UpHealth (UPHL) S-1/A IPO registration (amended)

As filed with the U.S. Securities and Exchange Commission

on September

27

, 2021

Registration No. 333-

259143

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 2

to

FORM

S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

UpHealth, Inc.

(Exact name of registrant as specified in our charter)

Delaware	8099	83-3838045
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

14000 S. Military Trail,

Suite 230

Delray Beach, Florida 33484

Tel: (312)

618-1322

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Dr. Ramesh Balakrishnan

Chief Executive Officer

UpHealth, Inc.

14000 S. Military Trail, Suite 230

Delray Beach, Florida 33484

Tel: (312)

618-1322

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copy to:

Jeffrey C. Selman, Esq. Brad Rock , Esq. DLA Piper LLP (US) 555 Mission Street, Suite 2400 San Francisco, CA 94105 (415) 615-6095 Ivan K. Blumenthal, Esq. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 666 Third Avenue New York, New York 10017 (212) 935-3000

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this registration statement

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  

☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

Calculation of Registration Fee

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price	Amount of Registration Fee
Common Stock, $0.0001 par value per share	$57,500,000(2)	$6,273.25(3)
Total	$57,500,000	$6,273.25

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2) Includes the aggregate offering price of shares that the underwriters have the option to purchase additional shares.

(3) Previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. The Company may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 2021

PRELIMINARY PROSPECTUS

UPHEALTH, INC.

12,594,458 Shares of Common Stock

We are offering 12,594,458 shares of our common stock, par value $0.0001 per share.

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and are subject to reduced public company reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company.

Our common stock is listed on the New York Stock Exchange (the “

NYSE

”) under the symbol “UPH”. On September 23, 2021, the last reported sales price of our common stock was $3.97 per share. The actual offering price will be as determined between us and the underwriters at the time of pricing, and may be at a discount to the current market price. Accordingly, the recent market price used throughout this prospectus may not be indicative of the actual public offering price.

Investing in our securities involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page 11 of this prospectus, and under similar headings in any amendment or supplements to this prospectus.

	Price to Public	Underwriting Discounts(1)	Proceeds to Us
Per Share	$	$	$
Total	$	$	$

(1) We have also agreed to reimburse the underwriters for certain of their expenses in connection with this offering. See “Underwriting.”

We have granted the underwriters an option to purchase up to an additional 1,889,168 shares of common stock from us at the public offering price, less underwriting discounts, within 30 days of the date of this prospectus.

The shares of common stock are expected to be ready for delivery on or about                , 2021.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Book-Running Manager

Oppenheimer & Co.

Co-Lead Managers

Lake Street Northland Capital Markets

The date of this prospectus is                 , 2021.

TABLE OF CONTENTS

	Page
Special Note Regarding Forward-Looking Statements		1
Frequently Used Terms		2
Prospectus Summary		5
The Offering		10
Risk Factors		11
Industry and Market Data		61
Use of Proceeds		62
Dividend Policy		63
Capitalization		64
Dilution		66
Unaudited Pro Forma Condensed Combined Financial Information		67
Management’s Discussion and Analysis of Financial Condition and Results of Operations		73
Description of the Business		91
Management		116
Certain Relationships and Related Person Transactions		125
Executive Compensation		128
Beneficial Ownership of Securities		130
Description of Securities		132
Certain U.S. Federal Income Tax Considerations		141
Underwriting		146
Legal Matters		154
Experts		155
Where You Can Find More Information		156
Index to Financial Statements		F-1

You should rely only on the information contained in this prospectus, any supplement to this prospectus or in any free writing prospectus, filed with the Securities and Exchange Commission (the “

SEC

”). We have not authorized anyone to provide you with additional information or information different from that contained in this prospectus filed with the SEC. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell, and seeking offers to buy, our securities only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our securities and the distribution of this prospectus outside the United States.

To the extent there is a conflict between the information contained in this prospectus, on the one hand, and the information contained in any document incorporated by reference filed with the SEC before the date of this prospectus, on the other hand, you should rely on the information in this prospectus. If any statement in a document incorporated by reference is inconsistent with a statement in another document incorporated by reference having a later date, the statement in the document having the later date modifies or supersedes the earlier statement.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “

Securities Act

”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “

Exchange Act

”). Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predicts,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Examples of forward-looking statements in this prospectus include, but are not limited to, statements regarding disclosure concerning our operations, cash flows, financial position and dividend policy. The risks and uncertainties include, but are not limited to:

• our financial and business performance, including financial projections and business metrics and any underlying assumptions thereunder;

• changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;

• our product development timeline and expected start of production;

• the implementation, market acceptance and success of our business model;

• our ability to scale in a cost-effective manner;

• developments and projections relating to our competitors and industry;

• the impact of health epidemics, including the COVID-19 pandemic, on our business and the actions the we may take in response thereto;

• our expectations regarding its ability to obtain and maintain intellectual property protection and not infringe on the rights of others;

• expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

• our future capital requirements and sources and uses of cash;

• our ability to obtain funding for our operations;

• our business, expansion plans and opportunities; and

• the outcome of any known and unknown litigation and regulatory proceedings.

These forward-looking statements are based on information available as of the date of this prospectus, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

In addition, statements that we “believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to such party as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and these statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should not place undue reliance on these forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements.

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FREQUENTLY USED TERMS

Unless otherwise stated or unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company,” “UpHealth” and (with regard to historical periods, actions and events) “GigCapital2” refer to UpHealth, Inc., a Delaware corporation (which was formerly named GigCapital2, Inc., until the completion of the Business Combinations). In this prospectus:

“

Board

” or “

Board of Directors

” means the board of directors of the Company.

“

Business Combinations

” means the transactions contemplated by the Business Combination Agreements, including (i) the merger of UpHealth Merger Sub with and into UpHealth Holdings, with UpHealth Holdings continuing as the surviving company and as a wholly-owned subsidiary of the Company and (ii) the merger of Cloudbreak Merger Sub with and into Cloudbreak, with Cloudbreak continuing as the surviving company and as a wholly-owned subsidiary of the Company. The Business Combinations were completed on June 9, 2021.

“

Business Combination Agreements

” means (i) that certain UpHealth Business Combination Agreement, dated as of November 20, 2020 (as subsequently amended), by and among Company, UpHealth Merger Sub and UpHealth Holdings and (ii) that certain Cloudbreak Business Combination Agreement (as subsequently amended), dated as of November 20, 2020, by and among Company, Cloudbreak Merger Sub and Cloudbreak.

“

Bylaws

” means our Bylaws, as currently in effect.

“

Cloudbreak

” means Cloudbreak Health, LLC, a Delaware limited liability company and its subsidiaries.

“

Cloudbreak Business Combination Agreement

” means that certain Business Combination Agreement, dated as of November 20, 2020, by and among the Company, Cloudbreak Merger Sub, Cloudbreak, UpHealth Holdings, Chirinjeev Kathuria, Mariya Pylypiv and Shareholder Representative Services LLC.

“

Cloudbreak Merger Sub

” means Cloudbreak Merger Sub, LLC.

“

Cloudbreak Registration Rights and

Lock-Up

Agreement

” means that certain Registration Rights and

Lock-Up

Agreement by and among the Company and certain of the former equity holders of Cloudbreak entered into in connection with the Business Combinations, pursuant to which the holders have certain registration rights.

“

Code

” means the Internal Revenue Code of 1986, as amended.

“

Common Stock

” means the shares of Common Stock of the Company, par value $0.0001 per share.

“

Convertible Note Investment

” means the private placement pursuant to which the Convertible Note Investors were issued the Convertible Notes for an aggregate purchase price of $160,000,000.

“

Convertible Note Investors

” means certain institutional investors that invested in the Convertible Note Investment.

“

Convertible Note Shares

” means the 15,023,475 shares of Common Stock to be issued upon conversion of the Convertible Notes, in accordance with the terms and subject to the conditions of the Convertible Note Subscription Agreements and the Indenture.

“

Convertible Note Subscription Agreements

” means, collectively, those certain subscription agreements entered into on January 20, 2021, as subsequently amended on June 8, 2021, between the Company and certain investors, pursuant to which such Convertible Note Investors purchased an aggregate of $160,000,000 in the Convertible Note Investment.

2

“

Convertible Notes

” means the 6.25% Convertible Senior Notes due 2026 and that are convertible into Convertible Note Shares at a conversion price of $10.65 per share.

“

DGCL

” means the General Corporation Law of the State of Delaware.

“

EarlyBir

d

” means EarlyBirdCapital, Inc., the representative of the underwriters in our IPO. EarlyBird, together with certain of its affiliates and employees, are referred to as the “

EarlyBird Group

.”

“

EBITD

A

” means earnings before interest, tax, depreciation and amortization.

“

Exchange Act

” means the Securities Exchange Act of 1934, as amended.

“

Founder

s” means the Sponsor, the EarlyBird Group and Northland Investment.

“

GAAP

” means United States Generally Accepted Accounting Principles.

“

Indenture

” means the indenture entered into in connection with the consummation of the Business Combinations between UpHealth and Wilmington Trust, National Association, a national banking association, in its capacity as trustee thereunder, in substantially the form attached as an exhibit to the Convertible Note Subscription Agreements.

“

Initial Stockholders

” means the Founders and Northland.

“

IPO

” means the Company’s initial public offering, consummated on June 10, 2019, through the sale of 15,000,000 public units at $11.50 per public unit.

“

Northland Investments

” means Northland Gig 2 Investment LLC, a Delaware limited liability company, which is an affiliate of one of our underwriters, Northland Securities, Inc. (“

Northland

”).

“

NYSE

” means the New York Stock Exchange.

“

PIPE Investment

” means the private placement pursuant to which the PIPE Investors subscribed for 3,000,000 shares of Common Stock at $10.00 per share, plus warrants to purchase up to an additional 300,000 shares of Common Stock (one warrant for every 10 PIPE Shares purchased) at an exercise price of $11.50 per share, for an aggregate purchase price of $30,000,000.

“

PIPE Investors

” means certain institutional investors, including Oppenheimer & Co. Inc., which also served as the placement agent for the PIPE Investment and that invested in the PIPE Investment.

“

PIPE Shares

” means the 3,000,000 shares of Common Stock issued in the PIPE Investment.

“

PIPE Subscription

Agreement

s

” means, collectively, those certain subscription agreements entered into on January 20, 2021, as amended on June 8, 2021, between the Company and certain investors, pursuant to which the PIPE Investors purchased an aggregate of 3,000,000 shares of Common Stock, plus warrants to purchase up to an additional 300,000 shares of Common Stock (one warrant for every 10 PIPE Shares purchased) at an exercise price of $11.50 per share, in the PIPE Investment.

“

PIPE Warrants

” means the 300,000 warrants, each of which is exercisable for one share of Common Stock, at an exercise price of $11.50 per share, issued to the PIPE Investors as part of the PIPE Investment.

3

“

Private Placement Shares

” mean the shares of our Common Stock included in the Private Placement Units issued to our Founders in a private placement that closed prior to the IPO.

“

Private Placement Units

” mean the units, which consisted of one share of Company Common Stock, one warrant to purchase one share of Common Stock, and one right to receive

one-twentieth

of one share of Company Common Stock, issued to our Founders in a private placement that closed prior to the IPO. All of the Private Placement Units were separated into their constituent parts at the consummation of the Business Combinations.

“

Private Placement Warrants

” means the warrants included in the Private Placement Units issued to our Founders in a private placement that closed prior to the IPO, each of which is exercisable for one share of Common Stock, in accordance with its terms.

“

Private Underwriter Shares

” means the shares of our Common Stock issued to Northland in a private placement that closed prior to the IPO.

“

public shares

” means shares of Common Stock included in the public units issued in our IPO.

“

public units

” means one unit, which consisted of one public share of Company Common Stock, one warrant to purchase one share of Company Common Stock, and one right to receive

one-twentieth

of one share of Company Common Stock, issued in our IPO. All of the public units were separated into their constituent parts at the consummation of the Business Combinations.

“

public warrants

” means the warrants included in the public units issued in the IPO, each of which is exercisable for one share of Common Stock, in accordance with its terms.

“

SEC

” means the United States Securities and Exchange Commission.

“

Second Amended and Restated Certificate of Incorporation

” means the Second Amended and Restated Certificate of Incorporation of the Company, as filed with Delaware Secretary of State on June 9, 2021, and as it may be subsequently amended.

“

Securities Act

” means the Securities Act of 1933, as amended.

“

Sponsor

” means GigAcquisitions2, LLC, a Delaware limited liability company.

“

Transfer Agent

” means Continental Stock Transfer & Trust Company.

“

units

” means the public units and the Private Placement Units.

“

UpHealth Holdings

” means UpHealth Holdings, Inc., a Delaware corporate and its subsidiaries.

“

UpHealth Registration Rights and Lock-Up Agreement

” means that certain Registration Rights and Lock-Up Agreement between the Company and certain former equity holders of UpHealth Holdings entered into in connection with the Business Combinations, pursuant to which the holders have certain registration rights.

4

PROSPECTUS SUMMARY

The following summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The “Company,” “UpHealth” “we,” “our,” “us” or similar terms mean UpHealth, Inc. (which, in regard to historical dates, events and actions prior to June 9, 2021 was named “GigCapital2, Inc.”).

General

Our vision is to enable and power healthcare’s digital transformation by creating a single, integrated provider of technologies and services essential to personalized, affordable and effective care globally. Our mission is to transform care delivery and support healthier communities through a simplified digital infrastructure that connects evidence-based care, coordinated workflows and health services. We were formed by the combination of UpHealth Holdings and Cloudbreak on June 9, 2021. The five subsidiaries of UpHealth Holdings, as well as Cloudbreak, collectively offer patient-centric digital health technologies and tech-enabled services to manage health and integrate care across four capabilities at the center of population health management and telehealth: Integrated Care Management, Global Telehealth, Digital Pharmacy and Tech-Enabled Behavioral Health. Together, we believe that by integrating the value streams represented across these four capabilities, we will empower health systems, health plans, employers and government ministries to improve outcomes, quality, access and cost of healthcare as well as address critical unmet needs of patients, providers, payors and pharmacies. As of June 30, 2021, Cloudbreak and the subsidiaries of UpHealth Holdings, had approximately 6,800,000 lives served in integrated care management in the United States, 2,000 U.S. healthcare venues and contracts with ten countries and filled an average of 937 prescriptions per day. We have carefully selected specific competencies, which we believe will allow us to provide a multifaceted approach to blending processes, services and technologies and enable our stakeholders to “practice” digital health.

Corporate Information

We were incorporated in Delaware on March 6, 2019, as a blank check company under the name GigCapital2, Inc. (“

GigCapital2

”). Our principal executive offices are located at 14000 S. Military Trail, Suite 203, Delray Beach, Florida 33484, and our telephone number is

1-312-618-1322.

Our corporate website address is

http://uphealthinc.com

. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

On June 9, 2021, GigCapital2, Cloudbreak and UpHealth Holdings consummated the mergers and other transactions contemplated by the Business Combination Agreements, following the satisfaction of various closing conditions specified in the Business Combination Agreements. In connection with the closing of the Business Combinations, we changed our name from GigCapital2, Inc. to UpHealth, Inc.

Sectors

We are organized across four strategic capabilities, each with a diverse set of partners and customers and each representing a large and fast growing market segment:

• Integrated Care Management . Our Integrated Care Management platform is powered by the SyntraNet platform of Thrasys Inc. (“ Thrasys ”). SyntraNet creates virtual care communities across the continuum of care, integrates and organizes information, provides advanced population-based analytics and predictive models, and

5

automates workflows across health plans, health systems, government agencies and community organizations. Clinical and community-based care teams use the platform to coordinate programs to address medical, behavioral health and social factors that affect the health of individuals and populations.

• Global Telehealth . Our Global Telehealth platform has two divisions—domestic and international. Our domestic division is powered by Cloudbreak, a provider of unified telemedicine solutions and digital health tools aimed at increasing access to healthcare and resolving health disparities across the care continuum. Cloudbreak has one of the largest installed user bases in the nation, performing more than 138,000 encounters per month on over 21,000 video endpoints at over 2,000 healthcare venues across the United States. Through its integrated telehealth and language services, the platform serves as the digital front door to in-hospital care. Cloudbreak provides digital health infrastructure enabling its partners to ensure healthcare equity and implement unique, private-label telehealth strategies customized to their specific needs and markets. Our international division is powered by Glocal Healthcare Systems Private Limited (“ Glocal ”), a platform that delivers comprehensive primary care and specialty consultations at a significantly reduced cost, based upon the typical cost for a Glocal primary care visit compared to the cost generally in India, based on government data. This helps open access to care for individuals in North America, India, Southeast Asia and Africa. Its technologies and services are performing over 50,000 digital health encounters per month with contracts now in place that if fully implemented would increase this number by nearly ten times by 2022.

• Digital Pharmacy . Our Digital Pharmacy is powered by MedQuest Pharmacy, Inc. (“ MedQuest Pharmacy ”), a full-service retail and compounding pharmacy licensed in all 50 U.S. states and the District of Columbia that dispenses patient-specific medications and ships direct to patients. It is capable of serving as a retail or national fulfillment center. Through the Innovations Group, Inc. (“ Innovations Group ”) suite of companies, MedQuest Pharmacy also makes available lab services and testing, nutraceuticals, nutritional supplements, education for medical practitioners, and training for individuals and groups.

• Tech-Enabled Behavioral Health . Our Tech-Enabled Behavioral Health capabilities are powered by TTC Healthcare, Inc. (“ TTC Healthcare ”) and Behavioral Health Services, LLC (“ BHS ”), which together provide evidence-based and tech-enabled behavioral health and substance abuse services via onsite care delivery and telehealth. The division’s physician-led clinical model has a proven approach to networking with a growing panel of providers, which is critically important in the field of mental health.

When successfully integrated, our digital health platform will go beyond one-off point solutions to connect multiple parts of the healthcare continuum. We intend to enable a system of care through integrated care management that oversees the entire patient experience to enable better access and outcomes. As we integrate our digital health platform, our goal will be to provide manageable costs, better outcomes, an improved care experience and a reduction in the disparities in access to healthcare that exist today when provided by multiple different providers.

Growth Opportunities

UpHealth intends to execute on organic growth initiatives with each of its business lines. In addition, there are numerous synergistic opportunities ongoing as well as de novo product launches planned near-term.

Below are the levers through which we believe UpHealth will accelerate growth of the platform:

• Implement Executed/Signed Contracts . The companies that make up the Global Telehealth and Integrated Care Management lines have won meaningful contracts in 2020 that are expected to drive new revenue in 2021 and beyond. Internationally, Glocal won contracts in Mali, Democratic Republic of Congo, Tanzania, Ghana, Ivory Coast, and Madhya Pradesh (India), which are expected to drive $154,200,000 in new revenue between 2021 and 2022. Domestically, Cloudbreak continued to expand its reach across U.S. health systems, with recent wins at Yale New Haven Health, UCSF, and RWJBarnabas

6

Health, resulting in 

approximately $6,000,000 in annualized bookings. Our Integrated Care Management business, which signs initial multi-year contract terms with sticky recurring revenue and annual renewals, has won and will implement $8,000,000 in new and expansion contracted revenue in 2021.

• Drive New Bookings . The Global Telehealth and Integrated Care Management companies are involved in late-stage negotiations with health systems and government ministries to expand both domestically and internationally. We will continue to pursue these opportunities and leverage the strength and breadth of our combined platform to drive continued bookings growth. Additionally, several of our businesses have historically scaled conservatively and profitably, with minimal investment in sales and marketing. As a combined entity, we expect to meaningfully increase our investment in our go-to-market functions to capitalize on both synergies across the platform as well as take advantage of the accelerated adoption of telehealth and interest of the associated benefits for healthcare organizations.

• Explore Synergistic Opportunities with Existing Clients . UpHealth provides a suite of products across the continuum of care for any entity managing complex patient populations. This allows UpHealth to become a strategic partner for health systems, government entities, and plans, providing services from integrated care management to digital pharmacy capabilities. We are positioned to offer the market a unique, multifaceted and integrated approach to processes, services and technologies spanning the continuum of care, creating a number of synergies across our businesses. As a customer uses UpHealth’s available solutions, the platform will be able to further utilize its growing network and dataset to help provide even better care to a greater population. For example, UpHealth’s care management, behavioral health and digital pharmacy capabilities now have the opportunity to leverage the 2,000 U.S. healthcare venues that are currently utilizing the Company’s domestic telehealth services.

• Product, Service and Partner Expansion . Innovation leading to new products and services are continuously and intentionally planned. In 2021, MedQuest Pharmacy’s full-service compounding and retail Digital Pharmacy plans to add new lines of specialties, and Medical Horizons, Inc. (“ Medical Horizons ”) also plans to launch Pure Collectives, an e-commerce platform to allow providers to sell Medical Horizons’ nutraceutical supplements line to their patients. Additionally, our Behavioral Health capability plans to roll out intensive outpatient services nationally. Innovative features of our International telemedicine digital dispensary and AI-guided-evidence-based care solution will be reengineered to enable introduction into U.S. and other developed international markets. Cloudbreak will continue to roll out specific teleconsult applications beyond telepsych and telestroke. Each of these initiatives are expected to provide meaningful revenue opportunities.

• Strategic Acquisition . We plan to supplement our organic growth strategy with select acquisitions to increase market share across our current capabilities, accelerate entry into new capabilities and expand offerings into new end markets. We plan to be strategic with respect to building our existing capabilities within the four core markets and channels. We will continue to evaluate and, where strategically appropriate, pursue acquisition opportunities that are complementary.

Competition

The markets in which we participate are highly competitive, with increasing competition from new entrants and expansion by existing competitors. We view as our competitors those companies that currently, or in the future will, (i) develop and market digital health technology (devices and systems) or (ii) provide telehealth and expert medical services, such as the delivery of on-demand access to healthcare. Competition for developing and marketing digital health technology and the provision of telehealth focuses on, among other factors, technology, breadth and depth of functionality, range of associated care delivery services, operational experience, customer support, size of customer base, and reputation.

We expect to face intensifying competition from existing competitors in our particular capabilities, platforms looking to broaden their services offerings, and new entrants that introduce digital health services and software

7

platforms or other technology. We currently face competition from a range of point solutions, including specialized software providers that are continuing to more deeply integrate their technology with care delivery services. In addition, large, well-financed healthcare providers have in some cases developed their own telemedicine services and technologies and may provide these solutions to their patients at discounted prices.

Competitive Advantage

We bring a set of attributes to market that we believe will continue to differentiate us across our major stakeholders and end markets. We believe that the digital health platforms that thrive long term will be those that enable a hybrid model of care delivery, enhancing onsite care settings with an integrated digital infrastructure that provides virtual care access and engagement while also coordinating and connecting both community and clinical care teams within defined populations.

• An Integrated Global Digital Health Platform Addressing Critical Market Needs . We aim to reshape healthcare delivery through integrated offerings that unite the healthcare ecosystem, enabling the “practice” of digital health. As we work to successfully integrate our platform, we believe our combined set of services and capabilities will address many needs for patients, health systems and payors unmet by point solutions. We believe patients will value a more convenient care experience plus their entire care story in one place, enabling whole-person care. Health systems are presented with the entire picture of care coordination across the system plus the entire ecosystem of post-acute and socially, enabling team-based care. Payors will realize a comprehensive suite of digital services and a bridge platform between their claims processing systems and the broader ecosystem, providing the connectivity and intelligence needed for effective management of members’ costs and outcomes.

• Expansive Reach across Domestic and International Markets . We are a global company, doing business in several geographies. As a result, we are not overexposed to the risks associated with any one country. Our roots are strong in North America, with our international base in India allowing us to target other high-growth areas internationally.

• A Diverse Management Team of Industry Leaders . Our management team is made up of entrepreneurs and founders who have dedicated their lives to solving specific healthcare issues in the world today. We believe that this diverse group of leaders is uniquely equipped to lead the movement in reshaping care delivery to the “practice” of digital health which can improve global healthcare delivery.

Emerging Growth Company Status and Other Information

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “

Securities Act

”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “

JOBS Act

”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “

Sarbanes-Oxley Act

”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a

non-binding

advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.

8

We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock that is held by

non-affiliates

exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in

non-convertible

debt securities during the prior three-year period. References herein to emerging growth company shall have the meaning assigned to it in the JOBS Act.

Risk Factors

You should carefully review and consider the risk factors set forth under the section entitled “

Risk Factors

” beginning on page 8 of this prospectus. The occurrence of one or more of the events or circumstances described in that section, alone or in combination with other events or circumstances, may have a material adverse effect on us. Among others, we are exposed to risks associated with:

• Our limited operating history as a combined company makes it difficult to evaluate our current business and future prospects;

• The impact of health epidemics, including the COVID-19 pandemic, on our business, financial condition, growth and the actions we may take in response thereto;

• The high degree of uncertainty of the level of demand for and market utilization of our solutions;

• Substantial regulation and the potential for unfavorable changes to, or failure by us to comply with, these regulations, which could substantially harm our business and operating results;

• Our dependency upon third-party service providers for certain technologies;

• Increases in costs, disruption of supply or shortage of materials, which could harm our business;

• Developments and projections relating to our competitors and industry;

• The unavailability, reduction or elimination of government and economic incentives, which could have a material adverse effect on our business, prospects, financial condition and operating results;

• Our management team’s limited experience managing a public company;

• The possibility of our need to defend ourselves against fines, penalties and injunctions if we are determined to be promoting products for unapproved uses;

• Concentration of ownership among our existing executive officers, directors and their respective affiliates, which may prevent new investors from influencing significant corporate decisions;

• The lack of assurance that we will be able to comply with the continued listing standards of the NYSE;

• If we do not meet the expectations of investors or securities analysts, the market price of the Company’s securities may decline; and

• Our significant increased expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of operations.

9

THE OFFERING

Shares offered by us 12,594,458 shares of Common Stock at an assumed offering price of $3.97 per share, which is the last reported sale price of our common stock on September 23, 2021.

Option to purchase additional shares We have granted to the underwriters the option, exercisable for a period of 30 days from the date of this prospectus, to purchase up to 1,889,168 additional shares of Common Stock.

Shares outstanding after this offering(1)(2) 130,199,068 shares of Common Stock (132,088,236 shares of Common Stock if the underwriters exercise their option to purchase additional shares in full), assuming the sale of our common stock at an assumed public offering price of $3.97 per share, which is the last reported sale price of our common stock on September 23, 2021.

Use of proceeds We estimate that the net proceeds to us from this offering will be approximately $        million, based on an assumed offering price of $3.97 per share, or approximately $        million if the underwriters exercise their option to purchase additional shares in full, after deducting underwriting discounts and commissions.

We intend to use the net proceeds for working capital and general corporate purposes, although we do not currently have any specific or preliminary plans with respect to the use of proceeds for such purposes. See “

Use of Proceeds

” for additional information.

Dividend policy We do not expect to pay any dividends on our Common Stock in the foreseeable future. See “ Dividend Policy .”

Risk factors You should carefully read and consider the information set forth under the heading “ Risk Factors ” and all other information set forth in this prospectus before deciding to invest in our Common Stock.

NYSE ticker symbol Our Common Stock is listed on the NYSE under the symbol “UPH”.

(1) The number of shares of Common Stock that will be outstanding after this offering is based on 117,604,610 shares of Common Stock outstanding as of June 30, 2021, assumes the sale and issuance by us of 12,594,458 shares of Common Stock and excludes:

• 538,616 shares of Common Stock issuable upon the vesting of outstanding restricted stock units;

• 16,420,813 shares of Common Stock that are reserved for issuance under the GigCapital2, Inc. 2021 Equity Incentive Plan (the “ 2021 Equity Incentive Plan ”);

• 1,711,613 shares of Common Stock that are reserved for issuance under the Cloudbreak Health, LLC 2015 Unit Incentive Plan (the “ 2015 Equity Incentive Plan ”);

• 15,023,475 shares of Common Stock to be issued upon conversion of the Convertible Notes; and

• 18,117,494 shares of Common Stock issuable upon exercise of the outstanding warrants at an exercise price of $11.50 per share.

(2) Unless otherwise indicated, all information contained in this prospectus assumes no exercise by the underwriters of their option to purchase additional shares and no exercise of any other options or warrants.

10

RISK FACTORS

An investment in our securities involves a high degree of risk. Before making a decision to invest in our Common Stock, you should carefully review and consider the following risk factors and the other information contained in this prospectus, including the financial statements and notes to the financial statements included herein. The occurrence of one or more of the events or circumstances described in these risk factors, alone or in combination with other events or circumstances, may harm the business, cash flows, financial condition and results of operations of the Company. These risk factors are not exhaustive. You should carefully consider the following risk factors in addition to the other information included in this prospectus, including matters addressed in the section entitled “Special Note Regarding Forward-Looking Statements.” The following discussion should be read in conjunction with the consolidated financial statements and notes to the financial statements included herein. Additional risks, beyond those summarized below may apply to our activities or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate. Consistent with the foregoing, we are exposed to a variety of risks, including risks associated with:

• Our limited operating history as a combined company makes it difficult to evaluate our current business and future prospects;

• The impact of health epidemics, including the COVID-19 pandemic, on our business, financial condition, growth and the actions we may take in response thereto;

• The high degree of uncertainty of the level of demand for and market utilization of our solutions;

• Substantial regulation and the potential for unfavorable changes to, or failure by us to comply with, these regulations, which could substantially harm our business and operating results;

• Our dependency upon third-party service providers for certain technologies;

• Increases in costs, disruption of supply or shortage of materials, which could harm our business;

• Developments and projections relating to our competitors and industry;

• The unavailability, reduction or elimination of government and economic incentives, which could have a material adverse effect on our business, prospects, financial condition and operating results;

• Our management team’s limited experience managing a public company;

• The possibility of our need to defend ourselves against fines, penalties and injunctions if we are determined to be promoting products for unapproved uses;

• Concentration of ownership among our existing executive officers, directors and their respective affiliates, which may prevent new investors from influencing significant corporate decisions;

• The lack of assurance that we will be able to comply with the continued listing standards of the NYSE;

• If we do not meet the expectations of investors or securities analysts, the market price of the Company’s securities may decline; and

• Our significant increased expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of operations.

Risks Relating to UpHealth’s Business and Industry

Our limited operating history as a combined company and evolving business make it difficult to evaluate our current business and future prospects and increases the risk of your investment.

Our limited operating history and rapidly evolving business make it difficult to evaluate our current business, future prospects and plan for growth. UpHealth Holdings began offering products and services as a combined

11

entity late in 2020. UpHealth offers products and services as a combined entity following the consummation of the Business Combinations. We will continue to encounter significant risks and uncertainties frequently experienced by growing companies in rapidly changing and heavily regulated industries, such as attracting new customers, users and healthcare providers to our platform; retaining customers and encouraging them to utilize new offerings that we make available; competition from other companies; hiring, integrating, training and retaining skilled personnel; verifying the identity of customers, users and credentials of providers serving our customers; developing new solutions; determining prices for our solutions; unforeseen expenses; challenges in forecasting accuracy; and new or adverse regulatory developments affecting the use of digital health, pharmaceutical products, diagnostics, technology platforms or other aspects of the healthcare industry. Additional risks include our ability to effectively manage growth and process, and to store, protect, and use personal data in compliance with governmental regulations, contractual obligations and other legal obligations related to privacy and security. Further, because we depend, in part, on market acceptance of our newer and future services, it is difficult to evaluate trends that may affect our business and whether our expansion will be profitable. If we have difficulty launching new solutions, our reputation may be harmed and our business, financial condition and results of operations may be adversely affected. If our assumptions regarding these and other similar risks and uncertainties that relate to our business, which we use to plan our business, are incorrect or change as we gain more experience operating our platform or expand into the treatment of new conditions, or if we do not address these challenges successfully, our operating and financial results could differ materially from our expectations and our business could suffer.

It remains unclear how the ongoing coronavirus

(COVID-19)

pandemic may impact our business, financial condition, results of operations and growth.

In March 2020, the World Health Organization declared

COVID-19

a global pandemic. This contagious outbreak, which has continued to spread, and the related adverse public health developments, including orders to

shelter-in-place,

travel restrictions and mandated business closures, have adversely affected workforces, organizations, customers, economies and financial markets globally, leading to an economic downturn and increased market volatility. The duration and severity of this pandemic is unknown and the extent of the business disruption and financial impact depend on factors beyond our knowledge and control making it difficult for us to accurately predict the duration or magnitude of the adverse results of the outbreak and its effects on our business, results of operations or financial condition at this time, but such effects may be material.

Continued

shelter-in-place,

quarantine, hospital requisitions, or related measures to combat the spread of

COVID-19

or any variants thereof, as well as the perceived need by individuals to continue such practices to avoid infection, among other factors, could harm our results of operations and revenue, business and financial condition. These measures and practices have resulted in temporary closures of some of our offices, the offices and practices of our customers, and may also result in delays in entry into new markets and expansion in existing markets. In addition, customers who utilize our services or products in connection with

in-office

healthcare procedures, as well as our businesses that provide

in-office

healthcare procedures, may experience a loss in revenue associated with such measures and practices, potentially negatively impacting their ability or willingness to pay us. In addition, due to the

shelter-in-place

orders across the globe, several of our businesses have implemented work-from-home policies for many employees which may impact productivity and disrupt our business operations. Generally, we have seen our businesses rebound from an initial negative impact at the start of the pandemic. However, given the unpredictable nature of the

COVID-19

pandemic, we may in the future experience additional negative impacts on our operations, revenues, expenses, collectability of accounts receivables and other money owed, capital expenditures, liquidity and overall financial condition by disrupting or delaying delivery of materials and products in the supply chain for our offices, causing staffing shortages, or increasing capital expenditures due to the need to buy incremental hardware.

Healthcare organizations around the world have faced and will continue to face, substantial challenges in treating patients with

COVID-19,

such as the diversion of hospital staff and resources from ordinary functions to the treatment of patients with

COVID-19,

supply, resource and capital shortages and overburdening of staff and resource capacity. In the United States, governmental authorities have also recommended, and in certain

12

cases required, that elective, specialty and other procedures and appointments, including certain primary care services, be suspended or canceled to avoid

non-essential

patient exposure to medical environments and potential infection with

COVID-19

and to focus limited resources and personnel capacity toward the treatment of patients with

COVID-19.

These measures may divert patients away from our businesses that provide products and services direct to consumers and from procedures in healthcare facilities that utilize our products and services, which could harm our results of operations and revenue.

Our continued access to sources of liquidity also depend on multiple factors, including global economic conditions, the condition of global financial markets, the availability of sufficient amounts of financing and our operating performance. There is no guarantee that debt or equity financing will be available in the future to fund our obligations, or that it will be available on commercially reasonable terms, in which case we may need to seek other sources of funding.

The

COVID-19

pandemic has increased interest in and customer use of digital health solutions. We cannot guarantee that this increased interest or usage will continue after the pandemic has subsided.

Due to

COVID-19,

digital health has seen a steep increase in use across the healthcare industry, in part due to governmental waivers of statutory and regulatory restrictions that have historically limited how digital health may be used in delivering care in certain jurisdictions. We do not know if this relaxation of regulatory barriers resulting from

COVID-19

will remain or for how long. There is renewed focus on digital health and the expanded use of digital health services and related technology among legislatures and regulators due to

COVID-19,

which could result in regulatory changes inconsistent with, or that place additional restrictions on, our current business model or operations in certain jurisdictions. If customer adoption of digital health generally, or our platform in particular, materially decreases as

COVID-19

restrictions are lifted, or if

COVID-19

results in regulatory changes that limit our current activities, our industry, business and results of operations will be adversely affected.

The level of demand for and market utilization of our solutions are subject to a high degree of uncertainty.

With respect to our digital health services, the market for digital health services and related technology is in the early stages of development and characterized by rapid change and volatility. As digital health specialty consultation workflows and related business drivers continue to evolve, the level of demand for and market utilization of our digital health services and platform remain subject to a high degree of uncertainty. Our success will depend to a substantial extent on the willingness of our customers to use, and to increase the frequency and extent of their utilization of, our products and services and our ability to demonstrate the value of digital health to employers, health plans, government agencies and other purchasers of healthcare for beneficiaries in our key digital health markets. If healthcare provider and payer organizations and government agencies and health ministries do not recognize or acknowledge the benefits of our digital health services or software platform or if we are unable to reduce healthcare costs or generate positive health outcomes, then the market for our solutions might not further develop, or it might develop more slowly than we expect. Similarly, negative publicity regarding patient confidentiality and privacy in the context of technology-enabled healthcare or concerns about our solutions or the digital health market as a whole could limit market acceptance of our solutions. If our customers do not perceive the benefits of our solutions, then our market may not develop at all, or it may develop more slowly than we expect. Achieving and maintaining market acceptance of our solutions could be negatively affected by many factors, including:

• the popularity, pricing and timing of digital health consultation services being launched and distributed by us and our competitors;

• general economic conditions, particularly economic conditions adversely affecting discretionary and reimbursable healthcare spending;

• federal and state policy initiatives impacting the need for and pricing of digital health services;

• changes in customer needs and preferences;

13

• the development of specialty care practice standards or industry norms applicable to digital health consultation services;

• the availability of other forms of medical and digital health assistance;

• lack of additional evidence or peer-reviewed publication of clinical evidence supporting the safety, ease-of-use, cost-savings or other perceived benefits of our solutions over competitive products or other currently available methodologies;

• perceived risks associated with the use of our solutions or similar products or technologies generally; and

• critical reviews and public tastes and preferences, all of which change rapidly and cannot be predicted.

In addition, our solutions may be perceived by our customers or potential customers to be more complicated or less effective than traditional approaches, and they may be unwilling to change their current healthcare practices. Healthcare providers are often slow to change their medical treatment practices for a variety of reasons, including perceived liability risks arising from the use of new products and services and the uncertainty of third-party reimbursement. Accordingly, healthcare providers may not recommend our solutions until there is sufficient evidence to convince them to alter their current approach. Any of these factors could adversely affect the demand for and market utilization of our solutions, which would have a material adverse effect on our business, financial condition and results of operations.

Our business could be adversely affected by legal challenges to our business model or by actions restricting our ability to provide the full range of our products and services in certain jurisdictions.

Our ability to conduct digital health services, medical services and pharmacy services in a particular jurisdiction is directly dependent upon the applicable laws governing remote healthcare, the practice of medicine, pharmacy licensure requirements and healthcare delivery in general in such location, which are subject to changing political, regulatory and other influences. With respect to digital health consult services, in the past, state medical boards have established rules or interpreted existing rules in a manner that has limited or restricted the ability to conduct business in accordance with a model utilized in other states or countries. Such actions could result in litigation and the suspension or modification of digital health consult operations in certain states or countries. The extent to which a jurisdiction considers particular actions or relationships to constitute practicing medicine is subject to change and to evolving interpretations by medical boards, state attorneys general and other regulatory or administrative bodies (both domestic and international), among others with broad discretion. Accordingly, we must monitor our compliance with laws in every jurisdiction in which we operate, on an ongoing basis, and we cannot provide assurance that our activities and arrangements, if challenged, will be found to be in compliance with such laws. Additionally, it is possible that the laws and rules governing the practice of medicine, including remote healthcare or pharmacy, in one or more jurisdictions may change in a manner that is detrimental to our business. If a successful legal challenge or an adverse change in the relevant laws were to occur, and we were unable to adapt our business model accordingly, our operations in the affected jurisdictions would be disrupted, which could have a material adverse effect on our business, financial condition and results of operations.

In order to support the growth of our business, we may need to seek capital through new equity or debt financings, and such sources of additional capital may not be available to us on acceptable terms or at all.

The prior operations of our subsidiary companies consumed substantial amounts of cash since their respective inceptions. We intend to continue to make significant investments to support our business growth, respond to business challenges or opportunities, develop new applications and services, enhance our existing solutions and services, enhance our operating infrastructure and potentially acquire complementary businesses and technologies. For the years ended December 31, 2020 and 2019, for all acquired or to be acquired subsidiaries, aggregate net cash provided by (used in) operating activities was $2.4 million and $11.8 million, respectively.

Our future capital requirements may be significantly different from our current estimates and will depend on many factors, including our growth rate, both organically and through acquisitions, the timing and extent of

14

spending to support development efforts, the expansion of sales and marketing activities, the introduction of new or enhanced services and the continuing market acceptance of digital health. Accordingly, we may need to engage in additional equity or debt financings or collaborative arrangements to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Common Stock. Any debt financing secured by us in the future could involve additional restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, during times of economic instability, including as a result of the

COVID-19

pandemic, it has been difficult for many companies to obtain financing in the public markets or to obtain debt financing, and we may not be able to obtain additional financing on commercially reasonable terms, if at all. If we are unable to obtain adequate financing on terms satisfactory to us, it could have a material adverse effect on our business, financial condition and results of operations.

There is a high degree of uncertainty regarding the implementation and impact of the CARES Act and future stimulus legislation, if any. There can be no assurance as to the total amount and types of assistance we will receive or that we will be able to benefit from provisions intended to increase access resources and ease regulatory burdens for healthcare providers.

The Coronavirus Aid, Relief, and Economic Security (“

CARES

”) Act, which was signed into law on March 27, 2020, provides a substantial stimulus and assistance package intended to address the impact of the

COVID-19

pandemic, including tax relief and government loans, grants and investments. The legislation, as amended, provides for $175 billion in relief funds to hospitals and other healthcare providers on the front lines of the coronavirus response to support healthcare related expenses or lost revenue attributable to

COVID-19

and to ensure uninsured Americans can get testing and treatment for

COVID-19.

As a result, BHS, a Missouri limited liability company and wholly-owned subsidiary of the Company, received payments form the Provider Relief Fund (“

PRF

”) of $228,794 in 2020.

Payments from the PRF are intended to compensate healthcare providers for lost revenues and incremental healthcare related expenses attributable to coronavirus incurred in response to the

COVID-19

pandemic. The Department of Health and Human Services (“

HHS

”) has stated that PRF payments are not loans and will not need to be repaid. However, as a condition to the receipt of funds, we and any other providers must agree to detailed sets of terms and conditions. HHS has indicated that the terms and conditions may be subject to ongoing changes and reporting. Additionally, HHS has issued a Post-Payment Notice of Reporting Requirements (“

Reporting Requirements

”) that outlines the process under which providers will report their use of payments from the PRF. To the extent HHS modifies the Reporting Requirements and terms and conditions, it may affect our ability to comply and may require the return of funds. As of March 16, 2021, BHS had not used any of the PRF funds. BHS has recorded a $229 thousand current liability on its consolidated balance sheet as it has not yet met all of the terms and conditions and restrictions for the use of CARES Act PRF. If it does not meet all of the terms and conditions and restrictions for the use, BHS will return the funds to HHS.

Certain of our subsidiaries received economic stimulus under the CARES Act. If such funding is not forgiven and is required to be repaid pursuant to the terms of the CARES Act or related guidance, our business, results of operations, and financial condition may be materially and adversely affected.

Section 1102 of the CARES Act established the Paycheck Protection Program (“

PPP

”), which provided additional funding for small businesses, as defined by the Small Business Administration (“

SBA

”), to keep workers employed during the

COVID-19

pandemic. In April 2020, Thrasys, TTC Healthcare, BHS, and Innovations Group applied for and received PPP funding from various banks in the aggregate amount of $4,653,500. Proceeds can only be used for specified covered purposes including payroll, mortgage interest, rent and utilities in accordance with the CARES Act. Each of the PPP loans has a

two-year

term and bears interest at a rate of 1.0% per annum. To the extent proceeds are used for these covered purposes, some or all of the related principal balances may be forgiven. Each of the subsidiaries spent their respective proceeds on covered

15

purposes. On October 2, 2020, the SBA issued a Procedural Notice with respect to PPP loans and changes of ownership. If required, each of the subsidiaries that borrowed PPP loans has notified or is in the process of notifying the PPP lenders of the contemplated change of ownership transaction and has provided the PPP lenders with a copy of the proposed agreements or other documents that would effectuate the proposed transaction. Each subsidiary that borrowed PPP loans has completed or is in the process of completing their forgiveness applications reflecting their respective use of all of their PPP loan proceeds and submitting the forgiveness applications, together with any supporting documentation, to the PPP lender; and taking other required actions.

We cannot provide assurance that the original principal and interest amounts under the respective PPP loans will be forgiven. If it is determined that any of the subsidiaries that borrowed PPP loans were ineligible to receive their respective PPP loan or determined that any of the subsidiaries that borrowed PPP loans did not comply with requirements after receiving their respective PPP loan, they may be required to repay their respective PPP loan in its entirety and/or be subject to additional penalties (potentially including civil and criminal fines and penalties) and adverse publicity, which could have a material adverse effect on our business, results of operations, and financial condition. Additionally, the SBA may audit any PPP loan, as appropriate. Should any of the subsidiaries that borrowed PPP loans be audited or reviewed by federal or state regulatory authorities, such audit or review could result in the diversion of management’s time and attention, generation of negative publicity, the incurrence of additional legal and reputational costs, and potential exposure to civil and criminal liability. Any of these events could have a material adverse effect on our business, results of operations, and financial condition.

As structured, the acquisition of Glocal by UpHealth Holdings did not result in it being wholly-owned by UpHealth Holdings, and it is anticipated that Glocal will have minority owners for some period of time, which may result in higher than expected costs and effort to complete its acquisition.

The share purchase agreement providing for the purchase of equity interests of Glocal (the

“ Glocal SPA”

) provides that UpHealth Holdings is to acquire 90% or more of the equity interests of Glocal, and the acquisition of these equity interests of Glocal is structured to occur in four steps. Under the terms of the Glocal SPA, only the first two of those steps were contemplated to be completed prior to the completion of the Business Combinations.

The first step concluded on November 20, 2020, when UpHealth Holdings acquired approximately 43.46% of the outstanding equity of Glocal. The second step consisted of two parts. On March 26, 2021, UpHealth Holdings completed the first of these parts, when it made an investment into Glocal of $3,000,000 pursuant to a rights offering by Glocal that was open to all Glocal equity owners. A second payment of $8.7 million was made later to complete the payment for this investment. As a result of this investment, UpHealth Holdings was issued additional shares in Glocal that increased its ownership to approximately 89.4% of the outstanding equity of Glocal. On May 14, 2021, UpHealth Holdings acquired additional shares of Glocal and delivered as acquisition consideration a certain number of UpHealth Holdings shares and a promissory note.

The third step towards the Glocal acquisition was completed after the consummation of the Business Combinations. The third step was to transfer additional Glocal shares to UpHealth Holdings, after UpHealth Holdings had sufficient cash and cash equivalents in its accounts to pay the consideration to the selling shareholders of Glocal. UpHealth Holdings has continued to take steps toward completing the acquisition, and now holds approximately 95% of the outstanding equity interests of Glocal. The fourth step has commenced, and pursuant to this step, Uphealth Holdings, as the majority shareholder, will, in conjunction with the remaining Glocal shareholders, take steps to increase its ownership in Glocal to 100% through acquisition of remaining shares from the minority equity holders, issuance of additional shares in Glocal, and/or in any other manner acceptable to UpHealth Holdings and permitted under India law.

Because of this multi-step structure for the consummation of the acquisition of ownership interests in Glocal, we anticipate that there will be some minority owners of Glocal for some period of time. These minority owners have rights to access to books and records of Glocal, and liquidation or dividend rights with respect to the

16

shares of Glocal that they own, but have minimal impact on UpHealth’s ability to control and manage Glocal. The ongoing minority ownership interests in Glocal could result in disputes with the minority holders and in higher than expected costs and efforts to complete the intended acquisition.

We may enter into collaborations, joint ventures, strategic alliances or partnerships with third parties that may not result in the development of commercially viable solutions or the generation of significant future revenues.

In the ordinary course of our business, we may enter into collaborations, joint ventures, strategic alliances, partnerships or other arrangements to develop products and to pursue new markets. Proposing, negotiating and implementing collaborations, joint ventures, strategic alliances or partnerships may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. We may not identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. We may not realize the anticipated benefits of any such transaction or arrangement. In particular, these collaborations may not result in the development of products that achieve commercial success or result in significant revenues and could be terminated prior to developing any products. Additionally, we may not own, or may jointly own with a third party, the intellectual property rights in products and other works developed under our collaborations, joint ventures, strategic alliances or partnerships.

Additionally, we may not be in a position to exercise sole decision-making authority regarding the transaction or arrangement, which could create the potential risk of creating impasses on decisions, and our future collaborators may have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our collaborators, such as conflicts concerning the achievement of performance milestones, or the interpretation of significant terms under any agreement, such as those related to financial obligations or the ownership or control of intellectual property developed during the collaboration. If any conflicts arise with any future collaborators, they may act in their self-interest, which may be adverse to our best interest, and they may breach their obligations to us. In addition, we may have limited control over the amount and timing of resources that any future collaborators devote to our or their future products. Disputes between us and our collaborators may result in litigation or arbitration which would increase our expenses and divert the attention of our management. Further, these transactions and arrangements will be contractual in nature and will generally be terminable under the terms of the applicable agreements and, in such event, we may not continue to have rights to the products relating to such transaction or arrangement or may need to purchase such rights at a premium.

We operate in highly competitive markets and face competition from large, well-established healthcare providers and more traditional retailers and pharmaceutical providers with significant resources, and, as a result, we may not be able to compete effectively. If we are unable to compete effectively, we will not be able to establish our products and services in the marketplace, and as a result, our business may not be profitable.

The markets for digital and traditional healthcare are intensely competitive, subject to rapid change and significantly affected by new product and technological introductions and other market activities of industry participants. We compete directly not only with other established digital health consult providers, epharmacy, behavioral health and integrated care management systems solutions, but also traditional healthcare providers, companies providing electronic health record (“

EHR

”) / health information exchange (“

HIE

”) services, and pharmacies. Our current competitors include traditional healthcare providers, healthcare providers expanding into the digital health consult market, incumbent digital health consult providers, traditional pharmacies, mail-order and digital pharmacies and specialized software and solution providers that offer similar solutions. Our competitors include enterprise-focused companies that may enter the

direct-to-consumer

healthcare industry, as well as

direct-to-consumer

healthcare providers. The surge in interest in digital health, and in particular the relaxation of Health Insurance Portability and Accountability Act of 1996 (“

HIPAA

”) privacy and security requirements, has also attracted new competition from providers who utilize consumer-grade video conferencing platforms. Many of our current and potential competitors may have greater name and brand

17

recognition, longer operating histories and significantly greater resources than we do and may be able to offer products and services similar to those offered on our platform at more attractive prices than we can. We expect competition to intensify in the future as existing competitors and new entrants introduce new digital health services and software platforms or other technology to U.S. healthcare providers, particularly hospitals and healthcare systems. Further, our current or potential competitors may be acquired by third parties with greater available resources, which has recently occurred in our industry. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements and may have the ability to initiate or withstand substantial price competition. In addition, our competitors have established, and may in the future establish, cooperative relationships with vendors of complementary products, technologies or services to increase the availability of their solutions in the marketplace.

New competitors or alliances may emerge that have greater market share, a larger customer base, more widely adopted proprietary technologies, greater marketing expertise and greater financial resources, which could put us at a competitive disadvantage. Our competitors could also be better positioned to serve certain segments of our current or future markets, which could create additional price pressure. In light of these factors, even if our offerings are more effective than those of our competitors, current or potential customers may accept competitive solutions in lieu of purchasing from us.

To the extent our solutions are perceived by customers and potential customers to be discretionary or otherwise

non-essential,

our revenues may be disproportionately affected by delays or reductions in general information technology and digital health spending. Moreover, competitors may respond to market conditions by lowering prices and attempting to lure away our customers and/or our customers may develop their own

in-house

solutions. In addition, the increased pace of consolidation in the healthcare industry may result in reduced overall spending on our solutions.

Our ability to compete effectively depends on our ability to distinguish our company and our offerings from our competitors and their products, and includes factors such as:

• accessibility, ease of use and convenience;

• price and affordability;

• personalization;

• brand recognition;

• long-term outcomes;

• breadth and efficacy of offerings;

• market penetration;

• marketing resources and effectiveness;

• partnerships and alliances;

• relationships with providers, suppliers and partners; and

• regulatory compliance recourses.

If we are unable to successfully compete with existing and potential new competitors, we will not be able to establish our products and services in the marketplace, and as a result, our business may not be profitable. Further, our business, financial condition and results of operations will be adversely affected.

We depend on our senior management team, and the loss of one or more of our executive officers or key employees could adversely affect our business.

Our success depends largely upon the continued services of our key executive officers. Currently, these executive officers are

at-will

employees and therefore they may terminate employment with us at any time with

18

no advance notice. We also rely on our leadership team in the areas of research and development, marketing, services and general and administrative functions. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. The replacement of one or more of our executive officers or other key employees would likely involve significant time and costs and may significantly delay or prevent the achievement of our business objectives, and our business would be adversely affected if we fail to adequately plan for succession of our executives and senior management. We currently do not have succession plans in place and we have employment arrangements with only a limited number of key executives. These do not guarantee that the services of these or suitable successor executives will continue to be available to us. Further, our failure to retain and motivate our current personnel could have a material adverse effect on our business, financial condition and results of operations.

We are dependent on our ability to recruit, retain and develop a large, highly skilled and diverse workforce. We must evolve our culture in order to successfully grow our business.

To continue to execute our growth strategy, we must attract and retain highly skilled personnel. Competition is intense for qualified professionals. We may not be successful in continuing to attract and retain qualified personnel. Our subsidiary companies have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled personnel with appropriate qualifications. The pool of qualified personnel with experience working in the healthcare market is limited overall. In addition, many of the companies with which we compete for experienced personnel have greater resources than we do.

Our products and services and our operations require a large number of employees all over the world. Our success is dependent on our ability to evolve our culture, align our talent with our business needs, engage our employees and inspire our employees to be open to change, to innovate and to maintain customer-focus when delivering our services. As we expand internationally, we face the challenge of recruiting, integrating, educating, managing, retaining and developing a more culturally diverse workforce.

In addition, in making employment decisions, particularly in high-technology industries, job candidates often consider the value of the stock options or other equity-based awards they are to receive in connection with their employment. Volatility in the price of our stock may, therefore, adversely affect our ability to attract or retain highly skilled personnel. Further, the requirement to expense stock options and other equity-based compensation may discourage us from granting the size or type of stock option or equity awards that job candidates require to join our company. Failure to attract new personnel could have a material adverse effect on our business, financial condition and results of operations.

Our success depends, in part, on our continued ability to maintain customer access to a network of qualified healthcare providers, which include medical doctors, physician assistants and nurse practitioners. Failure to maintain such a network could have a material adverse effect on our business, financial condition and results of operations.

Our success depends, in part, on our continued ability to maintain customer access to a network of qualified healthcare providers, which include medical doctors, physician assistants and nurse practitioners. If we are unable to recruit and retain licensed physicians and other qualified providers to perform services on our platform, or develop and maintain relationships with affiliated professional entities, which we do not own, it could have a material adverse effect on our business and ability to grow and could adversely affect our results of operations. In any particular market, providers could demand higher payments or take other actions that could result in higher medical costs, less attractive service for our customers or difficulty meeting regulatory requirements. Our ability to develop and maintain satisfactory relationships with providers also may be negatively impacted by other factors not associated with us, such as pressures on healthcare providers, consolidation activity among hospitals, physician groups and other healthcare providers, changes in the patterns of delivery and payment for healthcare services and any perceived liability risks associated with the use of digital health. The failure to maintain or to secure new cost-effective arrangements that engage the providers on our platform may result in a loss of, or inability to grow, our customer base, higher costs, less attractive service

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for our customers and/or difficulty in meeting regulatory requirements, any of which could have a material adverse effect on our business, financial condition and results of operations.

If we fail to cost-effectively develop widespread brand awareness, our business may suffer.

We believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to achieving widespread adoption of our products and services and attracting new customers. Our brand promotion activities may not generate customer awareness or increase revenue, and even if they do, any increase in revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses in doing so, we may fail to attract or retain customers necessary to realize a sufficient return on our brand-building efforts or to achieve the widespread brand awareness that is critical for broad customer adoption.

The emergence of new technologies may render our digital health technologies and tech-enabled services obsolete or require us to expend significant resources in order to remain competitive.

The global healthcare industry is massive, with a number of large market participants with conflicting agendas, and it is subject to significant government regulation and is currently undergoing significant change. Changes in our industry, for example, such as the emergence of new technologies as more competitors enter our market, could result in our digital health solutions being less desirable or relevant.

If healthcare benefits trends shift or entirely new technologies are developed that replace existing solutions, our existing or future solutions could be rendered obsolete and our business could be adversely affected. In addition, we may experience difficulties with industry standards, design or marketing that could delay or prevent our development, introduction or implementation of new applications and enhancements.

Rapid technological change in our industry presents us with significant risks and challenges.

The global digital health market is characterized by rapid technological change, changing consumer requirements, short product lifecycles and evolving industry standards. Our success will depend on our ability to enhance our products and services with next-generation technologies and to develop or to acquire and market new services to access new consumer populations. There is no guarantee that we will possess the resources, either financial or personnel, for the research, design and development of new applications or services, or that we will be able to utilize these resources successfully and avoid technological or market obsolescence. Further, there can be no assurance that technological advances by one or more of our competitors or future competitors will not result in our present or future applications and services becoming uncompetitive or obsolete.

