report, which is incorporated by reference herein.

Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm and other factors.

 

Item 1A. Risk Factors

PursuantIn addition to the instructions of Item 1A ofother information set forth in this Quarterly Report on Form 10-Q, a smaller reporting company isyou should carefully consider the factors discussed in Part I—Item 1A. “Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on March 14, 2022, which could materially affect our business, financial condition and/or future results and may be further impacted by the coronavirus pandemic. The risks described in our Annual Report on Form 10-K are not requiredthe only risks facing us. Additional risks and uncertainties not currently known to provide the information required by this Item.us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, cash flows and/or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

PurchasesIssuer Redemption of Equity Securities

Period

 Total number of shares of Series A Preferred Stock redeemed  Average price paid per share of Series A Preferred Stock  Total number of shares redeemed as part of publicly announced plans or programs 
January 1-31, 2022  -   -   - 
February 1-28, 2022  -   -   - 
March 1-31, 2022  800,000(1)  $25.1375(1)  800,000(1)
Total  800,000  $25.1375   800,000 

The Company is prohibited from paying(1) On February 15, 2022, we announced that we would redeem 800,000 shares of our Series A Preferred Stock. On March 18, 2022, we redeemed 800,000 shares of our Series A Preferred Stock for a cash redemption price of $25.00 per share, plus all accrued and unpaid dividends on its common stock withoutto, but not including, the consentredemption date of its senior lender, SVB.March 18, 2022 in an amount equal to $.1375 per share, for a total payment of $25.1375 per share.

Item 3. Defaults upon Senior Securities

Not applicable.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

 

Exhibit NumberExhibit Description
31.110.19Sixth Loan Modification Agreement dated January 27, 2022, by and between the Company and SVB.
31.1Certification of the Company’s Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), of the Securities Exchange Act of 1934, as amended.
31.2
31.2Certification of the Company’s Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), of the Securities Exchange Act of 1934, as amended.
32.1*
32.1*Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
32.2*Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance
101.INS101.SCHXBRL Instance
101.SCHXBRL Taxonomy Extension Schema
101.CAL
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.LAB
101.LABXBRL Taxonomy Extension Label Linkbase
101.PRE
101.PREXBRL Taxonomy Extension Presentation Linkbase

101.DEF

104

101.DEF

XBRL Taxonomy Extension Definition Linkbase

Cover Page Interactive Data File (embedded within the Inline XBRL document)

*The certifications on Exhibit 32 hereto are not deemed not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates them by reference.Act.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Medical Transcription Billing, Corp.CareCloud, Inc.
November 6, 2017By:By:/s/ Mahmud HaqA. Hadi Chaudhry
DateMahmud HaqA. Hadi Chaudhry
Chairman of the Board and Chief Executive Officer
Date: May 9, 2022
November 6, 2017By:
By:/s/ Bill Korn
DateBill Korn
Chief Financial Officer
Date: May 9, 2022

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