Natural or

man-made

disasters and other similar events may significantly disrupt our business and negatively impact our business, financial condition and results of operations.

Our offices may be harmed or rendered inoperable by natural or

man-made

disasters, including earthquakes, power outages, fires, floods, nuclear disasters and acts of terrorism or other criminal activities, which may render it difficult or impossible for us to operate our business for some period of time. Any disruptions in our operations related to the repair or replacement of our offices, could negatively impact our business and results of operations and harm our reputation. Although we maintain insurance policies covering damage to property we rent, such insurance may not be sufficient to compensate for losses that may occur. Any such losses or damages could have a material adverse effect on our business, financial condition and results of operations. In addition, our customers’ facilities may be harmed or rendered inoperable by such natural or

man-made

disasters, which may cause disruptions, difficulties or material adverse effects on our business.

Our business, results of operations and financial condition may fluctuate on a quarterly and annual basis, which may result in a decline in our stock price if such fluctuations result in a failure to meet any projections that we may provide or the expectations of securities analysts or investors.

The operating results of our six subsidiary company businesses have in the past varied, and our operating results in the future could vary, significantly from

quarter-to-quarter

and

year-to-year.

We may fail to match

20

past performance, our projections or the expectations of securities analysts because of a variety of factors, many of which are outside of our control. As a result, we may not be able to accurately forecast our operating results and growth rate. Any of these events could cause the market price of our Common Stock to fluctuate. Factors that may contribute to the variability of our operating results include:

• the addition or loss of large customers, including through acquisitions or consolidations of such customers;

• seasonal and other variations in the timing of our sales and implementation cycles, especially in the case of our large customers;

• travel restrictions, shelter in place orders and other social distancing measures implemented to combat the COVID-19 pandemic, and their respective impact on economic, industry and market conditions, customer spending budgets and our ability to conduct business;

• the timing of recognition of revenue, including possible delays in the recognition of revenue due to unpredictable implementation timelines;

• the timing and success of introductions of new products and services by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, hospital and healthcare system customers or strategic partners;

• the amount of operating expenses and timing related to the maintenance and expansion of our business, operations and infrastructure;

• our ability to effectively manage the size and composition of our proprietary network of healthcare professionals relative to the level of demand for services from our customers;

• customer renewal rates and the timing and terms of such renewals;

• technical difficulties or interruptions in our services;

• breaches of information security or privacy;

• our ability to hire and retain qualified personnel;

• changes in the structure of healthcare provider and payment systems;

• changes in the legislative or regulatory environment, including with respect to healthcare, privacy or data protection, or enforcement by government regulators, including fines, orders or consent decrees;

• the cost and potential outcomes of ongoing or future regulatory investigations or examinations, or of future litigation;

• political, economic and social instability, including terrorist activities and health epidemics (including the COVID-19 pandemic), and any disruption these events may cause to the global economy; and

• changes in business or macroeconomic conditions.

The impact of one or more of the foregoing and other factors may cause our operating results to vary significantly. As such, we believe that

quarter-to-quarter

and

year-to-year

comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future performance.

Developments affecting spending by the healthcare industry could adversely affect our business.

The U.S. healthcare industry has changed significantly in recent years, and we expect that significant changes will continue to occur. General reductions in expenditures by healthcare industry participants could result from, among other things:

• government regulations or private initiatives that affect the manner in which healthcare providers interact with patients, payors or other healthcare industry participants, including changes in pricing or means of delivery of healthcare products and services;

• consolidation of healthcare industry participants;

21

• federal amendments to, lack of enforcement or development of applicable regulations for, or repeal of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (as amended, the “ ACA ”);

• reductions in government funding for healthcare; and

• adverse changes in business or economic conditions affecting healthcare payors, providers or other healthcare industry participants.

Any of these changes in healthcare spending could adversely affect our revenue. Even if general expenditures by industry participants remain the same or increase, developments in the healthcare industry may result in reduced spending in some or all of the specific market segments that we serve now or in the future. However, the timing and impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the demand for our products and services will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in the healthcare industry.

Economic uncertainties or prolonged downturns in the general economy, or political changes, could disproportionately affect the demand for our solutions and adversely affect our results of operations.

Current or future economic uncertainties or prolonged downturns, including those caused by the ongoing

COVID-19

pandemic, could adversely affect our business and results of operations. Negative conditions in the general economy in the United States, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, political deadlock, natural catastrophes, pandemics, social unrest, warfare and terrorist attacks, could cause a decrease in funds available to our customers and potential customers and negatively affect the growth rate of our business.

These economic conditions may make it difficult for our customers and us to forecast and plan future budgetary decisions or business activities accurately, and they could cause our customers to reevaluate their decisions to purchase our solutions, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic times or as a result of political changes, our customers may tighten their budgets and face constraints in gaining timely access to sufficient funding or other credit, which could result in an impairment of their ability to make timely payments to us. In turn, we may be required to increase our allowance for doubtful accounts, which would adversely affect our financial results.

We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within the healthcare industry, or the effect of political changes. If the economic conditions of the general economy or the healthcare industry do not improve, or worsen from present levels, our business, financial condition and results of operations could be adversely affected.

We depend upon third-party service providers for certain technologies. If these third-party providers fail to fulfill their contractual obligations, fail to maintain or support those technologies or choose to discontinue their services, our business and operations could be disrupted, we may be exposed to third party liabilities and our results of operations may be adversely affected.

We depend upon third-party service providers for important functions of our solutions. Software, network applications and data, as well as the core video and audio system integral to our business, are hosted on third-party sites. These facilities may be vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures,

COVID-19

pandemic-related business disruptions and similar events. The occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in our ability to provide our services. The facilities also could be subject to

break-ins,

computer viruses, sabotage, intentional acts of vandalism and other misconduct. Redundancies and backup systems are in place to prevent operational disruptions and data loss, but if these technologies fail or are of poor quality, our business, reputation and results of operations could be materially adversely affected. Failures or disruption in the delivery of digital health services could result in customer dissatisfaction, disrupt our operations and

22

materially adversely affect operating results. Additionally, we have significantly less control over the technologies third parties provide to us than if we maintained and operated them ourselves. In some cases, functions necessary to some of our solutions may be performed by these third-party technologies. If we need to find an alternative source for performing these functions, we may have to expend significant money, resources and time to develop the alternative, and if this development is not accomplished in a timely manner and without significant disruption to our business, we may be unable to fulfill our obligations to customers. Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and information services or our own systems could negatively impact our relationships with customers and adversely affect our business and could expose us to third-party liabilities.

Our management team has limited experience managing a public company, and we expect to incur significant costs as we continue to operate as a public company.

Our management team has limited experience managing a publicly traded company. Their limited experience interacting with public company investors and securities analysts and complying with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to the management and growth of our business. These new obligations and constituents require significant attention from our management team and could divert their attention away from the

day-to-day

management of our business, which could harm our business, results of operations and financial condition. We will also need to expand our employee base and hire additional employees to support our operations as a public company, which will increase our operating costs in future periods.

We expect the rules and regulations applicable to us as a public company to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business, including our subsidiaries. For example, our status as a public company makes it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the level of coverage that we believe is appropriate for a public company. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Additionally, there continues to be public interest and increased legislative pressure related to environmental, social and governance (“

ESG

”) activities of public companies. For example, there is a growing number of states requiring organizations to report their board composition as well or mandating gender diversity and representation from underrepresented communities, including New York and California. We risk negative stockholder reaction, including from proxy advisory services, as well as damage to our brand and reputation, if we do not act responsibly in a number of key areas, including diversity and inclusion, environmental stewardship, support for local communities, corporate governance and transparency and considering ESG and human capital factors in our operations.

We recently acquired a total of six subsidiaries in conjunction with or through the Business Combinations, and we may acquire other companies or technologies, which could divert our management’s attention, result in dilution to our stockholders and otherwise disrupt our operations, and we may have difficulty successfully integrating any such acquisitions or realizing the anticipated benefits of them, any of which could have an adverse effect on our business, financial condition and results of operations.

Our subsidiary companies have in the past sought, and we in the future may seek, to acquire or invest in businesses, applications and services or technologies that we believe could complement or expand our solutions, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.

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In addition, both with respect to the recent or pending acquisitions of our subsidiaries and additional businesses we may choose to acquire, we may not be able to successfully integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including, but not limited to:

• management’s lack of experience in acquiring and integrating business;

• inability to integrate or benefit from acquired technologies or services in a profitable manner;

• unanticipated costs or liabilities, including legal liabilities, associated with the acquisition;

• entry into new markets and locations in which we have little operating experience or experience with government rules, regulations and restrictions;

• difficulty integrating the accounting systems, operations and personnel of the acquired business;

• difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;

• difficulty converting the customers of the acquired business onto our platform and contract terms, including disparities in the revenue, licensing, support or professional services model of the acquired company;

• diversion of management’s attention from other business concerns;

• adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;

• the potential loss of key employees or contractors;

• use of resources that are needed in other parts of our business; and

• use of substantial portions of our available cash to consummate the acquisition.

In addition, a significant portion of the purchase price of businesses we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our results of operations based on this impairment assessment process, which could adversely affect our results of operations.

Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our results of operations. In addition, if an acquired business fails to meet our expectations, our business, financial condition and results of operations may suffer.

If we are unable to grow, or if we fail to manage future growth effectively, our revenues may not increase and we may be unable to implement our business strategy.

Our future success depends upon our ability to grow, and if we are unable to manage our growth effectively, we may incur unexpected expenses and be unable to meet our customers’ requirements, all of which could materially adversely affect our business, financial condition and results of operations. A key aspect to managing our growth is our ability to scale our capabilities, including in response to unexpected shifts in demand for digital health, such as during the

COVID-19

pandemic. To manage our current and anticipated future growth effectively, we must continue to maintain and enhance our IT infrastructure and our financial and accounting systems and controls. We must also attract, train and retain a significant number of qualified healthcare providers, sales and marketing personnel, customer support personnel, professional services personnel, software engineers, technical personnel and management personnel. The availability of such personnel, particularly healthcare providers and software engineers, may be constrained.

Our growth also depends on the acceptance of our solutions as a suitable supplement to traditional healthcare delivery systems and on our ability to overcome operational challenges. Our business model and solutions

24

could lose their viability as a supplement to traditional healthcare delivery systems due to customer dissatisfaction or new alternative solutions. If we are unable to address the needs of our customers, or our customers are dissatisfied with the quality of our solutions, our customers may not renew their contracts, seek to cancel or terminate their relationship with us or renew on less favorable terms, any of which could cause our annual net dollar retention rate to decrease.

Our future growth will also depend, in part, on our ability to grow our revenue from existing customers, to complete sales to potential future customers, to expand our customer base, to develop new products and services and to expand internationally. We can provide no assurances that we will be successful in executing on these growth strategies or that, even if our key metrics would indicate future growth, we will continue to grow our revenue or to generate net income. Our ability to execute on our existing sales pipeline, create additional sales pipelines and expand our customer base depends on, among other things, the attractiveness of our services relative to those offered by our competitors, our ability to demonstrate the value of our existing and future services and our ability to attract and retain a sufficient number of qualified sales and marketing leadership and support personnel. In addition, our existing customers may be slower to adopt our services than we currently anticipate, which could adversely affect our results of operations and growth prospects.

We need to continue to improve our internal systems, processes and controls to effectively manage our operations and growth. We may not be able to successfully implement and scale improvements to our systems and processes in a timely or efficient manner or in a manner that does not negatively affect our operating results. For example, our systems and processes may not prevent or detect all errors, omissions or fraud, including any fraudulent activities conducted or facilitated by our employees or the providers. We may experience difficulties in managing improvements to our systems, processes and controls or in connection with third-party software, which could impair our ability to offer our platform to our customers in a timely manner, causing us to lose customers or increase our technical support costs.

As we continue to grow, including from the integration of employees and businesses acquired in connection with previous or future acquisitions, we may find it difficult to maintain important aspects of our corporate culture, which could negatively affect our profitability and our ability to retain and recruit qualified personnel who are essential for our future success. If we do not effectively manage our growth, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy client requirements or maintain high-quality solutions. Additionally, we may not be able to expand and upgrade our systems and infrastructure to accommodate future growth.

Failure to effectively manage our growth could also lead us to over-invest or under-invest in development and operations, result in weaknesses in our infrastructure, systems or controls, give rise to operational mistakes, financial losses, loss of productivity or business opportunities and result in loss of employees and reduced productivity of remaining employees. Our growth is expected to require significant marketing and sales investments as well as focused capital expenditures and may divert financial resources from other projects such as the development of new products and services. If we are unable to effectively manage our growth, our expenses may increase more than expected, our revenues may not increase or may grow more slowly than expected and we may be unable to implement our business strategy. The quality of our services may also suffer, which could negatively affect our reputation and harm our ability to attract and retain customers.

Current or future litigation against us could be costly and time-consuming to defend.

We are subject, and in the future may become subject from time to time, to legal proceedings and claims that arise in the ordinary course of business. Litigation may result in substantial costs, settlement and judgments and may divert management’s attention and resources, which may substantially harm our business, financial condition and results of operations. Insurance may not cover such claims, provide sufficient payments to cover all of the costs to resolve one or more such claims and continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby leading analysts or potential investors to reduce their expectations of our performance, which could reduce the market price of our Common Stock.

25

We could experience losses or liability not covered by insurance.

Our business exposes us to risks that are inherent in the provision of digital health and remote, virtual healthcare. If customers or individuals assert liability claims against us, any ensuing litigation, regardless of outcome, could result in a substantial cost to us, divert management’s attention from operations, and decrease market acceptance of our products and services. We attempt to limit our liability to customers by contract; however, the limitations of liability set forth in the contracts may not be enforceable or may not otherwise protect us from liability for damages. Additionally, we may be subject to claims that are not explicitly covered by contract. We also maintain general liability coverage; however, this coverage may not continue to be available on acceptable terms, may not be available in sufficient amounts to cover one or more large claims against us, and may include larger self-insured retentions or exclusions for certain products. In addition, the insurer might disclaim coverage as to any future claim. A successful claim not fully covered by our insurance could have a material adverse impact on our liquidity, financial condition and results of operations.

We may become subject to professional liability claims, which could cause us to incur significant expenses, may require us to pay significant damages if not covered by insurance, and could adversely affect our business, financial condition and results of operations.

Our business entails the risk of professional liability claims against us and our affiliated professional entities. We and our affiliated professional entities have in the past and may in the future be subject to professional liability claims and, if these claims are successful, substantial damage awards. Although we maintain insurance covering medical malpractice claims in amounts that we believe are appropriate in light of the risks attendant to our business, we cannot predict the outcomes of medical malpractice cases and the effect that any claims of this nature, regardless of their ultimate outcome, could have on our business or reputation or on our ability to attract and retain customers. Professional liability insurance is expensive and insurance premiums may increase significantly in the future, particularly as we expand our services. As a result, adequate professional liability insurance may not be available to our providers or to us in the future at acceptable costs or at all.

Any claims made against us that are not fully covered by insurance could be costly to defend against, result in substantial damage awards against us and divert the attention of our management and our providers from our operations, which could have a material adverse effect on our business, financial condition and results of operations. In addition, any claims may adversely affect our business or reputation.

We qualify as an emerging growth company as defined under the JOBS Act as well as a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.

We qualify as an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of our Common Stock that is held by

non-affiliates

exceeds $700,000,000 as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in

non-convertible

debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of our IPO. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find

26

our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have not elected to opt out of such extended transition period and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. This may make comparison of our financial statements with another public company which is not an emerging growth company or is an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.

Additionally, we will qualify as a “smaller reporting company” as defined in Item 10(f)(1) of Regulation

S-K.

Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our Common Stock held by

non-affiliates

exceeds $250,000,000 as of the end of that year’s second fiscal quarter, or (ii) our annual revenues exceeded $100,000,000 during such completed fiscal year and the market value of our Common Stock held by

non-affiliates

exceeds $700,000,000 as of the end of that year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a publicly traded company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the applicable listing standards of the NYSE. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. As disclosed in GigCapital2’s Annual Report on

Form 10-K/A

for the fiscal year ended December 31, 2020, management concluded that our disclosure controls and procedures and internal controls over financial reporting were not effective as of December 31, 2020 due to a material weakness related to not having adequate controls over accounting for complex accounting instruments and, in particular, related to errors in the accounting for warrants issued in connection with the IPO and recorded in GigCapital2’s pre-Business Combination, historical condensed consolidated financial statements through March 31, 2021. We are continuing to improve our internal control over financial reporting, which includes hiring additional accounting and financial personnel to implement such processes and controls. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight. If any of these new or improved controls and systems do not perform as expected, we may experience additional material weaknesses in our controls. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future.

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Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of internal control over financial reporting that we will eventually be required to include in its periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our Common Stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE. Our predecessor companies were not required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and were therefore not required to make a formal assessment of the effectiveness of control over financial reporting for that purpose. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our annual report on Form

10-K

for the year ended December 31, 2021. Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act or a “smaller reporting company” as defined in Item 10(f)(1) of Regulation

S-K.

At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have an adverse effect on our business and results of operations and could cause a decline in the price of our Common Stock.

Changes in financial accounting standards may adversely affect our reported results of operations.

A change in accounting standards or practices could adversely affect our operating results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. For example, in February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (

“ASU”

) No. 2016-02, Leases (Topic 842), and subsequently issued several supplemental/clarifying ASUs. Among other things, under this ASU, lessees will be required to recognize, at commencement date, a lease liability representing the lessee’s obligation to make lease payments arising from the lease and a right-of-use asset representing the lessee’s right to use or control the use of a specified asset for the lease term for leases greater than 12 months. Topic 842 will be effective for UpHealth for annual periods beginning after December 15, 2021, and interim reporting periods within annual reporting periods beginning after December 15, 2022. Accordingly, we will adopt Topic 842 for our annual reporting period beginning January 1, 2022, and interim reporting periods within the annual reporting period beginning January 1, 2023. We are in the process of evaluating the impact of the adoption of this new standard on our consolidated financial statements. These and other changes to existing rules or the questioning of current practices may adversely affect our operating results. In addition, any difficulties in implementing this new lease standard could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.

Healthcare provider licensing and credentialing, a cost of providing professional services, can negatively impact our margins as we may incur increased expenses to utilize appropriately licensed and credentialed healthcare providers for consult demands, especially when expanding to new jurisdictions and new hospital customers.

A healthcare provider’s ability to perform digital health consults is dictated by where the healthcare provider is licensed to practice and with whom the healthcare provider is privileged to provide services. Governmental licensure and healthcare provider credentialing requirements take time to procure, often necessitating months of lead-time before a healthcare provider is able to practice in a particular jurisdiction or take consults for a particular hospital facility. Our ability to manage and anticipate healthcare provider need and prioritize licensing and credentialing could impact profit margins and expense management. As consult demands increase in areas where only a limited number of healthcare providers hold necessary licenses and credentials, those

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healthcare providers with appropriate licensing and credentialing to meet customer demands may assume additional overtime shifts or otherwise demand increased fees, thereby increasing our costs. Further, obtaining a license to practice medicine in a particular jurisdiction is at the discretion of the local state medical board or applicable international licensing body, and, as such, timing to achieve licensure in certain jurisdictions may be outside our ability to accomplish within expected time frames.

The estimates and assumptions on which our financial projections are based may prove to be inaccurate, which may cause our actual results to materially differ from such projections, and which may adversely affect our future profitability, cash flows and market price of our Common Stock.

UpHealth’s financial projections are dependent on certain estimates and assumptions related to, among other things, growth assumptions that are inherently subject to significant uncertainties and contingencies, as well as, among other things, matters related specifically to the recent operational performance and anticipated development of our business, and are subject to significant economic, competitive, industry and other uncertainties, and may not be achieved in full, at all, or within projected timeframes. The financial projections also reflect numerous assumptions with respect to general business, economic, market, regulatory and financial conditions and various other factors, all of which are difficult to predict and many of which are beyond our control. Furthermore, the financial projections do not take into account any circumstances or event occurring after the date they were prepared. The financial projections were not prepared with a view to public disclosure or complying with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for the preparation and presentation of prospective financial information. UpHealth’s independent auditor has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the financial projections and, accordingly, does not express an opinion or any other form of assurance with respect thereto. The financial projections were based on historical experience and on various other estimates and assumptions that our management believed to be reasonable under the circumstances and at the time they were made. There will be differences between actual and projected financial results, and actual results may be materially greater or materially less than those contained in the financial projections, especially in light of the increased difficulty in making such estimates and assumptions as a result of the

COVID-19

pandemic. Any material variation between our financial projections and our actual results may adversely affect our future profitability, cash flows and market price of our Common Stock.

Our executive officers, directors, principal stockholders and their affiliates will have the ability to exercise significant influence over our company and all matters submitted to stockholders for approval.

Our executive officers, directors and principal stockholders, together with their affiliates and related persons, beneficially own shares of Common Stock representing a significant percentage of our capital stock. As a result, if these stockholders were to choose to act together, they would be able to influence our management and affairs and the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire. In addition, this concentration of ownership might adversely affect the market price of our Common Stock by:

• delaying, deferring or preventing a change of control of us;

• impeding a merger, consolidation, takeover or other business combination involving us; or

• discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be the sole source of gain for our stockholders.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, under the Glocal Loan Agreement (See “Certain Relationships and Related Person Transactions”), we are currently restricted

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from paying cash dividends, and we expect these restrictions to continue in the future. In addition, the terms of any future debt agreements may continue to preclude us from paying dividends. As a result, capital appreciation, if any, of our Common Stock will be the sole source of gain for our stockholders for the foreseeable future.

Risks Related to Government Regulation

Evolving government regulations may require increased costs or adversely affect our results of operations.

In a regulatory climate that is uncertain, our operations may be subject to scrutiny or reinterpretation under various laws and regulations. Healthcare is a highly regulated industry and subject to laws and regulations at the federal, state, and local level as well as evolving industry standards. Telehealth and other remote care delivery models, in particular, have experienced and will continue to experience frequently changing regulations that may differ substantially from jurisdiction to jurisdiction, including state by state. Compliance with current and future laws and regulations will likely require significant initial monetary and recurring expenses and could potentially require us to change our practices upon short notice, adding to the potential costs of compliance. These additional monetary expenditures may increase future overhead, which could have a material adverse effect on our results of operations.

We have identified what we believe are the areas of government regulation that, if changed, would be costly to us. These include: rules governing the practice of medicine by physicians; rules governing the practice of pharmacy; licensure standards for doctors, pharmacists and behavioral health professionals; laws limiting the corporate practice of medicine;

fee-splitting,

healthcare fraud and abuse laws; third party payor coverage and reimbursement rules; cybersecurity and privacy laws; laws and rules relating to the distinction between independent contractors and employees; prescribing of controlled substances via a remote encounter; fraud and abuse laws addressing financial relationships between healthcare entities and physicians or other referral sources; commercial and governmental payor billing; anti-kickback laws; provisions of free healthcare by the government; and tax and other laws. There could be laws and regulations applicable to our business that we have not identified or that, if changed, may be costly to us, and we cannot predict all the ways in which implementation of such laws and regulations may affect us.

In the jurisdictions in which we operate, we believe we are in compliance with all applicable laws, but, these laws and regulations are extremely complex and, in many cases, still evolving. If our operations are found to violate any of the foreign, federal, state or local laws and regulations which govern our activities, we may be subject to litigation, government enforcement actions, and applicable penalties associated with the violation, potentially including civil and criminal penalties, damages, fines, exclusion from participation in certain payor programs or curtailment of our operations. Compliance obligations under these various laws are oftentimes detailed and onerous, further contributing to the risk that we could be found to be out of compliance with particular requirements. The risk of being found in violation of these laws and regulations is further increased by the fact that in many cases, these laws have not been fully interpreted by the regulatory authorities or the courts, particularly with respect to new and emerging technologies and remote delivery of services, and may therefore be open to a variety of interpretations. In the event that we must remedy any compliance violations, we may be required to modify our services and products in a manner that undermines our solution’s attractiveness to our clients or providers or experts, we may become subject to fines or other penalties or, if we determine that the requirements to operate in compliance in such jurisdictions are overly burdensome, we may elect to terminate our operations in such places. In each case, our revenue may decline, and our business, financial condition and results of operations could be materially adversely affected.

The outbreak of the

SARS-CoV-2

virus and the

COVID-19

disease that it causes has evolved into a global pandemic. It is difficult to predict what impact the continued prevalence of

COVID-19

will have on our business and resulting operations. At the same time, the U.S. federal and state governments have relaxed certain laws and regulations to combat the spread of the novel coronavirus, including removal of restrictions on the delivery and payment for remote healthcare services and the expansion of enforcement discretion by the U.S.

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Food and Drug Administration (the “

FDA

”) with respect to certain

off-label

uses of products that may benefit

COVID-19

response and prevention efforts. These changes in the law are occurring quickly, are subject to varying interpretations, and are temporary in nature. We are closely following these changes and we are adapting our operations to quickly respond to the needs of our patients and our partners. We may interpret these changes differently than an applicable government regulator and may be subject to audits in the future. To the extent that any of our interpretations are found to be incorrect, we could be subject to enforcement action or overpayment liability. We may also need to quickly revert to past operations in the event that flexibilities resulting from the pandemic are removed and standard requirements are

re-imposed.

We are unable to predict the extent to which this pandemic will impact our business and operating results, including new information that may emerge concerning the virus and the actions to contain it or to treat

COVID-19,

among others.

Other legal, regulatory and commercial policy influences are subjecting our industry to significant changes, and we cannot predict whether new regulations or policies will emerge from U.S. federal or state governments, foreign governments, or third-party payors. Government and commercial payors may, in the future, consider healthcare policies and proposals intended to curb rising healthcare costs, including those that could significantly affect reimbursement for healthcare services. Future significant changes in the healthcare systems in the United States or elsewhere could also have a negative impact on the demand for our current and future services.

Additionally, the introduction of new services may require us to comply with additional, yet undetermined, laws and regulations. Compliance may require obtaining appropriate licenses or certificates, increasing our security measures and expending additional resources to monitor developments in applicable rules to ensure compliance. The failure to adequately comply with these future laws and regulations may delay or possibly prevent some of our products or services from being offered to customers, which could have a material adverse effect on our business, financial condition and results of operations.

The healthcare industry is highly regulated and is subject to changing political, legislative, regulatory and other influences. Existing and new laws and regulations affecting the healthcare industry could create unexpected liabilities for us, cause us to incur additional costs and restrict our operations. Many healthcare laws are complex, and their application to specific products and services may not be clear. In particular, many existing healthcare laws and regulations, when enacted, did not anticipate the services that we provide. However, these laws and regulations may nonetheless be applied to our business. Our failure to accurately anticipate the application of these laws and regulations, or other failure to comply, could create liability for us, result in adverse publicity and materially affect our business, financial condition and results of operations.

In the United States, we conduct business in a heavily regulated industry and if we fail to comply with these laws and government regulations, we could incur substantial penalties or be required to make significant changes to our operations or experience enforcement actions or adverse publicity, which could have a material adverse effect on our business, financial condition and results of operations.

The U.S. healthcare industry is heavily regulated and closely scrutinized by federal, state and local governments. Comprehensive statutes and regulations govern the manner in which we provide and bill for services and collect reimbursement from governmental programs and private payers, our contractual relationships with our providers, vendors and customers, our marketing activities and other aspects of our operations. Of particular importance are:

• the federal physician self-referral law, commonly referred to as the Stark Law, that, subject to limited exceptions, prohibits physicians from referring Medicare patients to an entity for the provision of certain “designated health services” if the physician or a member of such physician’s immediate family has a direct or indirect financial relationship (including an ownership interest or a compensation arrangement) with the entity, and prohibits the entity from billing Medicare for such designated health services;

• the federal Anti-Kickback Statute, which is an intent-based federal criminal statute that prohibits the knowing and willful offer, payment, provision, solicitation or receipt of any remuneration, directly or indirectly, in cash or in kind, for referring an individual, in return for ordering, leasing, purchasing or recommending or arranging for or to induce the referral of an individual or the ordering, purchasing or

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leasing of items or services covered, in whole or in part, by any federal healthcare program, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act;

• the criminal healthcare fraud provisions of the federal HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“ HITECH ”) and their implementing regulations, and related rules that prohibit knowingly and willfully executing or attempting to execute a scheme or artifice to defraud any healthcare benefit program or to obtain by means of false, or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;

• the federal False Claims Act that imposes civil liability, including through qui tam and civil whistleblower actions, against individuals or entities that knowingly present, or cause to be presented, false or fraudulent claims for payment to the federal government or knowingly making, or causing to be made, a false statement or record material to the payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government;

• the federal criminal statute on false statements relating to health care matters, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious, or fraudulent statements or representations in connection with the delivery of or payment for health care benefits, items or services;

• The Civil Monetary Penalties Law authorizes the imposition of civil monetary penalties, assessments and exclusion against an individual or entity based on a variety of prohibited conduct, including, but not limited to:

• presenting, or causing to be presented, claims for payment to Medicare, Medicaid or other third-party payors that the individual or entity knows or should know are for an item or service that was not provided as claimed or is false or fraudulent;

• offering remuneration to a Medicare or Medicaid beneficiary that the individual or entity knows or should know is likely to influence the beneficiary to order or receive health care items or services from a particular provider or supplier;

• employing or contracting with an entity or individual excluded from participation in the federal health care programs;

• violating the federal Anti-Kickback Statute;

• making, using or causing to be made or used a false record or statement material to a false or fraudulent claim for payment for items and services furnished under a federal health care program;

• making, using or causing to be made any false statement, omission or misrepresentation of a material fact in any application, bid or contract to participate or enroll as a provider of services or a supplier under a federal health care program; and

• failing to timely report and return an overpayment owed to the federal government;

• substantial civil monetary penalties may be imposed under the federal Civil Monetary Penalties Law and may vary depending on the underlying violation. In addition, an assessment of not more than three times the total amount claimed for each item or service may also apply and a violator may be subject to exclusion from federal and state health care programs;

• the federal Eliminating Kickbacks in Recovery Act of 2018 (“ EKRA ”), included as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act, was signed into law on Oct. 24, 2018. The EKRA provisions, similar to the federal Anti-Kickback Statute,

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makes it a felony for certain entities (including substance abuse treatment centers, clinical treatment facilities and clinical laboratories) to engage in remunerative arrangements that induce or reward individuals or entities for the referral of patients to such facilities, unless an exception applies. EKRA applies regardless of payor source, including for services reimbursed exclusively through commercial insurance or self-paying patients. Violations of EKRA can lead to fines of not more than $200,000 and imprisonment of not more than 10 years, or both, for each occurrence” 18 U.S.C. 220(a);

• reassignment of payment rules that prohibit certain types of billing and collection practices in connection with claims payable by the Medicare or Medicaid programs;

• similar state law provisions pertaining to anti-kickback, self-referral, fee-splitting, patient inducement and false claims issues, some of which may apply to items or services reimbursed by any payer, including patients and commercial insurers;

• state laws that prohibit general business corporations, such as us, from practicing medicine, controlling physicians’ medical decisions or engaging in some practices such as splitting fees with physicians;

• laws that regulate debt collection practices as applied to our debt collection practices;

• a provision of the Social Security Act that imposes criminal penalties on healthcare providers who fail to disclose or refund known overpayments;

• federal and state laws that prohibit providers from billing and receiving payment from Medicare and Medicaid for services unless the services are medically necessary, adequately and accurately documented and billed using codes that accurately reflect the type and level of services rendered;

• federal and state laws and policies related to healthcare providers, licensure, certification, accreditation and related to the Medicare and Medicaid programs enrollment;

• federal and state laws and policies related to the practice of pharmacy, pharmacy licensure, and the prescribing and dispensing of pharmaceuticals and controlled substances;

• federal and state laws and policies related to the provision of substance use disorder treatment and substance use disorder program and facility licensure and accreditation; and

• licensure, CLIA certification and accreditation of diagnostic laboratory services.

In addition, the healthcare industry is required to comply with additional extensive and complex laws and regulations at the federal, state and local government levels relating to, among other things:

• licensure of health providers, certification of organizations and enrollment with government reimbursement programs;

• necessity and adequacy of medical care;

• relationships with physicians and other referral sources and referral recipients;

• billing and coding for services;

• properly handling overpayments;

• quality of medical equipment and services;

• qualifications of medical and support personnel;

• confidentiality, maintenance, data breach, identity theft and security issues associated with health-related and personal information and medical records; and

• communications with patients and consumers.

Because of the breadth of these laws and the narrowness of certain statutory and regulatory exceptions and safe harbors that may be available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Complying with these laws may prove costly. Failure to comply with these

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laws and other laws can result in civil and criminal penalties such as fines, damages, overpayment, recoupment, imprisonment, loss of enrollment status and exclusion from participation in federal healthcare programs, including Medicare and Medicaid. The risk of us being found in violation of these laws and regulations is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are sometimes open to a variety of interpretations. Our failure to accurately anticipate the application of these laws and regulations to our business or any other failure to comply with regulatory requirements could create liability for us and negatively affect our business. Any action against us for violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and result in adverse publicity.

To enforce compliance with the federal laws, the U.S. Department of Justice and the U.S. Department of Health and Human Services Office of Inspector General (“

OIG

”) have recently increased their scrutiny of healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Telemedicine providers, in particular, have been subject to increased scrutiny by federal and state regulators and have resulted in significant enforcement actions. Dealing with investigations can be time- and resource-intensive and can divert management’s attention from the business. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business. In addition, because of the potential for large monetary exposure under the federal False Claims Act, which provides for treble damages and penalties of $11,665 to $23,331 per false claim or statement for penalties assessed after June 19, 2020, and with respect to violations occurring after November 2, 2015, healthcare providers often resolve allegations without admissions of liability for significant and material amounts to avoid the uncertainty of treble damages that may be awarded in litigation proceedings. Such settlements often contain additional compliance and reporting requirements as part of a consent decree, settlement agreement or corporate integrity agreement. Notably, the government has been using its newly created authority under EKRA to pursue criminal enforcement actions against substance abuse treatment facilities for certain financial arrangements that were not subject to the federal Anti-Kickback Statute due to the absence of federal healthcare program reimbursement for services rendered by such facilities. EKRA’s statutory exceptions do not strictly mirror the safe harbors available under the federal Anti-Kickback Statute and in many instances, relationships that would otherwise comply with the federal Anti-Kickback Statute would nevertheless violate EKRA. EKRA grants authority to the U.S. Attorney General to promulgate additional exceptions, in consultation with the Secretary of HHS; however, the Attorney General has not yet done so. Notably, the OIG (the agency with authority to promulgate regulatory safe harbors under the federal Anti-Kickback Statute) does not have any authority over EKRA and the Attorney General does not have any particular expertise with healthcare fraud and abuse laws. Given this inexperience, there may be a substantial delay before any additional exceptions to EKRA are implemented. In the meantime, the U.S. Department of Justice is actively pursuing enforcement actions under EKRA. There is much uncertainty in how EKRA will be interpreted and applied and also, whether additional exceptions will be adopted in the future.

While we make every effort to comply with all applicable laws, we cannot rule out the possibility that the government or other third parties could interpret these laws differently and challenge our practices under one or more of these laws. The likelihood of allegations of

non-compliance

is increased by the fact that under certain federal and state laws applicable to our business, individuals, known as relators, may bring an action on behalf of the government alleging violations of such laws, and potentially be awarded a share of any damages or penalties ultimately awarded to the applicable government body.

The laws, regulations and standards governing the provision of healthcare services across the world including India and the United States may change significantly in the future. We cannot assure you that any new or changed healthcare laws, regulations or standards will not materially adversely affect our business. Further, we cannot assure you that a review of our business by judicial, law enforcement, regulatory or accreditation authorities will not result in a determination that could adversely affect our operations.

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Patient safety concerns relating to our substance use disorder treatment business could result in increased regulatory burdens, governmental investigations, and negative publicity.

Because some of the patients we treat can suffer from severe mental health and chemical dependency disorders, patient incidents, including deaths, assaults and elopements, occur from time to time. If one or more of our substance abuse treatment programs or facilities experiences an adverse patient incident or is otherwise found to have failed to comply with laws and regulations applicable to patient safety or provide appropriate patient care, an admissions hold, loss of accreditation, license revocation or other adverse regulatory action could be taken against the health care providers and programs or facilities involved. Any such patient incident or adverse regulatory action could result in governmental investigations, judgments or fines and have a material adverse effect on a particular program or facility’s continued operation, financial condition and results of operations. In addition, we could become the subject of negative publicity, whether warranted or unwarranted, that could have a significant, adverse effect on our reputation of our behavioral health and substance abuse programs and how they are viewed by referral sources and payors.

The healthcare industry in India is subject to laws, rules and regulations in the regions where we conduct our business or in which we intend to expand our operations.

Given our digital health centers are situated at multiple locations, we are subject to various and extensive local law, rules and regulations relating, among other things, to the setting up and operation of private medical care establishments. Health and safety laws and regulations in India are becoming increasingly stringent in the recent years, and it is possible that they will become significantly more stringent in the future. We may incur substantial costs in order to comply with current or future laws, rules and regulations. These current or future laws, rules and regulations may also impede our operations. Any

non-compliance

with the applicable laws, rules and regulations may subject us to regulatory action, including penalties and other civil or criminal proceedings, which may materially and adversely affect our business, prospects and reputation.

Our international operations pose certain risks to our business that may be different from risks associated with our domestic operations.

Our international business is subject to risks resulting from differing legal and regulatory requirements, political, social and economic conditions and unforeseeable developments in a variety of jurisdictions. We have one primary office globally and customers across more than nine countries worldwide. Our international operations are subject to particular risks in addition to those faced by our domestic operations, including:

• uncertain legal and regulatory requirements applicable to digital health, technology services and solutions and prescription medication;

• multiple, conflicting and changing laws and regulations such as tax laws, privacy and data protection laws and regulations, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses;

• our inability to replicate our domestic business structure consistently outside of the United States, especially as it relates to our contractual arrangement with affiliated professional entities;

• the need to localize and adapt our solutions for specific countries, including translation into foreign languages and associated expenses;

• potential loss of proprietary information due to misappropriation or laws that may be less protective of our intellectual property rights than U.S. laws or that may not be adequately enforced;

• requirements of foreign laws and other governmental controls, including compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, healthcare, tax, privacy and data protection laws and regulations;

• data privacy laws that require that client data be stored and processed in a designated territory;

• new and different sources of competition and laws and business practices favoring local competitors;

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• local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the U.S. Foreign Corrupt Practices Act of 1977 (the “ FCPA ”) and other anti-corruption laws and regulations;

• changes to economic sanctions laws and regulations;

• central bank and other restrictions on our ability to repatriate cash from international subsidiaries;

• adverse tax consequences;

• fluctuations in currency exchange rates, economic instability and inflationary conditions, which could make our solutions more expensive or increase our costs of doing business in certain countries;

• limitations on future growth or inability to maintain current levels of revenues from international sales if we do not invest sufficiently in our international operations;

• different pricing environments, longer sales cycles and longer accounts receivable payment cycles and collections issues;

• difficulties in staffing, managing and operating our international operations, including difficulties related to administering our stock plans in some foreign countries and increased financial accounting and reporting burdens and complexities;

• difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations;

• natural disasters, political and economic instability, including wars, terrorism, social or political unrest, including civil unrest, protests, and other public demonstrations, outbreaks of disease, pandemics or epidemics, boycotts, curtailment of trade, and other market restrictions; and

• regulatory and compliance risks that relate to maintaining accurate information and control over activities subject to regulation under the FCPA, and comparable laws and regulations in other countries.

Our overall success in international markets depends, in part, on our ability to anticipate and effectively manage these risks and there can be no assurance that we will be able to do so without incurring unexpected costs. If we are not able to manage the risks related to our international operations, our business, financial condition and results of operations may be materially adversely affected.

Our failure to comply with the anti-corruption, trade compliance and economic sanctions laws and regulations of the United States and applicable international jurisdictions could materially adversely affect our reputation and results of operations.

We must comply with anti-corruption laws and regulations imposed by governments around the world with jurisdiction over our operations, which may include the FCPA and the U.K. Bribery Act 2010 (the “

Bribery Act

”), as well as the laws of the countries where we do business. These laws and regulations apply to companies, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. Where they apply, the FCPA and the Bribery Act prohibit us and our officers, directors, employees and business partners acting on our behalf, including joint venture partners and agents, from corruptly offering, promising, authorizing or providing anything of value to public officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The Bribery Act also prohibits

non-governmental

“commercial” bribery and accepting bribes. As part of our business, we may deal with governments and state-owned business enterprises, the employees and representatives of which may be considered public officials for purposes of the FCPA and the Bribery Act.

We also are subject to the jurisdiction of various governments and regulatory agencies around the world, which may bring our personnel and agents into contact with public officials responsible for issuing or renewing permits, licenses or approvals or for enforcing other governmental regulations. In addition, some of the international locations in which we will operate lack a developed legal system and have elevated levels of corruption. Our business also must be conducted in compliance with applicable export controls and trade and

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economic sanctions laws and regulations, including those of the U.S. government, the governments of other countries in which we will operate or conduct business and various multilateral organizations. Such laws and regulations include, without limitation, those administered and enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council and other relevant sanctions authorities. Our provision of services to persons located outside the United States may be subject to certain regulatory prohibitions, restrictions or other requirements, including certain licensing or reporting requirements. Our provision of services outside of the United States also exposes us to the risk of violating, or being accused of violating, anti-corruption, exports controls and trade compliance and economic sanctions laws and regulations. Our failure to successfully comply with these laws and regulations may expose us to reputational harm as well as significant sanctions, including criminal fines, imprisonment, civil penalties, disgorgement of profits, injunctions and suspension or debarment from government contracts, as well as other remedial measures. Investigations of alleged violations can be expensive and disruptive. Though we have implemented formal training and monitoring programs, we cannot assure compliance by our employees or representatives for which we may be held responsible, and any such violation could materially adversely affect our reputation, business, financial condition and results of operations.

As we expand our international operations, we will increasingly face political, legal and compliance, operational, regulatory, economic and other risks that we do not face or are more significant than in our domestic operations. Our exposure to these risks is expected to increase.

As we expand our international operations, we will increasingly face political, legal and compliance, operational, regulatory, economic and other risks that we do not face or that are more significant than in our domestic operations. These risks vary widely by country and include varying regional and geopolitical business conditions and demands, government intervention and censorship, discriminatory regulation, nationalization or expropriation of assets and pricing constraints. Our international products and services need to meet country-specific customer preferences as well as country-specific legal requirements, including those related to licensing, digital health, privacy, data storage, location, protection and security. Our ability to conduct digital health services internationally is subject to the applicable laws governing remote healthcare and the practice of medicine in such location, and the interpretation of these laws is evolving and vary significantly from country to county and are enforced by governmental, judicial and regulatory authorities with broad discretion. We believe we are in compliance with all applicable laws and regulations. We cannot, however, be certain that our interpretation of such laws and regulations is correct in how we structure our operations, our arrangements with physicians, services agreements and customer arrangements.

Our international operations increase our exposure to, and require us to devote significant management resources to implement controls and systems to comply with the privacy and data protection laws of

non-U.S.

jurisdictions and the anti-bribery, anti-corruption and anti-money laundering laws of the United States (including the FCPA) and the United Kingdom (including the Bribery Act) and similar laws in other jurisdictions. Implementing our compliance policies, internal controls and other systems upon our expansion into new countries and geographies may require the investment of considerable management time and financial and other resources over a number of years before any significant revenues or profits are generated. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or employees, restrictions or outright prohibitions on the conduct of our business and significant brand and reputational harm. We must regularly reassess the size, capability and location of our global infrastructure and make appropriate changes, and must have effective change management processes and internal controls in place to address changes in our business and operations. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties, and the failure to do so could have a material adverse effect on our business, operating results, financial position, brand, reputation and/or long-term growth.

Our international operations require us to overcome logistical and other challenges based on differing languages, cultures, legal and regulatory schemes and time zones. Our international operations encounter labor laws, customs and employee relationships that can be difficult, less flexible than in our domestic operations and expensive to modify or terminate. In some countries we are required to, or choose to, operate with local

37

business partners, which requires us to manage our partner relationships and may reduce our operational flexibility and ability to quickly respond to business challenges.

Our business is subject to changes in medication pricing and is significantly impacted by pricing structures negotiated by industry participants.

Our platform aggregates and analyzes pricing data from a number of different sources. The discounted prices that we present through our platform are based in large part upon pricing structures negotiated by industry participants. We do not control the pricing strategies of pharmaceutical manufacturers, wholesalers, and pharmacy benefit managers (“

PBMs

”), each of which is motivated by independent considerations and drivers that are outside our control and has the ability to set or significantly impact market prices for different prescription medications. While we have contractual and

non-contractual

relationships with certain industry participants, such as PBMs and pharmaceutical manufacturers, these and other industry participants often negotiate complex and multi-party pricing structures, and we have no control over these participants and the policies and strategies that they implement in negotiating these pricing structures.

Pharmaceutical manufacturers generally direct medication pricing by setting medication list prices and offering rebates and discounts for their medications. List prices are impacted by, among other things, market considerations such as the number of competitor medications and availability of alternative treatment options. Wholesalers can impact medication pricing by purchasing medications in bulk from pharmaceutical manufacturers and then reselling such medications to pharmacies. PBMs generally impact medication pricing through their bargaining power, negotiated rebates with pharmaceutical manufacturers and contracts with different pharmacy providers and health insurance companies. PBMs work with pharmacies to determine the negotiated rate that will be paid at the pharmacy by consumers. Medication pricing is also impacted by health insurance companies and the extent to which a health insurance plan provides for, among other things, covered medications, preferred tiers for different medications and high or low deductibles.

Changes in the fee and pricing structures among industry participants, whether due to regulatory requirements, competitive pressures or otherwise, that reduce or adversely impact fees generated by PBMs would have an adverse effect on our ability to generate revenue and business. Due in part to existing pricing structures, we generate a small portion of our revenue through contracts with pharmaceutical manufacturers and other intermediaries. Changes in the roles of industry participants and in general pricing structures, as well as price competition among industry participants, could have an adverse impact on our business. For example, integration of PBMs and pharmacy providers could result in pricing structures whereby such entities would have greater pricing power and flexibility or industry players could implement

direct-to-consumer

initiatives that could significantly alter existing pricing structures, either of which would have an adverse impact on our ability to present competitive and low prices to consumers and, as a result, the value of our platform for consumers and our results of operations.

If reimbursement rates paid by third-party payers are reduced, if third-party payers otherwise restrain our ability to obtain or provide services to patients, or if governments introduce free healthcare provisions or create the provision of significantly different paradigms of delivery service, our business could be negatively impacted.

Private third-party payers pay for the services that we provide through our behavioral digital health consult and

on-site

division. If any commercial third-party payers reduce their reimbursement rates or elect not to cover some or all of our services, our business may be harmed. Third-party payers are also entering into sole source contracts with some healthcare providers, which could effectively limit our pool of potential customers.

Private third-party payers often use plan structures, such as narrow networks or tiered networks, to encourage or require customers to use

in-network

providers.

In-network

providers typically provide services through private third-party payers for a negotiated lower rate or other less favorable terms. Private third-party payers generally attempt to limit use of

out-of-network

providers by requiring customers to pay higher copayment and/or deductible amounts for

out-of-network

care. Additionally, private third-party payers have become increasingly

38

aggressive in attempting to minimize the use of

out-of-network

providers by disregarding the assignment of payment from customers to

out-of-network

providers (i.e., sending payments directly to customers instead of to

out-of-network

providers), capping

out-of-network

benefits payable to customers, waiving

out-of-pocket

payment amounts and initiating litigation against

out-of-network

providers for interference with contractual relationships, insurance fraud and violation of state licensing and consumer protection laws. If we become out of network for insurers, our behavioral health business could be harmed and our behavioral health patient service revenue could be reduced because customers could stop using our services.

If reimbursement rates paid by federal or state healthcare programs are reduced or if government payers otherwise restrain our ability to obtain or provide services to customers, our business, financial condition and results of operation could be harmed.

A portion of our revenue comes from government healthcare programs, principally Medicare and Tricare. Payments from federal and state government programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review and federal and state funding restrictions, each of which could increase or decrease program payments, as well as affect the cost of providing service to patients. We are unable to predict the effect of recent and future policy changes on our operations. In addition, the uncertainty and fiscal pressures placed upon federal and state governments as a result of, among other things, deterioration in general economic conditions and the funding requirements from the federal healthcare reform legislation, may affect the availability of taxpayer funds for Medicare and Medicaid programs. Changes in government healthcare programs may reduce the reimbursement we receive and could adversely impact our business and results of operations.

As federal healthcare expenditures continue to increase, and state governments continue to face budgetary shortfalls, federal and state governments have made, and continue to make, significant changes in the Medicare and Medicaid programs. These changes include reductions in reimbursement levels and new or modified requirements related to Medicaid waivers. Some of these changes have decreased, or could decrease, the amount of money we receive for our services relating to these programs. In some cases, private third-party payers rely on all or portions of Medicare payment systems to determine payment rates. Changes to government healthcare programs that reduce payments under these programs may negatively impact payments from private third-party payers.

Our pharmacy and behavioral digital health businesses subject us to additional regulations; if we fail to comply, we could suffer penalties or be required to make significant changes to our operations.

Our pharmacy business is subject to extensive federal, state and local regulation. Pharmacies, pharmacists and pharmacy technicians are subject to a variety of federal and state statutes and regulations governing various aspects of the pharmacy business, including the distribution of drugs; operation of mail order pharmacies; licensure of facilities and professionals, including pharmacists, technicians and other healthcare professionals; packaging, storing, distributing, shipping and tracking of pharmaceuticals; repackaging of drug products; labeling, medication guides, and other consumer disclosures; interactions with prescribing professionals; compounding of prescription medications; counseling of patients; prescription transfers; advertisement of prescription products and pharmacy services; security; controlled substance inventory control and recordkeeping; and reporting to the U.S. Drug Enforcement Agency, the FDA, state boards of pharmacy, the U.S. Consumer Product Safety Commission and other state enforcement or regulatory agencies. Many states have laws and regulations requiring

out-of-state

mail-order pharmacies to register with that state’s board of pharmacy. In addition, the FDA inspects facilities in connection with procedures to effect recalls of prescription drugs. The Federal Trade Commission also has requirements for mail-order sellers of goods. The U.S. Postal Service (the “

USPS

”) has statutory authority to restrict the transmission of drugs and medicines through the mail to a degree that may have an adverse effect on our mail-order operations. The USPS historically has exercised this statutory authority only with respect to controlled substances. If the USPS restricts our ability to deliver drugs through the mail, alternative means of delivery are available to us. However, alternative means of delivery could be significantly more expensive. The U.S. Department of Transportation has regulatory authority to impose restrictions on drugs inserted into the stream of commerce. These regulations generally do not apply

39

to the USPS and its operations. Any failure or perceived failure by us to comply with any applicable federal, state and local laws and regulations could have a material adverse effect on our business, financial condition and results of operations and may expose us to civil and criminal penalties.

The pharmacy compounding industry is subject to increased regulatory and customer scrutiny, which may impair sales of compounded medications.

Compounded prescription medications have not undergone the FDA new drug review and approval process, and limited data, if any, may be available with respect to the safety and efficacy of a compounded medication for any particular indication. In addition, certain compounding pharmacies have been the subject of widespread negative media coverage in recent years, and the actions of these pharmacies have resulted in increased scrutiny of compounding pharmacy activities from the FDA, state boards of pharmacy and other governmental agencies, including through periodic facility inspections and administrative and judicial actions.

Our growth and future sales of compounded prescription drugs depends not only on our ability to demonstrate the quality and safety of our compounded medications and our compliance with more stringent regulatory standards at the federal and state levels, but also on the continued acceptance of compounded medications in the marketplace.

If any pharmacy we own, acquire or build fails to comply with the Controlled Substances Act, or the Federal Food, Drug and Cosmetic Act (“FDCA”), such a pharmacy could be required to cease operations or become subject to restrictions that could adversely affect our business.

Pharmacy and controlled substance laws often address the qualification of an applicant’s personnel, the adequacy of its prescription fulfillment and inventory control practices and the adequacy of its facilities, including security controls, and subject pharmacies to oversight by state boards of pharmacy and other regulators that could impose burdensome requirements or restrictions on operations if a pharmacy is found not to comply with these laws. Any such noncompliance could also result in complaints or adverse actions by respective state boards of pharmacy, FDA inspection of the facility to determine compliance with the FDCA, loss of FDCA exemptions provided under Section 503A, warning letters, injunctions, prosecution, fines, loss of required government licenses, certifications and approvals, any of which could involve significant costs and could cause us to be unable to realize the expected benefits of these pharmacies’ operations. Although we ultimately expect to distribute compounded medications through a network of compounding pharmacies, we may not be successful in establishing such a network and the loss of an ability to compound sterile formulations would have an adverse impact on our business plan.

In particular, pharmaceutical compounding under U.S. federal law is governed by Sections 503A and 503B of the FDCA. Section 503A provides that state-licensed pharmacists and pharmacies are exempt from the provisions of the FDCA requiring human drugs to be approved by FDA prior to marketing, produced in compliance with good manufacturing practices and labeled with adequate directions for use as long as the pharmacy complies with certain other requirements. Among other things, to meet the criteria of Section 503A, a compounded drug must be compounded for an individually identified patient based on a valid prescription. In addition, Section 503A of the FDCA seeks to limit the amount of compounded drugs that a pharmacy can dispense or distribute interstate. The interpretation and enforcement of that provision is dependent on the FDA entering into a Memorandum of Understanding (“

MOU

”), which requires sharing of data between FDA and state agencies related to interstate distribution and complaint investigations. FDA has indicated that will take action to limit the amount of compounded prescription medications that may be shipped out of state by pharmacists and pharmacies located in a state that does not enter into the standard MOU with FDA relating to data sharing, following the October 2022 deadline for states to sign the MOU. Such restrictions may adversely affect the interstate operations of compounding pharmacies and could involve significant additional costs to us in order to sell compounded formulations in certain states.

40

If a compounded drug formulation provided through our compounding services leads to patient injury or death or results in a product recall, we may be exposed to significant liabilities or reputational harm.

We could be adversely affected if any of our compounded formulations or similar products sold by other companies, or any products sold by other compounding pharmacies prove to be, or are asserted to be, harmful to patients. In the event of potential or actual patient harm, we may become subject to product recalls and termination or suspension of our state pharmacy licenses. Adverse events, deaths, and product recalls could harm our reputation so that physicians may be unwilling to prescribe our formulations or order any prescriptions from our pharmacies. We may also become subject to product and professional liability lawsuits, or our state pharmacy licenses could be terminated or restricted. If any of these events were to occur, we may be subject to significant litigation or other costs and loss of revenue, and we may be unable to continue our pharmacy operations and further develop and commercialize our proprietary formulations.

To the extent any of the components of approved drugs or other ingredients used by any of our acquisitions to produce our compounded formulations have quality or other problems that adversely affect the finished compounded preparations, our business could be adversely affected. Also, because of our dependence upon medical and patient perceptions, any adverse publicity associated with illness or other adverse effects resulting from the use or misuse of our products, any similar products sold by other companies or any products sold by compounding pharmacies could have a material adverse impact on our business.

We may be subject to fines, penalties and injunctions if we are determined to be promoting the use of products for unapproved uses.

Certain of the products available through our platform require approval by the FDA and are subject to the limitations placed by the FDA on the approved uses in the product prescribing information. Some of these products are prescribed by providers on the platform for

“off-label”

uses (i.e., for a use other than that specifically authorized by the FDA for the medication in question). While providers are legally permitted to prescribe medications for

off-label

uses, and although we believe our product promotion is conducted in material compliance with the FDA and other regulations, if the FDA determines that our product promotion constitutes promotion of an unapproved use of an approved product or of an unapproved product, the FDA could request that we modify our product promotion or subject us to regulatory and/or legal enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider the product promotion to constitute promotion of an unapproved use of an approved product or of an unapproved product, which could result in significant fines or penalties under other statutes, such as laws prohibiting false claims for reimbursement.

If we fail to comply with federal and state laws and policies governing claim submissions to government healthcare programs or commercial insurance programs, we may be subject to civil and criminal penalties or loss of eligibility to participate in government healthcare programs and contractual claims by commercial insurers.

We prepare and submit claims for professional services and certain of these claims are governed by federal and state laws with potential civil and criminal penalties for

non-compliance.

The HIPAA security, privacy and transaction standards also have a potentially significant effect on our integrated care management services, because such services must be structured and provided in a way that supports our customers’ HIPAA compliance obligations. Errors by us or our systems with respect to entry, formatting, preparation or transmission of claim information may be determined or alleged to be in violation of these laws and regulations. If our integrated care management services fail to comply with these laws and regulations, we may be subjected to federal or state government investigations and possible penalties may be imposed upon us, false claims actions may have to be defended, private payers may file claims against us and we may be excluded from Medicare, Medicaid or other government-funded healthcare programs. Further, our customers may seek contractual remedies and indemnification. Any investigation or proceeding related to these topics, even if unwarranted or without merit, could adversely affect demand for our services, could force us to expend

41

significant capital, research and development and other resources to address the failure, and may have a material adverse effect on our business, results of operations and financial condition.

If we fail to comply with Medicare and Medicaid regulatory, guidance or policy requirements, we may be subjected to reduced reimbursement, overpayment demands or loss of eligibility to participate in these programs.

The Medicare and Medicaid programs are highly regulated, and unique requirements governing the reimbursement of professional services delivered using digital health are evolving and complicated. In addition, changes in government healthcare programs may reduce the reimbursement we receive and could adversely affect our business and results of operations. In particular, there is uncertainty regarding whether temporary waivers of certain Medicare conditions of participation and payment for many virtual care services and temporary expansions of the types of Medicare-covered services that can be provided remotely will continue or be made permanent. If we fail to comply with applicable reimbursement laws and regulations, reimbursement under these programs and participation in these programs could be adversely affected. Federal or state governments may also impose other sanctions on us for failure to comply with the applicable reimbursement regulations, including but not limited to recovering an overpayment. Failure to comply with these or future laws and regulations could limit our ability to provide digital health services to our customers.

Recent and frequent state legislative and regulatory changes specific to digital health consults may present us with additional requirements and state compliance costs, with potential operational impacts in certain jurisdictions.

In recent years, various government agencies, both domestic and international, have adopted an abundance of new legislation and regulations specific to digital health. In some cases, this legislation and regulation, typically targeting

“direct-to-consumer”

digital health consult and pharmacy service offerings rather than specialty consultative services, such as our acute digital health solutions, incorporates informed consent, modality, medical record and other requirements. Thus, where new legislation and regulations apply to our digital health solutions, we may incur costs to monitor, evaluate and modify operational processes for compliance. All such activities increase our costs and could, in certain circumstances, impact our ability to make available digital health services in a particular state.

Risks Related to Privacy, Cybersecurity, Technology and Intellectual Property

Our proprietary software may not operate properly, which could damage our reputation, give rise to claims against us or divert application of our resources from other purposes, any of which could harm our business.

Our proprietary technology platform provides customers and patients with the ability to, among other things, register for our services, request a visit (either scheduled or on demand) and communicate and interact with providers, and allows our providers to, among other things, chart patient notes, maintain medical records and conduct visits (via video, phone or the internet). Proprietary software development is time-consuming, expensive and complex, and may involve unforeseen difficulties. We may encounter technical obstacles, and it is possible that we may discover additional problems that prevent our proprietary software from operating properly. We are currently implementing software with respect to a number of new applications and services. If our solutions do not function reliably or fail to achieve member, partner or customer expectations in terms of performance, we may lose or fail to grow customer usage, partners and customers could assert liability claims against us, and partners and customers may attempt to cancel their contracts with us. This could damage our reputation and impair our ability to attract or maintain health network partners and enterprise customers.

Our business is subject to complex and evolving foreign laws and regulations regarding privacy, data protection and other matters relating to information collection.

There are numerous foreign laws, regulations and directives regarding privacy and the collection, storage, transmission, use, processing, disclosure and protection of personally identifiable information (“

PII

”) and other

42

personal or customer data, the scope of which is continually evolving and subject to differing interpretations. We must comply with such laws, regulations and directives and we may be subject to significant consequences, including penalties and fines, for our failure to comply. For example, as of May 25, 2018, the General Data Protection Regulation (the “

GDPR

”) replaced the Data Protection Directive with respect to the processing of personal data in the European Economic Area (the “

EEA

”). The GDPR imposes several stringent requirements for controllers and processors of personal data, including, for example, higher standards for obtaining consent from individuals to process their personal data, more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations on retention and secondary use of information, increased requirements pertaining to health data and pseudonymized (i.e.,

key-coded)

data and additional obligations when we contract with third-party processors in connection with the processing of personal data. The GDPR provides that EU member states may make their own further laws and regulations limiting the processing of genetic, biometric or health data, which could limit our ability to use and share personal data or could cause our costs to increase and could harm our business and financial condition. Failure to comply with the requirements of the GDPR and the applicable national data protection laws of the EU member states may result in fines of up to €20,000,000 or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. To comply with the data protection rules imposed by the GDPR we may be required to put in place additional mechanisms ensuring compliance. In addition, privacy laws are developing quickly in other jurisdictions where we operate, which impose similar accountability, transparency and security obligations. This may be onerous and adversely affect our business, financial condition, results of operations and prospects.

In addition, recent legal developments in Europe have created complexity and compliance uncertainty regarding certain transfers of information from the EEA to the United States. On July 16, 2020, the Court of Justice of the European Union issued its ruling in the case of the

Irish Data Protection Commissioner v. Facebook Ireland and Maximillian Schrems

(Case

c-311/18).

The ruling invalidated reliance on the

EU-U.S.

Privacy Shield as a lawful means to transfer personal data from the EEA to the United States, while also affirming the EU Standard Contractual Clauses (“

SCCs

”) as a valid data transfer solution. The Court also held that data exporters and importers may need to employ supplementary measures when using SCCs depending on the nature of the transfer and the laws of the recipient country. After the ruling, the European Data Protection Board issued draft recommendations on the use of supplementary measures. Shortly thereafter, the European Commission issued new draft SCCs. We are analyzing these developments and their impact on our operations. If we are unable to transfer PII between and among countries and regions in which we operate, it could affect the manner in which we provide our services or could adversely affect our financial results. Furthermore, any failure, or perceived failure, by us to comply with or make effective modifications to our policies, or to comply with any federal, state or international privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, a loss of customer confidence, damage to our brand and reputation, and a loss of customers, any of which could have an adverse effect on our business. In addition, various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business, our brand or our reputation with customers. For example, some countries have adopted laws mandating that PII regarding customers in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service and business operations to limit PII processing to within individual countries could increase our operating costs significantly.

Like the United States, India also does not have country level regulations and authorities to control data transfer and management. The most prominent provisions are contained in the Information Technology Act, 2000, that was amended by the Information Technology Amendment Act, 2008. In particular, Section 43A, which addresses “reasonable security practices and procedures” is complemented by the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (“

Personal Data Protection Rules

”). The Personal Data Protection Rules prescribe directions for the collection, disclosure, transfer and protection of sensitive personal data by a company or any person acting on behalf of a company. Further, the Personal Data Protection Rules require every such company to provide a stipulated

43

privacy policy, which is to be published on its website, for dealing with personal information, including sensitive personal data and ensuring security of all personal data collected by it.

The India Supreme Court, in a judgment delivered on August 24, 2017, held that the right to privacy is a fundamental right, following which, the Government of India set up a Committee of Experts to examine issues around, and draft a legislation on data-protection in India. The committee submitted its final report and a draft Personal Data Protection Bill to the Ministry of Electronics and Information Technology. The draft of the Personal Data Protection Bill, 2019 (“

Data Protection Bill

”) has been introduced before the Lok Sabha on December 11, 2019, which is currently being referred to a joint parliamentary committee by the Parliament. The Data Protection Bill proposes a legal framework governing the processing of personal data, where such data has been collected, disclosed, shared or otherwise processed within India, as well as any processing of personal data by the State, Indian companies, Indian citizens or any person or body of persons incorporated or created under India law. The Data Protection Bill defines personal data and sensitive personal data, prescribes rules for collecting, storing and processing of such data and creates rights and obligations of data-subjects and processors.

Our use and disclosure of personally identifiable information, including health information, is subject to federal and state privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm and, in turn, a material adverse effect on our customer base and revenue.

Numerous state and federal laws and regulations govern the collection, dissemination, use, privacy, confidentiality, security, availability and integrity of PII, including protected health information (“

PHI

”). These laws and regulations include HIPAA. HIPAA establishes a set of basic national privacy and security standards for the protection of PHI, by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract for services, which includes us.

HIPAA requires healthcare providers like us to develop and maintain policies and procedures with respect to PHI that is used or disclosed, including the adoption of administrative, physical and technical safeguards to protect such information. HIPAA also implemented the use of standard transaction code sets and standard identifiers that covered entities must use when submitting or receiving certain electronic healthcare transactions, including activities associated with the billing and collection of healthcare claims.

HIPAA imposes mandatory penalties for certain violations. Penalties for violations of HIPAA and its implementing regulations start at $119 per violation and are not to exceed $59,522 per violation, subject to a cap of $178,000,000 for violations of the same standard in a single calendar year. However, a single breach incident can result in violations of multiple standards. HIPAA also authorizes state attorneys general to file suit on behalf of their residents. Courts are able to award damages, costs and attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.

In addition, HIPAA mandates that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities or business associates for compliance with the HIPAA Privacy and Security Standards. It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the Civil Monetary Penalty fine paid by the violator.

HIPAA further requires that patients be notified of any unauthorized acquisition, access, use or disclosure of their unsecured PHI that compromises the privacy or security of such information, with certain exceptions related to unintentional or inadvertent use or disclosure by employees or authorized individuals. HIPAA specifies that such notifications must be made “without unreasonable delay and in no case later than 60 calendar days after discovery of the breach.” If a breach affects 500 patients or more, it must be reported to HHS without unreasonable delay, and HHS will post the name of the breaching entity on its public web site. Breaches affecting 500 patients or more in the same state or jurisdiction must also be reported to the local media. If a

44

breach involves fewer than 500 people, the covered entity must record it in a log and notify HHS at least annually.

New health information standards, whether implemented pursuant to HIPAA, congressional action or otherwise, could have a significant effect on the manner in which we must handle healthcare related data, and the cost of complying with standards could be significant. If we do not comply with existing or new laws and regulations related to PHI, we could be subject to criminal or civil sanctions.

In addition to HIPAA, certain of our operations may be subject to the regulations governing the protection patient records created by federally assisted programs for the treatment of substance use disorder (

“SUD”

) under 42 CFR Part 2 (the

“Part 2 Rule”

), implemented by the Substance Abuse and Mental Health Services Administration (

“SAMHSA”

). The Part 2 Rule requires additional confidentiality obligations related to SUD treatment records and generally speaking, restricts the disclosure of SUD treatment records without patient consent, other than as statutorily authorized in the context of a bona fide medical emergency, or for the purpose of scientific research, audit, or program evaluation, or based on an appropriate court order. On July 15, 2020, SAMHSA issued a final rule on the protection of SUD treatment records under the Part 2 Rule that aims to reduce delays and burdens in care coordination by more closely aligning Part 2 with the HIPAA Privacy Rule, while maintaining certain privacy protections specific to Part 2. This final rule was effective August 14, 2020. Nevertheless, we must ensure that SUD treatment records covered under Part 2 are afforded the additional legal protections mandated by Part 2.

Numerous other federal and state laws protect the confidentiality, privacy, availability, integrity and security of PII, including PHI. These laws in many cases are more restrictive than, and may not be preempted by, the HIPAA rules and may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and our customers and potentially exposing us to additional expense, adverse publicity and liability. For example, the Federal Trade Commission uses its consumer protection authority to initiate enforcement actions in response to alleged privacy and data security violations and certain states have adopted privacy and security standards that a more restrictive than HIPAA and that apply to PII in addition to PHI. For instance, the California Consumer Privacy Act, (the

“CCPA”

), which came into effect January 1, 2020, was recently amended and expanded by the California Privacy Rights Act (the

“CPRA”

) passed on November 3, 2020. Most of the CPRA’s substantive provisions will not take effect until January 1, 2023, however, the CPRA’s expansion of the “Right to Know” impacts personal information collected on or after January 1, 2022. Companies must still comply with the CCPA during the ramp up period before CPRA goes into effect. The CCPA and CPRA, among other things, create new data privacy obligations for covered companies and provide new privacy rights to California residents, including the right to opt out of certain disclosures of their information. The CCPA also created a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach. It remains unclear what, if any, additional modifications will be made to the CPRA by the California legislature or how it will be interpreted.

In addition to the laws discussed above, we may see more stringent state and federal privacy legislation in 2021 and beyond, as the increased cyber-attacks during the pandemic have once again put a spotlight on data privacy and security in the United States and other jurisdictions. We cannot predict where new legislation might arise, the scope of such legislation, or the potential impact to our business and operations. This myriad of data privacy and security laws and regulations and the evolving regulatory landscape create complex compliance issues for us and our clients and potentially expose us to additional expense, adverse publicity and liability.

Because of the extreme sensitivity of the PII we store and transmit, the security features of our technology platform are very important. If our security measures, some of which are managed by third parties, are breached or fail, unauthorized persons may be able to obtain access to sensitive client and customer data, including HIPAA-regulated PHI. As a result, our reputation could be severely damaged, adversely affecting customer and member confidence. Customers may curtail their use of, or stop using, our services or our customer base could decrease, which would cause our business to suffer. In addition, we could face litigation, damages for contract

45

breach, penalties and regulatory actions for violation of HIPAA and other applicable laws or regulations and significant costs for remediation, notification to individuals and for measures to prevent future occurrences. Any potential security breach could also result in increased costs associated with liability for stolen assets or information, repairing system damage that may have been caused by such breaches, incentives offered to customers or other business partners in an effort to maintain our business relationships after a breach and implementing measures to prevent future occurrences, including organizational changes, deploying additional personnel and protection technologies, training employees and engaging third-party experts and consultants. While we maintain insurance covering certain security and privacy damages and claim expenses, we may not carry insurance or maintain coverage sufficient to compensate for all liability and in any event, insurance coverage would not address the reputational damage that could result from a security incident.

We outsource important aspects of the storage and transmission of client and patient information, and thus rely on third parties to manage functions that have material cybersecurity risks. We attempt to address these risks by requiring outsourcing subcontractors who handle client and customer information to sign business associate agreements contractually requiring those subcontractors to adequately safeguard PHI and PII to the same extent that applies to us and in some cases by requiring such outsourcing subcontractors to undergo third-party security assessments. In addition, we periodically hire third-party security experts to assess and test our security posture. However, we cannot assure you that these contractual measures and other safeguards will adequately protect us from the risks associated with the storage and transmission of customers’ proprietary and protected health information.

We also publish statements to our customers that describe how we handle and protect PHI and PII. If federal or state regulatory authorities or private litigants consider any portion of these statements to be untrue, we may be subject to claims of deceptive practices, which could lead to significant liabilities and consequences, including, without limitation, costs of responding to investigations, defending against litigation, settling claims and complying with regulatory or court orders.

We also send short message service (

“SMS”

) text messages to potential end users who are eligible to use our service through certain customers and partners. While we obtain consent from or on behalf of these individuals to send text messages, federal or state regulatory authorities or private litigants may claim that the notices and disclosures we provide, or form of consents we obtain or our SMS texting practices, are not adequate. These SMS texting campaigns are potential sources of risk for class action lawsuits and liability for our company. Numerous class-action suits under federal and state laws have been filed in the past year against companies who conduct SMS texting programs, with many resulting in multi-million-dollar settlements to the plaintiffs. Any future such litigation against us could be costly and time-consuming to defend.

We rely on data center providers, Internet infrastructure, bandwidth providers, third-party computer hardware and software, other third parties and our own systems for providing services to our customers, and any failure or interruption in the services provided by these third parties or our own systems could expose us to litigation and negatively impact our relationships with customers, adversely affecting our brand and our business.

We serve all of our customers leveraging a multi-cloud architecture using four vendors: Armor Defense

,

AWS, Microsoft Azure, and Google. This architecture provides redundancy, cost savings, and reduces our reliance on one single vendor. The actual instances are geographically diverse to insulate our applications from local failures, and have an additional layer of redundancy provided by company managed data centers. While we control and have access to our servers, we do not control the operation of these facilities. The cloud vendors and the owners of our data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, or if one of our cloud vendors or data center operators is acquired, we may be required to transfer our servers and other infrastructure to a new vendor or a new data center facility, and we may incur significant costs and possible service interruption in connection with doing so. Problems faced by our cloud vendors or third-party data center locations with the telecommunications network providers with whom we or they contract or with the systems by which our telecommunications providers allocate capacity among their customers, including us,

46

could adversely affect the experience of our customers. Our cloud vendors or third-party data center operators could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy faced by our cloud vendors or third-party data centers operators or any of the service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict.

Additionally, if our cloud vendors or data centers are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business. For example, a rapid expansion of our business could affect the service levels at our cloud vendors or data centers or cause such cloud systems or data centers and systems to fail. Any changes in third-party service levels at our cloud vendors or data centers or any disruptions or other performance problems with our products and services could adversely affect our reputation and may damage our customers’ stored files or result in lengthy interruptions in our services. Interruptions in our services may reduce our revenue, cause us to issue refunds to customers for prepaid and unused subscriptions, subject us to potential liability or adversely affect customer renewal rates.

We also rely on computer hardware purchased or leased and software licensed from third parties in order to offer our services, including software from Google, Microsoft, Apple, Audiocodes, Atlassian, Perforce, PMease and Redhat Corporation, and routers and network equipment from Cisco, Dell, Lenovo and Hewlett-Packard Company. These licenses are generally commercially available on varying terms. However, it is possible that this hardware and software may not continue to be available on commercially reasonable terms, or at all. Any loss of the right to use any of this hardware or software could result in delays in the provisioning of our services until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated. These licenses are generally commercially available on varying terms. However, it is possible that this hardware and software may not continue to be available on commercially reasonable terms, or at all. Any loss of the right to use any of this hardware or software could result in delays in the provisioning of our services until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated.

Our ability to deliver our internet-based and mobile-application based services depends on the development and maintenance of the infrastructure of the internet by third parties. This includes maintenance of a reliable network backbone with the necessary speed, data capacity, bandwidth capacity and security. Our services are designed to operate without interruption. However, we may experience future interruptions and delays in services and availability from time to time. In the event of a catastrophic event with respect to one or more of our systems or those of our service providers, we may experience an extended period of system unavailability, which could negatively impact our relationship with customers, providers, partners, and suppliers.

We exercise limited control over third-party vendors, which increases our vulnerability to problems with technology and information services they provide. Interruptions in our network access and services may in connection with third-party technology and information services reduce our revenue, cause us to issue refunds to customers for prepaid and unused subscription services, subject us to potential liability or adversely affect client renewal rates. Although we maintain a security and privacy damages insurance policy, the coverage under our policies may not be adequate to compensate us for all losses that may occur related to the services provided by our third-party vendors. In addition, we may not be able to continue to obtain adequate insurance coverage at an acceptable cost, if at all.

If our security measures fail or are breached and unauthorized access to a customer’s data is obtained, our services may be perceived as insecure, we may incur significant liabilities, our reputation may be harmed and we could lose sales and customers.

Our services involve the storage and transmission of customers’ proprietary information, sensitive or confidential data, including valuable intellectual property and personal information of employees, customers and others, as well as the protected health information, or PHI, of our customers. Because of the extreme sensitivity of the information we store and transmit, the security features of our computer, network and communications systems infrastructure are critical to the success of our business. A breach or failure of our security measures, or the security of our data storage vendors, could result from a variety of circumstances and

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events, including third-party action, employee negligence or error, malfeasance, computer viruses, cyber-attacks by computer hackers, failures during the process of upgrading or replacing software and databases, power outages, hardware failures, telecommunication failures, user errors or catastrophic events. Information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. As cyber threats continue to evolve, we may be required to expend additional resources to further enhance our information security measures and/or to investigate and remediate any information security vulnerabilities. If our or our vendors’ security measures fail or are breached, it could result in unauthorized persons accessing sensitive client data (including PHI), a loss of or damage to our data or an inability to access data sources or process data or provide our services to our customers. Such failures or breaches of our security measures, or our inability to effectively resolve such failures or breaches in a timely manner, could severely damage our reputation, adversely affect customer or investor confidence in us, and reduce the demand for our services from existing and potential customers. In addition, we could face litigation, damages for contract breach, monetary penalties or regulatory actions for violation of applicable laws or regulations and incur significant costs for remedial measures to prevent future occurrences and mitigate past violations. Although we maintain insurance covering certain security and privacy damages and claim expenses, we may not carry insurance or maintain coverage sufficient to compensate for all liability and in any event, insurance coverage would not address the reputational damage that could result from a security incident.

We may experience cybersecurity and other breach incidents that remain undetected for an extended period. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched, we may be unable to anticipate these techniques or to implement adequate preventive measures. If an actual or perceived breach of our security occurs, or if we are unable to effectively resolve such breaches in a timely manner, the market perception of the effectiveness of our security measures could be harmed and we could lose sales, customers, which could have a material adverse effect on our business, operations, and financial results.

We could incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. Companies in the Internet and technology industries are increasingly bringing and becoming subject to suits alleging infringement of proprietary rights, particularly patent rights, and our competitors and other third parties may hold patents or have pending patent applications, which could be related to our business.

These risks have been amplified by the increase in third parties, which we refer to as

non-practicing

entities, whose sole primary business is to assert such claims. Regardless of the merits of any intellectual property litigation, we may be required to expend significant management time and financial resources on the defense of such claims, and any adverse outcome of any such claim or the above referenced review could have a material adverse effect on our business, financial condition or results of operations. We expect that we may receive in the future notices that claim we or our customers using our products have misappropriated or misused other parties’ intellectual property rights, particularly as the number of competitors in our market grows and the functionality of applications amongst competitors overlaps. Any future litigation, whether or not successful, could be extremely costly to defend, divert our management’s time, attention and resources, damage our reputation and brand and substantially harm our business.

In addition, in most instances, we have agreed to indemnify our customers against certain third-party claims, which may include claims that our products infringe the intellectual property rights of such third parties. Our business could be adversely affected by any significant disputes between us and our customers as to the applicability or scope of our indemnification obligations to them. The results of any intellectual property litigation to which we may become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:

• cease offering or using technologies that incorporate the challenged intellectual property;

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• make substantial payments for legal fees, settlement payments or other costs or damages;

• obtain a license, which may not be available on reasonable terms, to sell or use the relevant technology; or

• redesign technology to avoid infringement.

If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement claims against us or any obligation to indemnify our customers for such claims, such payments or costs could have a material adverse effect on our business, financial condition and results of operations.

We are currently party to, and may enter into future,

in-bound

intellectual property license agreements. We may not be able to fully protect the intellectual property rights licensed to us or maintain those licenses. Our licensors may retain the right to prosecute and defend the intellectual property rights licensed to us, in which case we would depend on the ability of our licensors to obtain, maintain and enforce intellectual property protection for the licensed intellectual property. These licensors may determine not to pursue litigation against other companies or may pursue such litigation less aggressively than we would. In addition, such licenses may only provide us with

non-exclusive

rights, which could allow other third parties, including our competitors, to utilize the licensed intellectual property rights. Further, our

in-bound

license agreements may impose various diligence, commercialization, royalty or other obligations on us. Our licensors may allege that we have breached our license agreement with them, and accordingly seek to terminate our license, which could adversely affect our competitive business position and harm our business prospects.

Any failure to protect our intellectual property rights could impair our ability to protect our technology and our brand.

Our success depends in part on our ability to enforce our intellectual property and other proprietary rights. We rely upon a combination of patent, trademark, copyright, and trade secret laws, as well as license and access agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. Glocal currently has a pending patent application in India and may file for additional patents in India in the future. In addition, we attempt to protect our intellectual property and proprietary information by requiring our employees, consultants and certain of our contractors to execute confidentiality and assignment of inventions agreements. These laws, procedures and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. To the extent that our intellectual property and other proprietary rights are not adequately protected, third parties may gain access to our proprietary information, develop and market solutions similar to ours or use trademarks similar to ours, each of which could materially harm our business. Unauthorized parties may also attempt to copy or obtain and use our technology to develop applications with the same functionality as our products, and policing unauthorized use of our technology and intellectual property rights is difficult and may not be effective. The failure to adequately protect our intellectual property and other proprietary rights could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Tax

Certain U.S. state tax authorities may assert that we have a state nexus and seek to impose state and local income taxes, which could adversely affect our results of operations.

We are currently operate in all 50 states. There is a risk that certain state tax authorities where we do not currently file a state income tax return could assert that we are liable for state and local income taxes based upon income or gross receipts allocable to such states. States are becoming increasingly aggressive in asserting a nexus for state income tax purposes. We could be subject to state and local taxation, including penalties and interest attributable to prior periods, if a state tax authority successfully asserts that our activities give rise to a nexus. Such tax assessments, penalties and interest may adversely affect our results of operations.

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Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use or similar taxes for digital health services, which could adversely affect our results of operations.

We do not collect sales and use and similar taxes in any states for digital health services based on our belief that our services are not subject to such taxes in any state. Sales and use and similar tax laws and rates vary greatly from state to state. Additionally, we do not collect value-added tax or similar taxes in certain foreign jurisdictions based on our belief that our services are not subject to such taxes. Certain states or foreign jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties and interest with respect to past services, and we may be required to collect such taxes for services in the future. Such tax assessments, penalties and interest or future requirements may adversely affect our results of operations.

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.

We are subject to income taxes in the United States and other jurisdictions, and our tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

• changes in the valuation of our deferred tax assets and liabilities;

• expected timing and amount of the release of any tax valuation allowances;

• tax effects of stock-based compensation;

• costs related to intercompany restructurings;

• changes in tax laws, regulations or interpretations thereof; or

• lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates.

In addition, we may be subject to audits of our income, sales and other transaction taxes by taxing authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.

General Risks Related to the Company

Our only significant assets are our ownership interests in UpHealth Holdings and Cloudbreak, and such ownership may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our Common Stock or satisfy our other financial obligations.

We have no direct operations and no significant assets other than our ownership of UpHealth Holdings and Cloudbreak. We depend on UpHealth Holdings and Cloudbreak for distributions, loans and other payments to generate the funds necessary to meet our financial obligations, including our expenses as a publicly traded company and to pay any dividends with respect to our Common Stock. The financial condition and operating requirements of UpHealth Holdings and Cloudbreak may limit our ability to obtain cash from UpHealth Holdings or Cloudbreak. The earnings from, or other available assets of, UpHealth Holdings or Cloudbreak may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our Common Stock or satisfy our other financial obligations.

The ability of UpHealth Holdings or Cloudbreak to make distributions, loans and other payments to us for the purposes described above and for any other purpose may be limited by credit agreements to which UpHealth Holdings or Cloudbreak is party from time to time. Any loans or other extensions of credit to us from UpHealth Holdings or Cloudbreak will be permitted only to the extent there is an applicable exception to the investment covenants under these credit agreements. Similarly, any dividends, distributions or similar payments to us from UpHealth Holdings or Cloudbreak will be permitted only to the extent there is an applicable exception to the dividends and distributions covenants under these credit agreements.

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Because we have no current plans to pay cash dividends on shares of Common Stock for the foreseeable future, you may not receive any return on investment unless you sell your shares of Common Stock for a price greater than that which you paid for it.

We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any decision to declare and pay dividends as a public company in the future will be made at the discretion of the Company’s Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that the Board may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in the Company’s Common Stock unless you sell your Common Stock for a price greater than that which you paid for it.

There can be no assurance that UpHealth will be able to comply with the continued listing standards of the NYSE.

UpHealth’s Common Stock is listed on the NYSE under the symbol “UPH”. If the NYSE delists UpHealth’s shares from trading on its exchange for failure to meet the listing standards, UpHealth and its stockholders could face significant material adverse consequences including:

• a limited availability of market quotations for UpHealth’s securities;

• a determination that UpHealth Common Stock is a “penny stock” which will require brokers trading in UpHealth Common Stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of UpHealth Common Stock;

• a limited amount of analyst coverage; and

• a decreased ability to issue additional securities or obtain additional financing in the future.

The Company may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.

Although the Company conducted due diligence on UpHealth Holdings and Cloudbreak in connection with the Business Combinations, , the Company cannot assure you that this diligence revealed all material issues that may be present in UpHealth Holdings’ or Cloudbreak’s business, as applicable, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of the Company’s, UpHealth Holdings’ and Cloudbreak’s control will not later arise. As a result the Company may be forced to write-down or

write-off

assets, restructure its operations, or incur impairment or other charges in the future that could result in losses. Even if the Company’s due diligence successfully identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with the Company’s preliminary risk analysis. Even though these charges may be

non-cash

items and may not have an immediate impact on the Company’s liquidity, the fact that the Company reports charges of this nature could contribute to negative market perceptions about it or its securities. In addition, charges of this nature may cause the Company to be unable to obtain future financing on favorable terms or at all.

UpHealth incurs significant increased expenses and administrative burdens as a public company, which may have an adverse effect on its business, financial condition and results of operations.

UpHealth faces legal, accounting, administrative and other costs and expenses as a public company that UpHealth Holdings and Cloudbreak did not incur as private companies. The Sarbanes-Oxley Act, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, Public Company Accounting Oversight Board (the “

PCAOB

”) and the securities exchanges, impose additional reporting and other obligations on public companies. Compliance with public

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company requirements increase costs and make certain activities more time-consuming. A number of those requirements require UpHealth to carry out activities that neither UpHealth Holdings nor Cloudbreak did previously. For example, UpHealth has created new board committees and is in the process of adopting new internal controls and disclosure controls and procedures. In addition, expenses associated with SEC reporting requirements have been, and will continue to be, incurred. As disclosed in GigCapital2’s Annual Report on

Form 10-K/A

for the fiscal year ended December 31, 2020, management concluded that our disclosure controls and procedures and internal controls over financial reporting were not effective as of December 31, 2020 due to a material weakness related to not having adequate controls over accounting for complex accounting instruments and, in particular, related to errors in the accounting for warrants issued in connection with the IPO and recorded in GigCapital2’s pre-Business Combination, historical condensed consolidated financial statements through March 31, 2021. Furthermore, if any issues in complying with those requirements are identified (for example, if the auditors or the Company identifies additional material weaknesses or significant deficiency in the internal control over financial reporting), UpHealth could incur additional costs rectifying those issues, and the existence of those issues could adversely affect UpHealth’s reputation or investor perceptions of it. It may also be more expensive to obtain director and officer liability insurance. Risks associated with UpHealth’s status as a public company may make it more difficult to attract and retain qualified persons to serve on the Board or as executive officers. The additional reporting and other obligations imposed by these rules and regulations increase legal and financial compliance costs and the costs of related legal, accounting and administrative activities. These increased costs have required, and will continue to require UpHealth to divert a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs.

The unaudited pro forma condensed combined financial information included in this prospectus may not be indicative of what the Company’s actual financial position or results of operations would have been.

The unaudited pro forma condensed combined financial information in this prospectus is presented solely for illustrative purposes only and is not necessarily indicative of the Company’s actual financial position or results of operations upon the completion of the Business Combinations. See the section titled “

Unaudited Pro Forma Condensed Combined Financial Information

” for more information.

Certain of our warrants are being accounted for as a warrant liability and are being recorded at fair value upon issuance with changes in fair value each period reported in earnings, which may have an adverse effect on the market price of our Common Stock.

In the private placement of units that occurred concurrently with our IPO, our Founders acquired 567,500 private warrants. These private warrants and the shares of Common Stock issuable upon the exercise of the private warrants are not transferable, assignable or salable, subject to certain limited exceptions. Additionally, the private warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are

non-redeemable

so long as they are held by the initial purchasers or their permitted transferees. If the private warrants are held by someone other than the initial purchasers or their permitted transferees, the private warrants will be redeemable by the Company and exercisable by such holders on the same basis as the warrants included in the units sold in the IPO, in which case the 567,500 private warrants could be redeemed by the Company for $5,675. Under GAAP, we are required to evaluate contingent exercise provisions of these warrants and then their settlement provisions to determine whether they should be accounted for as a warrant liability or as equity. Any settlement amount not equal to the difference between the fair value of a fixed number of our equity shares and a fixed monetary amount precludes these warrants from being considered indexed to our own stock, and therefore, from being accounted for as equity. As a result of the provision that the private warrants, when held by someone other than the initial purchasers or their permitted transferees, will be redeemable by the Company, the requirements for accounting for these warrants as equity are not satisfied. Therefore, as described in our financial statements included in this prospectus, we are accounting for these private warrants as a warrant liability and are recording that liability at fair value upon issuance and are recording any subsequent changes in fair value as of the end of each period for which earnings are reported, as we determine based upon a valuation report obtained from our independent third-party valuation firm. The

52

impact of changes in fair value on earnings may have an adverse effect on the market price of our Common Stock.

The Company’s ability to be successful is totally dependent upon the efforts of its key personnel, including each of UpHealth Holdings’ and Cloudbreak’s key personnel, all of whom joined the Company following the Business Combinations. While the Company intends to closely scrutinize any individuals it engages, it cannot assure you that its assessment of these individuals will prove to be correct.

The Company’s ability to be successful is dependent upon the efforts of key personnel, including personnel of UpHealth Holdings and Cloudbreak who joined following the Business Combinations. It is possible that the Company will lose some key personnel, the loss of which could negatively impact the operations and profitability of the post-combination company. While the Company intends to closely scrutinize any individuals it engages, it cannot assure you that its assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a public company which could cause the Company to have to expend time and resources helping them become familiar with such requirements. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect its operations.

Our stockholders may not be able to enforce judgments entered by U.S. courts against certain of our officers and directors.

We are incorporated in the State of Delaware. However some of our directors and executive officers may reside outside of the United States. As a result, our stockholders may not be able to effect service of process upon those persons within the United States or enforce against those persons judgments obtained in U.S. courts.

A market for the Company’s securities may not continue, which would adversely affect the liquidity and price of its securities.

The price of the Company’s securities may fluctuate significantly due to the market’s reaction to the Business Combinations and general market and economic conditions. An active trading market for the Company’s securities may never develop or, if developed, it may not be sustained. In addition, the price of the Company’s securities can vary due to general economic conditions and forecasts, the Company’s general business condition and the release of the Company’s financial reports. Additionally, if the Company’s securities become delisted from the NYSE for any reason, and are quoted on the OTC Bulletin Board (an inter-dealer automated quotation system for equity securities that is not a national securities exchange), the liquidity and price of the Company’s securities may be more limited than if the Company’s securities were quoted or listed on the NYSE or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.

If the Company fails to introduce or acquire new products or services that achieve broad market acceptance on a timely basis, or if its products or services are not adopted as expected, it may not be able to compete effectively.

The Company operates in a highly competitive, quickly changing environment, and the Company’s future success depends on its ability to develop or acquire, and introduce new products and services that achieve broad market acceptance. The Company’s ability to successfully introduce and market new products is unproven. Because the Company has a limited operating history and the market for its products, including newly acquired or developed products, is rapidly evolving, it is difficult to predict the Company’s operating results, particularly with respect to any new products that it may introduce. The Company’s future success will depend in large part upon its ability to identify demand trends in the market in which it will operate and quickly develop or acquire, and design, manufacture and sell, products and services that satisfy these demands in a cost-effective manner.

In order to differentiate the Company’s products and services from competitors’ products, the Company will need to increase focus and capital investment in research and development, including software development. If

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any products currently sold by, and services offered by, the Company do not continue, or if the Company’s new products or services fail to achieve widespread market acceptance, or if we are unsuccessful in capitalizing on opportunities in the market in which the Company will operate, the Company’s future growth may be slowed and its business, results of operations and financial condition could be materially adversely affected. Successfully predicting demand trends is difficult, and it is very difficult to predict the effect that introducing a new product or service will have on existing product or service sales. It is possible that the Company may not be successful with its new products and services, and as a result the Company’s future growth may be slowed and its business, results of operations and financial condition could be materially adversely affected. Also, the Company may not be able to respond effectively to new product or service announcements by competitors by quickly introducing competitive products and services.

In addition, the Company may acquire companies and technologies in the future. In these circumstances, the Company may not be able to successfully manage integration of the new product and service lines with the Company’s existing suite of products and services. If the Company is unable to effectively and successfully further develop these new product and service lines, the Company may not be able to increase or maintain sales and the Company’s gross margin may be adversely affected.

Furthermore, the success of the Company’s new products will depend on several factors, including, but not limited to, market demand costs, timely completion and introduction of these products, prompt resolution of any defects or bugs in these products, the Company’s ability to support these products, differentiation of new products from those of the Company’s competitors, market acceptance of these products, delays and quality issues in releasing new products and services. The occurrence of one or more of the foregoing factors may result in lower quarterly revenue than expected, and the Company may in the future experience product or service introductions that fall short of its projected rates of market adoption.

If the Company’s products and services fail to achieve and sustain sufficient market acceptance, the Company’s revenue will be adversely affected.

The Company’s success will depend on its ability to develop and market products and services that are recognized and accepted as reliable, enabling and cost-effective. Some potential customers of the Company may already use products or services similar to what the Company currently offers and similar to what the Company may offer in the future and may be reluctant to replace those products or services with what the Company currently offers or which the Company may offer in the future. Market acceptance of the Company’s products, services and technology will depend on many factors, including the Company’s ability to convince potential customers that the Company’s products, services and technology are an attractive alternative to existing products, services and technology. Prior to adopting the Company’s products, services and technology, some potential customers may need to devote time and effort to testing and validating the Company’s systems. Any failure of the Company’s systems to meet these customer benchmarks could result in potential customers choosing to retain their existing systems or to purchase systems other than the Company’s.

If the Business Combinations’ benefits do not meet the expectations of investors, stockholders or financial analysts, the market price of the Company’s securities may decline.

If the benefits of the Business Combinations do not meet the expectations of investors or securities analysts, the market price of the Company’s securities may decline.

In addition, fluctuations in the price of the Company’s securities could contribute to the loss of all or part of your investment. Any of the factors listed below could have a material adverse effect on your investment in the Company’s securities and the Company’s securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of the Company’s securities may not recover and may experience a further decline.

Factors affecting the trading price of the Company’s securities may include:

• actual or anticipated fluctuations in the Company’s quarterly financial results or the quarterly financial results of companies perceived to be similar to the Company;

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• changes in the market’s expectations about the Company’s operating results;

• success of competitors;

• the Company’s operating results failing to meet the expectation of securities analysts or investors in a particular period;

• changes in financial estimates and recommendations by securities analysts concerning the Company or the market in general;

• operating and stock price performance of other companies that investors deem comparable to the Company’s;

• the Company’s ability to market new and enhanced services and products on a timely basis;

• changes in laws and regulations affecting the Company’s business;

• commencement of, or involvement in, litigation involving the Company;

• changes in the Company’s capital structure, such as future issuances of securities or the incurrence of additional debt;

• the volume of shares of the Company’s securities available for public sale;

• any major change in the board or management;

• sales of substantial amounts of Common Stock by the Company’s directors, executive officers or significant stockholders or the perception that such sales could occur; and

• general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

Broad market and industry factors may materially harm the market price of the Company’s securities irrespective of its operating performance. The stock market in general and the NYSE have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of the Company’s securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress the Company’s stock price regardless of the Company’s business, prospects, financial condition or results of operations. A decline in the market price of the Company’s securities also could adversely affect the Company’s ability to issue additional securities and the Company’s ability to obtain additional financing in the future.

If securities or industry analysts do not publish or cease publishing research or reports about the Company, its business, or its market, or if they change their recommendations regarding the Company’s securities adversely, the price and trading volume of the Company’s securities could decline.

The trading market for the Company’s securities will be influenced by the research and reports that industry or securities analysts may publish about the Company, its business, its market, or its competitors. Securities and industry analysts do not currently, and may never, publish research on the Company. If no securities or industry analysts commence coverage of the Company, the Company’s stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover the Company, change their recommendation regarding the Company’s stock adversely, or provide more favorable relative recommendations about the Company’s competitors, the price of the Company’s securities would likely decline. If any analyst who may cover the Company were to cease coverage of the Company or fail to regularly publish reports on it, the Company could lose visibility in the financial markets, which could cause its stock price or trading volume to decline.

The future sales of shares by existing stockholders may adversely affect the market price of the Company’s Common Stock.

Sales of a substantial number of shares of the Company’s Common Stock in the public market could occur at any time. If the Company’s stockholders sell, or the market perceives that the Company’s stockholders intend

55

to sell, substantial amounts of the Company’s Common Stock in the public market, the market price of the Company’s Common Stock could decline.

Resales of the shares of Common Stock included in the stock consideration in the Business Combinations could depress the market price of our Common Stock.

We have approximately 117.6 million shares of Common Stock outstanding. The shares held by the Company’s public stockholders are freely tradable. In addition, the Company registered the resale of shares of Common Stock issued as merger consideration in connection with the Business Combinations, which shares will become available for resale following the expiration of any applicable lockup period. Rule 144 will become available for the resale of shares of our Common Stock that are not registered for resale once one year has elapsed from June 14, 2021, the date that we filed the Current Report on Form

8-K

following the closing of the Business Combinations that included the required Form 10 information that reflected that we are no longer a shell company. Such sales of shares of Common Stock or the perception of such sales may depress the market price of our Common Stock.

Anti-takeover provisions contained in our Second Amended and Restated Certificate of Incorporation as well as provisions of Delaware law, could impair a takeover attempt.

Our Second Amended and Restated Certificate of Incorporation contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. The Company is also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for the Company’s securities. These provisions include:

• no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

• a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of the Board;

• the right of our Board to elect a director to fill a vacancy created by the expansion of our Board or the resignation, death or removal of a director in certain circumstances, which prevents stockholders from being able to fill vacancies on our Board;

• a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; and

• the requirement that a meeting of stockholders may only be called by members of our Board or the stockholders holding a majority of our shares, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors.

These provisions, alone or together, could delay hostile takeovers and changes in control of UpHealth or changes in the Board and UpHealth’s management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the DGCL, which prevents some stockholders holding more than 15% of our outstanding Common Stock from engaging in certain business combinations without approval of the holders of substantially all of our Common Stock. Any provision of the Second Amended and Restated Certificate of Incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock and could also affect the price that some investors are willing to pay for our Common Stock.

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The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.

We currently qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. As such, we take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including: (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act; (ii) the exemptions from

say-on-pay,

say-on-frequency

and

say-on-golden

parachute voting requirements; and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year: (a) following October 18, 2023, the fifth anniversary of our IPO; (b) in which we have total annual gross revenue of at least $1.07 billion; or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock that was held by

non-affiliates

exceeded $700,000,000 as of June 30th of the prior year, and (ii) the date on which we have issued more than $1.0 billion in

non-convertible

debt during the prior three-year period.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to

non-emerging

growth companies, but any such election to opt out is irrevocable. We have elected to avail ourselves of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

We cannot predict if investors will find our Common Stock less attractive because we rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

If we fail to maintain effective internal control over financial reporting, the price of our Common Stock may be adversely affected.

We identified a material weakness in our internal control over financial reporting, the disclosure of which may have an adverse impact on the price of our Common Stock. We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal control over financial reporting may identify additional weaknesses and conditions that need to be addressed in our internal control over financial reporting, or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, or disclosure of management’s assessment of our internal control over financial reporting, may have an adverse impact on the price of our Common Stock.

We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act, and if we fail to continue to comply, our business could be harmed and our stock price could decline.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an annual assessment of internal control over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s

57

independent registered public accounting firm. The standards that must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In addition, although attestation requirements by our independent registered public accounting firm are not presently applicable to us we could become subject to these requirements in the future and we may encounter problems or delays in completing the implementation of any resulting changes to internal control over financial reporting. In the event that our Chief Executive Officer or Chief Financial Officer determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our shares will be affected; however, we believe that there is a risk that investor confidence and share value may be negatively affected.

Our internal control over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.

As a public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. To comply with the requirements of being a public company, the Company is required to provide management’s assessment on internal controls commencing with the annual report for fiscal year ended December 31, 2022, and we may need to undertake various actions, such as implementing additional internal controls and procedures and hiring additional accounting or internal audit staff. The standards required for a public company under Section 404 of the Sarbanes-Oxley Act are significantly more stringent than those that were required of UpHealth Holdings and Cloudbreak as privately-held companies. Further, as an emerging growth company, our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event that it is not satisfied with the level at which the controls of the Company are documented, designed or operating.

Testing and maintaining these controls can divert our management’s attention from other matters that are important to the operation of our business. If we identify additional material weaknesses in the internal control over financial reporting of the Company or are unable to comply with the requirements of Section 404 or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when we no longer qualify as an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock could be negatively affected, and we could become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources.

Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect the Company’s business, investments and results of operations.

The Company is subject to laws, regulations and rules enacted by national, regional and local governments. In particular, the Company is required to comply with certain SEC, NYSE and other legal or regulatory requirements, including the NYSE upon the transfer of its listing. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly. Those laws, regulations and rules and their interpretation and application may also change from time to time and those changes could have a material adverse effect on the Company’s business, investments and results of operations. In addition, a failure to comply with applicable laws, regulations and rules, as interpreted and applied, could have a material adverse effect on the Company’s business and results of operations.

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The Company’s Second Amended and Restated Certificate of Incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the sole and exclusive forums for substantially all disputes between the Company and its stockholders, which could limit the Company’s stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers, or employees.

Our Second Amended and Restated Certificate of Incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against our directors, officers, and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel except any action (A) as to which the Court of Chancery in the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, (C) for which the Court of Chancery does not have subject matter jurisdiction, or (D) any action arising under the Securities Act, as to which the Court of Chancery and the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our Certificate of Incorporation. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or employees which may discourage lawsuits with respect to such claims, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. However, there is no assurance that a court would enforce the choice of forum provision contained in our Second Amended and Restated Certificate of Incorporation. If a court were to find such provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

Our Second Amended and Restated Certificate of Incorporation provides that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.

The future exercise of registration rights may adversely affect the market price of our Common Stock.

Certain of our stockholders have registration rights for restricted securities. We are obligated to register certain securities, including all of the shares of Common Stock held by the Initial Stockholders, as well as certain shares held by former securities holders of UpHealth Holdings and Cloudbreak. We are obligated to (i) file a resale “shelf” registration statement to register such securities and (ii) use reasonable best efforts to cause such registration statement to be declared effective by the SEC as soon as reasonably practicable after the filing. Sales of a substantial number of shares of Common Stock pursuant to the resale registration statement in the public market could occur at any time the registration statement remains effective. In addition, certain registration rights holders can request underwritten offerings to sell their securities. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Common Stock.

Risks Related to this Offering

If you purchase shares of Common Stock in this offering, you will experience immediate and substantial dilution in your investment. You will experience further dilution if we issue additional equity or equity-linked securities in the future.

Since the price per share of our Common Stock being offered is substantially higher than the net tangible book value per share of our common stock, you will suffer immediate and substantial dilution with respect to the net

59

tangible book value of the Common Stock you purchase in this offering. Based on the assumed combined public offering price of $3.97 per share of common stock being sold in this offering, and our net tangible book value as of June 30, 2021, if you purchase shares of Common Stock in this offering, you will suffer immediate and substantial dilution of $4.36 per share with respect to the net tangible book value of the Common Stock. See the section entitled “Dilution” for a more detailed discussion of the dilution you will incur if you purchase Common Stock in this offering. If we issue additional shares of Common Stock, or securities convertible into or exchangeable or exercisable for shares of Common Stock, our stockholders, including investors who purchase shares of Common Stock in this offering, will experience additional dilution, and any such issuances may result in downward pressure on the price of our Common Stock. We also cannot assure you that we will be able to sell shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders.

We will have broad discretion in the use of our existing cash and cash equivalents, including the proceeds from this offering, and may invest or spend our cash in ways with which you do not agree and in ways that may not increase the value of your investment.

We will have broad discretion over the use of our cash and cash equivalents, including the proceeds from this offering. You may not agree with our decisions, and our use of cash may not yield any return on your investment. We intend to use the net proceeds from this offering to expand our commercial capabilities in selling and marketing related to our products, to fund our ongoing research and development activities, and for general corporate purposes, including working capital, operating expenses and capital expenditures. Our failure to apply the net proceeds from this offering effectively could compromise our ability to pursue our growth strategy and we might not be able to yield a significant return, if any, on our investment of these net proceeds. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

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INDUSTRY AND MARKET DATA

Unless otherwise indicated, information contained in this prospectus concerning UpHealth’s industry and the markets in which it operates, including its general expectations and market position, market opportunity and market size is based on management estimates and information from various sources including independent industry publications, market research studies and security analysts’ reports. While UpHealth believes its business projections are sound, they are subject to its management’s assumptions and other limitations and may prove inaccurate.

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $46.7 million (or approximately $53.9 million if the underwriters’ option to purchase additional shares is exercised in full) from the sale of approximately 14,483,626 shares of Common Stock offered by us in this offering, assuming a public offering price of $3.97 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each $1 increase (decrease) in the assumed public offering price per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions, by $12.0 million (assuming no exercise of the underwriters’ option to purchase additional shares).

We intend to use the net proceeds for working capital and general corporate purposes, although we do not currently have any specific or preliminary plans with respect to the use of proceeds for such purposes.

The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors. As a result, our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering. Proceeds held by us will be invested in short-term investments until needed for the uses described above.

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DIVIDEND POLICY

We have not paid any cash dividends on our Common Stock to date. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of our Board at such time. Our Board is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2021, as follows:

• on an actual basis; and

• on an as adjusted basis to give effect to the issuance and sale of 12,594,458 shares of Common Stock in this offering (assuming a public offering price of $3.97 per share and no exercise of the underwriters’ option to purchase additional shares), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

This table should be read in conjunction with the information contained in this prospectus, including “

Use of Proceeds

,” “

Management’s Discussion and Analysis of Financial Condition and Results of Operations

” and the consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

	As of June 30, 2021
(in thousands, except per share data)	Actual			As Adjusted
Cash, cash equivalents, and restricted cash:
Cash and cash equivalents (1)		98,116			144,864
Restricted cash		586			586
Total cash, cash equivalents, and restricted cash		98,702			145,450
Debt (including current portion):
Convertible notes		160,000			160,000
Unamortized original issue discount and derivative liability		(69,110	)		(69,110	)
Other debt facilities (various maturities and interest rates)		23,147			23,147
Paycheck Protection Program loans		1,015			1,015
Provider Relief Funds		735			735
Seller notes		29,831			29,831
Total debt		145,618			145,618
Stockholders’ equity:
Preferred stock, $0.0001 par value, 1,000 shares authorized, none issued or outstanding		—			—
Common stock, $0.0001 par value, 300,000 shares authorized, 117,605 issued or outstanding		12			13
Additional paid-in capital		620,455			667,202
Accumulated deficit		(37,920	)		(37,920	)
Accumulated other comprehensive income		(3,478	)		(3,478	)
Total stockholders’ equity		579,069			625,817
Noncontrolling interests		15,048			15,048
Total stockholders’ equity		594,117			640,865
Total capitalization		739,735			786,483

The number of shares of our Common Stock that will be outstanding after this offering is based on 117,604,610 shares of Common Stock outstanding as of June 30, 2021, assumes the sale and issuance by us of 12,594,458 shares of Common Stock and excludes:

• 538,616 shares of Common Stock issuable upon the vesting of outstanding restricted stock units;

• 16,420,813 shares of Common Stock that are reserved for issuance under the 2021 Equity Incentive Plan;

• 1,711,613 shares of Common Stock that are reserved under the 2015 Unit Incentive Plan;

• 15,023,475 shares of Common Stock to be issued upon conversion of the Convertible Notes; and

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• 18,117,494 shares of common stock issuable upon exercise of the outstanding warrants at an exercise price of $11.50 per share.

Unless expressly indicated or the context otherwise requires, all information in this prospectus assumes no exercise by the underwriters of their right to purchase up to an additional shares of Common Stock from us and no exercise of any other options or warrants.

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DILUTION

If you invest in our Common Stock, your interest will be diluted to the extent of the difference between the public offering price per share of our Common Stock and the as adjusted net tangible book value per share of our Common Stock after this offering. Our historical net tangible book value (deficit) as of June 30, 2021 was ($97.3) million or ($0.83) per share of Common Stock. Our net tangible book value (deficit) per share represents total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of June 30, 2021.

After giving effect to our sale of shares of our Common Stock in this offering at an assumed public offering price of $3.97 per share, which was the last reported sale price of our Common Stock on September 23, 2021, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of June 30, 2021 would have been approximately $(50.6) million, or approximately $(0.39) per share (excluding proceeds from the exercise by the underwriters of their option to purchase additional shares in connection with this offering). This represents an immediate increase in net tangible book value of $0.44 per share to our existing stockholders and an immediate dilution of $4.36 per share to new investors purchasing shares of Common Stock in this offering. The following table illustrates this dilution on a per share basis:

Assumed public offering price per share				$	3.97
Historical net tangible book value per share as of June 30, 2021	$	(0.83	)
Increase in as adjusted net tangible book value per share attributable to this offering		0.44
As adjusted net tangible book value per share after this offering					0.39
Dilution per share to new investors participating in this offering				$	4.36

The number of shares of our Common Stock that will be outstanding after this offering is based on 117,604,610 shares of Common Stock outstanding as of June 30, 2021, assumes the sale and issuance by us of 12,594,458 shares of Common Stock and excludes:

• 538,616 shares of Common Stock issuable upon the vesting of outstanding restricted stock units;

• 16,420,813 shares of Common Stock that are reserved for issuance under the 2021 Equity Incentive Plan;

• 1,711,613 shares of Common Stock that are reserved under the 2015 Unit Incentive Plan;

• 15,023,475 shares of Common Stock to be issued upon conversion of the Convertible Notes; and

• 18,117,494 shares of common stock issuable upon exercise of the outstanding warrants at an exercise price of $11.50 per share.

Unless expressly indicated or the context otherwise requires, all information in this prospectus assumes no exercise by the underwriters of their right to purchase up to an additional shares of Common Stock from us and no exercise of any other options or warrants.

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On November 23, 2020, GigCapital2 announced the pending merger of a series of integrated merger transactions.

On November 23, 2020, GigCapital2, announced that it executed the UpHealth Business Combination Agreement.

Also, on November 23, 2020, GigCapital2 announced that it executed the Cloudbreak Business Combination Agreement.

The UpHealth Business Combination Agreement

On June 9, 2021, pursuant to the terms of the UpHealth Business Combination Agreement, GigCapital2 acquired UpHealth Holdings through the statutory merger of UpHealth Merger Sub with and into UpHealth Holdings, with UpHealth Holdings surviving the merger as a wholly owned subsidiary of GigCapital2, with GigCapital2 changing its name to UpHealth, Inc.

UpHealth Holdings previously entered into separate merger agreements with respect to the acquisitions by UpHealth Holdings of BHS, Thrasys, TTC Healthcare, Innovations Group, and the Glocal SPA. All of these entities have been acquired under GAAP and are therefore included in the UpHealth consolidated financial statements as of June 30, 2021. The unaudited statements of operations for TTC Healthcare presented through January 24, 2021, the TTC Healthcare acquisition date; the unaudited statements of operations for Glocal presented through March 25, 2021, the Glocal acquisition date; and the unaudited statements of operations for Innovations Group presented through April 26, 2021, the Innovations Group acquisition date, are shown separately, as only the activity after the acquisition date are included in the UpHealth results.

The Cloudbreak Business Combination Agreement

On June 9, 2021, pursuant to the terms of the Cloudbreak Business Combination Agreement, GigCapital2 acquired Cloudbreak through the statutory merger of Cloudbreak Merger Sub with and into Cloudbreak, with Cloudbreak surviving the merger as a wholly owned subsidiary of GigCapital2. The unaudited statements of operations for Cloudbreak presented through June 9, 2021, the Cloudbreak acquisition date, are shown separately, as only the activity after the acquisition date are included in the UpHealth results.

Pro Forma Condensed Combined Financial Statements

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting in accordance with Accounting Standards Codification (“

ASC

”) Topic 805, “Business Combinations,” (“

ASC 805

”). Under ASC 805, UpHealth Holdings was determined to be the ultimate accounting acquirer for the Business Combinations. The following tables set forth unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2021, and the 12 months ended December 31, 2020 (as adjusted for conforming presentation periods for Glocal, whose fiscal year end is March 31).

The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2021, and the 12 months ended December 31, 2020, were prepared to illustrate the effects of the Business Combinations, as if they had occurred on January 1, 2020. The pro forma condensed combined statements of operations were derived from the unaudited financial statements of UpHealth for the six months ended June 30, 2021, the unaudited financial statements of each of the UpHealth Holdings and Cloudbreak merger entities for the six months ended June 30, 2021, and the audited financial statements of each of the UpHealth Holdings and Cloudbreak merger entities for the year ended December 31, 2020.

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The historical financial statements were adjusted in the unaudited pro forma condensed combined financial statements to give effect to events that were (i) directly attributable to the Business Combinations, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the Company. The unaudited pro forma condensed combined financial statements reflect

non-recurring

transaction charges directly related to the Business Combinations that the Company incurred in furtherance of consummation of the Business Combinations. Further, the tax rate used for these unaudited pro forma condensed combined financial statements was an estimated effective tax rate, which will likely vary from the actual effective rate in periods subsequent to the completion of the Business Combinations.

The unaudited pro forma condensed combined financial statements were prepared for informational purposes only and are not necessarily indicative of the Company’s results of operations upon completion of the Business Combinations, nor are they necessarily indicative of future results of operations. In addition, the unaudited pro forma combined financial statements do not purport to project the future financial position or operating results of the Company. The fair value of each of the merger entities’ identifiable tangible and intangible assets acquired and liabilities assumed, and the related depreciation amortization, were based on preliminary estimates and are subject to adjustment as, and if, more information is obtained within twelve months of the consummation of the mergers.

As of the date of filing of this prospectus, the Company has not completed the detailed valuation work necessary to finalize the required estimated fair values of the merger entities’ assets acquired and liabilities assumed and related allocation of purchase price. The purchase price allocation and related depreciation and amortization included in the unaudited pro forma condensed combined financial statements are preliminary and were made solely for purposes of preparing these unaudited pro forma condensed combined financial statements. Management anticipates that the values assigned to the assets acquired and liabilities assumed, and the related depreciation and amortization, will be finalized during the

one-year

measurement period following the date of completion of the Business Combinations. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could have a material impact on the unaudited pro forma condensed combined financial statements and the combined company’s future results of operations and financial position. In addition, certain reclassifications have been made to the merger entities’ historical financial statements to conform to the presentation used in the Company’s historical financial statements. Such reclassifications had no effect on the merger entities’ previously reported financial position or results of operations.

The unaudited pro forma condensed combined financial statements do not include any adjustments for the anticipated benefits from cost savings or synergies of UpHealth and the merger entities’ operating as a combined company or for liabilities resulting from integration planning, as management is in the process of making these assessments. However, liabilities ultimately may be recorded for additional costs in subsequent periods related to all merger entity companies, including severance, relocation or retention costs related to employees of the merger entities, as well as other costs associated with integrating and/or restructuring the companies. The ultimate recognition of such costs and liabilities would affect amounts in the unaudited pro forma condensed combined financial statements, and such costs and liabilities could be material.

The unaudited pro forma condensed combined financial statements should be read in conjunction with the:

• accompanying notes to the unaudited pro forma condensed combined financial statements;

• unaudited historical financial statements of UpHealth as of and for the six months ended June 30, 2021;

• unaudited historical financial statements of the merger entities as of and for the six months ended June 30, 2021; and

• audited historical consolidated financial statements of the merger entities as of and for the year ended December 31, 2020 (year ended March 31, 2020 for Glocal).

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2021

	UpHealth, Inc. and Subsidiaries			TTC Healthcare, Inc. and Subsidiaries			Glocal Healthcare Systems Private Limited (India) and Subsidiaries			Innovations Group, Inc. and Subsidiaries			Cloudbreak Health, LLC and Subsidiaries			Pro Forma
In thousands, except per share amounts, unaudited	Historical June 30, 2021			Historical January 1 through January 24, 2021			Historical January 1 through March 25, 2021			Historical January 1 through April 26, 2021			Historical January 1 through June 8, 2021			Transaction Accounting Adjustments			Note	Pro Forma Combined Company
Revenue		44,696			559			2,256			8,920			13,347			—				69,778
Cost of goods and services		26,415			724			1,086			5,598			8,420			—				42,243
Gross margin		18,281			(165	)		1,170			3,322			4,927			—				27,535
Operating expenses:
Selling, general, and administrative		14,832			696			162			6,847			5,820			—				28,357
Research and development		2,631			—			—			58			—			—				2,689
Depreciation and amortization		3,869			8			137			42			64			3,557		2(a)		7,677
Acquisition-related		35,340			—			480			227			272			—				36,319
Total operating expenses		56,672			704			779			7,174			6,156			3,557				75,042
Income (loss) from operations		(38,391	)		(869	)		391			(3,852	)		(1,229	)		(3,557	)			(47,507	)
Other income (expense):
Interest expense		(5,579	)		(32	)		(573	)		(54	)		(2,403	)		—				(8,641	)
Gain on consolidation of equity method investment		640			—			—			—			—			—				640
Gain on fair value of warrant liabilities		1,074			—			—			—			—			—				1,074
Gain on extinguishment of debt		151			—			—			1,174			2,698			—				4,023
Other income (expense), net, including interest income		(222	)		—			—			(25	)		386			—				139
Total other income (expense)		(3,936	)		(32	)		(573	)		1,095			681			—				(2,765	)
Income (loss) before income taxes		(42,327	)		(901	)		(182	)		(2,757	)		(548	)		(3,557	)			(50,272	)
Income tax benefit (expense)		7,053			222			(123	)		—			—			—				7,152
Income (loss) before equity in net earnings of unconsolidated entity		(35,274	)		(679	)		(305	)		(2,757	)		(548	)		(3,557	)			(43,120	)
Loss from equity method investment		(561	)		—			—			—			—			—				(561	)
Net income (loss)		(35,835	)		(679	)		(305	)		(2,757	)		(548	)		(3,557	)			(43,681	)
Net income (loss) attributable to noncontrolling interests		(101	)		7			(8	)		29			—			—				(73	)
Net income (loss) attributable to UpHealth, Inc.	$	(35,734	)	$	(686	)	$	(297	)	$	(2,786	)	$	(548	)	$	(3,557	)		$	(43,608	)
Net income (loss) per share:
Basic and diluted	$	(0.43	)																	$	(0.37	)
Weighted average common shares outstanding:
Basic and diluted		83,585															34,020		2(b)		117,605
Dividends declared per share	$	—																		$	—

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2020

	UpHealth, Inc. and Subsidiaries			Behavioral Services, LLC and Subsidiaries			Thrasys, Inc. and Subsidiaries (accounting acquirer)			TTC Healthcare, Inc. and Subsidiaries			Glocal Healthcare Systems Private Limited (India) and Subsidiaries			Innovations Group, Inc. and Subsidiaries			Cloudbreak Health, LLC and Subsidiaries			Pro Forma
In thousands, except per share amounts, unaudited	Historical December 31, 2020			Historical January 1 through November 19, 2020			Historical January 1 through November 19, 2020			Historical December 31, 2020			Historical December 31, 2020			Historical December 31, 2020			Historical December 31, 2020			Transaction Accounting Adjustments			Note	Pro Forma Combined Company
Revenue		5,396			11,842			13,505			19,367			9,983			28,335			28,089			—				116,517
Cost of goods and services		1,183			8,866			1,930			9,031			3,841			17,736			19,814			—				62,400
Gross margin		4,213			2,976			11,575			10,336			6,142			10,599			8,275			—				54,117
Operating expenses:
Selling, general, and administrative		4,945			3,219			3,666			10,927			1,614			7,981			14,105			—				46,457
Research and development		874			—			6,989			—			—			—			—			—				7,863
Depreciation and amortization		321			(435	)		(619	)		121			439			(6	)		(444	)		13,844		3(a)		13,220
Acquisition-related		—			—			—			—			—			—			—			36,319		3(b)		36,319
Total operating expenses		6,140			2,784			10,035			11,048			2,053			7,975			13,660			50,163				103,859
Income (loss) from operations		(1,927	)		192			1,540			(712	)		4,089			2,624			(5,385	)		(50,163	)			(49,742	)
Other income (expense):
Interest expense		(134	)		—			(297	)		(879	)		(2,252	)		(269	)		(6,638	)		—				(10,469	)
Other income (expense), net, including interest income		4			—			1			658			4,950			(39	)		485			—				6,059
Total other income (expense)		(130	)		—			(296	)		(221	)		2,698			(308	)		(6,153	)		—				(4,410	)
Income (loss) before income taxes		(2,057	)		192			1,244			(933	)		6,787			2,316			(11,538	)		(50,163	)			(54,152	)
Income tax benefit (expense)		(50	)		—			—			299			—			—			—			—				249
Income (loss) before equity in net earnings of unconsolidated entity		(2,107	)		192			1,244			(634	)		6,787			2,316			(11,538	)		(50,163	)			(53,903	)
Loss from equity method investment		(79	)		—			—			—			—			—			—			—				(79	)
Net income (loss)		(2,186	)		192			1,244			(634	)		6,787			2,316			(11,538	)		(50,163	)			(53,982	)
Net income (loss) attributable to noncontrolling interests		—			—			—			(28	)		214			78			—			—				264
Net income (loss) attributable to UpHealth, Inc.	$	(2,186	)	$	192		$	1,244		$	(606	)	$	6,573		$	2,238		$	(11,538	)	$	(50,163	)		$	(54,246	)
Net income (loss) per share:
Basic and diluted	$	(0.04	)																							$	(0.46	)
Weighted average common shares outstanding:
Basic and diluted		54,985																					62,620		3(c)		117,605
Dividends declared per share	$	—																								$	—

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1.    Basis of Presentation

The unaudited pro forma condensed combined financial statements are prepared in accordance with Article 11 of SEC Regulation

S-X,

as amended January 1, 2021. The historical financial information has been adjusted to give effect to the events that are (i) directly attributable to the Business Combinations, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the operating results of the combined company. The historical financial information of UpHealth is presented in accordance with accounting principles generally accepted in the United States (“

U.S. GAAP

”).

The acquisition accounting adjustments relating to the Business Combinations are preliminary and subject to change, as additional information becomes available and as additional analyses are performed. There can be no assurances that the final valuations will not result in material changes to the preliminary purchase price allocation. The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of any anticipated benefits from cost savings or synergies that may result from the Business Combinations or to any future integration costs. The unaudited pro forma condensed combined financial statements do not purport to project the future operating results or financial position of the combined company following the Business Combinations.

Certain reclassifications have been made to the merger entities’ historical financial statements to conform to the presentation required for U.S. GAAP. Such reclassifications had no effect on the merger entities’ previously reported financial position or results of operations.

2.    Notes to Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months Ended June 30, 2021

(a) Depreciation and amortization have been recorded as transaction adjustments for the six months ended June 30, 2021, as if the Business Combinations had been consummated on January 1, 2020.

(b) Issuance of additional shares upon consummation of mergers.

Diluted earnings per share excluded 1,711,613 shares for the six months ended June 30, 2021 related to the conversion of qualified and nonqualified incentive plan equity instruments that vest and convert upon a change of control, with an exercise price per share greater than the average fair value, resulting in an anti-dilutive effect on diluted earnings per share. Diluted earnings per share also excluded 18,117,494 shares related to the exercise of public and private warrants with an exercise price greater than the average fair value, resulting in an anti-dilutive effect on diluted earnings per share. In addition, diluted earnings per share also excluded 15,023,475 shares for the six months ended June 30, 2021 related to the convertible senior subordinated note which was considered anti-dilutive.

3.    Notes to Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2020

In compliance with Section 3330.3 of the SEC Financial Reporting Manual, Glocal’s year ended December 31, 2020 has been conformed to present comparable periods as the other merger entities by using the overlay method. Since its fiscal year ends March 31, the first calendar quarter has been used as an overlay in both the twelve months ended March 31, and the year ended December 31.

(a) Depreciation and amortization have been recorded as transaction adjustments for the year ended December 31, 2020, as if the Business Combinations had been consummated on January 1, 2020.

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(b) Accrued transaction cost incurred, which are not reflected in the historical financial statements, but were incurred through the date of this registration filing, as if the Business Combinations had been consummated on January 1, 2020.

(c) Issuance of additional shares upon consummation of mergers.

Diluted earnings per share excluded 1,711,613 shares for the year ended December 31, 2020 related to the conversion of qualified and nonqualified incentive plan equity instruments that vest and convert upon a change of control, with an exercise price per share greater than the average fair value, resulting in an anti-dilutive effect on diluted earnings per share. Diluted earnings per share also excluded 17,817,500 shares related to the exercise of public and private warrants with an exercise price greater than the average fair value, resulting in an anti-dilutive effect on diluted earnings per share. In addition, diluted earnings per share also excluded 15,323,469 shares for the year ended December 31, 2020 related to the convertible senior subordinated note which was considered anti-dilutive.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of our operations should be read together with our consolidated financial statements, including the related notes thereto, included elsewhere in this prospectus. The discussion and analysis should also be read together with the unaudited pro forma condensed combined financial information, including the notes thereto, included in this prospectus under the section entitled “Unaudited Pro Forma Condensed Combined Financial Information.” The following discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and “Special Note Regarding Forward-Looking Statements” included elsewhere in this prospectus.

Prior to June 9, 2021, we were known as GigCapital2, Inc. On June 9, 2021, we completed the Business Combinations with UpHealth Holdings, Inc. and Cloudbreak, LLC and, for accounting purposes UpHealth Holdings, Inc. was treated as the acquiring entity. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “our,” “us,” the “Company” or “UpHealth” are intended to mean the business and operations of UpHealth, Inc. and its consolidated subsidiaries as they currently exist.

Formation

UpHealth Services, Inc., a wholly-owned subsidiary of UpHealth Holdings was formed on November 5, 2019, and effectively began operations on January 1, 2020. It was formed for the purpose of effecting a combination of various companies engaged in digital medicine, and commenced negotiations with a number of companies, including those that are discussed below as having been acquired. It became a subsidiary of UpHealth Holdings through a reorganization when UpHealth Holdings was formed on October 26, 2020 as a Delaware corporation. UpHealth Holdings then entered into a series of transactions to develop its business across four segments: (a) Integrated Care Management—through its subsidiary Thrasys, Inc. (“

Thrasys

”); (b) Global Telehealth—through its subsidiary Glocal; (c); Digital Pharmacy—through its subsidiary Innovations Group, and (d) Behavioral Health—through its subsidiaries BHS and TTC Healthcare. On June 9, 2021, UpHealth (fka GigCapital2) acquired UpHealth Holdings and its subsidiaries, which added Cloudbreak to the Global Telehealth segment.

Completed Business Combinations

On November 20, 2020, UpHealth Holdings acquired BHS, pursuant to the terms of an Agreement and Plan of Merger between UpHealth Holdings and BHS, in exchange for consideration in the form of a promissory note in the amount of $1.2 million and shares of UpHealth Holdings. The operating results for BHS for the three and six months ended June 30, 2021 are included in the UpHealth, Inc. consolidated financial statements provided with this prospectus.

On November 20, 2020, UpHealth Holdings acquired Thrasys pursuant to the terms of an Amended and Restated Plan of Merger between the parties, in exchange for consideration in the form of a promissory note in the amount of $20.0 million and shares of UpHealth Holdings common stock. The operating results for Thrasys for the three and six months ended June 30, 2021 are included in the UpHealth, Inc. consolidated financial statements provided with this prospectus.

On January 25, 2021, UpHealth Holdings acquired TTC Healthcare, which became a wholly-owned subsidiary, pursuant to the terms of an Agreement and Plan of Merger between UpHealth Holdings and TTC Healthcare, in exchange for consideration in the form of a promissory note in the amount of $12.1 million and shares of UpHealth Holdings common stock. Subsequent to January 25, 2021, the results of operations of TTC

73

Healthcare are consolidated with those of UpHealth Holdings in the UpHealth, Inc. condensed consolidated financial statements provided with this prospectus. The information set forth below includes only the results of operations and liquidity and capital resources of TTC Healthcare from January 25, 2021 through June 30, 2021.

Glocal is now a controlled (but not wholly-owned) subsidiary of UpHealth Holdings. The acquisition of Glocal by UpHealth Holdings was structured to occur in multiple steps. Pursuant to the terms and conditions of the Glocal SPA, the first step concluded on November 20, 2020, when UpHealth Holdings acquired approximately 43.46% of the outstanding equity share capital of Glocal and delivered shares of UpHealth Holdings common stock and a $8.7 million note, which was paid in June 2021. As part of the second step, on March 26, 2021, UpHealth Holdings acquired additional equity share capital of Glocal, increasing its ownership to approximately 89.4% of the outstanding equity of Glocal, by way of capital investment into Glocal, with $3.0 million paid in March 2021 and $8.7 million paid in June 2021. On May 14, 2021, UpHealth Holdings acquired additional equity share capital of Glocal, increasing its ownership to approximately 90.4% of the outstanding equity of Glocal, and delivered shares of UpHealth Holdings common stock. The third step concluded on June 21, 2021, when UpHealth Holdings acquired additional equity share capital of Glocal, increasing its ownership to approximately 92.2% of the outstanding equity of Glocal, and delivered $9.2 million in cash to the selling shareholders. In the final steps, UpHealth Holdings, as the majority shareholder, will, in conjunction with the remaining Glocal shareholders, take steps to increase UpHealth Holdings’ ownership in Glocal through the acquisition of remaining shares, and/or any other manner acceptable to UpHealth Holdings and permitted under India law.

UpHealth Holdings accounted for its ownership in Glocal using the equity method from November 20, 2020 through March 25, 2021. Subsequent to March 25, 2021, the results of operations of Glocal are consolidated with those of UpHealth Holdings in the UpHealth, Inc. condensed consolidated financial statements provided with this prospectus. The information set forth below includes only the results of operations and liquidity and capital resources of Glocal from March 25, 2021 through June 30, 2021.

On April 27, 2021, UpHealth Holdings acquired Innovations Group, which became a wholly-owned subsidiary, pursuant to the terms of an Agreement and Plan of Merger between UpHealth Holdings and Innovations Group, in exchange for consideration in the form of a promissory note in the amount of $30.0 million and shares of UpHealth Holdings common stock. Subsequent to April 27, 2021, the results of operations of Innovations Group are consolidated with those of UpHealth Holdings in the UpHealth condensed consolidated financial statements provided with this prospectus. The information set forth below includes only the results of operations and liquidity and capital resources of Innovations Group from April 27, 2021 through June 30, 2021.

On June 9, 2021, UpHealth acquired Cloudbreak, which became a wholly-owned subsidiary, pursuant to the terms of a the Cloudbreak Business Combination Agreement, in exchange for consideration in the form of a promissory note in the amount of $36.6 million and shares of UpHealth common stock. Subsequent to June 9, 2021, the results of operations of Cloudbreak are consolidated with those of UpHealth in the UpHealth condensed consolidated financial statements provided with this prospectus. The information set forth below includes only the results of operations and liquidity and capital resources of Cloudbreak from June 9, 2021 through June 30, 2021.

On June 9, 2021, UpHealth acquired UpHealth Holdings and its subsidiaries, which became a wholly-owned subsidiary, in an exchange of cash, notes, and shares of common stock for all the shares of UpHealth Holdings’ capital stock issued and outstanding immediately prior to the effective time of the acquisition. The acquisition was accounted for as a reverse recapitalization, which is the equivalent of UpHealth Holdings issuing stock for the net assets of UpHealth, accompanied by a recapitalization, with UpHealth treated as the accounting acquiree. The determination of UpHealth as the accounting acquiree was primarily based on the fact that subsequent to the acquisition, UpHealth Holdings owns a majority of the voting power of the combined company, UpHealth Holdings will comprise 75% of the ongoing operations of the combined entity, UpHealth Holdings will control a majority of the governing body of the combined company, and UpHealth Holdings’

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senior management will comprise most of the senior management of the combined company. Subsequent to June 9, 2021, the results of operations of UpHealth are consolidated with those of UpHealth Holdings in the UpHealth condensed consolidated financial statements provided with this prospectus. The information set forth below includes only the results of operations and liquidity and capital resources of UpHealth from June 9, 2021 through June 30, 2021.

Factors Affecting Comparability of Results

Covid-19

The current

COVID-19

pandemic has affected and will continue to affect economies and business around the world. To date, various governmental authorities and private enterprises have implemented numerous measures to contain the pandemic, such as travel bans and restrictions, quarantines,

shelter-in-place

orders and shutdowns, which have led to severe disruptions to the global economies that may continue for a prolonged duration and trigger a recession or a period of economic slowdown. The magnitude and duration of the resulting decline in business activity and operations cannot be measured with any degree of certainty. At this stage, the extent and duration of the pandemic, and its foreseeable unfolding following the worldwide vaccine campaigns, is still uncertain and difficult to predict, also considering the severity of the second wave of the

COVID-19

pandemic currently hitting the Indian regions. UpHealth is actively monitoring and managing its response and assessing actual and potential impacts to its operating results and financial condition, which could also impact trends and expectations.

UpHealth, Inc. Business Overview

Integrated Care Management Segment—Thrasys

Thrasys Overview

Thrasys provides its customers with an advanced, comprehensive, and extensible technology platform, marketed under the umbrella “SyntraNet

TM

,” to manage health, quality of care, and costs, especially for individuals with complex medical, behavioral health, and social needs. Thrasys solutions are sold globally. SyntraNet is offered as a

software-as-a-service

(“

SaaS

”) platform. Information, analytics, and applications are delivered to care team members on desktops, tablets, and phones, as needed. An advanced protected health information framework controls access to information based on roles, rights, policies, and scope of consent. The platform includes innovations in a number of areas: application and information models for connected care communities (an extension of multi-tenant architectures), integration and normalization of heterogeneous data sources, configurable software services and open application programming interfaces, advanced analytics and intelligence, scalable workflows and rules, protected health information management, and user interfaces ready for the proliferation of device types and interaction modes.

Thrasys Key Business Metrics

Revenue

Thrasys derives revenue broadly from the sales of (a) products—with associated license, subscription, and hosting fees and (b) services—largely to implement, configure, and extend the technology, and train

and on-board users

on the use of the platform and applications.

Licenses Fees

. License revenues are typically associated with rights granted to customers to deploy the platform to a certain number of care communities of a certain size, usually measured as the total population of patients that can be included within a care community. License revenues are recognized based on the nature of the license provided, either fully on the date license rights are granted to the customer if there are no further performance obligations or ratably over the license term beginning on the effective date of each contract, the date the customer takes possession of the license rights.

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Subscription Fees

. Subscription fees are recurring fees charged for access to the platform and applications. Subscription fees are typically pegged to a measure of use, such as population size, number of providers, members enrolled in programs, or number of members managed by applications. Subscription fees can grow as customers subscribe to additional application features or launch additional programs. Revenues from subscription fees are recognized ratably over the subscription term.

Services Fees

. The majority of Thrasys’ contracts to provide professional services are priced on time and materials basis, whereby revenues are recognized as the services are rendered. In some cases, Thrasys enters into professional services contracts where professional services fees are defined for specific milestones, whereby revenue are recognized upon achievement of the milestones.

Cost of Goods and Services

Cost of goods and services for Thrasys include: costs related to hosting SyntraNet in a HIPAA-compliant cloud environment; costs of third-party product licenses embedded with SyntraNet; costs of a core professional services team, and an allocation of facilities, information technology, and depreciation costs. Added compliance requirements for security infrastructure is likely to add some additional costs for hosting services. Thrasys also anticipates added costs for third-party licenses that will be added as the scope and footprint of the technology platform expands.

Hosting Infrastructure

. Thrasys’ technology and solutions are designed to be agnostic to any particular cloud services provider. Currently, customer environments are hosted through contracts with two cloud service providers. Thrasys anticipates capabilities of cloud service providers to grow, and costs to become increasingly competitive, and will continue to evaluate offerings in the marketplace to determine the optimum mix of security, reliability, scalability, and performance to meet customer needs. Hosting infrastructure costs for Thrasys are related to the number and size of environments deployed for customers and also on the service level agreements (“

SLAs

”) negotiated with customers. As the average size of customers continues to grow, hosting infrastructure costs are expected to grow as a percentage of revenue.

Third-Party Product Licenses

. SyntraNet embeds certain third-party technology components to support some of its technology capabilities. There are multiple vendors for these components, and Thrasys is not dependent on any specific vendor.

Professional Services Team

. Thrasys’ professional services team works closely with the product team and is best understood as

an “A-team” created

to lead showcase implementations. The goal is to keep the professional services team small in order to focus it on deploying reference customers and facilitating

the on-boarding and

coaching of systems integration partners.

Operating Expenses

Sales and Marketing (“

S&M

”) Expenses

. S&M expenses include an internal sales and marketing team and contracts with business development consultants to generate and qualify leads.

Research and Development (“

R&D

”) Expenses

. Thrasys continues to invest in R&D. The core R&D team consists of a small team of very experienced software developers. Beginning in 2019, Thrasys added considerable capacity to a consulting group with whom it has been working for over ten years. The team, based in Chicago, functioned much like the Thrasys internal team, until they were brought

in-house in

June 2021.

General and Administrative (“

G&A

”) Expenses

. G&A expenses include compensation and benefits expense, and other administrative costs, related to its executive, finance, human resources, legal, facilities, and information technology teams, net of allocations to cost of goods and services and S&M and R&D expenses.

Depreciation and Amortization Expenses

. Depreciation expense relates to the depreciation of computer equipment, purchased software, furniture and fixtures, and office equipment, net of amounts allocated to cost of goods and services. Amortization expense relates to the amortization of intangible assets from the acquisition of Thrasys.

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Global Telehealth Segment - Glocal and Cloudbreak

Glocal Overview

Glocal is a technology and process-based healthcare platform providing its customer comprehensive primary care and specialty consultations at an affordable cost, through telemedicine, digital clinics, and technology-based hospital centers. It has pioneered the development of a semantic algorithm and

AI-based

clinical decision support system called LitmusDX, which helps deliver healthcare through telemedicine on its Hellolyf CX Digital Dispensaries utilizing a telemedicine terminal called LitmusMX and an automated medicine dispenser called LitmusRX, and through Glocal’s smart hospitals. Glocal started its operation in India, but has spread internationally and is now in 10 countries.

Glocal has been awarded by the United Nation’s (“

UN

”) Innovation Exchange with the Public Appreciation Award 2020 as a cutting-edge technology to meet the sustainable development goals of the UN. Glocal’s customers are located in regions in India, Southwest Asia, and Africa. Glocal generates 85% of its revenue in India and the remainder from Africa and Southeast Asia.

Glocal’s Hellolyf CX Digital Dispensary was selected by United Nations AID as a cutting-edge technology solution to reach the UN’s sustainable development goals. Unlike other telemedicine centers seen today, Glocal’s Hellolyf CX Digital Dispensary is an innovative, hybrid,

brick-and-mortar

center, which provides complete primary and emergency healthcare solutions, such as consultation, confirmatory tests, and medicines, from a single point through the use of two path-breaking technological solutions, LitmusMX and LitmusRX.

LitmusMX is used for recording the vitals of the patient, consultations with a doctor over video conferencing from miles away, and routine card-based

point-of-care

tests, and also contains a fully automatic biochemistry analyzer. The software may also suggest further investigations. If the doctor agrees, they can order further rapid tests, such as for dengue or malaria, for which kits are available. When the doctor selects a prescription, the machine talks to the dispenser, which delivers the required dosages of the medicines. Theoretically, the algorithm can be fine-tuned to arrive at a final diagnosis and prescription on its own. LitmusRX is an automated medicine dispensing unit, which dispenses the medicine prescribed by the doctor, while the prescription is being printed. In addition to these solutions is one of the world’s top ten

end-to-end

Clinical Decision Support System (“

CDSS

”), named LitmusDX, along with a web interface, named Hellolyf, which integrates practice management with diagnostic algorithms, investigation interpretation, treatment protocols, drug safety checks, and electronic medical records.

Hellolyf.com, Glocal’s

web-based

telemedicine platform, provides world-class telemedicine solutions, which allows patients anywhere to consult with any doctor safely. The relay and IP addressing is done through STUN and TURN servers.

During the

COVID-19

pandemic, Glocal’s innovative Hellolyf CX Digital Clinics successfully used ultraviolet C light disinfection, acrylic separation, and positive air pressure to create the first line of defense of health workers and patients against all forms of infectious and contagious diseases, including

COVID-19.

Glocal is also focusing now on the

business-to-business

(“

B2B

”) model where the Hellolyf CX Digital Clinics are sold to B2B partners/customers, who operate them with a revenue-share to Glocal. This results in lower revenues but higher margins.

Glocal’s telemedicine/Hellolyf CX Digital Clinics have been functional in India mainly through the government and are primarily housed in government facilities, which provide services that are free to the beneficiaries. After successful implementation of projects in the Indian states of Rajasthan, Odisha, and West Bengal, Glocal now has won a contract to

set-up

550+ Digital Clinics in the Indian State of Madhya Pradesh, resulting in a total of 750+ government-placed nodes across India.

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Glocal has moved to a revenue-sharing model where it partners in certain places to run and operate hospitals. Glocal is operating four digital hospitals itself and five hospitals under revenue sharing arrangements. Glocal is also under contract to build and furnish a hospital in the Indian state of Nagaland.

Glocal Key Business Metrics

Revenue

Glocal’s revenue is generated primarily from hospitals, including pharmacy and medicine sales and the sale of HelloLyf CX Digital Clinics, and transaction fees per telemedicine consult.

Cost of Goods and Services

Cost of goods and services consist primarily of costs of operating hospitals, including costs for the purchase of medicines, professional/doctor fees, the cost for HelloLyf CX Digital Clinics, and an allocation of facilities, information technology, and depreciation costs.

Operating Expenses

S&M Expenses

. S&M expenses are comprised of compensation and benefits related to Glocal’s sales personnel, travel expenses, and expenses related to advertising, marketing programs, and events.

G&A Expenses

. G&A expenses include compensation and benefits expense, and other administrative costs, related to its executive, finance, human resources, legal, facilities, and information technology teams, net of allocations to cost of goods and services and S&M expenses.

Depreciation and Amortization Expenses

. Glocal’s operations are capital intensive. Depreciation expense relates to the depreciation of buildings, computer equipment, purchased software, furniture and fixtures, and office equipment, net of amounts allocated to cost of goods and services. Amortization expense relates to the amortization of intangible assets from the acquisition of Glocal.

Cloudbreak Overview

Cloudbreak is a leading provider of unified telemedicine solutions and digital health tools aimed at increasing access to healthcare and resolving health disparities across the care continuum, at each stage of healthcare acuity. Cloudbreak powers its client’s healthcare digital transformation initiatives and provides digital health infrastructure enabling its partners to address healthcare disparities and implement unique, private-label, telehealth strategies customized to their specific needs and markets.

Cloudbreak’s core offering, known as MARTTI (My Accessible Real-Time Trusted Interpreter), is a video remote interpreting solution that puts qualified and certified medical interpreters at the fingertips of clinical care teams nationwide through Cloudbreak’s proprietary software platform. Having one of the largest installed bases of video endpoints in the nation, Cloudbreak has expanded its operations to include other telemedicine use cases as well, including tele-stroke, tele-psychiatry, tele-urology, and tele-quarantine, among others, all over the same infrastructure. Cloudbreak has also recently launched a home health virtual visit platform enabling its healthcare system partners to see their patients remotely on any device, at anytime, anywhere the patient may be, and in any language they may speak. Cloudbreak’s client base spans the entire healthcare continuum including hospitals and health systems, Federally Qualified Healthcare Clinics, urgent care centers, stand alone clinics and medical practices, employers, and schools.

Cloudbreak’s

Telemedicine-as-a-Service

(“

TaaS

”) business model aligns interests between Cloudbreak and its clients, creating a partnership targeted towards forming long-term agreements with sustainable and mutually beneficial growth models for all stakeholders. Cloudbreak has specifically structured itself to not have a captive medical group as it believes that creates a conflict of interest with its client base, as local health systems do not want to suffer patient leakage to a technology partner or be forced to use a provider network. As

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a result, Cloudbreak has the freedom to match its partners with centers of excellence on its network, who can satisfy their specific needs and strategy without fear of competing for the patient’s attention, and thereby avoid the employment and maintenance of a medical group, which is a lower margin and a more labor intensive activity.

Cloudbreak Key Business Metrics

Revenue

Cloudbreak derives the majority of its revenues from the sale of subscription-based fixed monthly minute and variable rate per unit of service medical language interpretation services. Cloudbreak also records ancillary revenue from the sale or lease of MARTTI devices and from the provision of information technology services that include connectivity and ongoing support of the MARTTI software platform. Generally, Cloudbreak’s medical language interpretation and information technology services are invoiced monthly. Fixed monthly minute medical language interpretation subscription and information technology services fees are invoiced in advance in the period preceding the service. Variable rate per unit medical language interpretation and information technology services fees (including overage fees related to minutes used by the customer in excess of the fixed monthly minute subscription) are invoiced monthly in arrears. Sale of MARTTI devices are generally invoiced at contract execution (50%) and upon the delivery of the devices to the customer (50%). MARTTI device leases are invoiced monthly in advance in the period preceding the usage. Invoiced amounts are typically due within 30 days of the invoice date.

Cost of Goods and Services

Cost of goods and services primarily consist of costs related to supporting and hosting Cloudbreak’s product offerings and delivering services, and include the cost of maintaining Cloudbreak’s data centers, customer support team, and Cloudbreak’s professional services staff, in addition to third-party service provider costs such as data center and networking expenses, amortization of capitalized

internal-use

software development costs, the cost of purchased equipment inventory sold to customers, and an allocation of facilities, information technology, and depreciation costs.

Operating Expenses

S&M Expenses

. S&M expenses consist of costs related to advertising, marketing programs, and events.

G&A Expenses

. G&A expenses consist of compensation and benefits expense, and other administrative costs, related to its executive, finance, human resources, legal, facilities, and information technology teams, net of allocations to cost of goods and services and S&M.

Depreciation and Amortization Expenses

. Depreciation expense relates to the depreciation of computer equipment, purchased software, furniture and fixtures, and office equipment, net of amounts allocated to cost of goods and services. Amortization expense relates to the amortization of intangible assets from the acquisition of Cloudbreak.

Digital Pharmacy Segment—Innovations Group

Innovations Overview

Innovations Group is the parent company of the following wholly-owned operating subsidiaries: MedQuest Pharmacy, WorldLink Medical, Inc (“

WorldLink Medical

”), Medical Horizons, and Pinnacle Labs, Inc. (doing business as MedQuest Testing Services (“

MTS

”)).

MedQuest Pharmacy is a full-service retail and compounding pharmacy licensed in 50 states and the District of Columbia that dispenses patient-specific medications and ships directly to patients. It delivers both

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compounded and legend (also referred to as manufactured) drugs and is capable of serving as a retail or national fulfillment center, as a personalized medication administration partner with prescribers, and as a lifestyle wellness

direct-to-consumer

offering. Its proprietary software and operating system, eMedplus

™

, is Electronic Prescribing of Controlled Substances Certified by the U.S. Drug Enforcement Administration and provides prescribers with a full-service prescription management system. In January 2020, eMedplus became SureScripts certified (SureScripts’ process is to validate that the software meets certain industry standards related to sending and receiving electronic messages and that it is providing open choice for medication selection and dispensing location), allowing any user of the SureScripts platform to prescribe medications dispensed by MedQuest Pharmacy.

MedQuest Pharmacy is accredited and recognized by the Accreditation Commission for Health Care (the “

ACHC

”)and its Pharmacy Compounding Accreditation Board (“

PCAB

”), among other high-quality providers and suppliers. MedQuest Pharmacy has achieved this elite level of quality by exceeding standards set by national accreditation bodies and quality-centered organizations.

In addition to expanding its prescriber base through the SureScripts platform and testing services with new and existing lab companies and relationships, MedQuest Pharmacy plans to add new lines of specialties in the second half of 2021, which will expand its customer base. Medical Horizons also plans to launch Pure Collectives, an

e-commerce

platform to allow providers to sell Medical Horizons’ nutraceutical supplements line to their patients. Patients will have the ability to order Medical Horizons’ nutraceutical supplements line directly from their provider through Pure Collectives. The order will be sent to Medical Horizons and Medical Horizons will ship it directly to the patient, with the patient paying the provider and Medical Horizons billing the provider directly for the products provided.

MedQuest Pharmacy’s direct pharmacy capabilities offer

direct-to-patient

shipping of both manufactured and compounded drugs. MedQuest Pharmacy has relationships with both prescribers and patients and filled an average of approximately 937 prescriptions per day in the first half of 2021. The business model is driven by

cash-pay

and prescription volume-based revenue generated by physician electronic prescription order entry, as well as traditional prescriber-patient-pharmacist interactions, mailed, verbal, and faxed orders.

Worldlink Medical is the educational services arm of Innovations, providing Continuing Medical Education (“

CME

”) educational courses accredited as a joint provider through the Accreditation Council for Continuing Medical Education (“

ACCME

”). Medical Horizons specializes in customized formulations and contract dietary supplement and nutraceuticals manufacturing as an own label distributor with its brand NUTRAscriptives

™

, as well as other brands. Its turnkey solutions include label design, printing, and application; custom packaging; daily packs; a selection of capsule sizes and colors; and convenient auto-reorder services. It features a staff of experts that is committed to excellence and outstanding customer service. MTS focuses specifically on facilitating diagnostic testing between lab companies, such as LabCorp and Quest Diagnostics, patients, and providers.

The condensed consolidated financial statements include the results of Innovations Group, its four wholly-owned subsidiaries discussed above, and a variable interest entity (“

VIE

”),

B-17

Partners, LLC (“

B-17

”), in which Innovations Group has a controlling financial interest. This determination was based on the fact that Innovations Group absorbs a majority of the VIE’s expected losses and receives a majority of its expected residual returns. The VIE was formed for the purpose of acquiring and holding real estate. The VIE’s sole activity is to lease the real estate to our subsidiary. At June 30, 2021, the VIE had total assets of $4.5 million and total liabilities of $4.1 million. For the three month ended June 30, 2021, revenues of $0.1 million were eliminated in consolidation. For the three months ended June 30, 2021, expenses were $25 thousand, primarily for interest and depreciation. Creditors and beneficial holders of the VIE have no recourse to the assets or general credit of our subsidiary.

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Innovations Group Key Business Metrics

Revenue

Revenue is generated primarily from the sale of prescription medications directly to patients and through the sale of products and services to providers. The majority of the customer revenue is billed and collected before the medications and products are shipped from the facility. MedQuest Pharmacy is Innovation Group’s largest subsidiary in terms of revenue and generates approximately 60% of its revenue from sales of compounded medications and approximately 40% of its revenue from sales of manufactured medications.

Cost of Goods and Services

Cost of goods and services primarily consist of costs of raw ingredients and materials to compound various drugs and supplements, the cost of manufactured product purchased directly from the distributors for resale, and an allocation of facilities, information technology, and depreciation costs. MedQuest Pharmacy purchases these items through a large industry distributor with many suppliers and also sources supplies directly with manufacturers. MedQuest Pharmacy is also able to leverage the size of its operations to purchase larger quantities of certain ingredients and materials at lower prices.

Operating Expenses

S&M Expenses

. S&M expenses consist of costs related to advertising, marketing programs, and events.

G&A Expenses

. G&A expenses include compensation and benefits expense, and other administrative costs, related to its executive, finance, human resources, legal, facilities, and information technology teams, net of allocations to cost of goods and services and S&M expenses.

Depreciation and Amortization Expenses

. Depreciation expense relates to the depreciation of computer equipment, lab equipment, purchased software, furniture and fixtures, office equipment, and leasehold improvements, net of amounts allocated to cost of goods and services. Amortization expense relates to the amortization of intangible assets from the acquisition of Innovations Group.

Behavioral Health Segment - TTC Healthcare and BHS

TTC Healthcare Overview

TTC Healthcare provides inpatient and outpatient mental health and substance abuse treatment services for individuals with behavioral health issues including post traumatic stress disorder and drug and alcohol addiction. TTC Healthcare offers a complete continuum of care from its detoxification services, residential care, partial hospitalization programs, and intensive outpatient, and outpatient programs. During the

COVID-19

pandemic, outpatient programs have been virtual for a majority of visits.

In March 2020, TTC Healthcare formed Transformations Mending Fences, LLC to provide mental health and substance abuse disorder treatment, including equine therapy, to patients. TTC Healthcare has an 80% controlling interest in the entity with the remaining 20% interest owned by an unrelated party. Operations began in December 2020, with the admission of the first patient occurring in January 2021.

In addition to inpatient and outpatient substance abuse treatment services, TTC Healthcare performs screenings, urinalysis, and diagnostic laboratory services, and provides physician services to clients. TTC Healthcare operates three subsidiaries located in Delray Beach, Florida and one facility in Morriston, Florida. These facilities consist of inpatient substance abuse treatment facilities, standalone outpatient centers, and sober living facilities focused on delivering effective clinical care and treatment solutions.

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TTC Healthcare Key Business Metrics

Revenue

Services

. TTC Healthcare generates revenue primarily through services provided to clients in both inpatient and outpatient treatment settings. TTC Healthcare bills third-party payors weekly for the services provided in the prior week. Client-related services, such as inpatient and outpatient programs, are generally recognized over time as the performance obligation is satisfied at the estimated net realizable value amount from clients, third-party payors, and others for services provided. TTC Healthcare receives the majority of payments from commercial payors at

out-of-network

rates. Client service revenue is recorded at established billing rates, less adjustments to estimate net realizable value. Provisions for estimated third party payor reimbursements are provided in the period related services are rendered and adjusted in future periods when actual reimbursements are received. A significant or sustained decrease in reimbursement rates could have a material adverse effect on operating results.

Laboratory Testing

. TTC Healthcare provides diagnostic laboratory testing services for its clients, which are recognized over time as the performance obligation is satisfied at the estimated net realizable value amount from clients, third-party payors, and others for services provided. Diagnostic laboratory service revenue is recorded at established billing rates, less adjustments to estimate net realizable value. Provisions for estimated third party payor reimbursements are provided in the period related services are rendered and adjusted in future periods when actual reimbursements are received.

Cost of Goods and Services

Cost of goods and services consist primarily of the costs of operating the facilities, professional/doctor fees, and an allocation of information technology and depreciation costs.

Operating Expenses

S&M Expenses

. S&M expenses consist of costs related to advertising, marketing programs, and events.

SG&A Expenses

. G&A expenses include compensation and benefits expense, and other administrative costs, related to its executive, finance, human resources, legal, facilities, and information technology teams, net of allocations to cost of goods and services and S&M expenses.

Depreciation and Amortization Expenses

. Depreciation expense relates to the depreciation of computer equipment, purchased software, furniture and fixtures, office equipment, and leasehold improvements, net of amounts allocated to cost of goods and services. Amortization expense relates to the amortization of intangible assets from the acquisition of TTC Healthcare.

BHS Overview

BHS operates through Psych Care Consultants, LLC, BHS Pharmacy, LLC, and Reimbursement Solutions, LLC, wholly-owned subsidiaries of BHS. Psych Care Consultants, LLC is a medical group that has four medical offices located in the St. Louis metropolitan area (Missouri) and provides psychiatric and mental health services. BHS Pharmacy, LLC provides retail pharmacy services specializing in behavioral health through services, such as medication management, screenings, online portals, and delivery. Reimbursement Solutions, LLC provides billing services for Psych Care Consultants, LLC (which has allowed for more efficient payment for BHS clinicians) and third-party customers. Services include billings, collections, verification of benefits, authorization, and credentialing.

BHS provides its patients and providers with a reliable platform where a provider can address their patients’ needs efficiently with an infrastructure built to support the providers and address patient needs. This infrastructure consists of medical offices placed strategically for the convenience of providers and patients and

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trained staff to assist providers and patients in the delivery of quality health services that is timely and efficient, provide prescription dispensing for patients that is convenient to maintain compliance, and assist providers with billing and collection services through Reimbursement Solutions, LLC.

BHS providers work in collaboration with multiple area hospital systems (both in leadership and clinical positions) to provide and direct inpatient treatment. BHS’ business is generated by various referral sources developed over the years by BHS providers and their presence in the market for over twenty-five years. BHS

offers in-office, virtual,

and in-patient treatment.

Common conditions treated by BHS practitioners include depression, bipolar disorder, attention disorders, schizophrenia, substance use disorders, post-traumatic stress disorder, Alzheimer’s disease and related disorders, and personality disorders.

BHS Key Business Metrics

Revenue

BHS generates revenue by providing psychiatric and mental health services, retail pharmacy services, and billing services. Although the underlying tasks will vary by service and by patient, medical professionals perform inquiries, obtain vital statistics, perform certain lab tests, administer therapy, and provide any additional goods and services as necessary depending on the information obtained.

Cost of Goods and Services

Cost of goods and services consist primarily of provider compensation expenses, the cost of pharmaceutical medications sold to patients, and an allocation of facilities, information technology, and depreciation costs. Provider compensation expenses include consulting payments to BHS’ healthcare providers, including medical doctors in psychiatry, psychologists, nurse practitioners, and clinical social workers. BHS has adopted an incentive-based compensation plan with provider agreements that compensate the providers based upon a percentage of revenue generated and ultimately collected for services provided. BHS primarily purchases pharmaceutical medications through a large industry distributor with many suppliers, but also purchases some directly from other suppliers.

Operating Expenses

S&M Expenses

. S&M expenses include costs related to advertising, marketing programs, and events.

G&A Expenses

. G&A expenses include compensation and benefits expense, and other administrative costs, related to its executive, finance, human resources, legal, facilities, and information technology teams, net of allocations to cost of goods and services and S&M expenses.

Depreciation Expense

. Depreciation expense relates to the depreciation of computer equipment, purchased software, furniture and fixtures, and office equipment, net of amounts allocated to cost of goods and services. Amortization expense relates to the amortization of intangible assets from the acquisition of BHS.

UpHealth, Inc. Consolidated Results of Operations

Operating Results

As of June 30, 2021 and for the three and six months then ended, UpHealth’s operating results consist of (1) the results of operations for UpHealth Holdings, Thrasys, and BHS; (2) the results of operations for TTC Healthcare, Glocal, and Innovations Group subsequent to the acquisition of those companies in 2021, as described above; and (3) the results of operations for UpHealth and Cloudbreak subsequent to June 9, 2021, as described above. As of June 30, 2020 and for the three and six months then ended, UpHealth’s operating results consist of the results of operations for UpHealth Holdings.

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The following table sets forth the consolidated results of operations of UpHealth

:

(Unaudited, in thousands)	Three Months Ended June 30,						$ Change			% Change			Six Months Ended June 30,						$ Change			% Change
	2021			2020									2021			2020
Revenue
Services	$	14,773		$	—		$	14,773			—	%	$	22,911		$	—		$	22,911			—	%
Licenses and subscriptions		9,145			—			9,145			—	%		12,803			—			12,803			—	%
Products		7,964			—			7,964			—	%		8,984			—			8,984			—	%
Total revenue		31,882			—			31,882			—	%		44,698			—			44,698			—	%
Cost of goods and services
Services		9,381			—			9,381			—	%		14,102			—			14,102			—	%
License and subscriptions		6,173			—			6,173			—	%		6,670			—			6,670			—	%
Products		4,727			—			4,727			—	%		5,644			—			5,644			—	%
Total cost of goods and services		20,281			—			20,281			—	%		26,416			—			26,416			—	%
Gross margin		11,601			—			11,601			—	%		18,282			—			18,282			—	%
Operating expenses
Sales and marketing		1,695			—			1,695			—	%		2,580			—			2,580			—	%
Research and development		872			—			872			—	%		2,630			—			2,630			—	%
General and administrative		8,974			336			8,638			2,571	%		12,254			539			11,715			2,173	%
Depreciation and amortization		2,966			—			2,966			—	%		3,870			—			3,870			—	%
Acquisition-related expenses		32,646			—			32,646			—	%		35,339			—			35,339			—	%
Total operating expenses		47,153			336			46,817			13,934	%		56,673			539			56,134			10,414	%
Loss from operations		(35,552	)		(336	)		(35,216	)		10,481	%		(38,391	)		(539	)		(37,852	)		7,023	%
Other income (expense)
Interest expense		(4,870	)		—			(4,870	)		—	%		(5,581	)		—			(5,581	)		—	%
Gain on consolidation of equity method investment		—			—			—			—	%		640			—			640			—	%
Gain on fair value of warrant liabilities		1,074			—			1,074			—	%		1,074			—			1,074			—	%
Gain on extinguishment of debt		151			—			151			—	%		151			—			151			—	%
Other expense, net, including interest income		(258	)		—			(258	)		—	%		(221	)		—			(221	)		—	%
Total other expense		(3,903	)		—			(3,903	)		—	%		(3,937	)		—			(3,937	)		—	%
Loss before income tax benefit		(39,455	)		(336	)		(39,119	)		11,643	%		(42,328	)		(539	)		(41,789	)		7,753	%
Income tax benefit		6,647			—			6,647			—	%		7,053			—			7,053			—	%
Net loss before loss from equity method investment		(32,808	)		(336	)		(32,472	)		9,664	%		(35,275	)		(539	)		(34,736	)		6,445	%
Loss from equity method investment		—			—			—			—	%		(561	)		—			(561	)		—	%
Net loss		(32,808	)		(336	)		(32,472	)		9,664	%		(35,836	)		(539	)		(35,297	)		6,549	%
Less: net loss attributable to noncontrolling interests		(24	)		—			(24	)		—	%		(102	)		—			(102	)		—	%
Net loss attributable to UpHealth, Inc.	$	(32,784	)	$	(336	)	$	(32,448	)		9,657	%	$	(35,734	)	$	(539	)	$	(35,195	)		6,530	%

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The following table sets forth the consolidated results of operations of UpHealth as a percentage of total revenue:

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Revenue
Services		46	%		—	%		51	%		—	%
Licenses and subscriptions		29	%		—	%		29	%		—	%
Products		25	%		—	%		20	%		—	%
Total revenue		100	%		—	%		100	%		—	%
Cost of goods and services
Services		29	%		—	%		32	%		—	%
License and subscriptions		19	%		—	%		15	%		—	%
Products		15	%		—	%		13	%		—	%
Total cost of goods and services		64	%		—	%		59	%		—	%
Gross margin		36	%		—	%		41	%		—	%
Operating expenses
Sales and marketing		5	%		—	%		6	%		—	%
Research and development		3	%		—	%		6	%		—	%
General and administrative		28	%		—	%		27	%		—	%
Depreciation and amortization		9	%		—	%		9	%		—	%
Acquisition-related expenses		102	%		—	%		79	%		—	%
Total operating expenses		148	%		—	%		127	%		—	%
Loss from operations		(112	)%		—	%		(86	)%		—	%
Other income (expense)
Interest expense		(15	)%		—	%		(12	)%		—	%
Gain on consolidation of equity method investment		—	%		—	%		1	%		—	%
Gain on fair value of warrant liabilities		3	%		—	%		2	%		—	%
Gain on extinguishment of debt		—	%		—	%		—	%		—	%
Other expense, net, including interest income		(1	)%		—	%		—	%		—	%
Total other expense		(12	)%		—	%		(9	)%		—	%
Loss before income tax benefit		(124	)%		—	%		(95	)%		—	%
Income tax benefit		21	%		—	%		16	%		—	%
Net loss before loss from equity method investment		(103	)%		—	%		(79	)%		—	%
Loss from equity method investment		—	%		—	%		(1	)%		—	%
Net loss		(103	)%		—	%		(80	)%		—	%
Less: net loss attributable to noncontrolling interests		—	%		—	%		—	%		—	%
Net loss attributable to UpHealth, Inc.		(103	)%		—	%		(80	)%		—	%

As UpHealth Holdings effectively began operations on January 1, 2020 and other operating results are presented from the date of acquisition, as described above, the numbers presented above are not directly comparable between periods.

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Three months ended June 30, 2021 and 2020

Revenue

In the three months ended June 30, 2021, revenue was $31.9 million, comprised of $14.8 million of services revenue, $9.1 million of licenses and subscriptions revenue, and $8.0 million of products revenue. There was no revenue in the three months ended June 30, 2020.

Cost of Goods and Services

In the three months ended June 30, 2021, cost of goods and services was $20.3 million, primarily consisting of $9.4 million of costs of services, $6.2 million of costs of licenses and subscriptions, and $4.7 million of costs of products. There was no cost of goods and services in the three months ended June 30, 2020

Operating Expenses

Sales and Marketing

.

In the three months ended June 30, 2021, S&M expenses were $1.7 million, primarily consisting of advertising, marketing programs, and events from the date of acquisition of each subsidiary. There were no S&M expenses in the three months ended June 30, 2020.

Research and Development.

In the three months ended June 30, 2021, research and development expenses were $0.9 million, primarily consisting of compensation and benefits expense, and other administrative costs, related to Thrasys’ software development teams. There were no R&D expenses in the three months ended June 30, 2020.

General and Administrative

.

In the three months ended June 30, 2021, general and administrative expenses were $9.0 million, primarily consisting of compensation and benefits expense, and other administrative costs, related to the executive, finance, human resources, legal, facilities, and information technology teams, net of allocations to cost of goods and services and S&M and R&D expenses. In the three months ended June 30, 2020, general and administrative expenses were $0.3 million, consisting of deferred compensation and benefits expense.

Depreciation and Amortization

. In the three months ended June 30, 2021, depreciation and amortization expenses were $3.0 million, primarily consisting of $2.7 million of amortization of intangible assets related to the acquisitions of Thrasys, BHS, TTC Healthcare, Glocal, Innovations Group, and Cloudbreak, and $0.3 million of depreciation related to property and equipment, net of allocations to cost of goods and services. There was no depreciation and amortization in the three months ended June 30, 2020.

Acquisition-related Expenses

. In the three months ended June 30, 2021, acquisition-related expenses were $32.6 million, primarily consisting of one-time transaction expenses related to the acquisitions of Thrasys, BHS, TTC Healthcare, Glocal, Innovations Group, and Cloudbreak and UpHealth Holding’s merger with UpHealth. There were no acquisition-related expenses in the three months ended June 30, 2020.

Other Income (Expense)

In the three months ended June 30, 2021, other expense was $3.9 million, primarily consisting of $4.9 million of interest expense, a $1.1 million gain on fair value of warrants, and $0.1 million of other expense, net. There was no other income (expense) in the three months ended June 30, 2020.

Income Tax Expense (Benefit)

In the three months ended June 30, 2021, the income tax benefit was $6.6 million, primarily attributable to the

pre-tax

loss. There was no income tax expense (benefit) in the three months ended June 30, 2020.

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Six months ended June 30, 2021 and 2020

Revenue

In the six months ended June 30, 2021, revenue was $44.7 million, comprised of $22.9 million of services revenue, $12.8 million of licenses and subscriptions revenue, and $9.0 million of products revenue. There was no revenue in the six months ended June 30, 2020.

Cost of Goods and Services

In the six months ended June 30, 2021, cost of goods and services was $26.4 million, primarily consisting of $14.1 million of costs of services, $6.7 million of costs of licenses and subscriptions, and $5.6 million of costs of products. There was no cost of goods and services in the six months ended June 30, 2020.

Operating Expenses

Sales and Marketing

.

In the six months ended June 30, 2021, S&M expenses were $2.6 million, primarily consisting of advertising, marketing programs, and events from the date of acquisition of each subsidiary. There were no S&M expenses in the six months ended June 30, 2020.

Research and Development

. In the six months ended June 30, 2021, research and development expenses were $2.6 million, primarily consisting of compensation and benefits expense, and other administrative costs, related to Thrasys’ software development teams. There were no R&D expenses in the six months ended June 30, 2020.

General and Administrative

. In the six months ended June 30, 2021, general and administrative expenses were $12.3 million, primarily consisting of compensation and benefits expense, and other administrative costs, related to the executive, finance, human resources, legal, facilities, and information technology teams, net of allocations to cost of goods and services and S&M and R&D expenses. In the six months ended June 30, 2020, general and administrative expenses were $0.5 million, consisting of deferred compensation and benefits expense.

Depreciation and Amortization

. In the six months ended June 30, 2021, depreciation and amortization expenses were $3.9 million, primarily consisting of $3.5 million of amortization of intangible assets related to the acquisitions of Thrasys, BHS, TTC Healthcare, Glocal, Innovations Group, and Cloudbreak, and $0.4 million of depreciation related to property and equipment, net of allocations to cost of goods and services. There was no depreciation and amortization in the six months ended June 30, 2020.

Acquisition-related Expenses.

In the six months ended June 30, 2021, acquisition-related expenses were $35.3 million, primarily consisting of one-time transaction expenses related to the acquisitions of Thrasys, BHS, TTC Healthcare, Glocal, Innovations Group, and Cloudbreak and UpHealth Holding’s merger with UpHealth. There were no acquisition-related expenses in the six months ended June 30, 2020.

Other Income (Expense)

In the six months ended June 30, 2021, other expense was $3.9 million, primarily consisting of $5.6 million of interest expense, a $1.1 million gain on fair value of warrants, and $0.1 million of other expense, net, partially offset by $0.6 million of gain on consolidation of equity method investment. There was no other income (expense) in the six months ended June 30, 2020.

Income Tax Expense (Benefit)

In the six months ended June 30, 2021, the income tax benefit was $7.1 million, primarily attributable to the

pre-tax

loss. There was no income tax expense (benefit) in the six months ended June 30, 2020.

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Segment Information

We evaluate performance based on several factors, of which revenue, cost of goods and services, and operating expenses by operating segment are the primary financial measures.

Revenue

Revenue by segment consisted of the following:

In thousands	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Integrated Care Management	$	11,280	$	17,570
Global Telehealth		6,964		7,554
Digital Pharmacy		5,299		5,299
Behavioral Health		8,339		14,275
Total revenue	$	31,882	$	44,698

Three Months Ended June

 30, 2021.

Revenue from the integrated care management segment consisted of $2.2 million of services revenue and $9.1 million of licenses and subscriptions revenue. Revenue from the global telehealth segment consisted of $5.2 million of services revenue and $1.7 million of products revenue, and reflected a full quarter of revenue from Glocal, which was acquired on March 26, 2021, and a partial month of revenue from Cloudbreak, which was acquired on June 9, 2021. Revenue from the digital pharmacy segment consisted of $5.1 million of products revenue and $0.2 million of services revenue, and reflected a partial quarter of revenue from Innovations Group, which was acquired on April 27, 2021. Revenue from the behavioral health segment consisted of $7.2 million of services revenue and $1.2 million of products revenue. There was no revenue for the three months ended June 30, 2020.

Six Months Ended June

 30, 2021.

Revenue from the integrated care management segment consisted of $4.8 million of services revenue and $12.8 million of licenses and subscriptions revenue. Revenue from the global telehealth segment consisted of $5.8 million of services revenue and $1.7 million of products revenue, and reflected a partial period of revenue from Glocal, which was acquired on March 26, 2021, and a partial period of revenue from Cloudbreak, which was acquired on June 9, 2021. Revenue from the digital pharmacy segment consisted of $5.1 million of products revenue and $0.2 million of services revenue, and reflected a partial period of revenue from Innovations Group, which was acquired on April 27, 2021. Revenue from the behavioral health segment consisted of $12.1 million of services revenue and $2.2 million of products revenue. There was no revenue for the six months ended June 30, 2020.

Gross margin

Gross margin by segment consisted of the following:

In thousands	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Integrated Care Management	$	4,615	$	9,722
Global Telehealth		2,634		2,933
Digital Pharmacy		1,982		1,982
Behavioral Health		2,370		3,645
Total gross margin	$	11,601	$	18,282

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Three Months Ended June

 30, 2021.

Gross margin from the integrated care management segment consisted of $1.7 million from services and $2.9 million from licenses and subscriptions. Gross margin from the global telehealth segment consisted of $1.3 million from services and $1.3 million from products, and reflected a full quarter of gross margin from Glocal, which was acquired on March 26, 2021, and a partial month of gross margin from Cloudbreak, which was acquired on June 9, 2021. Gross margin from the digital pharmacy segment consisted of $1.8 million from products and $0.2 million from services, and reflected a partial quarter of gross margin from Innovations Group, which was acquired on April 27, 2021. Gross margin from the behavioral health segment consisted of $2.3 million from services and $0.1 million from products. There was no gross margin for the three months ended June 30, 2020.

Six Months Ended June

 30, 2021.

Gross margin from the integrated care management segment consisted of $3.6 million of gross margin from services and $6.1 million of gross margin from licenses and subscriptions. Gross margin from the global telehealth segment consisted of $1.6 million of gross margin from services and $1.3 million of gross margin from products, and reflected a partial period of gross margin from Glocal, which was acquired on March 26, 2021, and a partial month of gross margin from Cloudbreak, which was acquired on June 9, 2021. Gross margin from the digital pharmacy segment consisted of $1.8 million of gross margin from products and $0.2 million of gross margin from services, and reflected a partial period of gross margin from Innovations Group, which was acquired on April 27, 2021. Gross margin from the behavioral health segment consisted of $3.5 million of gross margin from services and $0.2 million of gross margin from products, and reflected a full period of gross margin from BHS and a partial period of gross margin from TTC Healthcare, which was acquired on January 25, 2021. There was no gross margin for the six months ended June 30, 2020.

Liquidity and Capital Resources

As of June 30, 2021 and December 31, 2020, UpHealth Holdings had free cash on hand of $98.1 million and $1.8 million, respectively, and restricted cash of $0.6 million and $0.5 million, respectively.

We believe our current cash, restricted cash, and expected cash collections will be sufficient to fund our operations for at least twelve months after the filing date of this prospectus.

Cash Flows

The following tables summarize cash flows for the six months ended June 30, 2021

(unaudited)

:

	Six Months Ended June 30,
(In thousands)	2021			2020
Net cash used in operating activities	$	(37,229	)	$	—
Net cash provided by investing activities		3,860			—
Net cash provided by financing activities		129,801			—
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(99	)		—
Net increase in cash, cash equivalents, and restricted cash	$	96,332			—

As UpHealth Holdings effectively began operations on January 1, 2020, the numbers presented above are not directly comparable between periods.

In the six months ended June 30, 2021, cash used in operating activities was $37.2 million, primarily attributed to the net loss of $35.8 million and the changes in operating assets and liabilities, net of effects of acquisitions, of $1.1 million, partially offset by $2.5 million of

non-cash

items (depreciation, deferred tax adjustments, gain on extinguishment of debt, loss on fair value of warrants, and debt issuance cost amortization). The changes in operating assets and liabilities, net of effects of acquisitions, was primarily due to an increase in accounts receivable of $21.0 million due to billed and unbilled receivables from two customers

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during the quarter that were not collected as of June 30, 2021, partially offset by an increase in accounts payable and accrued expenses of $15.6 million due to delayed payments to vendors, and proceeds from Provider Relief Funds of $0.5 million. In the six months ended June 30, 2020, cash provided by (used in) operating activities was none, primarily attributed to the net loss of $0.5 million, offset by an increase in accounts payable and accrued expenses of $0.5 million.

In the six months ended June 30, 2021, cash provided by investing activities was $3.9 million, primarily consisting of net cash acquired in acquisition of businesses. In the six months ended June 30, 2020, cash provided by (used in) investing activities was none.

In the six months ended June 30, 2021, cash provided by financing activities was $129.8 million, primarily consisting of proceeds from convertible debt of $164.5 million, partially offset by repayments of debt of $17.3 million and payments of amounts due to member of $4.3 million. In the six months ended June 30, 2020, cash provided by (used in) financing activities was none.

Long-Term Debt

Please refer to the financial statements and notes thereto included at the end of this prospectus for more information about our long-term debt.

Contractual Obligations and Commitments

Please refer to the financial statements and notes thereto included at the end of this prospectus for information about our operating lease obligations and our

non-cancellable

contractual service and licensing obligations.

Off-Balance

Sheet Arrangements

Please refer to the financial statements and notes thereto included at the end of this prospectus for a VIE that is included in our condensed consolidated financial statements.

As of June 30, 2021, we have not entered into any

off-balance

sheet financing arrangements, established any additional special purpose entities, guaranteed any debt or commitments of other entities, or purchased any

non-financial

assets.

Recent Accounting Pronouncements

Please refer to the financial statements and notes thereto included at the end of this prospectus for recently issued accounting standards that could have an effect on us.

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DESCRIPTION OF THE BUSINESS

Unless otherwise indicated or the context otherwise requires, references in this section to the “Company,” “we,” “us,” “our,” and other similar terms refer to UpHealth. See page 110 for a glossary of certain terms used in this section.

Formation of UpHealth Holdings, Cloudbreak and UpHealth

UpHealth Services, Inc., an Illinois corporation and a wholly-owned subsidiary of UpHealth Holdings, was formed on November 5, 2019. It was formed for the purpose of effecting a combination of various companies engaged in digital health, and commenced negotiations with a number of companies, including those that are discussed below as having been acquired or that are pending acquisition targets of UpHealth Holdings. It became a subsidiary of UpHealth Holdings through a reorganization when UpHealth Holdings was formed on October 26, 2020 as a Delaware corporation. UpHealth Holdings then entered into a series of transactions to develop its business across four primary platforms, as further discussed below: (i) Integrated Care Management; (ii) Global Telehealth; (iii) Digital Pharmacy and (iv) Tech-Enabled Behavioral Health. UpHealth Holdings became a subsidiary of UpHealth upon closing of the UpHealth Business Combination.

Cloudbreak, a Delaware limited liability company, was formed on May 26, 2015 and became a subsidiary of UpHealth upon closing of the Cloudbreak Business Combination.

UpHealth Holdings Subsidiaries

Integrated Care Management

Thrasys, a California corporation and wholly-owned subsidiary of UpHealth Holdings, was formed on March 11, 2002. Thrasys was acquired by UpHealth Holdings on November 20, 2020 pursuant to the terms and conditions of an Amended and Restated Plan of Merger between UpHealth Holdings and Thrasys in exchange for consideration in the form of a promissory note in the amount of $20,000,000 and 927,982 shares of UpHealth Holdings, which were exchanged for 10,192,096 shares of UpHealth, and an additional incentive amount to be granted after the consummation of the Business Combinations and approval of the Equity Incentive Plan in the form of 4,799,802 restricted stock units, subject to certain conditions.

Global Telehealth

Glocal, an India Company and a subsidiary of UpHealth Holdings, was formed on July 22, 2010 in the State of West Bengal, India. The acquisition of Glocal by UpHealth Holdings is structured to occur in several steps, of which all but the last has been completed, for aggregate consideration of promissory notes and cash of $22 million (with the amount of each having been determined by the parties upon completion of the second step described below), and 1,000,000 shares of UpHealth Holdings which were exchanged for 10,983,075 shares of UpHealth. The first step concluded on November 20, 2020 when UpHealth Holdings acquired approximately 43.46% of the outstanding equity share capital of Glocal pursuant to the terms and conditions of a Share Purchase Agreement between UpHealth Holdings, Glocal, and certain Glocal shareholders. The second step was concluded on May 14, 2021, and enabled UpHealth Holdings to acquire additional shares of Glocal such that it then held 90.4% of the outstanding equity of Glocal, in a manner permitted under the laws of the Republic of India. As a first part of the second acquisition step, UpHealth Holdings made an investment into Glocal of $3,000,000, on March 26, 2021, and received shares in Glocal to increase its ownership to approximately 89% of the outstanding equity of Glocal. UpHealth Holdings has continued taking steps to complete the acquisition, and following completion of a third step, now holds approximately 95% of the outstanding equity of Glocal. The fourth and final step has commenced, and pursuant to this step, UpHealth Holdings, as the majority shareholder, will, in conjunction with the remaining Glocal shareholders, take steps to increase UpHealth Holding’s ownership in Glocal through the acquisition of remaining shares, the issuance of additional shares, and/or any other manner acceptable to UpHealth Holdings and permitted under India law.

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Digital Pharmacy

Innovations Group, a Utah corporation, became a wholly-owned subsidiary of UpHealth Holdings following the completion of UpHealth Holding’s acquisition of Innovations Group. Innovation Group was formed on December 20, 2000. UpHealth Holdings and Innovations Group had entered into an Agreement and Plan of Merger on November 2, 2020, as amended January 19, 2012, under which UpHealth Holdings acquired all of the issued and outstanding shares of Innovations Group in exchange for consideration in the form of a promissory note in the amount of $30,000,000 and 1,300,000 shares of UpHealth Holdings, which were exchanged for 14,277,998 shares of UpHealth. Innovations Group’s primary subsidiary is MedQuest Pharmacy, a Delaware corporation. Closing of the acquisition of Innovations Group took place on April 27, 2021.

Tech-Enabled Behavioral Health

BHS, a Missouri limited liability company and wholly-owned subsidiary of UpHealth Holdings, was formed on December 7, 2016. BHS was acquired by UpHealth Holdings on November 20, 2020, pursuant to the terms and conditions of an Agreement and Plan of Merger between UpHealth Holdings and BHS in exchange for consideration in the form of a promissory note in the amount of $1,100,000 and 142,900 shares of UpHealth Holdings, which were exchanged for 1,569,481 shares of UpHealth.

TTC Healthcare, a Delaware corporation and a wholly-owned subsidiary of UpHealth Holdings, was formed on June 5, 2019. TTC Healthcare was acquired by UpHealth Holdings on January 25, 2021

,

pursuant to the terms and conditions of an Agreement and Plan of Merger between UpHealth Holdings and TTC Healthcare in exchange for consideration in the form of a promissory note in the amount of $12,699,088 and 323,700 shares of UpHealth Holdings, which were exchanged for 3,555,221 shares of UpHealth.

Business Overview

Our vision is to enable and power healthcare’s digital transformation by creating a single, integrated provider of technologies, infrastructure and services essential to personalized, affordable and effective care globally. Our mission is to transform care delivery and support healthier communities through a simplified digital infrastructure that connects evidence- based care, coordinated workflows and health services. Our subsidiaries collectively offer patient-centric digital health technologies and tech-enabled services to manage health and integrate care across four capabilities at the center of population health management and telehealth: Integrated Care Management, Global Telehealth, Digital Pharmacy and Tech-Enabled Behavioral Health. Together, we believe that by integrating the value streams represented across these four capabilities, we will empower health systems, health plans, employers and government ministries to improve outcomes, quality, access and cost of healthcare as well as address critical unmet needs of patients, providers, payors and pharmacies. As of June 30, 2021, Cloudbreak and the companies that are now subsidiaries of UpHealth Holdings, had approximately 6,800,000 lives served in integrated care management in the United States, 2,000 U.S. healthcare venues and contracts with ten countries and filled an average of 937 prescriptions per day. We have carefully selected specific competencies, which we believe will allow us to provide a multifaceted approach to blending processes, services and technologies and enable our stakeholders to “practice” digital health.

We are organized across four strategic capabilities, each with a diverse set of partners and customers and each representing a large and fast growing market segment:

• Integrated Care Management. Our Integrated Care Management platform is powered by Thrasys’ SyntraNet platform. SyntraNet creates virtual care communities across the continuum of care, integrates and organizes information, provides advanced population-based analytics and predictive models, and automates workflows across health plans, health systems, government agencies and community organizations. Clinical and community-based care teams use the platform to coordinate programs to address medical, behavioral health and social factors that affect the health of individuals and populations.

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• Global Telehealth. Our Global Telehealth platform has two divisions—domestic and international. Our domestic division is powered by Cloudbreak, a provider of unified telemedicine solutions and digital health tools aimed at increasing access to healthcare and resolving health disparities across the care continuum. Cloudbreak has one of the largest installed user bases in the nation, performing more than 138,000 encounters per month on over 21,000 video endpoints at over 2,000 healthcare venues across the United States. Through its integrated telehealth and language services, the platform serves as the digital front door to in-hospital care. Cloudbreak provides digital health infrastructure enabling its partners to ensure healthcare equity and implement unique, private-label telehealth strategies customized to their specific needs and markets. Our international division is powered by Glocal, a platform that delivers comprehensive primary care and specialty consultations at a significantly reduced cost, based upon the typical cost for a Glocal primary care visit compared to the cost generally in India, based on government data. This helps open access to care for individuals in North America, India, Southeast Asia and Africa. Its technologies and services are performing over 50,000 digital health encounters per month with contracts now in place that if fully implemented would increase this number by nearly ten times by 2022.

• Digital Pharmacy. Our Digital Pharmacy is powered by MedQuest Pharmacy, a full-service retail and compounding pharmacy licensed in all 50 U.S. states and the District of Columbia that dispenses patient-specific medications and ships direct to patients. It is capable of serving as a retail or national fulfillment center. Through the Innovations Group suite of companies, MedQuest Pharmacy also makes available lab services and testing, nutraceuticals, nutritional supplements, education for medical practitioners, and training for individuals and groups.

• Tech-Enabled Behavioral Health. Our Tech-Enabled Behavioral Health capabilities are powered by TTC Healthcare and BHS, which together provide evidence-based and tech-enabled behavioral health and substance abuse services via onsite care delivery and telehealth. The division’s physician-led clinical model has a proven approach to networking with a growing panel of providers, which is critically important in the field of mental health.

When successfully integrated, our digital health platform will go beyond

one-off

point solutions to connect multiple parts of the healthcare continuum. We intend to enable a system of care through integrated care management that oversees the entire patient experience to enable better outcomes. As we integrate our digital health platform, our goal will be to provide manageable costs, better outcomes, an improved care experience and a reduction in the disparities in access to healthcare that exist today when provided by multiple different providers.

We understand that the patients, providers, and payors we currently and in the future will serve, want and need more comprehensive, integrated solutions, but are at different points on their digital transformation journey. We seek to meet them where they are today to help them reshape healthcare delivery through the use of intelligent technology, workflows and service coordination. The technologies of the companies that have become a part of UpHealth have been developed by visionary and practical innovators, who formed and founded the companies that have become part of the UpHealth family. We believe this will position us to meet the significant demand for more comprehensive and advanced digital health solutions.

The highly scalable platform and infrastructure of these companies has allowed for the establishment of an expansive footprint both domestically and internationally. Domestically, the partners and customers of these companies span across more than 2,000 healthcare venues across the U.S. MedQuest Pharmacy has pharmacy licenses in all 50 U.S. states and the District of Columbia. We serve the largest public health plan in the nation as well as thousands of physicians and post-acute sites. Internationally, Glocal has signed several country-wide contracts with government ministries across India, Southeast Asia and Africa that dramatically expand its reach, which we believe will make us a market leader in global telehealth, providing digital primary care and specialty consultations.

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Market Opportunity

The 2020 World Health Organization Global Report measured the global healthcare market at $8 trillion, including public and private spending and ranging across the spectrum of healthcare services. We believe that this market is broken, fragmented and in great need of change. According to government data from the Centers for Medicare & Medicaid Services, national health expenditure in the United States alone was $4 trillion in 2018, representing 17.7% of U.S. GDP.

The long-standing macro factors that are driving the landscape today and straining the current healthcare system include an increasingly aging population, growing prevalence of chronic illnesses, unsustainable and escalating costs and inequitable access to care. While these are not novel challenges, they are accelerating rapidly and exacerbating fundamental flaws in an inefficient healthcare system

ill-equipped

to provide the necessary services for all its constituents.

We believe there is a heightened demand for technology solutions that can improve care delivery and management of population health, eventually leading to the “practice” of digital health. We believe these advancements are leading to a convergence of people, information, technology, and connectivity to improve health care and health outcomes. We intend to reshape the landscape of the healthcare industry, positioning UpHealth as an indispensable partner to consumers/patients, providers and payors as they evolve to the practice of digital health.

Our offerings will be at the center of population health management and telehealth in four of the fastest growing digital healthcare markets:

Integrated Care Management.

Our Integrated Care Management capability operates within the population health and care management market, including chronic care, a $346 billion global market in 2019 that is expected to grow at a 7.2% CAGR through 2024 according to a 2019 BCC market research report evaluating the global market for chronic disease management. Six out of ten adults in United States have a chronic disease and four out of ten have more than one condition, according to data from the Centers for Disease Control (“

CDC

”). Individuals living with chronic conditions are intensive users of health and social care services, and the associated costs tend to be significantly higher. In the United States, 81% of hospital admissions, 91% of prescriptions and 76% of physician visits are attributable to managing chronic conditions, according to a report from Modern Healthcare titled “Behavioral Health: Fixing a System in Crisis.”

Global Telehealth.

Supported by deregulation and broad societal shifts and accelerated by the

COVID-19

pandemic, demand for and use of telehealth services is expanding rapidly. According to a May 2020 McKinsey article titled, “Telehealth: A quarter-trillion-dollar

post-COVID-19

reality?”, up to $250 billion of current U.S. healthcare spend could potentially be virtualized through the acceleration of consumer and provider adoption beyond virtual urgent care. We believe telehealth enables more efficient allocation and utilization of finite clinical resources and appeals to both an aging population that requires more complex and chronic care as well as a younger generation that prefers digital technology to

in-person

visits. To meet the tremendous disparities in access to healthcare requires going beyond a tele consult. Our digital dispensary/clinic offering provides a full patient encounter complete with physical exam, diagnostic testing, and pharmacy dispensary in addition to a tele consult with the physician. This complete digital health encounter creates access to massive markets outside of the United States for complete primary care and specialty consultations.

Digital Pharmacy.

According to a 2019 Deloitte article, prescription drug sales are projected to grow at a 6.4% CAGR from 2018 to 2024 and reach $1.2 trillion in 2024.

Pre-pandemic,

there was a growing demand for mail-order medicines that coincided with increasing penetration of

e-commerce

and literacy regarding internet resources. Millennials in particular are highly reliant on online procurement for OTC medicines. This growth in adoption was accelerated rapidly in the wake of the

COVID-19

pandemic. According to a McKinsey article in April 2020 titled, “How

COVID-19

changes the game for biopharma in China,” there was a tenfold increase in online prescription volumes in the early part of 2020. With its recent facility expansion, our Digital Pharmacy capability will be poised to capitalize on this growth in demand while also serving as the pharmacy of choice across our broader platform.

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Tech-Enabled Behavioral Telehealth.

Behavioral health conditions consisting of mental and substance abuse disorders have societal, economic and healthcare system implications, all of which are amplified by the

COVID-19

pandemic. Prior to the pandemic, one in two Americans had faced a mental or substance abuse disorder at some point in their lives according to an August 2020 McKinsey article titled, “A holistic approach for the U.S. behavioral health crisis during the

COVID-19

pandemic.” Those coping with behavioral health conditions have medical spend that is two to four times higher than the rest of the population, according to recent data from McKinsey. Due to the relatively simplistic conversion from office visits to telepsych, we believe our tech-enabled Behavioral Health capability is well positioned to capture share in this fast-growing segment within telemedicine.

Impact of

COVID-19

The promise of telemedicine, telehealth and now digital health have been long discussed as solutions to the pervasive issues challenging the effective delivery of healthcare around the world. However, the

COVID-19

pandemic forced patients and providers alike to embrace digital health technologies at a more rapid pace and accelerated the digital transformation of healthcare to bridge local and digital care delivery and engage displaced patient populations. According to the May 2020 McKinsey article, U.S. consumer adoption of telehealth grew from 11% of U.S. consumers using telehealth in 2019 to 46% of consumers now using telehealth to replace cancelled healthcare visits as of May 2020.

Major shifts in the market have enabled this transition, not only in regulations but also in technology, industry orientation, and reallocation of risk across the value chain, which have fundamentally altered the structure of the industry and basis of competition. Advancements in medical science, data and analytics, machine learning, networking technology, internet access, and the shift in consumer expectations driving

business-to-consumer

(“

B2C

”) models have all facilitated the transition to digital health technologies.

We believe there is work to be done in order to solidify the long-term shift to the “practice” of digital health and capitalize on the opportunity to virtualize $250 billion of U.S. healthcare spending annually. According to the May 2020 McKinsey article, the adoption of telehealth and extension of telehealth beyond virtual urgent care will require new ways of working with a broad set of providers, step-change improvements in information exchange and broadening access and integration of technology. This is where we intend to position our business and how we aim to power the adoption of digital health solutions well beyond the pandemic.

Products & Services

UpHealth’s plan is to reshape care delivery by offering patient-centric digital health technologies and tech- enabled services across four capabilities at the intersection of population health management and telehealth. These services are designed to integrate well with the needs of our major

end-user

customers. The union of these solutions within UpHealth will offer stakeholders a marketplace of products and services that they can choose from to best serve their transformation needs.

Integrated Care Management

The Integrated Care Management platform is powered by Thrasys’ SyntraNet technology platform and applications. SyntraNet is a configurable integrated health management platform that enables clinical- and community-based care teams to share information, coordinate care, manage utilization, and improve health outcomes and costs for individuals and populations—especially individuals with complex medical, behavioral health, and social needs.

SyntraNet creates virtual “care communities”—logical networks of organizations, care managers and service providers—that function as an integrated care team to deploy programs to improve health, quality, performance, efficiency, and costs.

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Core features of the platform include the ability to:

• Create virtual, cross-sector care communities;

• Integrate and organize information from a wide range of data sources;

• Gain insight into health, risks, and opportunities with advance analytics;

• Qualify and enroll groups into programs;

• Coordinate care teams across the continuum of care; and

• Analyze and report on various measures of success.

SyntraNet includes a number of technology innovations: a unique architecture for connected care communities, a configurable software microservices architecture, workflow management with process graphs, expert-system based rules, advanced analytics and intelligence, and

state-of-the-art

frameworks for user interfaces across desktops and devices.

Thrasys has reinvested roughly $100,000,000 to develop its SyntraNet platform.

Our Integrated Care Management platform provides health plans and provider groups in value-based contracts the ability to manage health with new models of care. Our clients include the largest public health plan in the United States, one of the most extensive “whole person care” initiatives, and one of the fastest growing, value- based pharmacy benefit managers.

Revenue is derived from license fees, recurring subscription fees, and professional services for implementation.

Global Telehealth—U.S.-Based

Our domestic Global Telehealth offering is delivered by Cloudbreak. Cloudbreak is dedicated to building solutions that address healthcare disparities impacting patients across the United States. From telehealth visits to extended hospital stays, Cloudbreak’s digital solutions help patients and providers connect, build rapport and make healthcare encounters more meaningful. The platform’s goal is to enable patients to receive care at any time, any place, on any device, and in any language. For providers, Cloudbreak provides a digital health infrastructure enabling them to deliver care effectively based on their specific needs and markets.

Originally developed as the premier virtual language service, today Cloudbreak is a unified telehealth platform, offering over 50 languages on its approximately 18,000 customer end points on its video interpretation platform and ranking in the top 50 of the 2021 Nimdzi 100 ranking of the largest language service providers in the world. As of June 30, 2021, Cloudbreak was performing more than 138,000 encounters per month on over 21,000 video endpoints at over 2,000 healthcare venues nationwide. From telepsychiatry, telestroke,

tele-ICU,

telesitting and other specialties to integrated language services, Cloudbreak’s innovative, secure platform overcomes both distance and language barriers to improve care, satisfaction and outcomes. It seamlessly integrates with a multitude of platforms including Zoom, Epic, and AmWell, among others. Cloudbreak has built one of the largest installed bases in the nation, simplifying how providers care for patients, putting a full care continuum at their fingertips 24/7 and enabling local healthcare systems to build their integrated telemedicine strategy.

At its core, Cloudbreak is a modularly configurable software engine that supports video and audio communications. That is coupled with its private and/or public-path networking infrastructure that securely links those in need of service to those offering those services. The Cloudbreak Consult allows providers to answer calls, place calls, care for patients, converse with the care team, and connect with a qualified interpreter – all from one location. Cloudbreak has expanded its operations to include other telemedicine use cases as well including tele-stroke, telepsychiatry, tele-urology, and tele-quarantine, among others, across its network of end

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points and leveraging the same platform’s infrastructure. Cloudbreak has also recently launched a home health virtual visit platform enabling empowering its healthcare system partners to see their patients remotely on any device, at anytime, anywhere the patient may be and in any language they may speak.

• Connect Anywhere—Virtual Visit Platform: Providers and patients can connect with a virtual consultation from anywhere, enabling the exchange of messages between providers and patients, and inviting other health professionals or family members to visit virtually and view medical history and/or care plans. Providers also have the ability to view their schedules and patients have the ability to view educational content and videos while waiting for their visit.

• MARTTI Interpretation : Cloudbreak’s core offering known as MARTTI is a HIPAA-compliant video remote interpreting solution that puts qualified and certified medical interpreters at the fingertips of clinical care teams nationwide through our proprietary software platform. Cloudbreak pioneered the Video Remote interpreting industry in 2003, and today is a well- recognized leader known for its ease of use, quality and customer service. Today, Cloudbreak supports more than 250 languages.

• Telehealth Interoperability : Cloudbreak has built specific integrations that allow hospital staff to initiate Cloudbreak sessions from their video platforms, enabling multi-specialty call capabilities into one video session, shared content and whiteboarding, and integrations with numerous hospital electronic medical record (“ EMR ”) systems, PACS and remote patient monitoring platforms. Cloudbreak has invested significantly in its interoperability capabilities and continues to be a leader in the market in providing access to its video medical solution on a rapidly growing platforms. Cloudbreak has not only integrated with EMRs but also with other telemedicine and communication solutions throughout the continuum of care.

Cloudbreak provides a unified telehealth experience that harmonizes disparate use cases, allowing providers to efficiently collaborate and communicate, regardless of

end-point

device or tech infrastructure. Cloudbreak has designed the platform to integrate the clinical and operational workflows of its partners, ensuring that the technology molds to how the clinical teams work, not the other way around. Platforms like Zoom, Teams and others are “point solution” video platforms with minimal workflow capabilities. Cloudbreak makes these platforms “smart” by embedding them in custom patient and provider experiences based on how a specific health system or medical group practices. By doing this, Cloudbreak’s solutions can be integrated into daily practice patterns with less friction, thus speeding up adoption as well as avoiding commoditization and allowing health systems, clinics and physicians to differentiate themselves in market based on their brand and how they practice.

Cloudbreak offers an expanding suite of telehealth use cases which are delivered upon multi-year recurring revenue contracts that have both a fixed minimum with upside attributable to usage-based fees. Its client base spans the entire healthcare continuum including hospitals and health systems, federally qualified healthcare clinics, urgent care centers, stand-alone clinics and medical practices, as well as, employers and schools.

Global Telehealth—International

UpHealth Holdings’ international Global Telehealth offerings are delivered by Glocal, which aims to deliver comprehensive primary care and specialty consultations for a fraction of the cost today. Glocal uses its technology architecture and onsite digital dispensaries and clinics to deliver highly effective care that can serve vulnerable rural and dense urban centers, while also meeting the needs of more affluent communities.

Glocal has used a three-pronged strategy to refine and execute its care delivery. First, it has implemented a lean design approach, thinking through de novo the intervention, process and infrastructure for care and removing

non-value

add steps that do not directly affect healthcare delivery or outcomes. Second, Glocal has employed evidence-based medicine, including only interventions that have evidence of effectiveness. Third, it has leveraged technology, including internet of things (“

IoT

”) and artificial intelligence, to improve diagnosis and management of diseases and to automate standard clinical processes to reduce costs and errors.

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The Digital Dispensary/clinic solution has earned the UN Health Innovation Exchange Public Appreciation 2020 Award, the World Economic Forum 2020 Schwab Foundation Social Entrepreneur Award and the Frost & Sullivan Indian Telemedicine Customer Value 2020 Leadership Award.

Glocal’s spectrum of offerings can be grouped into three major components:

1. Its digital primary care offerings, which feature digital health applications combined with physical IoT devices to deliver care. The digital health interface for patients and providers is driven by its HelloLyf App, a virtual on-demand clinic for identifying patients and automated TeleCRM. Glocal has also developed LitmusDx, a clinical decision support system for differential diagnosis, investigation and treatment protocols. LitmusDx is cloud-based, regularly updated and cross-checked to ensure the latest in evidence-based protocols. It is a semantic-based engine for accurate differential diagnosis covering over 960 diseases, 8,000 symptoms, 11,000 signs, 300 risk factors and 450 parameters. Over 440 treatment protocols are referenced, covering most diseases, and it has stored more than 50,000 prescription brands covering over 6,500 formulations. Lastly, it references more than 20,000 drug precautions which cover contraindications, drug interactions, adverse reactions and food & alcohol interactions to reduce medical errors.

2. Glocal’s Digital Dispensaries, HelloLyf CX, are carefully engineered to deliver critical healthcare services in hard to reach locations where access to primary care and complementary services is constrained. It requires only about 250 sq. ft. of rented or owned space. It needs only nurses, while doctors are available virtually. It is a one-stop-shop where almost all tests can be done, all kinds of doctors accessed and medicines are dispensed.

Within each digital clinic is Glocal’s LitmusMx, a primary health terminal with remote examination and instant diagnostics capabilities, and LitmusRx, an automated medicine dispenser that provides access for patients in remote cities and towns. LitmusMx accommodates a wide range of primary and emergency healthcare needs within a remarkably compact device. It facilitates a medical examination via a digital stethoscope, fetal Doppler, dermatoscope, Otoscope, Laryngoscope, and Nasalscope, in addition to taking blood pressure, temperature and other vitals.

LitmusRx is a remote controlled dispensing unit that electronically controls drug dispensing, scalable up to 120 SKUs. A prescription generated by the physician is automatically dispensed by the machine, designed to reduce medical errors around branding and dosage. LitmusRx also performs real-time inventory management, removing the need for manual audits and automating supply chain order levels.

3. Glocal’s acute care hospitals have been designed and set up as eleven modular hospitals, each with a three-bed ER, twenty-bed ICU, four operating theatres (including one with Laminar Air Flow systems, 4Slice CT Scan, X Ray, Echo, Color Doppler, and Ultrasound), treadmill stress testing, two to four dialysis units, a complete clinical lab, pharmacy, general ward beds, and private rooms. These compact hospitals are compliant with local clinical establishment code norms, infection control systems, medical gas pipeline, national building codes and green building norms. They focus on all acute cases like trauma, neuro trauma, pacemaking, thrombolysis, acute surgeries, medical emergencies and also routine surgeries.

Delivering solutions in India, Southwest Asia, and Africa, Glocal offers virtual and local care spanning the continuum, delivering upon multi-year recurring revenue contracts that have both a fixed subscription component and volume-based revenue. These markets consist of billions of people representing rapid expansion opportunities. End markets include government ministries, payors and stakeholders managing

at-risk

patient populations where access to care is a challenge.

Digital Pharmacy

The Digital Pharmacy business is powered by Innovations Group through MedQuest Pharmacy, a full-service retail pharmacy that is licensed in all 50 U.S. states and the District of Columbia. It delivers both compounded and legend drugs, and is capable of either serving as a retail or national fulfillment center, as a personalized medication administration partner with prescribers, and as a lifestyle wellness

direct-to-consumer

offering. Its

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proprietary software and operating system, eMedplus, is Electronic Prescriptions for Controlled Substances Certified by the DEA and provides prescribers with a full-service prescription management system.

Also under the Innovations Group suite of services is Worldlink Medical, Medical Horizons and MTS. Worldlink Medical is the educational services arm of Innovations Group, providing CME educational courses accredited as a joint provider through the ACCME. Medical Horizons specializes in customized formulations and contract dietary supplement and nutraceuticals manufacturing as an own label distributor with its brand NUTRAscriptives, as well as other brands. Its turnkey solutions include label design, printing and application; custom packaging; daily packs; a selection of capsule sizes and colors; and convenient auto-reorder services. It features a staff of experts that is committed to excellence and outstanding customer service. MedQuest Testing Services focuses specifically on facilitating diagnostic testing between lab companies, patients, and providers.

MedQuest Pharmacy is accredited and recognized by the ACHC and its PCAB, among other high-quality providers and suppliers. MedQuest Pharmacy has achieved this elite level of quality by exceeding standards set by national accreditation bodies and quality-centered organizations. Having invested approximately $3,800,000 in facility expansion, it is poised for growth with new capital directed to developing new product lines (such as dermatology products) and expanding its testing services with new and existing lab companies and relationships. In addition, eMedplus, MedQuest Pharmacy’s proprietary software and operating system, became Surescripts certified (Superscripts process to validate that the software meets certain industry standards related to sending and receiving electronic messages and that it is providing open choice for medication selection and dispensing location) in January 2020, allowing any user of the Surescripts platform to prescribe medications dispensed by MedQuest Pharmacy. Under an agreement between MedQuest Pharmacy and Surescripts, MedQuest Pharmacy pays Surescripts a nominal fee for certain messages (e.g., new prescriptions or refill requests) sent through the Surescripts system. The majority of MedQuest’s Pharmacy’s prescriptions, however, are dispensed through eMedplus or mailed, verbal, or faxed orders.

MedQuest Pharmacy’s direct pharmacy capabilities offer

direct-to-patient

shipping of both manufactured and compounded drugs. MedQuest Pharmacy has relationships with both prescribers and patients and filled an average of approximately 937 prescriptions per day in the first half of 2021. The business model is driven by

cash-pay

and prescription volume-based revenue generated by physician electronic prescription order entry, as well as traditional prescriber-patient-pharmacist interactions, mailed, verbal and faxed orders.

Tech-Enabled Behavioral Health

Our Behavioral Health business is anchored by TTC Healthcare and BHS, two high-quality, evidence-based behavioral health and substance abuse providers rapidly innovating in the virtual care space. While TTC Healthcare and BHS today operate largely independently, work is underway to integrate the substance abuse treatment expertise of TTC Healthcare with the adult behavioral health services of BHS to form a comprehensive model of care ready to scale to a national level.

We believe we are positioned to leverage the technology solutions found in the other divisions to reshape how behavioral and substance abuse care is delivered in the future. Examples include the full integration of the telehealth consult solution by Cloudbreak and the personalized medication regimens available through MedQuest Pharmacy. In addition, our

physician-led

clinical models have proven successful in growing a panel of providers which is critically important in the largely underserved and understaffed field of mental health.

TTC Healthcare’s treatment facilities are licensed by the Florida Department of Children and Family Services and the Florida Agency for Healthcare Administration, and maintain the industry’s most widely acknowledged accreditation by the Joint Commission. TTC Healthcare offers a complete continuum of care from our detoxification services, residential care, Partial Hospitalization Programs (“

PHP

”), intensive outpatient (“

IOP

”) and outpatient programs (“

OP

s

”). During the

COVID-19

pandemic, OPs have transitioned to a majority of visits that are virtual.

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The PHP is a full day of clinical treatment in a structured environment, while the client is living in supportive housing that offers

24-hour

supervision, nursing services, and an

on-call

therapist. PHP is an opportunity for the client to experience more structured clinical care, addressing their primary and secondary issues and diagnoses. Clients are able to attend

12-step

or mental health support groups in the evenings as well as enjoy activities and recovery events on the weekends. Much like TTC Healthcare’s other treatment programs, each client has an individualized treatment plan that is unique to their needs and recovery goals.

An IOP is a transitional level of care where the client begins to reintegrate into normal life with less therapy time, but still with the full support of TTC Healthcare staff. Clients will collaborate with their therapists and peers on the best recovery practices and how to deal with triggers in the real world. How long a client participates in an intensive outpatient program varies depending on the needs of each individual and allows for a treatment schedule to be customized, fitting with the clients’ lives outside of treatment.

The OP offers limited counseling sessions for clients on a weekly basis. Those who participate in the outpatient program live at home or in some type of sober living housing, which is one of the main differences between outpatient and inpatient care. The services offered are very similar, but the time spent in therapy sessions is less in outpatient care.

Finally, Medication-Assisted Treatment (“

MAT

”) involves a pharmacological approach to treating addiction, primarily addiction to opioids, including heroin and prescription narcotics. These medications reduce the difficult physical symptoms surrounding withdrawal and help the individual remain engaged in treatment. MAT programs that combine medication, counseling and therapy are largely considered one of the strongest evidence-based modalities to combat addiction. This type of treatment ultimately complements an abstinence- based program. The recommendation for MAT is based on a thorough and individualized assessment of the person in treatment and their specific needs. Supportive medications can be a highly effective treatment model for opioid use disorders.

BHS is a Missouri-based mental health practice consisting of over fifty psychiatrists, nurse practitioners, psychologists and other mental health providers in four physical locations. BHS providers work in collaboration with multiple area hospital systems (both in leadership and clinical positions) to provide and direct inpatient treatment. BHS offers

in-office,

virtual, and

in-patient

treatment. (Ninety-five percent) 95% of outpatient and post-acute care consults are provided in a virtual manner since the

COVID-19

outbreak. Common conditions treated by BHS practitioners include depression, bipolar disorder, attention disorders, schizophrenia, substance use disorders, posttraumatic stress disorder, Alzheimer’s disease and related disorders as well as personality disorders.

BHS providers are all state-licensed and most of its physicians are board-certified and provide comprehensive psychiatric treatment utilizing psycho-pharmacology, evidenced based psychotherapy as well as somatic treatments like Trans-Cranial Magnetic Stimulation and Electro-Convulsive Therapy. The variety of provider disciplines available within BHS allows for ready collaboration and consultation between practitioners.

BHS has established its own pharmacy service which specializes in psychiatric medications and the unique needs of these patients from both a clinical and payor perspective. This pharmacy is able to function efficiently from both its physical location as well as a virtual provider. Plans are to further integrate this service with the broader digital Pharmacy capabilities found in MedQuest Pharmacy.

Given the idiosyncratic nature of behavioral health reimbursement and credentialing BHS established its own

in-house

billing department (Reimbursement Solutions) several years ago. This has allowed for both more efficient payment for BHS clinicians and has also provided a billing service that has been successfully marketed to outside practices. This capability is available to leverage for third-party billing services across the divisions and companies.

The

COVID-19

pandemic accelerated BHS’s plans to offer virtual visits and at this juncture the vast majority of patient encounters are being performed virtually. While the transition to virtual treatment had long been

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anticipated the pandemic led to BHS’s adoption of this format literally overnight. The flexibility of this new treatment format has been well received by both clinicians and providers. Virtual provision of psychiatric care has allowed an expansion of BHS’s patient base both from individuals as well as in long term care settings.

Product Integration Roadmap

A strategic product roadmap has been developed with the aim of further unifying the various products and services.

A unique competitive advantage is that customers will be able to access an increasingly unified platform of services and technologies while also focusing in one or more strategic markets such as Integrated Care Management and Digital Pharmacy with best in class solutions.

Operations

Our principal executive offices are located in Delray Beach, Florida. We also have centers of operation in California, Missouri, Ohio, Utah and West Bengal, India. We intend to procure additional space as we add employees and expand geographically. We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate any such expansion.

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Our leadership team is comprised of industry experts and innovators with extensive healthcare, technology, and organizational knowledge. Our leaders have decades of experience founding, building and successfully scaling private and public companies. Our Board of Directors is

co-chaired

by UpHealth Holdings founder and current Executive Chairman, Dr. Chirinjeev Kathuria, who is by GigCapital Global Executive Chairman and Founding Managing Partner, Dr. Avi Katz. We are led by CEO Ramesh Balakrishnan and COO Al Gatmaitan. Our Integrated Care Management, Global Telehealth, Digital Pharmacy and Behavioral Health capabilities will continue to be led by the executive officers of the businesses that will comprise them. Key corporate services such as finance, human resources, sales, marketing and research and development will align under our leadership team.

As of June 30, 2021, UpHealth had 1,124 employees and 831 contractors.

Key Performance Indicators

As a digital health technology and tech-enabled services company, we will measure several key performance indicators (

“KPIs”

) across our platform related to adoption and utilization by users. We believe that the following KPIs will impact our ability to improve the health of patients and help to inform how we manage operations:

• Number of lives

Our mission is to transform care delivery and support healthier individuals and communities. We believe that our digital health technology and tech-enabled services supports this mission by empowering providers to deliver coordinated, personalized, affordable, and effective care globally to improve health outcomes. The number of lives served globally helps to assess our performance managing to that mission as well as our potential impact on the broader healthcare market.

• Number of care venues

We believe that the number of care venues using our platform globally is an indicator of future revenue growth because we derive meaningful revenue from consultation, diagnostic and medication dispensing fees as well as device utilization in the care venues we serve. These venues also provide a base footprint unto which we can provide other products and services across our platform. A care venue represents a distinct physical location of a medical care site, hospital, or health system.

• Number of digital and virtual encounters globally

Because our service and utilization revenue will generally increase with the number of consultations, we believe the number of global (domestic and internationally) consultations provides investors with useful information on

period-to-period

performance as evaluated by management and comparison with our past financial performance. We define core consultations as encounters as patients and provider utilizing our core services, including digital encounter teleconsults, and onsite consults.

We believe our operational performance will drive our financial results, which will be evaluated at the corporate and divisional level. Our key financial metrics to which we manage include bookings, revenue, EBITDA, and operating margin. As we expand our role as a partner for key stakeholders in the practice of digital health, we anticipate developing a set of shared performance indicators, such as impact on total cost of care, functional health of members and targeted populations and satisfaction level of the care experience by providers, customers, and payors.

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Growth Opportunities

UpHealth has proven solutions with significant revenue and customer momentum, as well as numerous opportunities to achieve synergistic growth. Leading this transformational effort is an executive team, with world class academic and operational pedigrees, confident in their ability to lead change at the forefront of healthcare delivery. In addition to executing on the organic growth initiatives of each of the business lines, there are numerous synergistic opportunities ongoing as well as de novo product launches planned near-term.

Below are the levers through which we believe UpHealth will accelerate growth of the platform:

• Implement Executed/Signed Contracts . The companies that make up the Global Telehealth and Integrated Care Management lines have won meaningful contracts in 2020 that are expected to drive new revenue in 2021 and beyond. Internationally, Glocal won contracts in Mali, Democratic Republic of Congo, Tanzania, Ghana, Ivory Coast, and Madhya Pradesh (India), which are expected to drive $154,200,000 in new revenue between 2021 and 2022. Domestically, Cloudbreak continued to expand its reach across U.S. health systems, with recent wins at Yale New Haven Health, UCSF, and RWJBarnabas Health, resulting in approximately $6,000,000 in annualized bookings. Our Integrated Care Management business, which signs initial multi-year contract terms with sticky recurring revenue and annual renewals, has won and will implement $8,000,000 in new and expansion contracted revenue in 2021.

• Drive New Bookings . The Global Telehealth and Integrated Care Management companies are involved in late-stage negotiations with health systems and government ministries to expand both domestically and internationally. We will continue to pursue these opportunities and leverage the strength and breadth of our combined platform to drive continued bookings growth. Additionally, several of our businesses have historically scaled conservatively and profitably, with minimal investment in sales and marketing. As a combined entity, we expect to meaningfully increase our investment in our go-to-market functions to capitalize on both synergies across the platform as well as take advantage of the accelerated adoption of telehealth and interest of the associated benefits for healthcare organizations.

• Explore Synergistic Opportunities with Existing Clients . UpHealth provides a suite of products across the continuum of care for any entity managing complex patient populations. This allows UpHealth to become a strategic partner for health systems, government entities, and plans, providing services from integrated care management to digital pharmacy capabilities. We are positioned to offer the market a unique, multifaceted and integrated approach to processes, services and technologies spanning the continuum of care, creating a number of synergies across our businesses. As a customer uses UpHealth’s available solutions, the platform will be able to further utilize its growing network and dataset to help provide even better care to a greater population. For example, UpHealth’s care management, behavioral health and digital pharmacy capabilities now have the opportunity to leverage the 2,000 U.S. healthcare venues that are currently utilizing the Company’s domestic telehealth services.

• Product, Service and Partner Expansion . Innovation leading to new products and services are continuously and intentionally planned. In 2021, MedQuest Pharmacy’s full-service compounding and retail Digital Pharmacy plans to add new lines of specialties, and Medical Horizons also plans to launch Pure Collectives, an e-commerce platform to allow providers to sell Medical Horizons’ nutraceutical supplements line to their patients. Additionally, our Behavioral Health capability plans to roll out IOP services nationally. Innovative features of our International telemedicine digital dispensary and AI-guided-evidence-based care solution will be reengineered to enable introduction into U.S. and other developed international markets. Cloudbreak will continue to roll out specific teleconsult applications beyond telepsych and telestroke. Each of these initiatives are expected to provide meaningful revenue opportunities.

• Strategic Acquisition . We plan to supplement our organic growth strategy with select acquisitions to increase market share across our current capabilities, accelerate entry into new capabilities and expand offerings into new end markets. We plan to be strategic with respect to building our existing capabilities within the four core markets and channels. We will continue to evaluate and, where strategically appropriate, pursue acquisition opportunities that are complementary.

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Competition

The markets in which we participate are highly competitive, with increasing competition from new entrants and expansion by existing competitors. We view as our competitors those companies that currently, or in the future will, (i) develop and market digital health technology (devices and systems) or (ii) provide telehealth and expert medical services, such as the delivery of

on-demand

access to healthcare. Competition for developing and marketing digital health technology and the provision of telehealth focuses on, among other factors, technology, breadth and depth of functionality, range of associated care delivery services, operational experience, customer support, size of customer base, and reputation. As we have indicated, our platform operates across four major markets (Integrated Care Management, Global Telehealth, Digital Pharmacy, and Tech-enabled Behavioral Health) and our key competitors span those markets. Key competitors in the integrated care management sector include Health Catalyst, PointClickCare/Collective Medical, Medecision, ZeOmega, and MedHOK. Key competitors in the provision of telehealth and expert medical services domestically include Teladoc, AmWell, and SOC Telemed. Key competitors in the delivery of telehealth internationally include WeDoctor, Practo, and Doctolib. Key competitors in the Digital Pharmacy sector include Capsule, HIMS, Ro, Amazon, and CVS/ Aetna. Key competitors in the Tech-Enabled Behavioral Health sector include Ontrak, Quartet Health, and Lyra Health.

In the health system market, electronic health record (“

EHR

”) companies could be considered competitors, but many have chosen to partner with the

U.S.-based

telehealth offering by Cloudbreak and integrate Cloudbreak’s capabilities into their own products. Other companies have chosen to partner with Cloudbreak to embed its telehealth functionality within their EHR. Competition also comes from large communications software companies who offer an entry-level priced and simplified offering for telehealth. Newer competitors include companies who provide asynchronous chat communications. Competition may also increase from large technology companies that may wish to develop their own telehealth solutions, as well as from large retailers that seek to digitize their healthcare integrated offerings. With the emergence of

COVID-19,

we have also seen increased competition from consumer-grade video solutions. We believe that the breadth of our existing and planned client ecosystem, the depth of our technology platform, and our

business-to-business

focus on promoting existing healthcare brands and integrating freely with multiple platforms increases the likelihood that stakeholders seeking to develop telehealth solutions, both within and outside of healthcare, will choose instead to collaborate with us.

We expect to face intensifying competition from existing competitors in our particular capabilities, platforms looking to broaden their services offerings, and new entrants that introduce digital health services and software platforms or other technology. We currently face competition from a range of point solutions, including specialized software providers that are continuing to more deeply integrate their technology with care delivery services. In addition, large, well-financed healthcare providers have in some cases developed their own telemedicine services and technologies and may provide these solutions to their patients at discounted prices.

The principal competitive factors upon which we compete include:

• consumer/provider/patient user acceptance, satisfaction and utilization;

• continuous innovation of technologies and services, including an integrated platform that unifies the users’ experiences;

• effectively building a brand and reputation;

• building interoperable platforms that can connect with legacy enterprise and integrated care network infrastructures;

• integrating into the workflows and processes of providers, payors and government entities;

• reducing care delivery costs across multiple stakeholders;

• enabling a suite of digital health tools from within existing customer workflows;

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• depth of expertise in care delivery of varying acuity, technology, sales and service;

• scalability of our business models; and

• operational execution abilities.

We believe that we are uniquely positioned on the basis of these factors and that the offerings of competitors do not comprehensively address the needs of key stakeholders across our key markets, or fail to do so at scale.

Competitive Advantage

We bring a set of attributes to market that we believe will continue to differentiate us across our major stakeholders and end markets. While there have been a number of recent innovations across

one-off

point solutions aimed at solving specific pain points, we believe they tend to lack a comprehensive approach to addressing broad challenges across the care continuum, and thus fail to fully solve healthcare disparities for all stakeholders. What is required is a combination of innovative technologies and technology-enabled services that are integrated within the workflows and core operating systems of payors, providers, and patients. We believe that the digital health platforms that thrive long term will be those that enable a hybrid model of care delivery, enhancing onsite care settings with an integrated digital infrastructure that provides virtual care access and engagement while also coordinating and connecting both community and clinical care teams within defined populations.

An Integrated Global Digital Health Platform Addressing Critical Market Needs

We will operate in the healthcare landscape across four large and high growth digital healthcare markets, providing a comprehensive care hub across multiple care settings. We aim to reshape healthcare delivery through integrated offerings that unite the healthcare ecosystem, enabling the “practice” of digital health. Together, these advancements are leading to a convergence of people, information, technology, and connectivity that improve healthcare and health outcomes through a more coordinated, data-driven, and personalized care experience. We seek to deliver on our vision of providing a guided care experience for patients and providers that is frictionless, engaging, and easy to use.

As we work to successfully integrate our platform, we believe our combined set of services and capabilities will address many needs for patients, health systems and payors unmet by point solutions. We believe patients will value a more convenient care experience plus their entire care story in one place, enabling whole-person care. Health systems are presented with the entire picture of care coordination across the system plus the entire ecosystem of post-acute and socially, enabling team-based care. Payors will realize a comprehensive suite of digital services and a bridge platform between their claims processing systems and the broader ecosystem, providing the connectivity and intelligence needed for effective management of members’ costs and outcomes.

We will simplify how providers care for patients, putting a full care continuum at their fingertips 24/7, and enabling local healthcare systems to build their integrated digital health strategy from a single point of entry like an iPad or personal phone. Our partners/customers are at different points on the spectrum of digital transformation and we meet them where they are on their transformation journey, paying particular attention to reshaping existing workflows internally and across multiple stakeholders. We believe this experience can only be provided seamlessly via integrated, coordinated care teams that rely on AI data driven analytics and support.

Expansive Reach across Domestic and International Markets

We are a global company, doing business in several geographies. As a result, we are not overexposed to the risks associated with any one country. Our roots are strong in North America, with our international base in India allowing us to target other high-growth areas internationally.

Domestically, we will have an expansive reach across more than 2,000 healthcare venues spanning the United States. Our Integrated Care Management capabilities also provide a platform with advanced analytics

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and data insights for health plans, health systems (such as L.A. Care and Alameda County), government agencies, and community organizations across the United States. Meanwhile, MedQuest Pharmacy’s Digital Pharmacy is licensed to ship to all 50 U.S. states and the District of Columbia and has cultivated considerable relationships with members of U.S. Congress as a leading voice for the compounded pharmaceutical industry. The overall platform has significant domestic reach across many facets of the U.S. healthcare industry.

Internationally, our Global Telemedicine capabilities are spreading rapidly. We saw significant contracts signed in 2020 across Africa, as well as further growth within India. The projected number of digital health encounters and virtual consults are expected to approach 10,000,000 by 2022. Glocal’s modular approach to primary care delivery in vulnerable communities in both rural and urban settings has driven strong interest from national health ministries and other organizations delivering care to areas with populations who have historically been subject to inequitable access of healthcare services. Leveraging our global footprint, we can continue to spread knowledge and insights gained in one area to our entire network, enabling more effective care in all parts of the world.

Below illustrates the reach across health systems, health plans and government ministries:

A Diverse Management Team of Industry Leaders

Our management team is made up of entrepreneurs and founders who have dedicated their lives to solving specific healthcare issues in the world today. We believe that this diverse group of leaders is uniquely equipped to lead the movement in reshaping care delivery to the “practice” of digital health which can improve global healthcare delivery. Continuous innovation, effective operations at scale, deep industry and technical knowledge combine to bring to life our vision of healthcare better for all.

Research and Development

Our ability to continue to differentiate and enhance our platform depends, in large part, on our capacity to continue to introduce new services, technologies, features, and functionality. Our founders as well as our executives and various employees have significant involvement in the development of new products. In

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addition, we utilize certain third-party development services to perform application development. We focus our research and development spend on developing new products and further enhancing the usability, functionality, reliability, performance and flexibility of our existing platform and products.

Facilities

Our principal executive offices, which we lease, are located at 14000 S Military Trail, Delray Beach, Florida 33484. We also have centers of operation in California, Ohio, Missouri, Utah, and West Bengal, India. With the exception of certain properties in India that are owned by Glocal, we lease all of our properties. We intend to procure additional space as we add employees and expand geographically. We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate any such expansion.

U.S. Government Regulation

Our existing and planned operations are subject to comprehensive U.S. federal, state and local and international regulation in the jurisdictions in which we do business. Our ability to operate profitably will depend in part upon our ability, and that of our affiliated providers, to maintain all necessary licenses and to operate in compliance with applicable laws and rules. Those laws and regulations continue to evolve, and we therefore devote significant resources to monitoring developments in healthcare, data privacy and security, and medical practice laws and regulations. As the applicable laws and rules change, we are likely to make conforming modifications in our business processes from time to time. In some jurisdictions where we operate, neither our current nor our anticipated business model has been the subject of formal judicial or administrative interpretation. We cannot be assured that a review of our business by courts or regulatory authorities will not result in determinations that could adversely affect our operations or that the healthcare regulatory environment will not change in a way that impacts our operations.

In response to the

COVID-19

pandemic, state and federal regulatory authorities loosened or removed a number of regulatory requirements in order to increase the availability and accessibility of telehealth services. For example, many state governors issued executive orders permitting

out-of-state

physicians and other health care professionals to practice in their state without any additional licensure or by using a temporary, expedited or abbreviated licensure process so long as they hold a valid license in another state. In addition, changes were made to the Medicare and Medicaid programs (through waivers and other regulatory authority) to increase access to telehealth services by, among other things, expanding coverage for telehealth services, removing geographic restrictions and originating site requirements, permitting the waiver of patient copayment responsibilities that may hinder access, allowing reimbursement for services performed by

out-of-state

providers, waiving federal responsibilities that may hinder access, waiving federal restrictions on the prescribing of controlled substances via telehealth, and eliminating prior authorization requirements. It is uncertain whether these

COVID-19

related regulatory changes will remain in effect beyond the current public health emergency. However, there have been several developments that suggest at least some of the temporary measures may be extended, including an August 2020 executive order issued by President Trump that instructed the Department of Health and Human Services to review the temporary telehealth measures, particularly with respect to patients in rural areas and propose extensions and to review recommendations made by the Taskforce on Telehealth Policy, which, among other things, recommended eliminating unnecessary restrictions on telehealth across state lines, lifting restrictions on originating sites, and allowing telehealth for various types of clinicians and conditions, and the Calendar Year 2021 Physician Fee Schedule Final Rule issued by the Centers for Medicare and Medicaid Services in December 2020 that added more than 60 services to the Medicare telehealth list that will continue to be covered beyond the end of the current public health emergency (“

PHE

”) period.

Coverage for telehealth services by commercial payors vary, depending on the individual plan. We believe that a return to the status quo would not have a material negative impact on any commercial agreements we have entered into during 2020. Each of these agreements has a defined term and virtually none allow for immediate

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termination for convenience by the customer in question. For many health care companies engaging in telehealth, the most significant potential concern about returning to the status quo is reinstatement of certain Medicare rules and restrictions that limit reimbursement for telehealth visits provided to Medicare beneficiaries, such as limitations on the types of services covered and restricting telehealth coverage and reimbursement to only certain patients in rural areas. Significantly, the Centers for Medicare and Medicaid (“

CMS

”) added certain services to the permanent Medicare telehealth list to be reimbursed beyond the end of the PHE. However, permanent Medicare telehealth reimbursement beyond the PHE is limited to beneficiaries in rural areas located in a medical facility. Though

COVID-19

waivers temporarily removed the rural and originating site limitations, CMS does not have statutory authority to pay for telehealth to beneficiaries outside of rural areas or to beneficiaries located in their homes (with some exceptions). Thus, for telehealth reimbursement to expand to

non-rural

beneficiaries beyond the PHE, legislative intervention would be needed to permanently expand telehealth reimbursement.

Telehealth Provider Licensing, Medical Practice, Certification and Related Laws and Guidelines

The practice of medicine is subject to various federal, state and local certification and licensing laws, regulations, approvals and standards, relating to, among other things, the adequacy of medical care, the practice of medicine (including the provision of remote care), equipment, personnel, mitigating potential conflicts of interests, operating policies and procedures and the prerequisites for the prescription of medication and ordering of tests. The application of some of these laws to telehealth is unclear, evolving and subject to differing interpretation. Many states have specific statutes and regulations addressing provision of medical care via telehealth modalities and requirements that must be met to do so. Generally, the services provided must fall within the scope of practice for the licensed professional per the particular state’s board licensing rules and regulations, and the same standard of care needs to be met as required for

in-person

care, and physicians must obtain informed consent from patients to the care provided and the virtual setting.

Physicians who provide professional medical services to a patient via telehealth must, in most instances, hold a valid license to practice medicine in the state in which the patient is located. We have established systems for ensuring that our affiliated physicians are appropriately licensed under applicable state law and that their provision of telehealth to our clients occurs in each instance in compliance with applicable rules governing state licensing requirements. Failure to comply with these laws and regulations could result in licensure actions against the physicians, our services being found to be

non-reimbursable

by payors, or prior payments being subject to recoupments and can give rise to civil, criminal or administrative penalties.

Generally, physicians providing services through telehealth must also use HIPAA-compliant technology. During the PHE, the Office of Civil Rights (“

OCR

”) is using discretion in collecting penalties for good faith use of telehealth, even if the services are not provided through a HIPAA-compliant secure platform. Thus, HIPAA compliance as related to the telehealth platform is less of a concern during the PHE but will be required long- term. Certain types of technology, such as audio-video synchronous technology, may be required for compliance with state laws and reimbursement depending on the type of service and the payor.

Pharmacy Laws and Regulations

MedQuest Pharmacy’s pharmacy business is subject to extensive federal, state and local regulation. Pharmacies, pharmacists and pharmacy technicians are subject to a variety of federal and state statutes and regulations governing various aspects of the pharmacy business, including the distribution of drugs; operation of mail order pharmacies; licensure of facilities and professionals, including pharmacists, technicians and other healthcare professionals; packaging, storing, distributing, shipping and tracking of pharmaceuticals; repackaging of drug products; labeling, medication guides, and other consumer disclosures; interactions with prescribing professionals; compounding of prescription medications; counseling of patients; prescription transfers; advertisement of prescription products and pharmacy services; security; controlled substance inventory control and recordkeeping; and reporting to the FDA, state boards of pharmacy, the U.S. Consumer Product Safety Commission and other state enforcement or regulatory agencies. Many states have laws and regulations requiring

out-of-state

mail-order pharmacies to register with that state’s board of pharmacy. In

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addition, the FDA inspects facilities in connection with procedures to effect recalls of prescription drugs. The Federal Trade Commission also has requirements for mail-order sellers of goods. The USPS has statutory authority to restrict the transmission of drugs and medicines through the mail to a degree that may have an adverse effect on our mail-order operations. The USPS historically has exercised this statutory authority only with respect to controlled substances. If the USPS restricts our ability to deliver drugs through the mail, alternative means of delivery are available to us. However, alternative means of delivery could be significantly more expensive. The U.S. Department of Transportation has regulatory authority to impose restrictions on drugs inserted into the stream of commerce. These regulations generally do not apply to the USPS and its operations.

Corporate Practice of Medicine Laws in the U.S.; Fee Splitting

The companies that are now part of UpHealth contract with physicians or physician-owned professional associations and professional corporations to provide them and their patients with access to our platform. These contractual relationships are subject to various state laws that prohibit fee splitting or the practice of medicine by lay entities or persons and that are intended to prevent unlicensed persons from interfering with or influencing a physician’s professional judgment. Activities other than those directly related to the delivery of healthcare may be considered an element of the practice of medicine in many states. Under the corporate practice of medicine restrictions of certain states, decisions and activities that may be performed by unlicensed individuals or entities and perceived as impacting the clinical decision-making of licensed professionals such as scheduling, policy and procedure development, contracting, setting rates and the hiring and management of clinical personnel may implicate the restrictions on the corporate practice of medicine. Similarly, certain compensation arrangements between licensed professionals and unlicensed individuals and entities can implicate state

fee-splitting

prohibitions, which prohibit providers from sharing a portion of their professional fees collected with third parties.

State corporate practice of medicine and fee splitting laws and rules vary from state to state and are not always consistent across states. In addition, these requirements are subject to broad interpretation and enforcement by state regulators. Some of these requirements may apply to us even if we do not have a physical presence in the state, based solely on our engagement of a provider licensed in the state or the provision of telehealth to a resident of the state. Thus, regulatory authorities or other parties, including our providers, may assert that, despite these arrangements, we are engaged in the corporate practice of medicine or that our contractual arrangements with affiliated physician groups constitute unlawful fee splitting. In such event, failure to comply could lead to adverse judicial or administrative action against us and/or our affiliated providers, civil, criminal or administrative penalties, receipt of cease and desist orders from state regulators, loss of provider licenses, the need to make changes to the terms of engagement of our providers that interfere with our business, and other materially adverse consequences.

U.S. Federal and State Fraud and Abuse Laws

Federal Stark Law

We are subject to the federal Physician Self-Referral Law, commonly known as the Stark Law. Where applicable, this law prohibits a physician from referring Medicare or Medicaid patients for “designated health services” such as laboratory and radiology services that are furnished at an entity if the physician or a member of such physician’s immediate family has a “financial relationship” (including an ownership interest or a compensation arrangement) with the entity, unless an exception applies. The Stark Law also prohibits the entity from billing Medicare or Medicaid for such designated health services. Sanctions for violating the Stark Law include denial of payment, civil monetary penalties of up to $25,820 per claim submitted and exclusion from the federal health care programs. Failure to refund amounts received as a result of a prohibited referral on a timely basis may constitute a false or fraudulent claim and may result in civil penalties and additional penalties under the federal False Claims Act (described below). The statute also provides for a penalty of up to $172,137 for a circumvention scheme. The Stark Law is a strict liability statute, which means proof of specific intent to violate the law is not required. In addition, the government and some courts have taken the position that claims

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presented in violation of various healthcare fraud and abuse statutes, including the Stark Law, can be considered a violation of the federal False Claims Act (described below) based on the contention that a provider impliedly certifies compliance with all applicable laws, regulations and other rules when submitting claims for reimbursement. A determination of liability under the Stark Law could have a material adverse effect on our business, financial condition and results of operations.

Federal Anti-Kickback Statute

We are also subject to the federal Anti-Kickback Statute. The Anti-Kickback Statute is a broadly worded, intent-based federal criminal statute that prohibits the knowing and willful offer, payment, provision, solicitation or receipt of any form of remuneration, directly or indirectly, in cash or in kind, in return for, or to induce, (i) the referral of a person for the furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other federal health care programs or (ii) the purchasing, leasing or ordering or arranging or recommending purchasing, leasing or ordering of any item or service reimbursable under Medicare, Medicaid or other federal health care programs. Certain federal courts have held that the Anti- Kickback Statute can be violated if “one purpose” of a payment is to induce referrals. In addition, a person or entity does not need to have actual knowledge of this statute or specific intent to violate it to have committed a violation, making it easier for the government to prove that a defendant had the requisite state of mind or “scienter” required for a violation. Moreover, the government may assert that a claim including items or services resulting from a violation of the

Anti-Kickback

Statute constitutes a false or fraudulent claim for purposes of the False Claims Act, as discussed below. Violations of the federal Anti-Kickback Statute may result in civil monetary penalties up to $104,330 for each violation, plus up to three times the remuneration involved. Civil penalties for such conduct can further be assessed under the federal False Claims Act. Violations of the Federal

Anti-Kickback

Statute can also result in criminal penalties, including criminal fines of more than $100,000 and imprisonment of up to 10 years. Similarly, violations can result in exclusion from participation in the federal health care programs, including Medicare and Medicaid. Imposition of any of these remedies could have a material adverse effect on our business, financial condition and results of operations. Although there are a number of statutory exceptions and regulatory safe harbors to the federal Anti-Kickback Statute that protect certain common industry practices from prosecution, the exceptions and safe harbors are narrowly drawn, and arrangements may be subject to scrutiny or penalty if they do not fully satisfy all elements of an available exception or safe harbor. However, the failure of a financial relationship to meet all of the applicable safe harbor criteria does not necessarily mean that the particular arrangement violates the

Anti-Kickback

Statute.

Although we believe that our arrangements with physicians and other referral sources comply with current law and available interpretative guidance, as a practical matter, it is not always possible to structure our arrangements so as to fall squarely within an available safe harbor. Where that is the case, we cannot guarantee that applicable regulatory authorities will determine these financial arrangements do not violate the

Anti-Kickback

Statute or other applicable laws, including state anti-kickback laws (described below).

Federal False Claims Act

Both federal and state government agencies have continued civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare companies and their executives and managers. Although there are a number of civil and criminal statutes that can be applied to healthcare providers, a significant number of these investigations involve the federal False Claims Act, which imposes civil penalties against individuals or entities for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment to a federal health care program or knowingly making using or causing to be made or used a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government. Federal False Claims Act actions can be initiated not only by the government but also through civil whistleblower or qui tam lawsuits. Penalties for False Claims Act violations include fines ranging from $11,665 to $23,331 for each false claim or statement for penalties assessed after June 19, 2020, with respect to violations occurring after November 2, 2015, plus up to three times the amount of damages sustained by the federal government. A False Claims Act violation may provide the basis for

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exclusion from federal health care programs. There is also the federal criminal False Claims Act, which is similar to the federal civil False Claims Act and imposes criminal liability on those that make or present a false, fictitious or fraudulent claim to the federal government.

Foreign and State Fraud and Abuse Laws

There are state and foreign law equivalents of the above federal laws, such as the federal Anti-Kickback Statute and the federal False Claims Act. The scope of these laws and the interpretations of them vary by jurisdiction and are enforced by local courts and regulatory authorities, each with broad discretion. Some state fraud and abuse laws apply to items or services reimbursed by any third party payor, including commercial insurers or to any payor, including to funds paid out of pocket by a patient. A determination of liability under such state fraud and abuse laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.

Other Healthcare Laws

HIPAA established several separate criminal penalties for making false or fraudulent claims to insurance companies and other

non-governmental

payors of healthcare services. Under HIPAA, these two additional federal crimes are: “Healthcare Fraud” and “False Statements Relating to Healthcare Matters.” The Healthcare Fraud statute prohibits knowingly and willfully executing, or attempting to execute, a scheme or artifice to defraud any health care benefit program or to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program in connection with the delivery of or payment for healthcare benefits, items, or services. A violation of this statute is a felony and may result in fines, imprisonment, or exclusion from federal health care programs. The False Statements Relating to Healthcare Matters statute prohibits knowingly and willfully falsifying, concealing, or covering up a material fact by any trick, scheme or device or making any materially false, fictitious, or fraudulent statement or representations, or making or using any materially false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items, or services. A violation of this statute is a felony and may result in fines or imprisonment. This statute could be used by the government to assert criminal liability if a healthcare provider knowingly fails to refund a known overpayment. These provisions are intended to punish some of the same conduct in the submission of claims to private payors as the federal False Claims Act covers in connection with federal health care programs.

In addition, the federal Civil Monetary Penalties Law imposes civil administrative sanctions for, among other violations, inappropriate billing of services to the federal health care programs and employing or contracting with individuals or entities who are excluded from participation in the federal health care programs. Moreover, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration, including waivers of copayments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable for civil monetary penalties of up to $20,866 for each wrongful act. Moreover, in certain cases, providers who routinely waive copayments and deductibles for Medicare and Medicaid beneficiaries can also be held liable under the federal Anti-Kickback Statute and civil False Claims Act, which can impose additional penalties associated with the wrongful act. Although this prohibition applies only to federal health care program beneficiaries, the routine waivers of copayments and deductibles offered to patients covered by commercial payors may implicate applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts, and statutory or common law fraud.

U.S. State and Federal Health Information Privacy and Security Laws

There are numerous U.S. federal and state laws and regulations related to the privacy and security of PII, including health information. In particular, HIPAA establishes privacy and security standards that limit the use and disclosure of PHI, and require the implementation of administrative, physical, and technical safeguards to ensure the confidentiality, integrity and availability of PHI in electronic form. Our health system clients, and

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our health plan clients are all regulated as covered entities under HIPAA. We are a business associate of our covered entity clients when we are working on behalf of our covered entity clients including our affiliated medical groups and also when we are providing technology services to those clients via our telehealth platform.

As a business associate, we are also directly regulated by HIPAA and are required to provide satisfactory written assurances to our covered entity clients through written business associate agreements that we will provide our services in accordance with HIPAA. Failure to comply with these contractual agreements could lead to loss of clients, contractual liability to our clients, and direct action by HHS, including monetary penalties. Violations of HIPAA may result in civil and criminal penalties. The civil penalties include civil monetary penalties of up to $59,552 per violation, not to exceed approximately $1,800,000 for violations of the same standard in a single calendar year (as of 2020, and subject to periodic adjustments for inflation), and in certain circumstances, criminal penalties with fines up to $250,000 per violation and/or imprisonment. However, a single breach incident can result in violations of multiple standards. Under the breach notification rule, covered entities must notify affected individuals without unreasonable delay in the case of a breach of unsecured PHI, which may compromise the privacy, security or integrity of the PHI. In addition, notification must be provided to HHS and the local media in cases where a breach affects more than 500 individuals. Breaches affecting fewer than 500 individuals must be reported to HHS on an annual basis. HIPAA also requires a business associate to notify its covered entity clients of breaches by the business associate.

State attorneys general also have the right to prosecute HIPAA violations committed against residents of their states. While HIPAA does not create a private right of action that would allow individuals to sue in civil court for a HIPAA violation, its standards have been used as the basis for the duty of care in state civil suits, such as those for negligence or recklessness in misusing personal information. In addition, HIPAA mandates that HHS conduct periodic compliance audits of HIPAA covered entities and their business associates for compliance. It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the Civil Monetary Penalty fine paid by the violator. In light of the HIPAA Omnibus Final Rule, recent enforcement activity, and statements from HHS, we expect increased federal and state HIPAA privacy and security enforcement efforts.

HIPAA also required HHS to adopt national standards for electronic transactions that all healthcare providers must use when submitting or receiving certain healthcare transactions electronically. On January 16, 2009, HHS released the final rule mandating that everyone covered by HIPAA must implement

ICD-10

for medical coding on October 1, 2013, which was subsequently extended to October 1, 2015 and is now in effect.

Many states in which we operate and in which our patients reside also have laws that protect the privacy and security of sensitive and personal information, including health information. These laws may be similar to or even more protective than HIPAA and other federal privacy laws. For example, the laws of the State of California, in which we operate, are more restrictive than HIPAA. Where state laws are more protective than HIPAA, we must comply with the state laws we are subject to, in addition to HIPAA. In certain cases, it may be necessary to modify our planned operations and procedures to comply with these more stringent state laws. Not only may some of these state laws impose fines and penalties upon violators, but, unlike HIPAA, some may afford private rights of action to individuals who believe their personal information has been misused. In addition, state laws are changing rapidly, and there is discussion of a new federal privacy law or federal breach notification law, to which we may be subject.

In addition to HIPAA and state health information privacy laws, we may be subject to other state and federal privacy laws, including laws that prohibit unfair privacy and security acts or practices and deceptive statements about privacy and security and laws that place specific requirements on certain types of activities, such as data security and texting. The FTC and states’ attorneys general have brought enforcement actions and prosecuted some data breach cases as unfair and/or deceptive acts or practices under the FTC Act and similar state laws. FTC jurisdiction in data privacy and security cases is concurrent with the Office of Civil Rights’ jurisdiction with respect to HIPAA.

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In recent years, there have been a number of well publicized data breaches involving the improper use and disclosure of PII and PHI. Many states have responded to these incidents by enacting laws requiring holders of personal information to maintain safeguards and to take certain actions in response to a data breach, such as providing prompt notification of the breach to affected individuals and state officials and provide credit monitoring services and/or other relevant services to impacted individuals. In addition, under HIPAA and pursuant to the related contracts that we enter into with our clients who are covered entities, we must report breaches of unsecured PHI to our clients following discovery of the breach. Notification must also be made in certain circumstances to affected individuals, federal authorities and others.

International Regulation

Our international operations are subject to different, and sometimes more stringent, legal and regulatory requirements, which vary widely by jurisdiction, including anti-corruption laws; economic sanctions laws; various privacy, insurance, tax, tariff and trade laws and regulations; corporate governance, privacy, data protection (including GDPR, which became effective in May 2018 across the EU, which would be applicable if we expand our operations into the EU), data mining, data transfer, labor and employment, intellectual property, consumer protection and investment laws and regulations; discriminatory licensing procedures; required localization of records and funds; and limitations on dividends and repatriation of capital. In addition, the expansion of our operations into foreign countries increases our exposure to the anti-bribery, anti-corruption and anti-money laundering provisions of U.S. law, including the FCPA, and corresponding foreign laws, including the UK Bribery Act.

The FCPA prohibits offering, promising or authorizing others to give anything of value to a foreign government official to obtain or retain business or otherwise secure a business advantage. We also are subject to applicable anti-corruption laws of the jurisdictions in which we operate. Violations of the FCPA and other anti-corruption laws may result in severe criminal and civil sanctions as well as other penalties, and the SEC and the U.S. Department of Justice have increased their enforcement activities with respect to the FCPA. The UK Bribery Act is an anti-corruption law that is broader in scope than the FCPA and applies to all companies with a nexus to the United Kingdom. Disclosures of FCPA violations may be shared with the UK authorities, thus potentially exposing companies to liability and potential penalties in multiple jurisdictions. We have internal control policies and procedures and conduct training and compliance programs for our employees to deter prohibited practices. However, if our employees or agents fail to comply with applicable laws governing our international operations, we may face investigations, prosecutions and other legal proceedings and actions which could result in civil penalties, administrative remedies and criminal sanctions.

We also are subject to regulation by the Office of Foreign Assets Control (“

OFAC

”). OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. In addition, we may be subject to similar regulations in the

non-U.S.

jurisdictions in which we operate.

The healthcare industry in India is subject to laws, rules and regulations in the regions where we conduct our business or in which we intend to expand our operations. Given our digital health centers are situated at multiple locations, we are subject to various and extensive local law, rules and regulations relating, among other things, to the setting up and operation of private medical care establishments. Health and safety laws and regulations in India are becoming increasingly stringent in the recent years, and it is possible that they will become significantly more stringent in the future. India is also in the process of and has certain legislation pending regarding increased data privacy.

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Intellectual Property

We own and use trademarks and service marks on or in connection with our services, including both unregistered common law marks and issued trademark registrations in several jurisdictions. In addition, we rely on certain intellectual property rights that we license from third parties and on other forms of intellectual property rights and measures, including trade secrets,

know-how

and other unpatented proprietary processes and nondisclosure agreements, to maintain and protect proprietary aspects of our products and technologies. These licenses are standard licenses for common, easily replaceable commercial infrastructure. We require our employees, consultants and certain of our contractors to execute confidentiality, agreements in connection with their employment or consulting relationships with us. We also require our employees and consultants to disclose and assign to us inventions conceived during the term of their employment or engagement while using our property or which relate to our business.

Glocal currently has a pending patent application in India and may file for additional patents in India in the future. We do not currently consider any of these patents used in our business to be material to our business. No other subsidiaries have any existing or planned patents. We may continue to submit patent applications for new inventions and ideas we develop as well as monitor competitors in an effort to protect our intellectual property.

From time to time, we may become involved in legal proceedings relating to intellectual property arising in the ordinary course of our business, including oppositions to our applications for trademarks or patents, challenges to the validity of our intellectual property rights, and claims of intellectual property infringement. We are not presently a party to any such legal proceedings that, in the opinion of our management, would individually or taken together have a material adverse effect on our business, financial condition, results of operations or cash flows.

Legal Proceedings

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

On September 3, 2021, Needham & Company LLC (“Needham”) filed an action in the Supreme Court of the State of New York captioned Needham & Company LLC v. UpHealth Holdings, Inc. and UpHealth Services, Inc. (the “Needham Action”), in which Needham asserts claims against UpHealth Holdings, Inc. and UpHealth Services, Inc. for breach of contract in connection with the UpHealth Business Combination. Needham seeks relief in the form of damages in an amount of not less than $31,345,000 plus interest and attorneys’ fees. The Needham Action arises out of UpHealth Services, Inc.’s engagement of Needham to provide placement and other financial advisory services in connection with UpHealth Services, Inc.’s exploration of a business combination. The parties dispute whether Needham provided the required services. In addition, the parties dispute whether, assuming Needham provided all required services, Needham is entitled to the payment it demands or a lesser payment. The defendants have not answered or moved to dismiss the Needham Action.

Glossary of Terms

• Differential diagnosis: process wherein a doctor differentiates between two or more conditions that could be behind a person’s symptoms

• Evidence-based care: is the conscientious use of current best evidence in making decisions about the care of individual patients or the delivery of health services

• Integrated care: Collaboration between health professionals to provide complete treatment to patients and improve overall well-being.

• PACS: Picture Archive and Communication System

• PCAB: Pharmacy Compounding Accreditation Board

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• Population health management: refers to the process of improving clinical health outcomes of a defined group of individuals through improved care coordination and patient engagement supported by appropriate financial and care models

• Post-acute: includes rehabilitation or palliative services that beneficiaries receive after, or in some cases instead of, a stay in an acute care hospital. Depending on the intensity of care the patient requires, treatment may include a stay in a facility, ongoing outpatient therapy, or care provided at home

• TeleCRM: automated customer relationship management

• Tele-ICU: the use of health information exchanged from a hospital critical care unit to another site via electronic communications

• Telepsychiatry: a subset of telemedicine, involves providing a range of services including psychiatric evaluations, therapy (individual therapy, group therapy, family therapy), patient education and medication management

• Telesitting: new class of clinical monitoring technologies that track patient activity and notify staff of any concerns or emergency situations

• Telestroke: doctors who have advanced training in treating strokes can use technology to treat people who have had strokes in another location

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MANAGEMENT

Management and Board of Directors

The following persons were our executive officers and directors as of September 23, 2021.

Name	Age	Position
Dr. Chirinjeev Kathuria	56	Co-Chairman of the Board of Directors
Dr. Avi S. Katz	63	Co-Chairman of the Board of Directors
Dr. Raluca Dinu	47	Director
Dr. Mariya Pylypiv	33	Director
Neil Miotto	75	Director
Nathan Locke	38	Director
Jerome Ringo	66	Director
Agnès Rey-Giraud	57	Director
Moshe Bar-Siman-Tov	44	Director
Dr. Ramesh Balakrishnan	67	Chief Executive Officer
Dr. Alfonso W. Gatmaitan	61	Chief Operating Officer
Dr. Syed Sabahat Azim	46	Chief Executive Officer, International
Jamey Edwards	47	President
Martin S. A. Beck	55	Chief Financial Officer

Executive Officers

Dr.

 Ramesh Balakrishnan.

Dr. Balakrishnan serves as our Chief Executive Officer. Dr. Ramesh Balakrishnan served as

Co-Chief

Executive Officer of UpHealth Holdings since November 2020 and as Chief Executive Officer of Thrasys, a subsidiary of UpHealth Holdings that delivers technology platforms and applications for integrated care management, since March 2002. Dr. Balakrishnan founded Thrasys in 2002, and has since served as Chief Executive Officer and been responsible for raising initial investments, hiring the core business and technology team, defining the product roadmap, closing over $100,000,000 in customer contracts, negotiating and executing strategic agreements with Siemens Health Care, Varian Medical Solutions, and overseeing growth and strategy for the company. Prior to founding Thrasys, Dr. Balakrishnan

co-founded

ePropose, Inc., a technology company that pioneered a unique technology for collaboration, in 1998. ePropose, Inc. was merged into a joint venture with Cargill, Inc.–the world’s largest privately held company–in 2001. From 1997 to 1999, Dr. Balakrishnan was Vice President of Software at Asyst Technologies where he was responsible for overall P&L for the software division, and the launch of innovative solutions for the global semiconductor industry. Asyst Technologies’ customers represented some of the largest semiconductor fabrication plants in the world including Taiwan Semiconductor Manufacturing Corporation. Prior to joining Asyst Technologies, Dr. Balakrishnan was Director of Applications from 1995 to 1997 at Measurex Corporation, a company that delivered mission critical real-time control systems for discrete and continuous manufacturing. At Measurex, in various roles, Dr. Balakrishnan developed and introduced market leading products in the US, Europe, Asia, Japan, and the Americas. Dr. Balakrishnan holds Ph.D. and M.Sc. degrees from Stanford University and a B.Eng. degree from the University of Madras. He was also a recipient of the very competitive national science talent scholarship awarded by the Government of India for promising science scholars. Dr. Balakrishnan holds 14 domestic and international patents in various areas of technology.

Dr.

 Alfonso (Al) Gatmaitan, DSc.

Dr. Gatmaitan serves as our Chief Operating Officer. Since November 2019, Dr. Gatmaitan had served as the CEO and a board member of UpHealth Services, Inc. which became a subsidiary of UpHealth Holdings following a reorganization in October 2020, and since October 2020, he has served as the

Co-CEO

and a board member of UpHealth Holdings. He served in various capacities during the formation of UpHealth Services from January 2018 to November 2019. A hospital president at age 31, Dr. Gatmaitan was named the Under 40 Executive of the Year by the Indiana Chapter of the American College of Healthcare Executives. Over a total of 32 years Dr. Gatmaitan enjoyed increasingly challenging roles

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including serving as the founding President of a new hospital built from a green field and as President of a $450,000,000 community-based hospital and medical group system. Most recently Dr. Gatmaitan served as the Chief Operating Officer for Indiana University Health, a $6.3 billion integrated delivery system with an owned health plan, from January 2016 to December 2018. Dr. Gatmaitan holds a master’s degree in health administration from Indiana University and is a Doctor of Science in Healthcare Leadership from the University of Alabama at Birmingham. He is also a Fellow in the American College of Healthcare Executives and has served as an Executive in Residence for The Health Management Academy, a peer learning company of leading health systems and industry executives.

Dr.

 Sabahat

 S. Azim

. Dr. Azim serves as our Chief Executive Officer of International Operations. Dr. Azim is a doctor, former Indian Administrative Service officer and social entrepreneur who has been involved in healthcare for a long time. He is the founder Glocal and has served as its Chief Executive Officer and a Director of Glocal since September 2010. Under Dr. Azim’s stewardship, Glocal has set up and is operating twelve integrated multi-specialty hospitals, over 250 Digital Dispensaries and a large telemedicine network in India and eight other countries. He also served the Indian Government from September 2000 to July 2006 in various positions, including the Secretary to the Chief Minister and Director of IT. Prior to this, he founded Sahaj

e-Village

Ltd – a pan India digital connect enterprise that created 18,000 Common Service Centers across India’s villages bridging the digital divide. Dr. Azim has been declared Social Entrepreneur of the Year 2020 by the World Economic Forum’s Schwab Foundation for Social Enterprise. His innovation, HellolyfCX Digital Dispensary, was awarded the Public Appreciation Award 2020 by UN Innovation at the Health Innovation Exchange HIEx2020 as the most innovative technology to meet the Sustainable Development Goals of UN. He is a member of FICCI Health Services Committee, member of Health Sector Skills Council, Consultative committee on Ayushman Bharat and many others. He is a member of Airtel Customer Advisory Board (one of India’s largest Telecom players) and is a member of the Strategic Advisory Council of India Alliance–A Welcome Trust UK and Government of India Department of Biotechnology Initiative that makes grants for R&D. He is also a

non-executive

director at Kimberlite Social Infra Private Limited, an affiliate Glocal. He is an alumnus of JN Medical College, AMU, Aligarh, LBSNAA Mussoorie and IIM Ahmedabad.

Jamey Edwards.

Mr. Edwards serves as our President. He had previously served as CEO &

Co-Founder

of Cloudbreak Health (and its predecessor company The Language Access Network, LLC) since January of 2008. He led Cloudbreak’s rapid growth from industry pioneer to one of the leading companies in digital health, continuing to launch new and innovative solutions targeted towards delivering on its mission to humanize healthcare. Prior to Cloudbreak, Mr. Edwards was the CEO of Emergent Medical Associates (“

EMA

”) and presided over its growth from local emergency room group to the leading group in the Southwest United States growing revenue tenfold during his tenure to over $150,000,000 annually. Prior to EMA, Mr. Edwards was an investment banking and private equity professional for over 10 years with experience spanning KPMG, Caltius Private Equity & Lehman Brothers. Mr. Edwards sits on the Board of the American Red Cross of Los Angeles, the Partners in Care Foundation, Pinksocks.life and the Executive Leadership team of the American Heart Association of Los Angeles. He is an industry influencer, thought leader and speaker recognized as a HIMSS Changemaker in 2019/20, a three-time Ernst & Young Entrepreneur of Year Finalist (2013, 2014 & 2017) and a top 40 Healthcare Transformer by MM&M magazine. Mr. Edwards holds a BS in Organizational Behavior and an MBA in Entrepreneurship from Cornell University.

Martin S. A. Beck.

Mr. Beck serves as our Chief Financial Officer. Mr. Beck has served as a Managing Director at Sikich Corporate Finance, LLC since October 2018 and as the Founder and President of Rewi Enterprises, LLC, a private investment firm, since 2003. Mr. Beck served as a

co-founder

and Managing Director of MAT Capital, LLC from October 2009 to January 2016. Mr. Beck was a Director at Macquarie Capital Advisors from January 2007 to August 2009 where he focused on Mergers and Acquisitions and principal transactions. Before then, beginning in May 2000, Mr. Beck was an Executive Director at J.P. Morgan, where he specialized in Mergers and Acquisitions in the industrials sectors. Mr. Beck also served as Managing Director of Weichai Power Co. from October 2009 to May 2015, where he led International Corporate Development. Mr. Beck received a Masters of Business Administration from New York University, a J.D. from Northwestern University School of Law, and a Bachelor of Arts in Economics from Princeton University.

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Non-Employee

Directors

Dr.

 Chirinjeev Kathuria.

Dr. Kathuria serves as the

Co-Chairman

of our Board of Directors. Dr. Kathuria is an Indian-American investor, businessperson, and philanthropist. He is the

co-founder

of UpHealth Holdings and several other companies. Dr. Kathuria

co-founded

Ocean Biomedical in January 2019 and serves as the Chairman of its Board of Directors, a position he has held since inception. Ocean Biomedical is a biotech company that partners with leading scientists and research institutions to accelerate the translation of new discoveries into breakthrough medicines. Dr. Kathuria also

co-founded

AIRO Group in March 2020 and serves as the Chairman of its Board of Directors, a position he has held since inception. AIRO Group offers an

end-to-

end solution for the next generation of avionics, manned and unmanned mobility, and multi-modal transportation for defense and commercial markets. In addition, Dr. Kathuria

co-founded

and served as Chairman of New Generation Power in February 2009 and founded and served as a director of American Teleradiology NightHawks, Inc. in March 2003. American Teleradiology NightHawks, Inc. merged with NightHawk Radiology Holdings, Inc. and the combined company went public on NASDAQ in October 2006. Dr. Kathuria served as a director of The

X-Stream

Networks Inc. from March 1998 to March 2000, an internet service provider which was sold to Liberty Surf Group S.A. and subsequently went public on the Paris Stock Exchange. Dr. Kathuria has also been involved in space exploration, and was the Founding Director of MirCorp in January 1999, the first commercial company to privately launch and fund manned space programs. Dr. Kathuria ran for U.S. Senate in Illinois, becoming the first Indian-American to run for the U.S. Senate in U.S. history, in a race that included eventual winner, President Barack Obama. Dr. Kathuria received a Bachelor of Science degree and Doctor of Medicine degree from Brown University and a Master of Business Administration degree from Stanford University.

Dr.

 Avi

 S. Katz.

Dr. Avi S. Katz serves as

Co-Chairman

of our Board of Directors. Previously, he served as our Executive Chairman of our Board of Directors since March 2019 until the closing of the Business Combinations on June 9, 2021, and from that time until August 2019, was also our Chief Executive Officer, President and Secretary. In March 2019, Dr. Katz founded the Company. The Company completed its initial public offering in June 2019, in which it sold 17,250,000 units at a per unit price of $10.00, with each unit consisting of one share of our Common Stock, one warrant to purchase one share of our Common Stock, and one right to receive

one-twentieth

(1/20) of one share of our Common Stock, generating aggregate proceeds of $172,500,000. He also serves as

Co-Chairman

of the Board of Directors of Lightning eMotors, Inc. (formerly GigCapital3, Inc.), where he previously prior to the May 2021 business combination served as the Executive Chairman of the Board of Directors, Chief Executive Officer, President and Secretary since February 2020, as the Executive Chairman of the Board of Directors of GigCapital4, Inc. since its inception in December 2020, as the Executive Chairman of the Board of Directors of GigCapital5, Inc. since its inception in January 2021, as a director of GigCapital6, Inc. since its inception in February 2021, and as the Executive Chairman of the Board of Directors of GigInternational1, Inc. since its inception in February 2021. He is also the Founding Managing Member of GigFounders, LLC, a Founding Managing Member of GigManagement, LLC and the Manager of the Sponsor, as well as GigAcquisitions, LLC (the sponsor of GigCapital) and GigAcquisitions3, LLC (the sponsor of GigCapital3, Inc.). Dr. Katz has spent approximately 33 years in international executive positions within the TMT industry working for privately held

start-ups,

middle-cap

companies and large enterprises. In these roles, Dr. Katz has been instrumental in launching and accelerating entities, building teams, large scale fund-raising, developing key alliances and technology partnerships, M&A activities, business development, financial management, global operations and sales and marketing. In October 2017, Dr. Katz founded GigCapital, a

Private-to-Public

Equity (PPE) company formed for the purpose of acquiring a company in the technology industry. GigCapital completed its initial public offering in December 2017, in which it sold 14,375,000 units at price of $10.00 per unit, with each unit consisting of one share of GigCapital common stock, three-quarters (3/4) of one warrant to purchase one share of GigCapital common stock and one right to receive

one-tenth

(1/10) of one share of GigCapital common stock, generating aggregate proceeds of $143,750,000, and, at that time, was listed on the NYSE under the symbol “GIG.” On February 22, 2019, after intensive screening of more than 400 companies worldwide, GigCapital entered into a stock purchase agreement to acquire Kaleyra S.p.A. at a transaction enterprise value of $187,000,000 with combined cash and/or promissory note consideration of $15,000,000. Kaleyra S.p.A. is a

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global company specialized in providing mobile messaging services for financial institutions and companies of all sizes. The transaction closed on November 25, 2019, and GigCapital was renamed Kaleyra, Inc. and listed on the NYSE American stock exchange under the symbol “KLR” at that time. Dr. Katz has served as the Executive Chairman of Kaleyra, Inc. since the consummation of the transaction in November 2019. Dr. Katz is also the

co-founder

of Cognizer, a software company specializing in deeplearning powered natural language artificial intelligence, and was the Executive Chairman of Cognizer’s board of directors from its inception in December 2018 until August 2020. Prior to forming GigCapital, Dr. Katz dedicated 10 years to bootstrap, develop and manage GigPeak (NYSE American: formerly GIG), originally known as GigOptix, Inc. He served as Chairman of the Board, Chief Executive Officer and President of GigPeak from its inception in 2007 until its sale in April 2017 to IDT for $250,000,000 in cash, GigPeak provided semiconductor integrated circuits and software solutions for high-speed connectivity and video compression. While Dr. Katz was at GigPeak’s helm, the company completed 10 M&A deals. From 2003 to 2005, Dr. Katz was the Chief Executive Officer, President, and member of the board of directors of Intransa, Inc., which at the time provided full-featured, enterprise-class

IP-based

Storage Area Networks. From 2000 to 2003, Dr. Katz was the Chief Executive Officer and a member of the board of directors of Equator Technologies, which at the time sought to commercialize leading edge programmable media processing platform technology for the rapid design and deployment of digital media and imaging products. Equator Technologies was sold to Pixelworks, Inc. for $110,000,000 in 2005. Dr. Katz has held several leadership positions over the span of his career within the technology industry since serving as Member of Technical Staff at AT&T Bell Laboratories in the 1980s, and has made numerous angel investments in high-tech companies around the world. Dr. Katz is a graduate of the Israeli Naval Academy and holds a B.Sc. and Ph.D. in Semiconductors Materials from the Technion (Israel Institute of Technology). He is a serial entrepreneur, holds many U.S. and international patents, has published many technical papers and is the editor of a number of technical books. Dr. Katz is married to Dr. Dinu, one of our directors.

Dr.

 Raluca Dinu.

Dr. Raluca Dinu joined our Board of Directors in March 2019 and served as our President and Chief Executive Officer from August of 2019 until the closing of the Business Combinations on June 9, 2021. She has also served as a director of Lightning eMotors, Inc. (formerly GigCapital3, Inc.), since it’s business combination in May 2021, and prior to then, of GigCapital3, Inc. since February 2020, and as the President, Chief Executive Officer, Secretary and a director of GigCapital4, Inc. since its inception in December 2020, as the President, Chief Executive Officer, Secretary and a director of GigCapital5, Inc. since its inception in January 2021, as the Executive Chairman of the Board of Directors, President, Chief Executive Officer and Secretary of GigCapital6, Inc. since its inception in February 2021, and as the President, Chief Executive Officer, Secretary and director of GigInternational1, Inc. since its inception in February 2021. From April 2017 to May 2019, Dr. Dinu was the Vice President and General Manager of Integrated Device Technology, Inc. (Nasdaq: IDTI) (“

IDT

”)’s Optical Interconnects Division. Prior to that, she held several executive-level positions at GigPeak, including Executive Vice President and Chief Operation Officer from 2008 until it was acquired by IDT in April 2017, and before that, as its Executive Vice President of Global Sales and Marketing from August 2015 to April 2016, and as its Senior Vice President of Global Sales and Marketing from December 2014 to August 2015. From February 2014 to September 2017, Dr. Dinu was a member of the Board of Directors of

Brazil-Photonics,

in Campinas, Brazil, a joint venture that GigPeak established with the Centro de Pesquisa e Desenvolvimento em Telecomunicações. From 2001 to 2008, Dr. Dinu was VP of Engineering at Lumera (NASDAQ: LMRA). Lumera was acquired by GigPeak in 2008, and Dr. Dinu joined GigPeak at that time. Dr. Dinu holds a B.Sc. in Physics and Ph.D. in Solid State Condensed Matter Physics from the University of Bucharest, and an

Executive-MBA

from Stanford University. Dr. Dinu is married to Dr. Katz,

Co-Chairman

of our Board of Directors.

Dr.

 Mariya Pylypiv.

Dr. Pylypiv is a member of our Board of Directors, and also serves as the Chief Strategy Officer of UpHealth. She is the

co-founder

of UpHealth Holdings and previously served as the Vice Chairwoman and Secretary of the Board of UpHealth Holdings. Since January 2018, Dr. Pylypiv was responsible for the development of UpHealth Holdings’ business and corporate strategies along with leading successful completion of several acquisitions. Dr. Pylypiv has worked for Sikich LLC since March 2018. Prior to that, she was in charge of operations and trading and development of global absolute return long/short

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market-neutral equity strategies for Acrospire Investment Management LLC from February 2016 to March 2018, most recently serving as Vice President of Investment Banking and Corporate Development Vice President. Dr. Pylypiv held a role as a Quantitative Research Analyst for Rotella Capital Management from July 2014 to January 2016 developing research strategies and overseeing fund operation and trading activities. Dr. Pylypiv holds B.A. and M.A. degrees in Accounting from Precarpathian National University, B.A. and M.A. degrees in International Economics and Tourism from Ternopil National Economic University and a Ph.D. from Purdue University.

Neil Miotto.

Mr. Miotto joined our Board of Directors in March 2019. He also serves on the board of directors of Lightning eMotors, Inc. (formerly GigCapital3, Inc.), since its business combination in May 2021, and prior to then, of GigCapital3, Inc. in February 2020. Mr. Miotto became a member of the board of directors of GigCapital in October 2017 and has continued in that role after that company became Kaleyra, Inc. In addition, Mr. Miotto served on the board of directors of Micrel, Inc. prior to its sale to Microchip Technology Inc. in May 2015, and on the board of directors of GigPeak from 2008 until its sale to IDT in April 2017. He currently serves on the board of directors of Cognizer, a position he has held since March 2019. Mr. Miotto is a financial consultant and a retired assurance partner of KPMG LLP where he was a partner for twenty-seven years until his retirement in September 2006. Since his retirement from KPMG Mr. Miotto has provided high level financial consulting services to companies in need of timely accounting assistance and in serving on public company boards. He is deemed to be a ‘financial expert’ under SEC and NYSE rules. While at KPMG Mr. Miotto focused on serving large public companies. Mr. Miotto also served as an SEC reviewing partner while at KPMG. He is a member of the American Institute of Certified Public Accountants. He holds a Bachelor of Business Administration degree from Baruch College, of The City University of New York.

Nathan Locke

. Mr. Locke joined our Board of Directors upon the closing of the Business Combinations. Mr. Locke is a Managing Partner and

Co-Head

of Kayne Anderson Capital Advisors’ growth equity activities. He has spent more than a dozen years at Kayne Anderson identifying and analyzing investment opportunities in technology and tech-enabled service companies, and assisting at the board level in helping those companies as they scale post-investment. He has been involved with companies at various stages of growth in healthcare technology and telemedicine, media & telecom, security & compliance and supply chain & logistics. Prior to joining Kayne Anderson in 2008, Mr. Locke worked as a senior analyst on the finance team of Romney for President, Inc., and as the controller for The Commonwealth Political Action Committees. Mr. Locke earned a B.S. in Finance from the University of Utah, where he graduated magna cum laude from the David Eccles School of Business.

Jerome Ringo

. Mr. Ringo joined our Board of Directors upon the closing of the Business Combinations. Mr. Ringo is a leader on climate change issues and has led two of the largest environmental organizations in the world, the five million-member National Wildlife Federation and the Apollo Alliance, a nineteen million-member organization, which was the largest coalition on green jobs in history. Since November 2020, Mr. Ringo has served as Founder and Chairman of Zoetic Global, a company focused on delivering breakthrough technologies in energy efficiency and generation for developing nations in Africa. Since July 2017, he has served as Goodwill Ambassador, Trade and Investment, for the

Pan-African

Parliament. Mr. Ringo served on the Environmental Defense Fund’s board of directors from February 2018 to February 2020. Mr. Ringo also founded and served from 2006 to 2012 as the Chief Executive Officer of Progressive Resources & JerMar Enterprises, an environmental consultancy focused on the communities affected by oil refineries in Louisiana.

Agnès

Rey-Giraud.

Ms. Rey-Giraud

joined our Board of Directors upon the closing of the Business Combinations.

Ms. Rey-Giraud

is chairman and Chief Executive Officer of Acera Surgical, Inc., which she

co-

founded in 2013. Acera Surgical has engineered a new class of resorbable synthetic hybrid-scale fiber matrices designed to restore damaged tissue.

Ms. Rey-Giraud

played an essential role in devising Acera’s initial strategy, recruiting the company’s first leadership team and securing the financial backing to bring revolutionary concepts from the lab to the operating room.

Ms. Rey-Giraud

was previously an officer at Express Scripts Holding Company (Nasdaq: ESRX), a Fortune 100 company, where she served in multiple executive roles of

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increasing responsibility, including Executive Vice President of Product Development, Supply Chain, Corporate Strategy and President of International Operations.

Ms. Rey-Giraud

currently serves on the board of GoodRx, Inc. (Nasdaq: GDRX), a role she has held since 2016. The company recently completed a multibillion IPO. GoodRx offers a range of services that help people get the healthcare they need at a price they can afford. In addition,

Ms. Rey-Giraud

has served on numerous boards of directors, including RxHub (now SureScripts), a healthcare technology services company, from its design and creation from 2000 to 2006. During this period, RxHub transformed from a business plan to a service and technology platform, facilitating the creation of communication standards and the adoption of electronic prescribing in the United States that are now the common standard in the country. Her other board roles have included Pritikin, a wellness company, from September 2011 to June 2020 and HD Smith, a privately-owned drug wholesale distributor, from September 2013 to March 2015.

Ms. Rey-Giraud

is a cancer survivor who credits a clinical trial with her life-saving treatment. She has since become an advocate for breast cancer awareness and affordable health care, especially for patients diagnosed with debilitating or terminal illness.

Ms. Rey-Giraud

holds an MBA from the University of Chicago, a Master of Management in Operations from Ecole de Management de Lyon Business School, and a Master’s degree in engineering, also earned in France. She has earned certifications in board service from Northwestern University and Harvard College.

Moshe

Bar-Siman-Tov

.

Mr. Bar-Siman-Tov

joined our Board of Directors upon the closing of the Business Combinations. From 2015 to 2020,

Mr. Bar-Siman-Tov

was the Director General of the Israeli Ministry of Health, where he was responsible for managing the budget and employees of the Ministry and various public hospitals. During the first phase of the

COVID-19

pandemic in Israel, he was in charge of the national professional and medical response to the pandemic. Before the onset of the pandemic, as Director General,

Mr. Bar-Siman-Tov

oversaw the preparation of a strategic long-term plan for the Ministry of Health, promoted the digitalization of the health industry, and designed and led the recovery plan for Hadassah hospital and a merger of two other public hospitals. Prior to his role as Director General of the Israeli Ministry of Health,

Mr. Bar-Siman-Tov

served as the Economic Minister at the Israeli embassy in Washington, D.C.

Mr. Bar-Siman-Tov

holds a Masters Degree from Hebrew University of Jerusalem in Economics and Business Administration.

Classified Board of Directors

Our Board is comprised of nine members. Our Board believes it is in the best interests of the Company for the Board to be classified into three classes, each comprising as nearly as possible

one-third

of the directors to serve three-year terms. Each Class I director, consisting of Messrs.

Bar-Siman-Tov,

Miotto and Ringo, will have a term that expires at the Company’s annual meeting of stockholders in 2022, each Class II director, consisting of Drs. Dinu and Pylypiv, and Mr. Locke, will have a term that expires at the Company’s annual meeting of stockholders in 2023 and each Class III director, consisting of Drs. Katz and Kathuria, and

Ms. Rey-Giraud,

will have a term that expires at the Company’s annual meeting of stockholders in 2024, or in each case until their respective successors are duly elected and qualified, or until their earlier resignation, removal or death.

Committees of the Board of Directors

The standing committees of our Board currently consist of an audit committee, a compensation committee and a nominating and corporate governance committee. Each of the committees will report to the Board as they deem appropriate and as the Board may request. The composition, duties and responsibilities of these committees are set forth below. The Board may also convene additional committees as necessary and in accordance with the organizational documents of the Company.

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Audit Committee

The audit committee is responsible for, among other matters:

• assisting the Board in the oversight of (i) the accounting and financial reporting processes of the Company and the audits of the financial statements of Company, (ii) the preparation and integrity of the financial statements of the Company, (iii) the compliance by the Company with financial statement and regulatory requirements, (iv) the performance of the Company’s internal finance and accounting personnel and its independent registered public accounting firms, and (v) the qualifications and independence of the Company’s independent registered public accounting firms;

• reviewing with each of the internal and independent registered public accounting firms the overall scope and plans for audits, including authority and organizational reporting lines and adequacy of staffing and compensation;

• reviewing and discussing with management and internal auditors the Company’s system of internal control and discuss with the independent registered public accounting firm any significant matters regarding internal controls over financial reporting that have come to its attention during the conduct of its audit;

• reviewing and discussing with management, internal auditors and independent registered public accounting firm the Company’s financial and critical accounting practices, and policies relating to risk assessment and management;

• receiving and reviewing reports of the independent registered public accounting firm discussing (i) all critical accounting policies and practices to be used in the firm’s audit of the Company’s financial statements, (ii) all alternative treatments of financial information within U.S. GAAP that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent registered public accounting firm, and (iii) other material written communications between the independent registered public accounting firm and management, such as any management letter or schedule of unadjusted differences;

• reviewing and discussing with management and the independent registered public accounting firm the annual and quarterly financial statements and section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company prior to the filing of the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q;

• reviewing, or establishing, standards for the type of information and the type of presentation of such information to be included in, earnings press releases and earnings guidance provided to analysts and rating agencies;

• discussing with management and the independent registered public accounting firm any changes in Company’s critical accounting principles and the effects of alternative U.S. GAAP methods, off-balance sheet structures and regulatory and accounting initiatives;

• reviewing material pending legal proceedings involving the Company and other contingent liabilities;

• meeting periodically with the Chief Executive Officer, Chief Financial Officer, the senior internal auditing executive and the independent registered public accounting firm in separate executive sessions to discuss results of examinations;

• reviewing and approving all transactions between the Company and related parties or affiliates of the officers of the Company requiring disclosure under Item 404 of Regulation S-K prior to the Company entering into such transactions;

• establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees or contractors of concerns regarding questionable accounting or accounting matters;

• reviewing periodically with the Company’s management, the independent registered public accounting firm and outside legal counsel (i) legal and regulatory matters which may have a material effect on the financial statements, and (ii) corporate compliance policies or codes of conduct, including any

122

correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding the Company’s financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities; and

• establishing policies for the hiring of employees and former employees of the independent registered public accounting firm.

Our audit committee consists of Messrs. Miotto, Locke and

Bar-Siman-Tov

and Dr. Dinu, each of whom qualifies as an independent director according to the rules and regulations of the SEC and NYSE with respect to audit committee membership. Mr. Miotto serves as chairman of the audit committee. Each member of the audit committee is financially literate and our Board has determined that Mr. Miotto qualifies as an “audit committee financial expert” as defined in applicable SEC rules. Our Board has adopted a written charter for the audit committee, which is be available on our corporate website at

http://investors.uphealthinc.com

. The information on our website is not part of this prospectus.

Compensation Committee

The compensation committee is responsible for, among other matters:

• reviewing the performance of the Chief Executive Officer and executive management;

• assisting the Board in developing and evaluating potential candidates for executive positions (including Chief Executive Officer);

• reviewing and approving goals and objectives relevant to the Chief Executive Officer and other executive officer compensation, evaluating the Chief Executive Officer’s and other executive officers’ performance in light of these corporate goals and objectives, and setting Chief Executive Officer and other executive officer compensation levels consistent with its evaluation and the Company’s philosophy;

• approving the salaries, bonus and other compensation for all executive officers;

• reviewing and approving compensation packages for new corporate officers and termination packages for corporate officers as requested by management;

• reviewing and discussing with the Board and senior officers plans for officer development and corporate succession plans for the Chief Executive Officer and other senior officers;

• reviewing and making recommendations concerning executive compensation policies and plans;

• reviewing and recommending to the Board the adoption of or changes to the compensation of the Company’s directors;

• reviewing and approving the awards made under any executive officer bonus plan, and providing an appropriate report to the Board;

• reviewing and making recommendations concerning long-term incentive compensation plans, including the use of stock options and other equity-based plans, and, except as otherwise delegated by the Board, acting as the “Plan Administrator” for equity-based and employee benefit plans;

• approving all special perquisites, special cash payments and other special compensation and benefit arrangements for the Company’s executive officers and employees;

• reviewing periodic reports from management on matters relating to the Company’s personnel appointments and practices;

• assisting management in complying with the Company’s proxy statement and annual report disclosure requirements;

• issuing an annual Report of the Compensation Committee on Executive Compensation for the Company’s annual proxy statement in compliance with applicable SEC rules and regulations;

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• annually evaluating the Committee’s performance and the committee’s charter and recommending to the Board any proposed changes to the charter or the committee; and

• undertaking all further actions and discharging all further responsibilities imposed upon the committee from time to time by the Board, the federal securities laws or the rules and regulations of the SEC.

Our compensation committee consists of

Ms. Rey-Giraud,

Dr. Dinu and Messrs. Miotto and

Bar-Siman-Tov,

each of whom qualifies as an independent director according to the rules and regulations of NYSE with respect to compensation committee membership.

Ms. Rey-Giraud

serves as chairman of the compensation committee. Our Board has adopted a written charter for the compensation committee, which is available on our corporate website at

http://investors.uphealthinc.com

. The information on our website is not part of this prospectus.

Nominating and Governance Committee

The nominating and corporate governance committee is responsible for, among other matters:

• developing and recommending to the Board the criteria for appointment as a director;

• identifying, considering, recruiting and recommending candidates to fill new positions on the Board;

• reviewing candidates recommended by stockholders;

• conducting the appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates; and

• recommending director nominees for approval by the Board and election by the stockholders at the next annual meeting.

The nominating and governance committee has not established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the Board considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders.

Our nominating and governance committee consists of Messrs. Locke and Ringo, Dr. Katz, and

Ms. Rey-Giraud,

each of whom qualifies as an independent director according to the rules and regulations of the SEC and NYSE with respect to nominating and governance committee membership. Mr. Ringo serves as chairman of the nominating and governance committee. Our Board has adopted a written charter for the nominating and governance committee, which is available on our corporate website at

http://investors.uphealthinc.com

. The information on our website is not part of this prospectus.

Code of Ethics

We have adopted a Code of Ethics applicable to our management team and employees in accordance with applicable federal securities laws. We have previously filed copies of our Code of Ethics and the charter for each of our committees. You can review those documents, as well as our other publicly filed documents, by accessing our public filings at the SEC’s web site at

www.sec.gov

. In addition, a copy of the Code of Ethics will be provided without charge upon request from us. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report on Form

8-K.

See “

Where You Can Find Additional Information

.”

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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

Related Party Transactions

Founder Shares

During the period from March 6, 2019 (date of inception) to March 12, 2019, the Sponsor and Northland Investments purchased 2,500,000 shares of Common Stock (the “Founder Shares”) for an aggregate purchase price of $25,000, or $0.01 per share. In April 2019, the Company effected a stock dividend of 0.493 shares of Common Stock for each outstanding share of Common Stock, resulting in the Sponsor and Northland Investments holding an aggregate of 3,732,500 shares of its Common Stock. Subsequently, the Sponsor and Northland Investments sold 68,041 shares and 31,959 shares, respectively, to EarlyBird and the EarlyBird Group collectively for an aggregate purchase price of $670, or $0.0067 per share. In June 2019, the Company effected a stock dividend of 0.1541 shares of Common Stock for each outstanding share of Common Stock, resulting in the Sponsor, Northland Investments, EarlyBird and the EarlyBird Group holding an aggregate of 4,307,500 shares of its Common Stock as of December 31, 2019. The Founder Shares are identical to the Common Stock included in the Units sold in the IPO except that the Founder Shares are subject to certain transfer restrictions, as described in more detail below.

Private Placement

The Founders purchased from the Company an aggregate of 492,500 Private Placement Units at a price of $10.00 per unit in a private placement that occurred simultaneously with the completion of the initial closing of the IPO. The Founders also purchased from the Company an aggregate of 75,000 Private Placement Units at a price of $10.00 per unit in a private placement that occurred simultaneously with the completion of the second closing of the IPO with the exercise of the over-allotment option. Among the Private Placement Units, 481,250 units were purchased by the Sponsor, 29,900 units were purchased by EarlyBird, and 56,350 units were purchased by Northland Investments. Each Private Placement Unit consisted of one share of the Company’s Common Stock, $0.0001 par value, one warrant, and one right to receive

one-twentieth

of a share of Common Stock upon the consummation of the Company’s initial Business Combination. Warrants are exercisable for $11.50 per share, and the exercise price of the warrants may be adjusted in certain circumstances.

One of the Company’s underwriters in its IPO, Northland, and affiliate of Northland Investments, purchased 100,000 Private Underwriter Shares, at a purchase price of $10.00 per share in a private placement that occurred simultaneously with the completion of the initial closing of the IPO. Northland also purchased from the Company an aggregate of 20,000 Private Underwriter Shares at a price of $10.00 per share in a private placement that occurred simultaneously with the completion of the second closing of the IPO with the exercise of the over-allotment option. The Private Underwriter Shares are identical to the shares of Common Stock included in the Private Placement Units.

The Company’s Founders and underwriters in its IPO agreed not to transfer, assign or sell any of their Founder Shares, Private Placement Units, shares or other securities underlying such Private Placement Units, or Private Underwriter Shares until the earlier of (i) 12 months after the completion of the Company’s initial business combination, or earlier if, subsequent to the Company’s initial business combination, the last sale price of the Company’s Common Stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any

30-trading

day period commencing at least 90 days after the Company’s initial business combination or (ii) the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction after the initial business combination that results in all of the Company’s stockholders having the right to exchange their shares of Common Stock for cash, securities or other property.

Unlike the public warrants, if held by the original holder or its permitted transferees, the Private Placement Warrants are not redeemable by the Company and subject to certain limited exceptions, will be subject to transfer restrictions until one year following the consummation of the Business Combinations. If the Private

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Placement Warrants are held by holders other than the initial holders or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by holders on the same basis as the public warrants.

Lock-up

Agreements

Subject to certain limited exceptions, our Founders and each member of our management team have agreed not to transfer, assign or sell any of Founder Shares, Private Placement Units or any securities underlying the Private Placement Units (including the Private Placement Shares) until the date that is one year after the date of the consummation of our initial business combination. Notwithstanding the foregoing, (1) if the last sale price of our Common Stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any

30-trading

day period commencing at least 90 days after our initial business combination, or (2) if we consummate a liquidation, merger, stock exchange or other similar transaction after our initial business combination which results in all of our stockholders having the right to exchange their shares of Common Stock for cash, securities or other property, then the locked up securities will be released from the

lock-up.

Notwithstanding the foregoing, during the lockup period, the Founders and our management team may transfer, assign or sell any of the aforenamed securities (1) amongst the Founders and their affiliates, to our management team, or to any affiliate or family member of any of our management team, (2) in the case of an entity, as a distribution to its partners, stockholders or members upon its liquidation, (3) in the case of an individual, (i) by bona fide gift to such person’s immediate family or to a trust, the beneficiary of which is a member of such person’s immediate family, an affiliate of such person or to a charitable organization, (ii) by virtue of the laws of descent and distribution upon death of such person, or (iii) pursuant to a qualified domestic relations order, (4) by certain pledges to secure obligations incurred in connection with purchases of the Company’s securities, (5) through private sales or transfers made in connection with the consummation of our initial business combination at prices no greater than the price at which such securities were originally purchased or (6) to us for no value for cancellation in connection with the consummation of our initial business combination;

provided

, that, in each such case (except clause (6), these transferees would be subject to the same restrictions and other agreements of our Initial Stockholders with respect to any such securities.

Registration Rights Agreement

On June 5, 2019, the Company entered into a Registration Rights Agreement with its Founders, Northland and Ms. McDonough. These holders are entitled to make up to three demands, excluding short form registration demands, that the Company register their securities for sale under the Securities Act. In addition, these holders have “piggy-back” registration rights to include their securities in other registration statements filed by the Company. The Company will bear the expenses incurred in connection with the filing of any such registration statements. There will be no penalties associated with delays in registering the securities under the Registration Rights Agreement. Upon cancellation of Ms. McDonough’s insider shares following her resignation, effective as of August 12, 2019, she was no longer subject to the terms and conditions set forth in the Registration Rights Agreement.

Management Services Agreement

On September 5, 2019, TTC Healthcare, TTC Healthcare Partners, LLC (“

Partners

”), and Rewi Enterprises, LLC (“

Rewi

”) entered into a Management Services Agreement (the “

MSA

”). Martin S. A. Beck, our Chief Financial Officer, is the sole member of Rewi. Mr. Beck transferred his shares in UpHealth Holdings to Rewi on November 2, 2020. Mr. Beck is the Chairman of TTC Healthcare and the Manager and President of Rewi. Pursuant to the MSA, Rewi provides certain advisory services to TTC Healthcare, including analyzing and advising on opportunities for, and structuring and negotiating, operational arrangements, financings and investments and identifying, analyzing, and advising on potential dispositions, exit opportunities, and prospective purchases. In consideration for these services, Rewi is paid an annual management fee equal to the greater of 5.0% of TTC Healthcare’s trailing twelve month EBITDA and $500,000, which is payable on a monthly basis. Upon completion by TTC Healthcare of any Transaction (as defined in the MSA), Rewi is also

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paid an advisory fee of 3.50% of the Aggregate Gross Consideration (as defined in the MSA). Management fee expenses paid were approximately $200,000 and $275,000 for the year ended December 31, 2020 and the period from September 5, 2019 through December 31, 2019, respectively. At December 31, 2020 and December 31, 2019, there were unpaid management fees of $188,333 and $0, respectively. There were no management fees for the period from January 1, 2019 through September 4, 2019.

Indebtedness

On December 2, 2016, Glocal and Kimberlite Social Infra Private Limited (“

Kimberlite

”) entered into a Loan Agreement (the “

Glocal Loan Agreement

”) for an up to INR 15,00,00,000 unsecured loan for business purposes. Dr. Sabahat S. Azim, our Chief Executive Officer of International Operations, is a shareholder of Kimberlite (44% ownership interest), and Dr. Azim and his wife are the sole directors of Kimberlite. Kimberlite is also a shareholder of Glocal (2.12% ownership interest). The loan is repayable upon demand. Pursuant to the terms of the Glocal Loan Agreement, the interest rate may be mutually decided by the parties on or before the repayment of the loan. As of April 27, 2021, the outstanding principal amount of the loan was INR 1,10,39,894. Between January 1, 2020 and April 27, 2021, total principal payments of INR 10,17,600 were made and the largest aggregate amount of principal outstanding was INR 2,77,57,494. No interest payments were made during this time period.

Registration Rights and

Lock-Up

Agreements

In connection with the closing of the UpHealth Business Combination, certain existing UpHealth Stockholders entered into the UpHealth Registration Rights and

Lock-Up

Agreement.

In connection with the closing of the Cloudbreak Business Combination, certain existing Cloudbreak equityholders entered into the Cloudbreak Registration Rights and

Lock-Up

Agreement.

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EXECUTIVE COMPENSATION

Summary Compensation Table

The table below sets forth the annual compensation levels for 2019 and 2020 for the existing executive officers of UpHealth Holdings who will continue either as directors or executive officers of UpHealth, using their existing titles. The compensation totals and individual amounts reflect the compensation of such officers of UpHealth Holdings for 2019 and 2020. In fiscal year 2021, such totals and amounts may change based, on among other things, changes to the terms of the employment of such persons.

Name and Principal Position(1)	Year		Salary ($)		Bonus ($)		All Other Compensation ($)(2)		Total ($)
Dr. Chirinjeev Kathuria,		2020	$	–	$	–	$	–	$	–
Executive Chairman		2019	$	–	$	–	$	–	$	–
Dr. Mariya Pylypiv,		2020	$	–	$	–	$	–	$	–
Vice Chairwoman and Chief Strategy Officer		2019	$	–	$	–	$	–	$	–
Dr. Alfonso W. Gatmaitan,(3)		2020	$	–	$	–	$	–	$	–
Co-Chief Executive Officer and President		2019	$	–	$	–	$	–	$	–
Dr. Ramesh Balakrishnan,		2020	$	240,000	$	250,000	$	39,509	$	529,509
Co-Chief Executive Officer		2019	$	240,000	$	–	$	39,509	$	279,509
Martin S.A. Beck,(3)		2020	$	–	$	–	$	–	$	–
Chief Financial Officer		2019	$	–	$	–	$	–	$	–
Dr. Syed Sabahat Azim,(4)		2020	$	30,589	$	–	$	34,170	$	64,760
Chief Executive Officer of Glocal Healthcare Systems Private Limited		2019	$	31,297	$	–	$	34,961	$	66,257

(1) None of Dr. Kathuria, Dr. Pylypiv, Dr. Gatmaitan, or Mr. Beck received any compensation during 2020 or 2019. However, pursuant to the terms of the offer letters between each such individual and UpHealth Services, Inc., these individuals were paid their 2020 accrued salary amounts (Dr. Kathuria–$200,000, Dr. Pylypiv–$200,000, Dr. Gatmaitan–$300,000, or Mr. Beck–$196,875) upon the closing of the UpHealth Business Combination. In addition, Dr. Gatmaitan was paid a signing bonus of $50,000 upon the closing of the UpHealth Business Combination. Dr. Gatmaitan is also entitled to bonuses in the aggregate amount of $500,000 to be paid as follows (subject to Dr. Gatmaitan being employed by UpHealth Services, Inc. UpHealth Holdings, Inc., or a successor entity as of such date): $150,000, $150,000, $150,000, and $50,000 on the dates that are six months, eighteen months, thirty months, and forty-two months following the closing of the UpHealth Business Combination, respectively. Mr. Beck received $225,000 upon closing of the UpHealth Business Combination.

(2) “All other compensation” for Dr. Balakrishnan consisted of the following in each of 2020 and 2019: $23,237 for premium payments for additional life insurance, $15,000 for company vehicle and vehicle expenses, and $1,272 for home office internet. All Other Compensation for Dr. Azim consisted of the following for 2020 and 2019: $8,249 and $8,450 for house rent allowance, $131 and $135 for transport allowance, and $25,748 and $26,376 for rural posting allowance, respectively.

(3) The employment offer letters between each Dr. Gatmaitan and Mr. Beck and UpHealth Services, Inc., include the following severance provisions: If the individual’s employment is terminated without Cause (as defined in the offer letter) or for Good Reason (as defined in the offer letter), such individual is entitled to the following: (a) base salary for one year; (b) payment of any bonus earned during prior fiscal years, but not yet paid; and (c) accelerated vesting of all outstanding rights for stock, warrants, or other equity ownership interests (vesting occurs on one-year anniversary of termination date, unless termination is within two years following a Change in Control (as defined in the offer letter), in which case vesting occurs on termination date). In addition, in the event of the death or

Disability (as defined in the offer letter) of the individual, accelerated vesting of all outstanding rights for stock, warrants, or other equity ownership interests to the date of termination of employment due to death or Disability. Neither the employment offer letter between Dr. Pylypiv and UpHealth Services, Inc. nor the employment agreement between Dr. Balakrishnan and Thrasys, Inc. include severance provisions. Dr. Azim is not a party to an employment agreement.

(4) 2020 and 2019 salary and “all other compensation” for Dr. Azim was converted based on the exchange rate reported by the U.S. Federal Reserve Board on December 31, 2020 of 1 USD to 73.0100 Indian Rupees and December 31, 2019 of 1 USD to 71.3600 Indian Rupees, respectively.

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Cloudbreak

Summary Compensation Table

The table sets forth the annual compensation for 2019 and 2020 for the existing executive officer of Cloudbreak who has become an executive officer of UpHealth upon the closing of the Business Combinations, using his prior title. The compensation totals and amounts reflect the compensation of such officer of Cloudbreak for 2019 and 2020. In fiscal year 2021, such totals and amounts may change based, on among other things, changes to the terms of the employment of such persons.

Name and Principal Position	Year		Salary ($)		Bonus ($)		All Other Compensation ($)		Total ($)
Jamey Edwards		2020	$	300,000	$	0	$	34,433.64	$	334,433.64
Chief Executive Officer of Cloudbreak		2019	$	300,000	$	0	$	32,114.88	$	332,114.88

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BENEFICIAL OWNERSHIP OF SECURITIES

The following table sets forth information regarding the beneficial ownership of shares of Company Common Stock, by:

• each person known by the Company to be the beneficial owner of more than 5% of the Common Stock of the Company;

• each of the Company’s officers and directors; and

• all officers and directors of the Company, as a group.

Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days. The percentage ownership information shown in the column titled “Shares Beneficially Owned” in the table is based on 117,604,610 shares of common stock outstanding as of September 23, 2021. The percentage ownership information shown in the column titled “Shares Benefically Owned After this Offering” in the table is based upon 130,199,068 shares, assuming the sale of 12,594,458 shares of our common stock by us in this offering.

Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock of the Company beneficially owned by them.

	Shares Beneficially Owned					Shares Beneficially Owned After this Offering
Name and Address of Beneficial Owner(1)	Number of Shares		% of Class			Number of Shares		% of Class
Dr. Avi S. Katz(2)		5,005,549		4.2	%		5,005,550		3.8	%
Dr. Raluca Dinu		–		–	*		–		–	*
Neil Miotto		–		–	*		–		–	*
Dr. Chirinjeev Kathuria(7)		43,100,443		36.3	%		43,100,443		33.1	%
Dr. Mariya Pylypiv		7,461,644		6.3	%		7,461,644		5.7	%
Dr. Alfonso Gatmaitan		1,079,833		–	*		1,079,833		–	*
Dr. Ramesh Balakrishnan		4,351,175		3.7	%		4,351,175		3.3	%
Martin S. A. Beck(3)		4,424,075		3.8	%		4,424,075		3.4	%
Dr. Syed Sabahat Azim(4)		6,116,842		5.2	%		180,145		–	*
James Edwards(5)		1,523,821		1.3	%		1,523,821		1.2	%
Nathan Locke		–		–	*		–		–	*
Agnès Rey-Giraud		–		–	*		–		–	*
Jerome Ringo		–		–	*		–		–	*
Moshe Bar-Siman-Tov		–		–	*		–		–	*
All directors and executive officers (14 individuals) as a group		73,063,383		61.6	%		73,063,383		56.1	%

* Less than one percent.

(1) The business address of Dr. Avi Katz, Dr. Raluca Dinu and Neil Miotto is 1731 Embarcadero Rd., Suite 200, Palo Alto, CA 94303. The business address of each of the other individuals is c/o UpHealth, Inc., 14000 S. Military Trail, Suite 203, Delray Beach, FL 33484.

(2) Consists of (i) 4,524,300 shares of Common Stock, and (ii) 481,250 shares of Common Stock underlying warrants, all held by the Sponsor. The securities held by the Sponsor are beneficially owned by Dr. Avi S. Katz, the co-chairman of the Company’s board of directors and the manager of the Sponsor, who has sole voting and dispositive power over the shares held by the Sponsor.

(3) Consists of (i) 928,656 shares held by Rewi Enterprises LLC (of which Mr. Beck is the sole owner) and (ii) 3,495,419 shares held by Partners, (of which Mr. Beck is an equity owner and chairman of the board of directors) for which Mr. Beck may be deemed the beneficial owner. Mr. Beck disclaims beneficial ownership of the shares held by Partners.

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(4) Includes (i) 684,981 shares beneficially owned by Kimberlite (of which Dr. Azim and his wife are equity owners and the sole directors) and (ii) 2,715,542 shares beneficially owned by Dr. Azim’s wife for which Dr. Azim may be deemed the beneficial owner. All of the shares listed are held of record by Eligere Limited Liability Company (“ Eligere ”), a Delaware limited liability company, which has voting (but not dispositive) power over the shares and therefore may be deemed a beneficial owner. Each of Dr. Azim, his wife and Kimberlite can exercise an option to receive the shares from Eligere at any time and are therefore the beneficial owners of the shares as set forth above. Dr. Azim disclaims beneficial ownership of the shares of the Company’s Common Stock except to the extent of his pecuniary interest therein.

(5) Includes 473,266 shares of Common Stock issuable upon the exercise of options within 60 days of September 23, 2021.

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DESCRIPTION OF SECURITIES

General

Pursuant to our Second Amended and Restated Certificate of Incorporation, we are authorized to issue 300,000,000 shares of Common Stock, $0.0001 par value per share and 1,000,000 shares of preferred stock, par value $0.0001 per share. As the date of September 23, 2021, 117,604,610 shares of Common Stock are outstanding, held of record by approximately 129 holders of Common Stock, and 18,117,494 warrants outstanding held of record by approximately 32 holders of warrants. No shares of preferred stock are currently outstanding. Such numbers do not include DTC participants or beneficial owners holding shares through nominee names.

Common Stock

Common stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Unless specified in our Second Amended and Restated Certificate of Incorporation, or as required by applicable provisions of the DGCL or applicable stock exchange rules, the affirmative vote of a majority of our shares of Common Stock that are voted is required to approve any such matter voted on by our stockholders. Our stockholders are entitled to receive ratable dividends when, as and if declared by the Board out of funds legally available therefor.

Our Board is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares eligible to vote for the election of directors can elect all of the directors.

In the event of a liquidation, dissolution or winding up of the Company, our stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the Common Stock. Our stockholders have no preemptive or other subscription rights. There are no sinking fund provisions applicable to the Common Stock.

Our stockholders have no conversion, preemptive or other subscription rights.

Preferred Stock

There are no shares of preferred stock outstanding. Our Second Amended and Restated Certificate of Incorporation authorizes the issuance of 1,000,000 shares of preferred stock with such designation, rights and preferences as may be determined from time to time by our Board. Our Board is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of Common Stock. In addition, the preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control of us. Although the Company does not currently intend to issue any shares of preferred stock, the Company cannot assure you that the Company will not do so in the future.

Warrants

There are 18,117,494 warrants outstanding, of which 17,250,000 are public warrants, 567,500 are Private Placement Warrants, and 299,994 are PIPE Warrants. Each whole warrant entitles the registered holder to purchase one share of Common Stock at a price of $11.50 per share, subject to adjustment as discussed below. Only whole warrants are exercisable. The public warrants will expire at 5:00 p.m., New York City time, on June 9, 2026, or earlier upon redemption.

No public warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the shares of Common Stock issuable upon exercise of the warrants and a current prospectus

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relating to such shares of Common Stock. Notwithstanding the foregoing, if a registration statement covering the issuance of the shares of Common Stock issuable upon exercise of the public warrants is not effective within 90 days from the closing of the Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their warrants on a cashless basis.

The Private Placement Warrants are identical to the public warrants except that such Private Placement Warrants are exercisable for cash (even if a registration statement covering the issuance of the warrant shares issuable upon exercise of such warrants is not effective) or on a cashless basis, at the holder’s option, and will not be redeemable by us, in each case so long as they are still held by the Founders or their affiliates.

The PIPE Warrants are identical to the public warrants except that the PIPE Warrants are not redeemable by us, so long as they are still held by the original PIPE Investors or their affiliates and permitted assigns.

Once the warrants become exercisable, the Company may redeem the outstanding warrants (excluding the private placement warrants):

• in whole and not in part;

• at a price of $0.01 per warrant;

• upon a minimum of 30 days’ prior written notice of redemption, which the Company refers to as the 30-day redemption period; and

• if, and only if, the last reported sale price of the Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

The Company will not redeem the warrants unless a registration statement under the Securities Act covering the issuance of the warrant shares underlying the warrants to be so redeemed is then effective and a current prospectus relating to those warrant shares is available throughout the

30-day

redemption period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. If and when the warrants become redeemable by the Company, it may exercise our redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

If the foregoing conditions are satisfied and the Company issues a notice of redemption, each warrant holder may exercise his, her or its warrants prior to the scheduled redemption date. However, the price of the shares of Common Stock may fall below the $18.00 trigger price (as adjusted) as well as the $11.50 exercise price (as adjusted) after the redemption notice is issued.

The redemption criteria for our warrants have been established at a price which is intended to provide warrant holders a reasonable premium to the initial exercise price and provide a sufficient differential between the then-prevailing share price and the exercise price so that if the share price declines as a result of our redemption call, the redemption will not cause the share price to drop below the exercise price of the warrants.

If the Company calls the warrants for redemption as described above, our management will have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.” In making such determination, our management will consider, among other factors, our cash position, the number of warrants that are outstanding and the dilutive effect on our stockholders of issuing the maximum number of warrant shares issuable upon exercise of outstanding warrants. In such event, the holder would pay the exercise price by surrendering the warrants for that number of shares of Common Stock equal to the quotient obtained by

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dividing (x) the product of the number of shares of Common Stock underlying the warrants to be so exercised, and the difference between the exercise price of the warrants and the fair market value by (y) the fair market value.

A holder of a warrant may notify the Company in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 9.8% (or such other amount as a holder may specify) of the shares of Common Stock outstanding immediately after giving effect to such exercise.

If the number of outstanding shares of Common Stock is increased by a stock dividend payable in shares of Common Stock, or by a

split-up

of shares of Common Stock or other similar event, then, on the effective date of such stock dividend,

split-up

or similar event, the number of shares of Common Stock issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding shares of Common Stock. A rights offering to holders of Common Stock entitling holders to purchase shares of Common Stock at a price less than the fair market value will be deemed a stock dividend of a number of shares of Common Stock equal to the product of (i) the number of shares of Common Stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Common Stock) multiplied by (ii) one (1) minus the quotient of (x) the price per share of Common Stock paid in such rights offering divided by (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for Common Stock, in determining the price payable for Common Stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of Common Stock as reported during the 10 trading day period ending on the trading day prior to the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.

In addition, if the Company, at any time while the warrants are outstanding and unexpired, pays a dividend or make a distribution in cash, securities or other assets to the holders of Common Stock on account of such shares of Common Stock (or other shares of our capital stock into which the warrants are convertible), other than (a) as described above, or (b) certain ordinary cash dividends, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of Common Stock in respect of such event.

If the number of outstanding shares of Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of Common Stock issuable on exercise of each warrant will be decreased in proportion to such decrease in outstanding shares of Common Stock.

Whenever the number of shares of Common Stock purchasable upon the exercise of the warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of shares of Common Stock purchasable upon the exercise of the warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of shares of Common Stock so purchasable immediately thereafter.

In case of any reclassification or reorganization of the outstanding shares of Common Stock (other than those described above or that solely affects the par value of such shares of Common Stock), or in the case of any merger or consolidation of us with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of our outstanding shares of Common Stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with which the Company is dissolved, the holders of the warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the warrants and in lieu of the shares of Common

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Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior to such event. However, if such holders were entitled to exercise a right of election as to the kind or amount of securities, cash or other assets receivable upon such consolidation or merger, then the kind and amount of securities, cash or other assets for which each warrant will become exercisable will be deemed to be the weighted average of the kind and amount received per share by such holders in such consolidation or merger that affirmatively make such election, and if a tender, exchange or redemption offer has been made to and accepted by such holders (other than a tender, exchange or redemption offer made by the Company in connection with redemption rights held by Company stockholders as provided for in the Second Amended and Restated Certificate of Incorporation) under circumstances in which, upon completion of such tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Rule

13d-5(b)(1)

under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule

12b-2

under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule

13d-3

under the Exchange Act) more than 50% of the outstanding shares of Common Stock, the holder of a warrant will be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a stockholder if such warrant holder had exercised the warrant prior to the expiration of such tender or exchange offer, accepted such offer and all of the Common Stock held by such holder had been purchased pursuant to such tender or exchange offer, subject to adjustments (from and after the consummation of such tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in the warrant agreement. Additionally, if less than 70% of the consideration receivable by the holders of Common Stock in such a transaction is payable in the form of Common Stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established

over-the-counter

market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the warrant properly exercises the warrant within 30 days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the per share consideration minus Black-Scholes Warrant Value (as defined in the warrant agreement) of the warrant in order to determine and realize the option value component of the warrant. This formula is to compensate the warrant holder for the loss of the option value portion of the warrant due to the requirement that the warrant holder exercise the warrant within 30 days of the event. The Black-Scholes model is an accepted pricing model for estimating fair market value where no quoted market price for an instrument is available.

The warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders of public warrants.

Dividends

We have not paid any cash dividends on our Common Stock to date. The payment of cash dividends in the future will be within the discretion of our Board and will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. Our Board is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.

Our Transfer Agent, Rights Agent and Warrant Agent

The Transfer Agent for our Common Stock is Continental Stock Transfer & Trust Company. The Company has agreed to indemnify Continental Stock Transfer & Trust Company in its roles as transfer agent, its agents and each of its stockholders, directors, officers and employees against all liabilities, including judgments, costs and reasonable counsel fees that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence, willful misconduct or bad faith of the indemnified person or entity.

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Certain Anti-Takeover Provisions of Delaware Law, the Company’s Certificate of Incorporation and Bylaws

Our Second Amended and Restated Certificate of Incorporation provides that the Board is classified into three classes of directors of approximately equal size. As a result, in most circumstances, a person can gain control of the board only by successfully engaging in a proxy contest at three or more annual meetings. Furthermore, because the Board is classified, directors may be removed only with cause by a majority of our outstanding shares.

In addition, the Second Amended and Restated Certificate of Incorporation does not provide for cumulative voting in the election of directors. Our authorized but unissued Common Stock and preferred stock are available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved Common Stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

Special Meeting of Stockholders

Our Second Amended and Restated Certificate of Incorporation provides that special meetings of our stockholders may be called only by the Chairman of the Board, our Chief Executive Officer or the Board pursuant to a resolution adopted by a majority of the Board. Stockholders of UpHealth will not be eligible and will have no right to call a special meeting.

Advance Notice Requirements for Stockholder Proposals and Director Nominations

Our Bylaws provide that stockholders seeking to bring business before our annual meeting of stockholders, or to nominate candidates for election as directors at our annual meeting of stockholders, must provide timely notice of their intent in writing. To be timely, a stockholder’s notice will need to be received by the Company’s Secretary at our principal executive offices not later than the close of business on the 90th day nor earlier than the open of business on the 120th day prior to the anniversary date of the immediately preceding annual meeting of stockholders. Pursuant to Rule

14a-8

of the Exchange Act, proposals seeking inclusion in our annual proxy statement must comply with the notice periods contained in the annual proxy statement. The Second Amended and Restated Certificate of Incorporation specifies certain requirements as to the form and content of a stockholders’ meeting. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders. Our Bylaws also specify certain requirements as to the form and content of a stockholder’s notice for an annual meeting. Specifically, a stockholder’s notice must include: (i) a brief description of the business desired to be brought before the annual meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event such business includes a proposal to amend the bylaws, the language of the proposed amendment) and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder and the name and address of the beneficial owner, if any, on whose behalf the proposal is made, (iii) the class or series and number of shares of our capital stock that are owned beneficially and of record by such stockholder and by the beneficial owner, if any, on whose behalf the proposal is made, (iv) a description of all arrangements or understandings between such stockholder and the beneficial owner, if any, on whose behalf the proposal is made and any other person or persons (including their names) in connection with the proposal of such business by such stockholder, (v) any material interest of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made in such business and (vi) a representation that such stockholder (or a qualified representative of such stockholder) intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. These notice requirements will be deemed satisfied by a stockholder as to any proposal (other than nominations) if the stockholder has notified the Company of such stockholder’s intention to present such proposal at an annual meeting in compliance with Rule

14a-8

(or any successor thereof) of the Exchange Act, and such stockholder has complied with the requirements of such rule for inclusion of such proposal in a proxy statement prepared by us to solicit proxies for such annual meeting. The foregoing provisions may limit our stockholders’ ability to bring matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.

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Securities Eligible for Future Sale

Lock-up

Agreements

Subject to certain limited exceptions, our Founders and each member of our management team have agreed not to transfer, assign or sell any of Founder Shares, Private Placement Units or any securities underlying the Private Placement Units (including the Private Placement Shares) until the date that is one year after the date of the consummation of our initial business combination. Notwithstanding the foregoing, (1) if the last sale price of our Common Stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any

30-trading

day period commencing at least 90 days after our initial business combination, or (2) if we consummate a liquidation, merger, stock exchange or other similar transaction after our initial business combination which results in all of our stockholders having the right to exchange their shares of Common Stock for cash, securities or other property (either such event, a “Triggering Event”), then the locked up securities will be released from the

lock-up.

Notwithstanding the foregoing, during the lockup period, the Founders and our management team may transfer, assign or sell any of the aforenamed securities (1) amongst the Founders and their affiliates, to our management team, or to any affiliate or family member of any of our management team, (2) in the case of an entity, as a distribution to its partners, stockholders or members upon its liquidation, (3) in the case of an individual, (i) by bona fide gift to such person’s immediate family or to a trust, the beneficiary of which is a member of such person’s immediate family, an affiliate of such person or to a charitable organization, (ii) by virtue of the laws of descent and distribution upon death of such person, or (iii) pursuant to a qualified domestic relations order, (4) by certain pledges to secure obligations incurred in connection with purchases of the Company’s securities, (5) through private sales or transfers made in connection with the consummation of our initial business combination at prices no greater than the price at which such securities were originally purchased or (6) to us for no value for cancellation in connection with the consummation of our initial business combination;

provided

, that, in each such case (except clause (6), these transferees (the “Permitted Transferees”) would be subject to the same restrictions and other agreements of our Initial Stockholders with respect to any such securities.

Lock-Up Agreements in Connection with this Offering

In connection with this offering, we, our officers and directors will be subject to lock-up agreements with the underwriters that will restrict the sale of shares of our common stock held by them for 90 days after the date of this prospectus, subject to certain exceptions, as described in the section entitled “

Underwriting

.”

Registration Rights and Lock-Up Agreements

In connection with the closing of the UpHealth Business Combination, certain existing UpHealth equityholders entered into the UpHealth Registration Rights and Lock-Up Agreement, which restricts the sale of securities held by them until the earlier of (i) the expiration of the applicable lock-up period prescribed by the agreement (six months for certain holders party to the agreement and one year for the remaining holders party to the agreement) and (ii) the date of a Triggering Event.

In connection with the closing of the Cloudbreak Business Combination, certain existing Cloudbreak equityholders entered into the Cloudbreak Registration Rights and Lock-Up Agreement, which restricts the sale of securities held by them until the earlier of (i) the expiration of the applicable lock-up period prescribed by the agreement (six months for certain holders party to the agreement and one year for the remaining holders party to the agreement) and (ii) the date of a Triggering Event.

The Company has 117,605,472 shares of Common Stock outstanding as of the date hereof. Of these shares, 109,582,095 are freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by one of our affiliates within the meaning of Rule 144. All of the remaining 8,023,377 shares, which includes the shares of Common Stock issued to the PIPE Investors, are restricted securities under Rule 144, in that they were issued in private transactions not involving a public offering.

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Rule 144

Pursuant to Rule 144, a person who has beneficially owned restricted shares of our Common Stock or warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) the Company is subject to the Exchange Act periodic reporting requirements for at least three months before the sale and have filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as the Company was required to file reports) preceding the sale.

Persons who have beneficially owned restricted shares of our Common Stock or warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:

• 1% of the total number of shares of Common Stock then outstanding; or

• the average weekly reported trading volume of the Common Stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Sales by our affiliates under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about us.

Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies

Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:

• the issuer of the securities that was formerly a shell company has ceased to be a shell company;

• the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;

• the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and

• at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.

As a result, our Initial Stockholders will be able to sell their Sponsor Shares and private placement shares and private placement warrants and the Sellers will be able to sell the Common Stock received as consideration in the Business Combination, as applicable, pursuant to Rule 144 without registration beginning on May 12, 2022.

Registration Rights Agreement

On June 5, 2019, the Company entered into a Registration Rights Agreement with the Sponsor, the Underwriters and Insiders. These holders are entitled to make up to three demands, excluding short form registration demands, that the Company register such securities for sale under the Securities Act. In addition, these holders have “piggy-back” registration rights to include their securities in other registration statements filed by the Company. The Company will bear the expenses incurred in connection with the filing of any such registration statements. There will be no penalties associated with delays in registering the securities under the Registration Rights Agreement.

PIPE Subscription Agreement

Pursuant to the terms of the PIPE Subscription Agreement, the Company filed a registration statement (the “

PIPE Resale Registration Statement

”) registering for resale under the Securities Act all of the PIPE Shares

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acquired by the PIPE Investors. The Company will use its commercially reasonable efforts to maintain the continuous effectiveness of the PIPE Resale Registration Statement, and to be supplemented and amended to the extent necessary to ensure that such PIPE Resale Registration Statement is available or, if not available, that another registration statement is available for the resale of the Subscribed Shares, until the earliest of (i) the date on which the PIPE Shares may be resold without volume or manner of sale limitations pursuant to Rule, (ii) the date on which such PIPE Shares have actually been sold and (iii) June 9, 2023.

Notwithstanding anything to the contrary in the PIPE Subscription Agreement, the Company shall be entitled to delay or postpone the effectiveness of the PIPE Resale Registration Statement, and from time to time to require the PIPE Investor not to sell under the PIPE Resale Registration Statement or to suspend the effectiveness thereof, if the negotiation or consummation of a transaction by the Company or its subsidiaries is pending or an event has occurred, which negotiation, consummation or event, the Board reasonably believes, upon the advice of legal counsel, would require additional disclosure by the Company in the PIPE Resale Registration Statement of material information that the Company has a bona fide business purpose for keeping confidential and the

non-disclosure

of which in the PIPE Resale Registration Statement would be expected, in the reasonable determination of the Board, upon the advice of legal counsel, to cause the PIPE Resale Registration Statement to fail to comply with applicable disclosure requirements; provided, however, that the Company may not delay or suspend the PIPE Resale Registration Statement on more than two occasions or for more than 60 consecutive calendar days, or more than 90 total calendar days, in each case during any 12 period.

Convertible Note Subscription Agreements

The Company is obligated to register the shares issuable upon conversion of the Convertible Notes. The Company agreed that, within 45 calendar days after the consummation of the Business Combinations (the “

Convertible Note Resale Registration Filing Deadline

”), the Company would file with the SEC a registration statement registering the resale of the shares of Common Stock issuable upon conversion of the Convertible Notes (the “

Convertible Note Registrable Securities

”), and that the Company would use its commercially reasonable efforts to have the Convertible Note Resale Registration Statement declared effective as soon as practicable after the filing thereof, but no later than the 60th calendar day (or 90th calendar day if the

SEC notified the Company that it would “review” the Convertible Note Resale Registration Statement) following the Convertible Note Resale Registration Filing Deadline. The Company will use its commercially reasonable efforts to maintain the continuous effectiveness of the Convertible Note Resale Registration Statement, to be supplemented and amended to the extent necessary to ensure that such Convertible Note Resale Registration Statement is available or, if not available, that another registration statement is available for the resale of the Convertible Note Registrable Securities, until the earliest of (i) the date on which the Convertible Note Registrable Securities may be resold without volume or manner of sale limitations pursuant to Rule 144 promulgated under the Securities Act, (ii) the date on which such Convertible Note Registrable Securities have actually been sold and (iii) June 9, 2024.

Notwithstanding anything to the contrary in the Convertible Note Subscription Agreements, the Company shall be entitled to delay or postpone the effectiveness of the Convertible Note Resale Registration Statement, and from time to time to require any Note Investor not to sell under the Convertible Note Resale Registration Statement or to suspend the effectiveness thereof, if the negotiation or consummation of a transaction by the Company or its subsidiaries is pending or an event has occurred, which negotiation, consummation or event, the Board reasonably believes, upon the advice of legal counsel, would require additional disclosure by the Company in the Convertible Note Resale Registration Statement of material information that the Company has a bona fide business purpose for keeping confidential and the

non-disclosure

of which in the Convertible Note Resale Registration Statement would be expected, in the reasonable determination of the Board, upon the advice of legal counsel, to cause the Convertible Note Resale Registration Statement to fail to comply with applicable disclosure requirements.

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Section 203 of the DGCL

Uphealth is subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. This statute prevents certain Delaware corporations, under certain circumstances, from engaging in a “business combination” with:

• a stockholder who owns 15% or more of our outstanding voting stock (otherwise known as an “interested stockholder”);

• an affiliate of an interested stockholder; or

• an associate of an interested stockholder, for three years following the date that the stockholder became an interested stockholder.

A “business combination” includes a merger or sale of more than 10% of our assets. However, the above provisions of Section 203 do not apply if:

• the Board approves the transaction that made the stockholder an “interested stockholder,” prior to the date of the transaction;

• after the completion of the transaction that resulted in the stockholder becoming an interested stockholder, that stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, other than statutorily excluded shares of common stock; or

• on or subsequent to the date of the transaction, the business combination is approved by the Board and authorized at a meeting of our stockholders, and not by written consent, by an affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.

Listing of Securities

The Company’s Common Stock is traded on the NYSE under the symbols “UPH”.

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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a discussion of certain U.S. federal income tax consequences of the ownership and disposition of our Common Stock. This discussion is limited to holders that hold our Common Stock as a “capital asset” for U.S. federal income tax purposes (generally, property held for investment). This summary is based on the provisions of the Code, U.S. Treasury regulations, administrative rules and judicial decisions, all as in effect on the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect holders to which this section applies. We have not sought and will not seek any rulings from the Internal Revenue Service (the “

IRS

”) with respect to the statements made and the conclusions reached in the following discussion, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.

The following does not purport to be a complete analysis of all potential tax effects resulting from the ownership and disposition of our Common Stock, and this discussion does not address all aspects of U.S. federal income taxation that may be relevant to particular holders in light of their personal circumstances. In addition, this summary does not address the Medicare tax on certain investment income, U.S. federal estate or gift tax laws, any state, local or

non-U.S.

tax laws or any tax treaties. This summary also does not address tax considerations applicable to investors that may be subject to special treatment under the U.S. federal income tax laws, such as:

• banks, insurance companies or other financial institutions;

• tax-exempt or governmental organizations;

• qualified foreign pension funds (or any entities all of the interests of which are held by a qualified foreign pension fund);

• brokers or dealers in securities or foreign currencies;

• U.S. persons whose functional currency is not the U.S. dollar;

• “controlled foreign corporations,” “passive foreign investment companies” and corporations that accumulate earnings to avoid U.S. federal income tax;

• traders in securities that use the mark-to-market method of accounting for U.S. federal income tax purposes;

• persons subject to the alternative minimum tax;

• partnerships or other pass-through entities for U.S. federal income tax purposes or holders of interests therein;

• persons deemed to sell our Common Stock under the constructive sale provisions of the Code;

• persons that acquired our Common Stock through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan;

• real estate investment trusts;

• regulated investment companies;

• certain former citizens or long-term residents of the United States; and

• persons that hold our Common Stock as part of a straddle, appreciated financial position, synthetic security, hedge, conversion transaction or other integrated investment or risk reduction transaction.

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our Common Stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level.

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Accordingly, we urge partners in partnerships (including entities or arrangements treated as partnerships for U.S. federal income tax purposes) holding our Common Stock to consult their tax advisors regarding the U.S. federal income tax consequences to them relating to the matters discussed below.

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR

NON-U.S.

TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

U.S. Holders

This section is addressed to “U.S. holders” of our Common Stock. For purposes of this discussion, a “U.S. holder” is a beneficial owner of shares of our Common Stock that is, for U.S. federal income tax purposes:

• an individual who is a citizen or resident of the United States;

• a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

• an estate the income of which is subject to U.S. federal income tax regardless of its source; or

• a trust (i) the administration of which is subject to the primary supervision of a U.S. court and which has one or more United States persons (within the meaning of the Code) who have the authority to control all substantial decisions of the trust or (ii) which has made a valid election under applicable U.S. Treasury regulations to be treated as a United States person.

Distributions on Our Common Stock.

If we pay cash distributions to U.S. holders of shares of our Common Stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. holder’s adjusted tax basis in our Common Stock. Any remaining excess will be treated as gain realized on the sale or other disposition of the Common Stock and will be treated as described under “—

Sale, Taxable Exchange or Other Taxable Disposition of Our Common Stock

” below.

Dividends we pay to a U.S. holder that is a corporation generally will qualify for the dividends received deduction (at varying percentages based upon such U.S. holder’s ownership percentage in the Company) if the requisite holding period is satisfied. With certain exceptions (including, but not limited to, dividends treated as investment income for purposes of investment interest deduction limitations) and provided certain holding period requirements are met, dividends we pay to a

non-corporate

U.S. holder generally will constitute “qualified dividends” that will be subject to tax at the maximum tax rate accorded to long-term capital gains.

Sale, Taxable Exchange or Other Taxable Disposition of Our Common Stock

. Upon a sale, taxable exchange or other taxable disposition of our Common Stock, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S. holder’s adjusted tax basis in the shares of our Common Stock. Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period for shares of our Common Stock so disposed of exceeds one year. Long-term capital gains recognized by

non-corporate

U.S. holders will be eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations. Generally, the amount of gain or loss recognized by a U.S. holder is an amount equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition and (ii) the U.S. holder’s adjusted tax basis in its Common Stock so disposed of.

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Information Reporting and Backup Withholding

. Payments received by a U.S. holder may be subject, under certain circumstances, to information reporting and backup withholding. Backup withholding will not apply, however, to a U.S. holder that (i) is a corporation or entity that is otherwise exempt from backup withholding (which, when required, certifies as to its exempt status) or (ii) furnishes a correct taxpayer identification number and makes any other required certification on IRS Form

W-9.

Backup withholding is not an additional tax. Rather, the U.S. income tax liability (if any) of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is timely furnished to the IRS.

Non-U.S.

Holders

This section is addressed to

“Non-U.S.

holders” of our Common Stock. For purposes of this discussion, a

“Non-U.S.

holder” is any beneficial owner of our Common Stock that is neither a U.S. holder nor an entity treated as a partnership for U.S. federal income tax purposes.

Distributions on Our Common Stock

. In general, any distributions we make to a

Non-U.S.

holder of shares of our Common Stock, to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal income tax purposes and, provided such dividends are not effectively connected with the

Non-U.S.

holder’s conduct of a trade or business within the United States, we will be required to withhold tax from the gross amount of the dividend at a rate of 30%, unless such

Non-U.S.

holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate (usually on an applicable IRS Form

W-8).

Any distribution not constituting a dividend will be treated first as reducing (but not below zero) the

Non-U.S.

holder’s adjusted tax basis in its shares of our Common Stock and, to the extent such distribution exceeds the

Non-U.S.

holder’s adjusted tax basis, as gain realized from the sale or other disposition of the Common Stock, which will be treated as described under “—

Sale, Taxable Exchange or Other Taxable Disposition of Our Common Stock

” below.

This withholding tax does not apply to dividends paid to a

Non-U.S.

holder who provides an IRS Form

W-8ECI,

certifying that the dividends are effectively connected with the

Non-U.S.

holder’s conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the

Non-U.S.

holder were a U.S. resident, subject to an applicable income tax treaty providing otherwise. A

Non-U.S.

corporation receiving effectively connected dividends may also be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower treaty rate). In addition, if we determine that we are likely to be classified as a USRPHC (see “—

Sale, Taxable Exchange or Other Taxable Disposition of Our Common Stock

” below), we may withhold up to 15% of any distribution to a

Non-U.S.

holder to which Section 301 of the Code applies and which is not made out of our earnings and profits.

Sale, Taxable Exchange or Other Taxable Disposition of Our Common Stock

. Subject to the discussions below under “—

Information Reporting and Backup Withholding

” and “—

Foreign Account Tax Compliance Act

,” a

Non-U.S.

holder generally should not be subject to U.S. federal income or withholding tax in respect of any gain recognized on a sale, taxable exchange or other taxable disposition of our Common Stock, unless:

• the Non-U.S. holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met;

• the gain is effectively connected with a trade or business conducted by the Non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by the Non-U.S. holder in the United States); or

• we are or have been a USRPHC for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the Non-U.S. holder held our Common

143

Stock, and, in the case where shares of our Common Stock are regularly traded on an established securities market, the

Non-U.S.

holder has owned, directly or constructively, more than 5% of our Common Stock at any time within the shorter of the five-year period preceding the disposition or such

Non-U.S.

holder’s holding period for the shares of our Common Stock.

A

Non-U.S.

holder described in the first bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate as specified by an applicable income tax treaty) on the amount of such gain, which generally may be offset by U.S. source capital losses.

A

Non-U.S.

holder whose gain is described in the second bullet point above generally will be taxed on a net income basis at the rates and in the manner generally applicable to United States persons (as defined in the Code) unless an applicable income tax treaty provides otherwise. If the

Non-U.S.

holder is a corporation for U.S. federal income tax purposes whose gain is described in the second bullet point above, then such gain would also be included in its effectively connected earnings and profits (as adjusted for certain items), which may be subject to a branch profits tax (at a rate of 30% or such lower rate as specified by an applicable income tax treaty).

If the third bullet point above applies to a

Non-U.S.

holder, gain recognized by such holder on the sale, exchange or other disposition of our Common Stock will be subject to tax at generally applicable U.S. federal income tax rates. In addition, a buyer of our Common Stock from such holder may be required to withhold U.S. federal income tax at a rate of 15% of the amount realized upon such disposition. We do not believe we currently are a USRPHC and we do not anticipate becoming one in the near future, although no assurances can be given in this regard.

Information Reporting and Backup Withholding

. Any dividends paid to a

Non-U.S.

holder must be reported annually to the IRS and to the

Non-U.S.

holder. Copies of these information returns may be made available to the tax authorities in the country in which the

Non-U.S.

holder resides or is established. Any dividends paid to a

Non-U.S.

holder generally will not be subject to backup withholding if the

Non-U.S.

holder establishes an exemption by properly certifying its

non-U.S.

status on an applicable IRS Form

W-8

(or a successor form).

Payments of the proceeds of the sale or other disposition by a

Non-U.S.

holder of our Common Stock effected by or through a U.S. office of a broker generally will be subject to information reporting and backup withholding (at the applicable rate) unless the

Non-U.S.

holder establishes an exemption by properly certifying its

non-U.S.

status on an applicable IRS Form

W-8

(or a successor form) and certain other conditions are met. Information reporting and backup withholding generally will not apply to any payment of the proceeds from a sale or other disposition of our Common Stock effected outside the United States by a

non-U.S.

office of a broker. However, unless such broker has documentary evidence in its records that the

Non-U.S.

holder is not a United States person and certain other conditions are met, or the

Non-U.S.

holder otherwise establishes an exemption, information reporting will apply to a payment of the proceeds of the disposition of our CommonSstock effected outside the United States by such a broker if it has certain relationships within the United States.

Backup withholding is not an additional tax. Rather, the U.S. federal income tax liability (if any) of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is timely furnished to the IRS.

Additional Withholding Requirements under FATCA

. Sections 1471 through 1474 of the Code, and the U.S. Treasury regulations and administrative guidance issued thereunder (“

FATCA

”), impose a 30% withholding tax on any dividends paid on our Common Stock, and subject to the discussion of certain proposed Treasury regulations below, on the gross proceeds from a disposition of our Common Stock, in each case if paid to a “foreign financial institution” or a

“non-financial

foreign entity” (each as defined in the Code) (including, in some cases, when such foreign financial institution or

non-financial

foreign entity is acting as an intermediary),

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unless (i) in the case of a foreign financial institution, such institution enters into an agreement with the U.S. government to withhold on certain payments, and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are

non-U.S.

entities with U.S. owners), (ii) in the case of a

non-financial

foreign entity, such entity certifies that it does not have any “substantial United States owners” (as defined in the Code) or provides the applicable withholding agent with a certification identifying the direct and indirect substantial United States owners of the entity, or (iii) the foreign financial institution or

non-financial

foreign entity otherwise qualifies for an exemption from these rules and provides appropriate documentation. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these rules may be subject to different rules. Under certain circumstances, a holder might be eligible for refunds or credits of such taxes.

The U.S. Treasury released proposed Treasury regulations which, if finalized in their present form, would eliminate the federal withholding tax of 30% applicable to the gross proceeds of a sale or other disposition of our Common Stock. In its preamble to such proposed Treasury regulations, the U.S. Treasury stated that taxpayers may generally rely on the proposed regulations until final regulations are issued.

Non-U.S.

holders are encouraged to consult their own tax advisors regarding the possible implications of FATCA to them.

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UNDERWRITING

We entered into an underwriting agreement with the underwriters named below on                 , 2021. Oppenheimer & Co. Inc. is acting as the sole book-running manager and representative of the underwriters. The underwriting agreement provides for the purchase of a specific number of shares of common stock by each of the underwriters. The underwriters’ obligations are several, which means that each underwriter is required to purchase a specified number of shares, but is not responsible for the commitment of any other underwriter to purchase shares. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase the number of shares set forth opposite its name below:

Underwriter	Number of Shares of Common Stock
Oppenheimer & Co. Inc.		–	–
Northland Securities, Inc.		–	–
Lake Street Capital Markets, LLC
Total

The underwriters have agreed to purchase all of the shares offered by this prospectus (other than those covered by the over-allotment option described below), if any are purchased.

The shares of common stock offered hereby are expected to be ready for delivery on or about                 , 2021 against payment in immediately available funds.

The underwriters are offering the shares subject to various conditions and may reject all or part of any order. The representative of the underwriters has advised us that the underwriters propose initially to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to dealers at a price less a concession not in excess of $     per share to brokers and dealers. After the shares are released for sale to the public, the representative may change the offering price, the concession, and other selling terms at various times.

We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to purchase a maximum of                  additional shares of common stock from us to cover over-allotments, if any. If the underwriters exercise all or part of this option, they will purchase shares of common stock covered by the option at the public offering price that appears on the cover page of this prospectus, less the underwriting discounts and commissions. If this option is exercised in full, the total price to public will be $                 , and the total proceeds to us, before expenses, will be $                million.

The following table provides information regarding the amount of the discounts and commissions to be paid to the underwriters by us, before expenses:

	Per Share of Common Stock		Total without Exercise of Over-Allotment Option		Total with Full Exercise of Over-Allotment Option
Public offering price	$	–	$	–	$	–
Underwriting discounts and commissions (1)
Proceeds, before expenses, to us	$	–	$	–	$	–

(1) We have agreed to pay the underwriters a commission of 5.0% of the gross proceeds of this offering.

We estimate that our total expenses of the offering, excluding the estimated underwriting discounts and commissions, will be approximately $750,000, which includes the fees and expenses for which we have agreed to reimburse the underwriters, provided that any such fees and expenses in excess of an aggregate of $100,000 will be subject to our prior written approval.

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In the event that the gross proceeds from this offering equal or exceed $50,000,000, we have granted to Oppenheimer & Co. Inc. a right of first refusal for a period of nine months from the date of completion of this offering to act as lead bookrunning underwriter, lead initial purchaser, lead placement agent, or lead selling agent, as the case may be, on any financing for the Company.

Oppenheimer & Co. Inc. purchased 336,250 shares of Common Stock and warrants to purchase 33,625 shares of Common Stock in the PIPE Investment. Additionally, Oppenheimer & Co. Inc. entered into agreements on August 10, 2021 in connection with the closing of the Business Combinations, pursuant to which Oppenheimer & Co. Inc. agreed to purchase an additional 200,000 shares of Common Stock and warrants to purchase 20,000 shares of Common Stock. The consummation of the sale of those shares and warrants is subject to certain closing conditions that may or may not occur. Oppenheimer & Co. Inc. served as sole placement agent in connection with the Convertible Note Investment in January 2021 and the PIPE Investment.

Northland Investments, an affiliate of Northland and one of the founders of Gig2Capital, currently owns 229,921 shares of Common Stock and warrants to purchase 54,108 shares of Common Stock, acquired prior to the Business Combinations.

Northland, one of the Company’s underwriters in the IPO, purchased 100,000 Private Underwriter Shares, at a purchase price of $10.00 per share in a private placement that occurred simultaneously with the completion of the initial closing of the IPO. Northland also purchased from the Company an aggregate of 20,000Private Underwriter Shares at a price of $10.00 per share in a private placement that occurred simultaneously with the completion of the second closing of the IPO with the exercise of the over-allotment option. The 120,000 Private Underwriter Shares purchased by Northland are deemed underwriter’s compensation by FINRA pursuant to Rule5110 and are subject to a 180-day lock-up pursuant to FINRA Rule 5110(e)(1).

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.

We and our officers and directors have agreed to a

90-day

“lock-up”

each with respect to shares of our common stock and other of our securities that they beneficially own, including securities that are convertible into shares of common stock and securities that are exchangeable or exercisable for shares of Common Stock. This means that, subject to certain exceptions, for a period of 90 days following the date of this prospectus, as applicable, we and such persons or entities may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of Oppenheimer & Co. Inc.

Lock-up Agreements

Subject to certain limited exceptions, Northland and Northland Investment have agreed not to transfer, assign or sell any Founder Shares, Private Placement Units or any securities underlying the Private Placement Units (including the Private Placement Shares) until the date that is one year after the date of the consummation of GigCapital2’s initial business combination, which is June 9, 2022. Notwithstanding the foregoing, (1) if the last sale price of our Common Stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 90 days after our initial business combination, or (2) if we consummate a liquidation, merger, stock exchange or other similar transaction after the initial business combination which results in all of our stockholders having the right to exchange their shares of Common Stock for cash, securities or other property, then the private shares will be released from the lock-up. Notwithstanding the foregoing, during the lock-up period, Northland and Northland Investment may transfer, assign or sell any of the aforenamed securities (1) amongst Northland and Northland Investment, to certain affiliates of the Sponsor, or to any affiliate or family member of certain affiliates of the Sponsor, (2) in the case of an entity, as a distribution to its partners, stockholders or members upon its liquidation, (3) in the case of an individual, (i) by bona fide gift to such person’s immediate family or to a trust, the beneficiary of which is a member of such person’s immediate family, an affiliate of such person or to a charitable organization, (ii) by virtue of the laws of descent and distribution upon death of such person, or (iii) pursuant to a qualified domestic relations order, or (4) by certain pledges to secure obligations incurred in connection with purchases of the Company’s securities; provided, that, in each such case, these transferees would be subject to the same restrictions and other agreements of our Initial Stockholders with respect to any such securities.

147

Rules of the SEC may limit the ability of the underwriters to bid for or purchase shares before the distribution of the shares is completed. However, the underwriters may engage in the following activities in accordance with the rules:

• Stabilizing transactions—the representative may make bids or purchases for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum.

• Over-allotments and syndicate covering transactions—the underwriters may sell more shares of common stock in connection with this offering than the number of shares of common stock that they have committed to purchase. This over-allotment creates a short position for the underwriters. This short sales position may involve either “covered” short sales or “naked” short sales. Covered short sales are short sales made in an amount not greater than the underwriters’ over-allotment option to purchase additional shares of common stock in this offering described above. The underwriters may close out any covered short position either by exercising its over-allotment option or by purchasing shares of common stock in the open market. To determine how they will close the covered short position, the underwriters will consider, among other things, the price per share of common stock available for purchase in the open market, as compared to the price at which they may purchase shares of common stock through the over-allotment option. Naked short sales are short sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares of common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that, in the open market after pricing, there may be downward pressure on the price per share of common stock that could adversely affect investors who purchase shares of common stock in this offering.

• Penalty bids—if the representative purchases shares in the open market in a stabilizing transaction or syndicate covering transaction, it may reclaim a selling concession from the underwriters and selling group members who sold those shares as part of this offering.

• Passive market making—market makers in the shares who are underwriters or prospective underwriters may make bids for or purchases of shares, subject to limitations, until the time, if ever, at which a stabilizing bid is made.

Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales or to stabilize the market price of our Common Stock may have the effect of raising or maintaining the market price of our Common Stock or preventing or mitigating a decline in the market price of our Common Stock. As a result, the price of the shares of our Common Stock may be higher than the price that might otherwise exist in the open market. The imposition of a penalty bid might also have an effect on the price of the shares if it discourages resales of the shares.

Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the shares. These transactions may occur on the NYSE or otherwise. If such transactions are commenced, they may be discontinued without notice at any time.

Other Relationships

Certain of our underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business, including entering into derivative transactions, with us or our affiliates for which they have received and may continue to receive customary fees and commissions.

Electronic Delivery of Prospectus

A prospectus in electronic format may be delivered to potential investors by one or more of the underwriters participating in this offering. The prospectus in electronic format will be identical to the paper version of such prospectus. Other than the prospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part.

148

Subject to the completion of this offering, we have granted the representative of the underwriters a right of first refusal to any as our lead bookrunning underwriter, lead initial purchaser, lead placement agent, or lead selling agent in any financing for a period of nine months from the completion of this offering.

Notice to

Non-U.S.

Investors

Belgium

The offering is exclusively conducted under applicable private placement exemptions and therefore it has not been and will not be notified to, and this document or any other offering material relating to the shares has not been and will not be approved by, the Belgian Banking, Finance and Insurance Commission (Commission bancaire, financière et des assurances/Commissie voor het Bank, Financie en Assurantiewezen). Any representation to the contrary is unlawful.

Each underwriter has undertaken not to offer sell, resell, transfer or deliver directly or indirectly, any shares, or to take any steps relating/ancillary thereto, and not to distribute or publish this document or any other material relating to the shares or to the offering in a manner which would be construed as: (a) a public offering under the Belgian Royal Decree of 7 July 1999 on the public character of financial transactions; or (b) an offering of securities to the public under Directive 2003/71/EC which triggers an obligation to publish a prospectus in Belgium. Any action contrary to these restrictions will cause the recipient and the company to be in violation of the Belgian securities laws.

Canada

This document constitutes an “exempt offering document” as defined in and for the purposes of applicable Canadian securities laws. No prospectus has been filed with any securities commission or similar regulatory authority in Canada in connection with the offer and sale of the securities described herein (the Securities). No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon this document or on the merits of the Securities and any representation to the contrary is an offence.

Canadian investors are advised that this document has been prepared in reliance on section 3A.3 of National Instrument

33-105 Underwriting

Conflicts (NI

33-105).

Pursuant to section 3A.3 of NI

33-105,

this document is exempt from the requirement to provide investors with certain conflicts of interest disclosure pertaining to “connected issuer” and/or “related issuer” relationships as would otherwise be required pursuant to subsection 2.1(1) of NI

33-105.

Resale Restrictions

The offer and sale of the securities in Canada is being made on a private placement basis only and is exempt from the requirement to prepare and file a prospectus under applicable Canadian securities laws. Any resale of Securities acquired by a Canadian investor in this offering must be made in accordance with applicable Canadian securities laws, which may vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with Canadian prospectus requirements, a statutory exemption from the prospectus requirements, in a transaction exempt from the prospectus requirements or otherwise under a discretionary exemption from the prospectus requirements granted by the applicable local Canadian securities regulatory authority. These resale restrictions may under certain circumstances apply to resales of the Securities outside of Canada.

Representations of Purchasers

Each Canadian investor who purchases the securities will be deemed to have represented to the issuer and to each dealer from whom a purchase confirmation is received, as applicable, that the investor (i) is purchasing as principal, or is deemed to be purchasing as principal in accordance with applicable Canadian securities laws, for investment only and not with a view to resale or redistribution; (ii) is an “accredited investor” as such term is defined in section 1.1 of National Instrument

45-106

 Prospectus Exemptions

 (NI

45-106)

or, in Ontario, as such

149

term is defined in section 73.3(1) of the

 Securities Act

 (Ontario); and (iii) is a “permitted client” as such term is defined in section 1.1 of National Instrument

31-103

 Registration Requirements, Exemptions and Ongoing Registrant Obligations

.

Taxation and Eligibility for Investment

Any discussion of taxation and related matters contained in this document does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a Canadian investor when deciding to purchase the securities and, in particular, does not address any Canadian tax considerations. No representation or warranty is hereby made as to the tax consequences to a resident, or deemed resident, of Canada of an investment in the securities or with respect to the eligibility of the securities for investment by such investor under relevant Canadian federal and provincial legislation and regulations.

Rights of Action for Damages or Rescission

Securities legislation in certain of the Canadian jurisdictions provides certain purchasers of securities pursuant to an offering memorandum, including where the distribution involves an “eligible foreign security” as such term is defined in Ontario Securities Commission Rule

45-501

 Ontario Prospectus and Registration Exemptions

 and in Multilateral Instrument

45-107

 Listing Representation and Statutory Rights of Action

Disclosure Exemptions

, as applicable, with a remedy for damages or rescission, or both, in addition to any other rights they may have at law, where the offering memorandum, or other offering document that constitutes an offering memorandum, and any amendment thereto, contains a “misrepresentation” as defined under applicable Canadian securities laws. These remedies, or notice with respect to these remedies, must be exercised or delivered, as the case may be, by the purchaser within the time limits prescribed under, and are subject to limitations and defences under, applicable Canadian securities legislation. In addition, these remedies are in addition to and without derogation from any other right or remedy available at law to the investor.

Language of Documents

Upon receipt of this document, each Canadian investor hereby confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only.

 Par la réception de ce

 document, chaque investisseur canadien confirme par les présentes qu’il a expressément exigé que tous les

 documents faisant foi ou se rapportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux

 présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais

 seulement.

European Economic Area

In relation to each Member State of the European Economic Area and the United Kingdom (each, a “Relevant State”), no shares have been offered or will be offered pursuant to the offering to the public in that Relevant State prior to the publication of a prospectus in relation to the shares that has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except that offers of shares may be made to the public in that Relevant State at any time under the following exemptions under the Prospectus Regulation:

A. to any legal entity that is a qualified investor as defined under the Prospectus Regulation;

B. to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the representatives; or

C. in any other circumstances falling within Article 1(4) of the Prospectus Regulation;

provided that no such offer of shares shall require the Company or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the

150

Prospectus Regulation and each person who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the underwriters and the Company that it is a “qualified investor” within the meaning of Article 2(e) of the Prospectus Regulation. In the case of any shares being offered to a financial intermediary as that term is used in the Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offering have not been acquired on a

non-discretionary

basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances that may give rise to an offer of any shares to the public other than their offer or resale in a Relevant State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.

For the purpose of the above provision, the expression an “offer to the public” in relation to any shares in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.

MiFID II Product Governance

Any person offering, selling or recommending the shares (a “distributor”) should take into consideration the manufacturers’ target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the shares (by either adopting or refining the manufacturers’ target market assessment) and determining appropriate distribution channels.

United Kingdom

In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Regulation) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”), and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”) or otherwise in circumstances that have not resulted and will not result in an offer to the public of the shares in the United Kingdom within the meaning of the Financial Services and Markets Act 2000, as amended.

Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons.

France

Neither this prospectus nor any other offering material relating to the shares has been submitted to the clearance procedures of the Autorité des marchés financiers in France. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be: (a) released, issued, distributed or caused to be released, issued or distributed to the public in France; or (b) used in connection with any offer for subscription or sale of the shares to the public in France. Such offers, sales and distributions will be made in France only: (i) to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in and in accordance with Articles

L.411-2,

D.411-1,

D.411-2,

D.734-1,

D.744-1,

D.754-1

and

D.764-1

of the French Code monétaire et financier; (ii) to investment services providers authorised to engage in portfolio management on behalf of third parties; or (iii) in a transaction that, in accordance with article

L.411-2-II-1°

-or-2°

-or

3° of the French Code monétaire et financier and article

211-2

of the General Regulations (Règlement Général) of the Autorité des marchés financiers, does not constitute a public offer (appel public à l’épargne). Such shares may be resold only in compliance with Articles

L.411-1,

L.411-2,

L.412-1

and

L.621-8

through

L.621-8-3

of the French Code monétaire et financier.

151

Israel

In the State of Israel, the shares offered hereby may not be offered to any person or entity other than the following:

(a) a fund for joint investments in trust (i.e., mutual fund), as such term is defined in the Law for Joint Investments in Trust, 5754-1994, or a management company of such a fund;

(b) a provident fund as defined in Section 47(a)(2) of the Income Tax Ordinance of the State of Israel, or a management company of such a fund;

(c) an insurer, as defined in the Law for Oversight of Insurance Transactions, 5741-1981, (d) a banking entity or satellite entity, as such terms are defined in the Banking Law (Licensing), 5741-1981, other than a joint services company, acting for their own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law 1968;

(d) a company that is licensed as a portfolio manager, as such term is defined in Section 8(b) of the Law for the Regulation of Investment Advisors and Portfolio Managers, 5755-1995, acting on its own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law 1968;

(e) a company that is licensed as an investment advisor, as such term is defined in Section 7(c) of the Law for the Regulation of Investment Advisors and Portfolio Managers, 5755-1995, acting on its own account;

(f) a company that is a member of the Tel Aviv Stock Exchange, acting on its own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law 1968;

(g) an underwriter fulfilling the conditions of Section 56(c) of the Securities Law, 5728-1968;

(h) a venture capital fund (defined as an entity primarily involved in investments in companies which, at the time of investment, (i) are primarily engaged in research and development or manufacture of new technological products or processes and (ii) involve above-average risk);

(i) an entity primarily engaged in capital markets activities in which all of the equity owners meet one or more of the above criteria; and

(j) an entity, other than an entity formed for the purpose of purchasing shares in this offering, in which the shareholders equity (including pursuant to foreign accounting rules, international accounting regulations and U.S. generally accepted accounting rules, as defined in the Securities Law Regulations (Preparation of Annual Financial Statements), 1993) is in excess of NIS 50 million.

Any offeree of the shares offered hereby in the State of Israel shall be required to submit written confirmation that it falls within the scope of one of the above criteria. This prospectus will not be distributed or directed to investors in the State of Israel who do not fall within one of the above criteria.

Italy

The offering of the shares offered hereby in Italy has not been registered with the Commissione Nazionale per la Società e la Borsa (CONSOB) pursuant to Italian securities legislation and, accordingly, the shares offered hereby cannot be offered, sold or delivered in the Republic of Italy (Italy) nor may any copy of this prospectus or any other document relating to the shares offered hereby be distributed in Italy other than to professional investors (operatori qualificati) as defined in Article 31, second paragraph, of CONSOB Regulation No. 11522 of 1 July, 1998 as subsequently amended. Any offer, sale or delivery of the shares offered hereby or distribution of copies of this prospectus or any other document relating to the shares offered hereby in Italy must be made:

(a) by an investment firm, bank or intermediary permitted to conduct such activities in Italy in accordance with Legislative Decree No. 58 of 24 February 1998 and Legislative Decree No. 385 of 1 September 1993 (the Banking Act);

(b) in compliance with Article 129 of the Banking Act and the implementing guidelines of the Bank of Italy; and

152

(c) in compliance with any other applicable laws and regulations and other possible requirements or limitations which may be imposed by Italian authorities.

Sweden

This prospectus has not been nor will it be registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this prospectus may not be made available, nor may the shares offered hereunder be marketed and offered for sale in Sweden, other than under circumstances which are deemed not to require a prospectus under the Financial Instruments Trading Act (1991: 980).

Switzerland

The shares offered pursuant to this prospectus will not be offered, directly or indirectly, to the public in Switzerland and this prospectus does not constitute a public offering prospectus as that term is understood pursuant to art. 652a or art. 1156 of the Swiss Federal Code of Obligations. The company has not applied for a listing of the shares being offered pursuant to this prospectus on the SWX Swiss Exchange or on any other regulated securities market, and consequently, the information presented in this prospectus does not necessarily comply with the information standards set out in the relevant listing rules. The shares being offered pursuant to this prospectus have not been registered with the Swiss Federal Banking Commission as foreign investment funds, and the investor protection afforded to acquirers of investment fund certificates does not extend to acquirers of shares.

Investors are advised to contact their legal, financial or tax advisers to obtain an independent assessment of the financial and tax consequences of an investment in shares.

153

LEGAL MATTERS

The validity of the securities offered hereby will be passed upon for us by DLA Piper LLP (US). Certain legal matters related to the offering will be passed upon for the underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., New York, New York.

154

EXPERTS

The financial statements of UpHealth Holdings, Inc. as of and for the year ended December 31, 2020 included in this prospectus have been so included in reliance on the report of Plante & Moran, PLLC (“

Plante & Moran

”), an independent accounting firm, given on the authority of said firm as experts in auditing and accounting.

The financial statements of Thrasys, Inc. as of November 20, 2020 and for the period from January 1, 2020 to November 20, 2020, and as of and for the year ended December 31, 2019 included in this prospectus have been so included in reliance on the report of Plante & Moran, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The financial statements of Glocal Healthcare Systems Private Limited as of and for the years ended March 31, 2020 and 2019 included in this prospectus have been so included in reliance on the report of D. K. Chhajer & Co., an independent accounting firm, given on the authority of said firm as experts in auditing and accounting.

The financial statements of TTC Healthcare, Inc. (Successor) and Transformations Treatment Center, Inc. (Predecessor) as of and for the years ended December 31, 2020 and 2019 included in this prospectus have been so included in reliance on the report of Plante & Moran, an independent accounting firm, given on the authority of said firm as experts in auditing and accounting.

The financial statements of Innovations Group, Inc. as of and for the years ended December 31, 2020 and 2019 included in this prospectus have been so included in reliance on the report of Plante & Moran, an independent accounting firm, given on the authority of said firm as experts in auditing and accounting.

The financial statements of Behavioral Health Services, LLC as of November 20, 2020 and for the period from January 1, 2020 to November 20, 2020, and as of and for the year ended December 31, 2019 included in this prospectus have been so included in reliance on the report of Plante & Moran, an independent accounting firm, given on the authority of said firm as experts in auditing and accounting.

The financial statements of Cloudbreak Health, LLC as of and for the year December 31, 2020 included in this prospectus have been so included in reliance on the report of Macias Gini & O’Connell LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. The financial statements of Cloudbreak Health, LLC as of and for the year ended December 31, 2019 included in this prospectus have been so included in reliance on the report of Hall & Company Certified Public Accountants and Consultants, Inc., an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

As has been previously reported by the Company (in a Current Report on Form

8-K/A

filed on June 15, 2021), on June 14, 2021, the Audit Committee of the Company’s Board of Directors approved the appointment of Plante & Moran as the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements for the year ending December 31, 2021. Plante & Moran has served as the independent registered public accounting firm of UpHealth Holdings prior to the Business Combinations. Accordingly, BPM LLP, the independent registered public accounting firm of GigCapital2, was informed on June 14, 2021 that it would be replaced by Plante & Moran as the Company’s independent registered public accounting firm, effective immediately.

155

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form

S-1

under the Securities Act with respect to the shares of Common Stock offered by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our Common Stock, you should refer to the registration statement and our exhibits. Statements contained in this prospectus concerning any of our contracts, agreements or other documents are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, we refer you to the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit.

We are subject to the informational requirements of the Exchange Act and file annual, quarterly and current reports and other information with the SEC. Our filings with the SEC are available to the public on the SEC’s website at http://www.sec.gov. Those filings are also available to the public on, or accessible through, our website at http://investors.uphealthinc.com. The information we file with the SEC or contained on or accessible through our corporate website or any other website that we may maintain is not part of this prospectus or the registration statement of which this prospectus is a part.

156

INDEX TO CONSOLIDATED FINANCIAL INFORMATION

UpHealth Holdings, Inc.—Financial Statements as of and for the year ended December 31, 2020	F-4
Report of Independent Registered Public Accounting Firm	F-6
Consolidated Balance Sheet as of December 31, 2020	F-7
Consolidated Statement of Operations for the Year ended December 31, 2020	F-8
Consolidated Statement of Stockholders’ Equity for the Year ended December 31, 2020	F-9
Consolidated Statement of Cash Flows for the Year ended December 31, 2020	F-10
Notes to Consolidated Financial Statements	F-11
UpHealth, Inc.—Condensed Consolidated Financial Statements as of and for the periods ended June 30, 2021 and 2020	F-32
Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	F-34
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020	F-35
Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2021 and 2020	F-36
Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020	F-37
Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2021 and 2020	F-38
Notes to Condensed Consolidated Financial Statements	F-39
Thrasys, Inc.—Financial Statements for the period ended November 20, 2020 and the year ended December 31, 2019	F-78
Report of Independent Registered Public Accounting Firm	F-80
Balance Sheets as of November 20, 2020 and December 31, 2019	F-81
Statements of Operations for the period ended November 20, 2020 and year ended December 31, 2019	F-82
Statements of Stockholders’ Deficit for the period ended November 20, 2020 and year ended December 31, 2019	F-83
Statements of Cash Flows for the period ended November 20, 2020 and the year ended December 31, 2019	F-84
Notes to Financial Statements	F-85
Glocal Healthcare Systems Private Limited—Consolidated Financial Statements as of and for the years ended March 31, 2020 and 2019	F-103
Independent Auditor’s Report	F-105
Consolidated Balance Sheets as of March 31, 2020	F-107
Consolidated Statement of Profit and Loss for the years ended March 31, 2020 and 2019	F-108
Consolidated Cash Flow Statement for the years ended March 31, 2020 and 2019	F-109
Notes to Consolidated Financial Statements	F-110
Glocal Healthcare Systems Private Limited—Consolidated Financial Statements as of and for the periods ended December 31, 2020 and 2019	F-160
Consolidated Balance Sheet as of December 31, 2020 and March 31, 2020	F-161
Consolidated Statement of Profit and Loss for the nine months ended December 31, 2020 and 2019	F-162
Consolidated Cash Flow Statement for the nine months ended December 31, 2020 and 2019	F-163
Notes to Consolidated Financial Statements	F-165
Glocal Healthcare Systems Private Limited—Consolidated Financial Statements as of and for the period 01 April 2020 to 25 March 2021	F-204
Consolidated Balance Sheet as at 25 March 2021 and 31 March 2020	F-205
Consolidated Statement of Profit and Loss for the period 01 April 2020 to 25 March 2021	F-206
Consolidated Cash Flow Statement for the period 01 April 2020 to 25 March 2021	F-207
Notes to Consolidated Financial Statements	F-208

F-1

TTC Healthcare, Inc. and Subsidiaries (Successor) and Transformations Treatment Center, Inc. and Affiliates (Predecessor)—Consolidated Financial Statements and Independent Auditors’ Report as of and for the years ended December 31, 2020 and 2019	F-243
Independent Auditor’s Report	F-245
Consolidated Balance Sheets as of December 31, 2020 and 2019	F-248
Consolidated Statements of Operations for the year ended December 31, 2020 and for the periods ending September 5, 2019 through December 31, 2019 and January 1, 2019 through September 4, 2019	F-250
Consolidated Statements of Changes in Stockholder’s Equity for the year ended December 31, 2020 and for the periods ending September 5, 2019 through December 31, 2019 and January 1, 2019 through September 4, 2019	F-251
Consolidated Statements of Cash Flows for the year ended December 31, 2020 and for the periods ending September 5, 2019 through December 31, 2019 and January 1, 2019 through September 4, 2019	F-253
Notes to Consolidated Financial Statements	F-256
TTC Healthcare, Inc. and Subsidiaries—Consolidated Financial Statements as of and for the periods ended January 24, 2021 and March 31, 2020	F-277
Consolidated Balance Sheets as of January 24, 2021 and December 31, 2020	F-279
Consolidated Statements of Operations for the periods ended January 24, 2021 and March 31, 2020	F-281
Consolidated Statements of Changes in Stockholder’s Equity for the periods ended January 24, 2021 and March 31, 2020	F-282
Consolidated Statements of Cash Flows for the periods ended January 24, 2021 and March 31, 2020	F-283
Notes to Consolidated Financial Statements	F-285
Innovations Group, Inc.—Consolidated Financial Statements as of and for the years ended December 31, 2020 and 2019	F-301
Independent Auditor’s Report	F-303
Consolidated Balance Sheets as of December 31, 2020 and 2019	F-304
Consolidated Statements of Operations for the years ended December 31, 2020 and 2019	F-305
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2020 and 2019	F-306
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019	F-307
Notes to Consolidated Financial Statements	F-308
Innovations Group, Inc.—Consolidated Financial Statements as of and for the period ended April 26, 2021 and the year ended December 31, 2020	F-316
Consolidated Balance Sheets as of April 26, 2021 and December 31, 2020	F-318
Consolidated Statements of Operations for the periods ended April 26, 2021 and June 30, 2020	F-319
Consolidated Statements of Shareholders’ Equity for the periods ended April 26, 2021 and June 30, 2020	F-320
Consolidated Statements of Cash Flows for the periods ended April 26, 2021 and June 30, 2020	F-321
Notes to Consolidated Financial Statements	F-322
Behavioral Health Services, LLC—Consolidated Financial Statements as of and for the period ended November 20, 2020 and the year ended December 31, 2019	F-330
Independent Auditor’s Report	F-332
Consolidated Balance Sheets as of November 20, 2020 and December 31, 2019	F-334
Consolidated Statements of Operations for the periods ending January 1, 2020 through November 20, 2020 and January 1, 2019 through December 31, 2019	F-335
Consolidated Statement of Changes in Members’ Equity for the periods ending January 1, 2020 through November 20, 2020 and January 1, 2019 through December 31, 2019	F-336
Consolidated Statements of Cash Flows for the periods ending January 1, 2020 through November 20, 2020 and January 1, 2019 through December 31, 2019	F-337
Notes to Consolidated Financial Statements	F-338
Cloudbreak Health, LLC—Consolidated Financial Statements as of and for the years ended December 31, 2020 and 2019	F-348
Report of Independent Registered Public Accounting Firm	F-349

F-2

Consolidated Balance Sheets as of December 31, 2020 and 2019	F-351
Consolidated Statements of Operations for the years ended December 31, 2020 and 2019	F-352
Consolidated Statements of Mezzanine Equity and Members’ Interests for the years ended December 31, 2020 and 2019	F-353
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019	F-354
Notes to Consolidated Financial Statements	F-355
Cloudbreak Health, LLC and Subsidiaries—Consolidated Financial Statements as of and for the periods ended June 8, 2021 and 2020	F-373
Condensed Consolidated Balance Sheets as of June 8, 2021 and December 31, 2020	F-374
Condensed Consolidated Statements of Operations for the periods ended June 8, 2021 and June 30, 2020	F-375
Condensed Consolidated Statements of Mezzanine Equity and Members’ Interests for the periods ended June 8, 2021 and June 30, 2020	F-376
Condensed Consolidated Statements of Cash Flows for the periods ended June 8, 2021 and June 30, 2020	F-377
Notes to Condensed Consolidated Financial Statements	F-378

F-3

UpHealth Holdings, Inc.

Financial Statements as of and for the year ended December 31, 2020

F-4

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	F-6
Consolidated Balance Sheet as of December 31, 2020	F-7
Consolidated Statement of Operations for the Year Ended December 31, 2020	F-8
Consolidated Statement of Stockholders’ Equity for the Year Ended December 31, 2020	F-9
Consolidated Statement of Cash Flows for the Year Ended December 31, 2020	F-10
Notes to Consolidated Financial Statements	F-11

F-5

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of UpHealth Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of UpHealth Holdings, Inc. (the “Company”) as of December 31, 2020, the related statement of operations, stockholders’ equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Plante & Moran, PLLC

We have served as the Company’s auditor since 2021.

Denver, Colorado

March 21, 2021

F-6

UPHEALTH HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2020

ASSETS
Current assets:
Cash and cash equivalents	$	1,838,583
Restricted cash		530,500
Accounts receivable – trade, net of allowance for doubtful accounts and contractual adjustments		6,702,858
Inventories		116,676
Prepaid expenses and other current assets		3,500,908
Total current assets		12,689,525
Noncurrent assets:
Property, plant and equipment, net of accumulated depreciation of $2,692		151,122
Intangible assets, trade names, net of accumulated amortization of $85,277		7,064,723
Intangible assets, developed technology, net of accumulated amortization of $120,278		10,704,722
Intangible assets, customer relationships, net of accumulated amortization of $112,500		10,012,500
Goodwill		164,194,004
Deferred tax asset		335,504
Equity method investment		57,213,902
Other assets		23,749
Total Assets	$	262,389,751
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	2,679,965
Accrued liabilities		8,482,484
Deferred revenue		396,958
Due to related party		70,000
Seller Note-Thrasys		20,000,000
Seller Note-BHS		1,100,000
Income tax payable		672,809
Deferred tax liability		6,072,101
Current portion, related party - long term debt		39,000
Current portion, Provider Relief Funds		228,794
Current portion, Paycheck Protection Program loan		1,201,836
Total current liabilities		40,943,947
Related party - long term debt		381,283
Paycheck Protection Program loan		343,564
Total liabilities		41,668,794
Commitments and Contingencies		0—
Stockholders’ Equity
Common stock. Authorized 15,000,000 shares of $0.0001 par value per share; 6,811,043 shares issued and outstanding in 2020		681
Additional paid in capital		222,906,709
Accumulated deficit		(2,186,433	)
Total stockholders’ equity		220,720,957
Total liabilities and stockholders’ equity	$	262,389,751

The accompanying notes are an integral part of these financial statements.

F-7

UPHEALTH HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2020

Revenue
Services	$	1,664,278
Licenses and subscriptions		3,303,636
Products		428,153
		5,396,067
Cost of goods and services (excluding depreciation and amortization)		1,182,831
Operating expenses
Selling, general and administrative		4,944,522
Research and development		874,112
Depreciation and amortization		320,748
		6,139,382
Other income (expense)
Other expense		(133,831	)
Other income, net, including interest income		3,436
		(130,395	)
Income before income taxes		(2,056,541	)
Income tax benefit (expense)		(50,194	)
Income before net equity in earnings of affiliate		(2,106,735	)
Net earnings in equity method investment.		(79,698	)
Net Income (Loss)	$	(2,186,433	)
Basic earnings per share for common stock:
Income from continuing operations attributable to UpHealth Holdings, Inc. common stockholders.		(0.43	)
(Loss) income from discontinued operations attributable to UpHealth Holdings, Inc. common stockholders.		0
Net income (loss) attributable to UpHealth Holdings, Inc. common stockholders.		(0.43	)
Diluted earnings per share for common stock:
Income from continuing operations attributable to UpHealth Holdings, Inc. common stockholders.		(0.43	)
(Loss) income from discontinued operations attributable to UpHealth Holdings, Inc. common stockholders.		0
Net income (loss) attributable to UpHealth Holdings, Inc. common stockholders.		(0.43	)
Weighted average number of common shares outstanding:
Basic		5,091,975
Diluted		5,091,975

The accompanying notes are an integral part of these financial statements.

F-8

UPHEALTH HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2020

	Common Stock
	Number of Shares Outstanding		Par Amount		Additional Paid-In Capital			Retained Earnings			Total
Balance — January 1, 2020		—	$	—	$	—		$	—		$	—
Issuance of common stock for formation		4,868,443		487		(487	)		—			—
Consolidated net loss		—		—		—			(2,186,433	)		(2,186,433	)
Issuance of common stock to consummate business combinations		1,508,000		151		165,613,639			—			165,613,790
Issuance of common stock in exchange for a portion of equity method investment.		434,600		43		57,293,557			—			57,293,600
Balance — December 31, 2020		6,811,043	$	681	$	222,906,709		$	(2,186,433	)	$	220,720,957

The accompanying notes are an integral part of these financial statements.

F-9

UPHEALTH HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2020

Operating activities
Net loss	$	(2,186,433	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		320,747
Net earnings in equity method investment		79,698
Deferred income taxes		(622,615	)
Changes in operating assets and liabilities:
Accounts receivable		(1,954,666	)
Inventories		(17,093	)
Prepaid expenses and other assets		(459,952	)
Accounts payable and accrued liabilities		3,331,517
Income taxes payable		672,809
Deferred revenue		(303,042	)
Due to related parties		0
Net cash used in operating activities		(1,139,030	)
Investing activities:
Net cash acquired in acquisition of businesses		3,508,113
Net cash provided by investing activities		3,508,113
Net increase in cash and cash equivalents		2,369,083
Cash and cash equivalents at beginning of period		0
Cash and cash equivalents at end of period	$	2,369,083
Supplement schedule of cash flow information
Cash paid for interest		0
Cash paid for income taxes		0
Supplemental schedule of noncash investing and financing activities:
Issuance of common stock for formation		0
Issuance of common stock and promissory notes to consummate Thrasys business combinations		167,435,352
Issuance of common stock and promissory notes to consummate BHS business combinations		15,770,325
Issuance of common stock and promissory note for invetment in unconsolidated entity		57,293,600

The accompanying notes are an integral part of these financial statements.

F-10

UPHEALTH HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2020

1. Organization and Business

Uphealth Holdings, Inc., and Subsidiaries (the “Company,” “UpHealth Holdings”. “we,” “our,” or “us”) is a Delaware corporation formed on October 26, 2020 and established to raise capital and pursue opportunities for investment and acquisition in various healthcare entities, primarily those that bring technology and services to efficiently and profitably manage chronic and complex care, including behavioral health and substance abuse, while also serving the demands for easy access to personalized primary care. The Company merged with UpHealth Services, Inc. (“UpHealth Services”) on October 26, 2020 and was the surviving corporation of the merger. UpHealth Services’

pre-merger

financial statements are now the

pre-merger

financial statements for UpHealth Holdings.

UpHealth Services, Inc. was established on November 5, 2019; operations effectively began January 1, 2020 and continued through the merger with UpHealth Holdings.

On November 20, 2020, we completed the acquisition of Thrasys, Inc. (“Thrasys”), a provider of an advanced, comprehensive, and extensible technology platform—marketed under the umbrella “SyntraNet

™

”—to manage health, quality of care, and costs—especially for individuals with complex medical, behavioral health, and social needs.

On November 20, 2020, we also completed the acquisition of Behavioral Health Services, LLC and subsidiaries (“BHS”), a provider of medical, retail pharmacy and billing services.

On November 20, 2020, we completed the acquisition of 43.46% of Glocal Healthcare Systems Private Limited (“Glocal”), an India based healthcare company. We have presented this as an equity method investment. Concurrent with the merger with GigCapital2, Inc. (“Gig2”), expected to be consummated in the second quarter of 2021, the Company expects to acquire approximately an additional 53% of Glocal. As of the acquisition date, Glocal had assets of $42,135,215, liabilities of $30,141,201, and net income of $312,034 for the period after acquisition through December 31, 2020.

See Note 3,

“

Business Combinations

”

, for more information.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In the opinion of management, the accompanying consolidated financial statements contain all adjustments and eliminations, consisting only of normal recurring adjustments necessary for a fair presentation in conformity with GAAP.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Segments

The Company’s Chief Executive Officers are the chief operating decision makers who review the Company’s financial information presented on a consolidated basis for purposes of allocating resources and

F-11

evaluating the Company’s financial performance. Due to the business combinations completed in 2021 (See Note 17) and the pending business combination with Gig2, the Company does not consider a segment analysis relevant for the year ended December 31, 2020.

Fiscal Year

The Company’s fiscal year ends on December 31. References to fiscal 2020, for example, refer to the fiscal year ended December 31, 2020.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes thereto.

Significant estimates and assumptions made by management include the determination of:

• the fair value of assets acquired and liabilities assumed for business combinations;

• the standalone selling price (“SSP”) of performance obligations for revenue contracts with multiple performance obligations;

• the recognition, measurement and valuation of current and deferred income taxes and uncertain tax positions;

• the identification and estimated economic lives of intangible assets; and

• the fair value of stock awards issued.

Actual results could differ materially from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the result of which forms the basis for making judgments about the carrying values of assets and liabilities.

Cash and Cash Equivalents

We consider all cash on deposit, money market funds and short-term investments with original maturities of three months or less to be cash and cash equivalents. Cash and cash equivalents consist of amounts the Company has on deposit with major commercial financial institutions.

Restricted Cash

Under terms of the merger agreement with UpHealth Holdings as discussed in Note 3 and in accordance with the Small Business Administration (“SBA”) Procedural Notice effective October 2, 2020, Thrasys has agreed to maintain the balance of the Paycheck Protection Program (“PPP”) loan in an escrow account until forgiveness has been determined by the SBA.

Accounts Receivable

For medical HIPAA-compliant (Health Insurance Portability and Accountability Act) SaaS internet hosting, licenses and subscriptions to healthcare communities services,accounts receivable are carried at original invoice, net of allowances for doubtful accounts, based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. At December 31, 2020, the Company determined that 0 allowance for doubtful accounts was necessary.

F-12

For medical services provided through our behavioral services operations,accounts receivable are recorded without collateral from patients, most of whom are local residents and are insured under third-party payor agreements. Accounts receivable are based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to

self-pay

patients. Estimates for explicit price concessions are based on provider contracts and historical experience adjusted for economic conditions and other trends affecting the Company’s ability to collect outstanding amounts. At December 31, 2020, the allowance for contractual adjustments was equal to $968,471.

For accounts receivable associated with

self-pay

patients, the Company records implicit price concessions in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible.

For the period ended December 31, 2020, one customer accounted for approximately 58% of total revenues. At December 31, 2020, two customers accounted for 73% of total accounts receivable. Concentration are due the shortened period of activity between the Company’s acquisitions of Thrasys and BHS and its fiscal year end and are not expected to continue in 2021.    

Inventories

Inventories consist of pharmaceuticals and are stated at the lower of cost or net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.

Equity Method Investment

The Company holds interests in privately-held equity securities in which the Company does not have a controlling interest but does have significant influence.

Based on the terms of these privately held securities, if the Company determines that it exercises significant influence on the entity to which these securities relate, the Company applies the equity method of accounting for such investments, which it has, and the investment is presented in equity method investments in the consolidated balance sheet. Any and all gains and losses on privately held equity securities, realized and unrealized, are recorded through gains on other income (expense). Income recognized in its equity method investments is reduced by the expected amortization from intangible assets recognized through the fair value

step-up,

unless and until the Company acquires a controlling financial interest and consolidates.

Valuations of privately held securities in which the Company does not have a controlling financial interest are inherently complex due to the lack of readily available market data and require the Company’s use of judgment. The carrying value is not adjusted for the Company’s privately held equity securities if there are no observable price changes in a similar security from the same issuer or if there are no identified events or changes in circumstances that may indicate impairment. The Company’s impairment analysis encompasses an assessment of both qualitative and quantitative factors including the investee’s financial metrics, market acceptance of the investee’s product or technology and the rate at which the investee is using its cash. If the investment is considered impaired, the Company recognizes an impairment through the consolidated statement of operations and establishes a new carrying value for the investment.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three years for information technology equipment, five to seven years for office equipment and vehicles, and seven years for furniture and medical equipment.

F-13

When assets are retired or disposed of, the asset costs and related accumulated depreciation or amortization are removed from the respective accounts and any related gain or loss is recognized. Maintenance and repairs are charged to expense as incurred. Significant expenditures, which extend the useful lives of assets, are capitalized.​​​​​​​​​​​​​​

Intangible Assets

Acquired intangible assets subject to amortization are stated at fair value and are amortized using the straight-line method over the estimated useful lives of the assets. Intangible assets that are subject to amortization are reviewed for potential impairment when events or circumstances indicate that carrying amounts may not be recoverable. NaN impairment charge was recognized in 2020.

Goodwill

Our goodwill represents the excess of the purchase price of business combinations over the fair value of the net assets acquired. We assess goodwill for impairment on an annual basis as of the first day of our fourth quarter, or sooner if events indicate such a review is necessary through a triggering event. An impairment exists if the fair value of a reporting unit to which goodwill has been allocated is less than their respective carrying values. The impairment for goodwill is limited to the total amount of goodwill allocated to the reporting unit. Future changes in the estimates used to conduct the impairment review, including revenue projections, market values and changes in the discount rate used could cause the analysis to indicate that our goodwill is impaired in subsequent periods and result in a write-down of a portion or all of goodwill. The discount rate used is based on independently calculated risks, our capital mix, and an estimated market premium. No impairment charge was recognized in 2020.

Fair Value Measurements

Fair value is measured in accordance with ASC guidance on fair value measurements, which defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. We measure fair value for financial instruments on an ongoing basis. We measure fair value for

non-financial

assets when a valuation is necessary, such as for impairment of long-lived and indefinite-lived assets when indicators of impairment exist.

Revenue Recognition

Revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing goods and services.

Contract Assets, Contract Liabilities and Remaining Performance Obligations

The Company records a contract asset when revenue recognized on a contract exceeds the billings. Thrasys generally invoices customers in monthly, quarterly, or installments. BHS generally invoices its patients upon providing services as the performance obligations are deemed complete. Contract assets are included in prepaid expenses and other current assets on the consolidated balance sheet.

The Company records unearned or deferred revenue when billed amounts have been invoiced and received in advance of revenue recognition. It is then recognized as revenue when transfer of control to customers has occurred or services have been provided. The unearned revenue balance does not represent the total contract value of annual or multi-year,

non-cancelable

subscription agreements. The unearned revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing, dollar size and new business linearity within the quarter.

F-14

Transaction price allocated to the remaining performance obligations, referred to by the Company as remaining performance obligations, represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods. Transaction price allocated to the remaining performance obligations are influenced by several factors, including seasonality, the timing of renewals, the timing of delivery of software licenses, average contract terms and foreign currency exchange rates. Unbilled portions of the remaining performance obligations are subject to future economic risks including bankruptcies, regulatory changes, and other market factors.

The Company excludes amounts related to performance obligations that are billed and recognized as they are delivered. This primarily consists of professional services contracts that are on a

time-and-materials

basis.

Services Revenues

We derive our service revenues primarily through the provision of medical and behavioral health services by accredited medical professionals through our BHS subsidiary, and provision of HIPAA-compliant medical information technology services through our Thrasys subsidiary. Information specific to each revenue stream are as follows:

• Services – Medical services provided through our behavioral services operations.

Performance obligations for medical and behavioral services for services provided by accredited medical professionals are satisfied over-time as services are provided and revenue is recognized accordingly. Revenue is based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to

self-pay

patients. Estimates for explicit price concessions are based on provider contracts and historical experience, adjusted for economic conditions and other trends affecting the Company’s ability to collect outstanding items. Substantially all of the Company’s patients are insured under third-party payor agreements.

Generally, patients who are covered by third-party payors are responsible for related deductibles and coinsurance, which may vary in amount. The Company also provides services to uninsured patients and may offer those uninsured patients a discount from standard charges. The Company estimates the transaction price for patients with deductibles and coinsurance and from those who are uninsured based on historical experience and market conditions. The Company has determined that the nature, amount, timing, and uncertainty of revenue and cash flows are affected by payors having different reimbursement and payment methodologies, length of the patient’s service, and method of reimbursement.

Estimates of net realizable value are subject to significant judgment and approximation by management. It is possible that actual results could differ from the historical estimates management has used to help determine the net realizable value of revenue. If actual collections either exceed or are less than the net realizable value estimates, the Company records a revenue adjustment, either positive or negative, for the difference between the estimate of the receivable and the amount actually collected in the reporting period in which the collection occurred. No significant adjustments were recorded for the year ending December 31, 2020.

• Services – Medical HIPAA-compliant (Health Insurance Portability and Accountability Act) SaaS internet hosting, licenses, and subscriptions to healthcare communities.

The Company’s Software as a Service (“SaaS”) offering, known as SyntraNet

™

, provides virtual, connected communities of care where cross-sector teams—physicians, nurses, care managers, community health workers, patients, families—can collaborate to manage health and coordinate the delivery of clinical, behavioral health, social and other services. Care communities can be connected in a distributed hierarchy of nodes to enable scalable province and nation-wide networks of connected care.

F-15

Information, analytics, and applications from this SaaS are delivered to care team members on both mobile and fixed internet-enabled devices. An advanced protected health information (“PHI”) framework controls access to information based on roles, rights, policies, and scope of consent.

Software license revenues are recognized based on determining whether or not the license constitutes a distinct performance obligation. If the license can be separated from the rest of the hosting services, it may be fully recognized on the date license rights are granted to the customer and access is granted; otherwise, it is an indistinct performance obligation which is recognized ratably over the contract term with other hosting services beginning on the commencement date of each contract, which is the date license rights are granted to the customer.

Subscription revenues to SaaS hosting access and support and maintenance are recognized ratably over the contract terms beginning on the commencement date of each contract, which is the date the Company’s service is made available to customers. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met and whether payments have been made ahead of the hosting services provided. The Company’s subscription service arrangements are

non-cancelable

and do not contain refund-type provisions.

• Services – Discrete information technology services for set-up, configuration, implementation and customization services for healthcare communities

The majority of the Company’s discrete professional information technology services contracts related to SaaS are on a time and material basis which may also be independently offered by its competitors. When these services are not combined with other SaaS revenues as a distinct performance obligation, revenues are recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the customer for fixed price contracts. Training revenues,

set-up

fees and configuration fees are recognized as the services are completed.

Product Revenues

We derive our product sales from sales of products through our BHS subsidiary pharmacy operations. Our product sales are primarily a function of the price per unit for pharmaceutical products acquired and the number of prescriptions provided to customers.

The Company recognizes revenue at the time the client effectively takes possession and control of the merchandise.

Contracts with Multiple Performance Obligations and transaction prices

From time to time, we may enter into contracts that contain multiple performance obligations, particularly in medical information HIPAA-compliant technology internet hosting and services.

For these arrangements, we allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product or service is transferred to the customer, in satisfaction of the corresponding performance obligations.

A significant portion of the Company’s contracts with customers have fixed transaction prices. For some contracts, the amount of consideration to which the Company will be entitled is variable. The Company includes variable consideration in a contract’s transaction price only to the extent that the Company has a relatively high level of confidence that the amounts will not be subject to significant reversals. In determining amounts of variable consideration to include in a contract’s transaction price, the Company relies on its experience and other evidence that supports its qualitative assessment of whether revenue would be subject to significant reversal.

F-16

Cost of Goods and Services Sold (“COGS” or “COS”)

Cost of goods sold is the accumulated total of all costs used to create a product which has been sold to generate revenues. These costs include direct materials (resale products, raw and externally sourced materials for internally manufactured products), direct labor, and an appropriately allocated portion of indirect production costs (indirect overhead). Indirect overhead costs include allocable costs, excluding depreciation and amortization, and ancillary costs such as freight, delivery,

non-sales

and

non-income

taxes, and insurance, and general overhead, such as allocable supervision and related costs. Direct labor is the direct provision of activities to manufacture or provide a good or service.

The cost of services sold for discrete information technology services includes the cost of direct labor, payroll taxes, and direct benefits of those individuals who provide direct services and/or generate billable hours.

The cost of services sold for SaaS includes all the accumulated costs of providing a hybrid-cloud based hosting arrangement.

The cost of pharmaceutical product sales provided for clients is derived from

point-of-sale

scanning information for the pharmacy products and is adjusted based on periodic inventories. In addition to product costs, cost of sales includes purchasing costs, freight costs, cash discounts, and ancillary costs.

Taxes Collected from Customers and Remitted to Governmental Authorities.

We exclude from our measurement of transaction prices all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of net sales or cost of sales.

We typically invoice our customers for information technology services, both SaaS and services, on a monthly or quarterly basis.

Research and Development Costs

Research and development costs are expensed as incurred and were $874,112 for the year ended December 31, 2020.

Software Development Costs

The Company capitalizes its ongoing costs of developing internal use software for hosting, which consists primarily of personnel costs. Internal and external costs incurred to develop

internal-use

computer software during the application development stage are capitalized.

Costs incurred internally in researching and developing a computer software product are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers.

Stock-based Compensation

We account for stock-based compensation expense in accordance with ASC Topic 718, Compensation-Stock Compensation. Our stock-based payments are composed of equity awards granted to certain employees These awards contain performance conditions that have contingent vesting, including both continuous employment through the date of consummation of a change of control event for the special purpose acquisition company. We recognize share-based compensation expense over the requisite service period, which is generally the vesting period of each award. Accordingly, the related stock compensation expenses are until such time as the performance conditions are both satisfied.

F-17

Advertising, Marketing and Promotion Expenses

Advertising, marketing and promotion is expensed as incurred. Advertising expense was $17,310 for fiscal 2020. These are contained within Selling, General and Administrative costs.

Income Taxes

Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end, based on enacted tax laws and statutory tax rates applicable to the year in which the differences are expected to affect taxable income. Valuation allowances are established when it is deemed more likely than not that some portion or all of the deferred tax assets will not be realized.

We account for income tax uncertainties in accordance with ASC guidance on income taxes, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

New Accounting Pronouncements Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2019-12,

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

. This ASU removes specific exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles (GAAP). It eliminates the need for an organization to analyze whether the following apply in a given period: Exception to the incremental approach for intraperiod tax allocation; exceptions to accounting for basis differences when there are ownership changes in foreign investments; and exception in interim period income tax accounting for

year-to-date

losses that exceed anticipated losses. This ASU also improves financial statement preparers’ application of income

tax-related

guidance and simplifies GAAP for: Franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. This ASU will be effective for private companies for fiscal years beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022, with adoption permitted. We are currently evaluating the effect the adoption of this ASU will have on the Company’s financial statements.

In February 2016, the FASB issued ASU

2016-02,

Leases, (Topic 842)

, and subsequently issued several supplemental/clarifying ASUs (Collectively, “ASC 842”). Among other things, under this ASU, lessees will be required to recognize, at commencement date, a lease liability representing the lessee’s obligation to make lease payments arising from the lease and a

right-of-use

asset representing the lessee’s right to use or control the use of a specified asset for the lease term for leases greater than 12 months. Under the new guidance, lessor accounting is largely unchanged. This ASU will be effective for private companies for fiscal years beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022 using the modified retrospective approach. We are currently evaluating the effect the adoption of this ASU will have on the Company’s financial statements.

In June 2016, the FASB issued ASU

2016-13,

Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

, and subsequently issued several supplemental/clarifying ASUs (Collectively, “ASC 326”). This ASU requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables and other long-term financings including available for sale and

held-to-maturity

debt securities, and loans. Subsequently, the FASB issued ASU

2018-19,

Codification Improvements to Topic 326, Financial Instruments-Credit Losses

, which amends the scope of ASC 326 and clarified that receivables arising from operating leases are not within the scope of the standard and

F-18

should continue to be accounted for in accordance with the lease standard (ASC 842). This ASU will be effective for private companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We are currently evaluating the effect the adoption of this ASU will have on the Company’s financial statements.

3. Business Combinations

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the underlying net assets acquired.

Trade Names

A trade name is a legally protected trade or similar mark. Acquired trade names are valued using an income method approach, generally the relief-from-royalty valuation method. The method uses a royalty rate based on comparable marketplace royalty agreements for similar types of trade names and applies it to the

after-tax

discounted free cash flow attributed to the trade name. The discount rate used is based on an estimated weighted average cost of capital and the anticipated risk for intangible assets.

Developed Technology

Developed Technology is the Intellectual Property of the Company. Intellectual property and technology (“IP”) is a design, work or invention that is the result of creativity to which one has ownership rights that may be protected through a patent, copyright, trademark or service mark. IP is valued using the relief from royalty valuation method. The method uses a royalty rate based on comparable market-place royalty agreements for similar types of IP and applies it to the

after-tax

discounted free cash flow attributed to the IP. The discount rate used is based on an estimated weighted average cost of capital and the anticipated risk for intangible assets.

The developed technology is amortized following the pattern in which the expected benefits will be consumed or otherwise used up over each component’s useful life, based on our plans and expectations for the IP going forward, which is generally the underlying IP’s legal expiration dates.

Customer Relationships

Customer relationships are intangible assets that consist of historical and factual information about customers and contacts collected from repeat transactions with customers, with or without any underlying contracts. The information is generally organized as customer lists or customer databases. We have the expectation of repeat patronage from these customers based on the customers’ historical purchase activity, which creates the intrinsic value over a finite period of time and translates into the expectation of future revenue, income, and cash flow.

Customer relationships are valued using projected operating income, adjusted for estimated future existing customer growth less estimated future customer attrition, net of charges for net tangible assets, IP charge, trade name charge and work force. The concluded value is the

after-tax

discounted free cash flow.

Measurement Period

The estimated fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information

F-19

necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date. In addition, the Company has not finalized its evaluation of allocating goodwill to reporting units.    

2020 Acquisitions

On October 26, 2020, the Company entered into a merger agreement with UpHealth Services whereby UpHealth Holding was deemed the surviving entity. All shares of UpHealth Services were exchanged for outstanding common stock in UpHealth Holdings. This was accounted for as a common control transaction with assets and liabilities carried over at book value. All other disclosed events below are in relation to the newly merged company.

On November 20, 2020, the Company completed the 100% acquisition of Thrasys, in exchange for a promissory note for future cash consideration, as defined in the merger agreements, and common stock interests in UpHealth Holdings, Inc., totaling $167,435,352, net of cash and restricted cash acquired of $2,483,628. The acquisition brings additional software and support synergies to the consolidated Company’s medical remote and telemedicine offerings.

Under the terms of the merger agreement an escrow account will be established as security for a potential indemnification claim against UpHealth related to a Thrasys tax matter.    The escrow account will be funded with approximately $10 million of UpHealth common stock and will be held for a period of up to 12 months from the closing date of the merger agreement,

The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the Company’s acquisition of Thrasys. The goodwill is 0t deductible for tax purposes.

The following table sets forth the preliminary allocation of the purchase price to Thrasys’ identifiable tangible and intangible assets acquired and liabilities assumed. The allocation of value in this table is subject to reevaluation during the measurement period.

	Thrasys, Inc and
	Subsidiary
	As of November 20, 2020
Allocation of Purchase price:
Accounts receivable, net	$	3,490,738
Prepaid expenses and other		3,001,150
Identifiable intangible assets		27,875,000
Property, plant and equipment		101,246
Other assets		19,374
Goodwill		148,087,717
Total assets acquired		182,575,225
Accounts payable		1,778,849
Accrued expenses and other current liabilities		5,321,761
Debt		960,783
Deferred tax liability		6,378,480
Deferred revenue		700,000
Total liabilities assumed		15,139,873
Net assets acquired	$	167,435,352

F-20

The acquired intangible assets from Thrasys and the related estimated useful lives consist of the following:

	Approximate Fair		Estimated
	Value		Useful Life
			(in years)
Definite-lived intangible assets - Trade names	$	6,925,000		10
Definite-lived intangible assets - Technology and intellectual property		10,825,000		10
Definite-lived intangible asset - Customer relationships		10,125,000		10
Total fair value of identifiable intangible assets	$	27,875,000

On November 20, 2020, the Company completed the 100% acquisition of BHS in exchange for a promissory note for future cash consideration, as defined in the merger agreements, and common stock interests in UpHealth Holdings, Inc., totaling $15,770,325 million, net of cash acquired of $1,024,485. The acquisition brings additional medical synergies to the consolidated Company’s medical remote and telemedicine offerings.

The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the Company’s acquisition of BHS. The goodwill is 0t deductible for tax purposes.

The following table sets forth the preliminary allocation of the purchase price to BHS’ identifiable tangible and intangible assets acquired and liabilities assumed. The allocation of value in this table is subject to reevaluation during the measurement period.

	Behavioral Health
	Services , LLC and
	Subsidiaries
	As of November 20, 2020
Allocation of Purchase price:
Accounts receivable, net	$	1,257,454
Inventories		99,583
Prepaid expenses and other		39,806
Identifiable intangible assets		225,000
Property, plant and equipment		52,568
Other assets		4,375
Deferred taxes		19,268
Goodwill		16,106,287
Total assets acquired		17,804,341
Accounts payable		374,532
Accrued expenses and other current liabilities		425,790
Debt		1,233,694
Total liabilities assumed		2,034,016
Net assets acquired	$	15,770,325

F-21

The acquired intangible assets from BHS and the related estimated useful lives consist of the following:

	Approximate Fair		Estimated
	Value		Useful Life
			(in years)
Definite-lived intangible assets - Trade names	$	225,000		3
Total fair value of identifiable intangible assets	$	225,000

As of December 31, 2020, we had incurred $860,017 of acquisition-related charges for the acquisitions of Thrasys and BHS which are included in selling, general and administrative expenses during the year ended December 31, 2020.

ASC 805 Combined Pro Forma Results for the Year Ended December 31, 2020

The results of BHS and Thrasys’ operations have been included in the financial statements subsequent to the acquisition dates. The following unaudited pro forma consolidated financial information reflects the results of operations as if the BHS Acquisition and Thrasys Acquisition had occurred on January 1, 2020, after giving effect to certain purchase accounting adjustments (the Company did not exist prior to January 1, 2020 and comparative financial statements are not presented). These purchase accounting adjustments mainly include incremental depreciation expense related to the fair value adjustment of property and equipment, amortization expense related to identifiable intangible assets and tax expense related to the combined tax provisions. This information does not purport to be indicative of the actual results that would have occurred if the acquisition had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company:

Pro Forma	Year Ended December 31, 2020
Revenues	$	30,742,853
NetIncome	$	(749,823	)
Basic Earnings per share	$	(0.15	)
Diluted earnings per share	$	(0.15	)

Measurement period adjustments in the consolidated financial statements will be disclosed in accordance with ASU

2015-16,

Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments

.

4. Investment in Unconsolidated Entities

On November 20, 2020 the Company entered into a stock purchase agreement with Glocal to acquire 43.46% of the Company in exchange for a promissory note for future cash consideration, as defined in the stock purchase agreement, and common stock interests in UpHealth Holdings, Inc for a purchase price of $57,367,200. This investment is presented as an Equity Method Investment on the Company’s consolidated balance sheet since the Company does not currently have a controlling financial interest. For the year ended December 31, 2020, UpHealth’s share of the net income (loss) in equity method investment included amortization expense of $495,417 related to intangible assets being amortized into income over the estimated remaining lives of the assets.

See Note 17,

“Subsequent Events”

for further information.

F-22

5. Intangible Assets

At December 31, 2020, intangible assets consisted of the following:

	Approximate Fair Value		Estimated Useful Life
			(in years)
Technology and intellectual property	$	10,825,000		10
Customer relationships		10,125,000		10
Trade names		7,150,000		10
Total fair value of identifiable intangible assets	$	27,875,000

Amortization expense was $318,054 for the year ended December 31, 2020.

The estimated amortization expense related to definite-lived intangible assets for the five succeeding years is as follows:

			Developed		Customer
	Trade Name		Technology		Relationships
	Amortization		Amortization		Amortization
2021	$	767,500	$	1,082,500	$	1,012,500
2022		767,500		1,082,500		1,012,500
2023		767,500		1,082,500		1,012,500
2024		692,500		1,082,500		1,012,500
2025		692,500		1,082,500		1,012,500
Thereafter		3,377,223		5,292,222		4,950,000
	$	7,064,723	$	10,704,722	$	10,012,500

6. Accrued Liabilities

At December 31, 2020, accrued liabilities consisted of the following:

Accrued professional fees	$	4,245,772
Accrued software licenses		690,855
Accrued interest on debt		142,446
Accrued payroll and bonuses		1,545,288
Accrued shareholder distribution		1,493,000
Other accruals		365,123
	$	8,482,484

7. Deferred Compensation

Several key employees have employment agreements which among other conditions, set base salary and incentives. Salaries earned under the employment agreements are to accrue until such time the Company has completed a successful capital raise, which is contemplated as the merger with Gig2. The Company anticipates completing this in the second quarter of 2021. Accrued unpaid compensation at December 31, 2020 aggregated $951,875.

Under the terms of the employment agreements, the key employees are also entitled to potential success bonuses upon the completion of an initial public offering or the merger with Gig2, as defined in the individual employees’ agreements.

F-23

8. Debt

Related Party Debt

The Company has notes payable to related parties totaling $420,283 at December 31, 2020. The notes bear interest at rates ranging from 0.14% to 3.5% per annum. Notes totaling $381,283 are payable in 8 quarterly installments starting from October 1, 2022, or upon a liquidity event, as defined in the note agreement and a note totaling $39,000 is payable in 2021. The accrued interest payable was $9,113 at December 31, 2020 and is included in accrued liabilities on the consolidated balance sheet.

Certain Seller notes totaling $21,100,000 at December 31, 2020, are due to former shareholders of the merger entities and accrue interest at specific rates, per the merger agreements. The accrued interest payable and interest expense was $133,333 for the year ended December 31, 2020. The accrued interest payable is included in accrued liabilities on the consolidated balance sheet.

Membership Redemptions and Due to Member

In November 2020, BHS entered into two redemption agreements with members for $10,000 and $70,000, respectively. The Company agreed to pay cash of $10,000 to one member, and entered into a note payable agreement with the other member. The note is

non-interest

bearing, is noncollateralized, and due upon demand. The amount due to the member was $70,000 at December 31, 2020.

Paycheck Protection Program Loans

In April 2020, Thrasys and BHS, each obtained a United States government subsidy of $540,500 and $1,004,900, respectively, under the PPP. The PPP is a United States government temporary program created with the intent to provide a subsidy to assist businesses in keeping employees employed during the pandemic. The PPP loan may not need to be repaid if certain requirements are met. Under the Coronavirus Aid, Relief and Economic Security (“CARES Act”), as modified, any amounts not forgiven will be required to be repaid over a term having a minimum of five years and a maximum maturity of 10 years from the date on which the borrower applies for forgiveness. The loan carries a 1% interest rate. Thrasys has applied for forgiveness for the entire amount of the loan and is awaiting decision from SBA as of the date of this report, however, there can be no assurance given that any portion of the PPP Loan will be forgiven. BHS has not submitted a request for forgiveness as of the date the financial statements were available to be issued but BHS expects to submit a request for forgiveness for the entire loan balance in 2021. There can be no assurance that any portion of the PPP Loan will be forgiven. Included in BHS’s loan are borrowings related to the operations of various related parties aggregating $278,306, which were transferred to the related parties. These amounts have been included as due from related parties at December 31, 2020 (Note 15). The balance is classified as a current liability due to uncertainty regarding BHS’s eligibility for the loan.

Provider Relief Funds

In April and July 2020, BHS received proceeds aggregating $228,794 from the U.S. Department of Health and Human Services (HHS) available as part of a $100 billion appropriation as part of the CARES Act Provider Relief Fund (PRF). The payments will not require repayment as long as BHS complies with certain terms and conditions outlined by HHS. BHS relied upon guidance issued by HHS through March 12, 2021. The terms and conditions first require BHS to identify health care-related expenses attributed to the coronavirus that another source has not reimbursed or is obligated to reimburse. If those expenses do not exceed the funding received, BHS then applies the funds to patient care lost revenue. On January 15, 2021 the HHS released a “Post-Payment Notice of Reporting Requirements Notice” that provides healthcare providers three options to calculate patient care lost revenue.

As of November 20, 2020, BHS has recognized no patient care lost revenue on the consolidated statement of operations. BHS has $228,794 recorded within current liabilities on the consolidated balance sheet

F-24

as BHS has asserted it has not yet met all of the terms and conditions and restrictions for the CARES Act relative to these funds as of November 20, 2020. BHS has until June 30, 2021 in which to use amounts remaining toward expenses attributable to coronavirus but not reimbursed by other sources and/or lost patient care revenue. HHS is entitled to recoup PRF amounts received by BHS that are unused as for the purposes

disclosed above.

9. Fair Value of Financial Instruments

We estimate the

 fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate. As of December 

31

,

2020

, the fair values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximate their carrying values due to the short-term nature of these instruments. As

no

events have occurred since the issuance of the debt that would materially impact its fair value, the fair value of the debt is determined to be equal to the carrying cost as of December 

31

,

2020

.

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. Fair value measurements are categorized into one of three levels of the fair value hierarchy based on the lowest level of significant input used. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Considerable judgment and a high degree of subjectivity are involved in developing these estimates. These estimates may differ from the actual amounts that we could realize upon settlement.

The fair value hierarchy is as follows:

Level 1-	Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2 -	Other observable inputs, either directly or indirectly, other than quoted prices included in Level 1, including:

• Quoted prices for similar assets/liabilities in active markets;

• Quoted prices for identical or similar assets/liabilities in non-active markets (e.g., few transactions, limited information, non-current prices, high variability over time);

• Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities, default rates); and

• Inputs that are derived principally from or corroborated by other observable market data.

Level 3 - Unobservable inputs that cannot be corroborated by observable market data.

10. Capital Structure

Common Stock

Our Amended and Restated Certificate of Incorporation authorizes up to 15,000,000 shares of common stock, par value of $0.0001. Subject to the rights of holders of any future series of preferred stock, all of the voting power of the stockholders of the Company shall be vested in the holders of the common stock.

Upon formation, the founders of UpHealth were issued 4,868,433 shares of common stock as consideration for paying the Company’s formation costs.    

There were 6,811,043 shares issued and outstanding at December 31, 2020.

F-25

Contemporaneous with its merger with UpHealth on November 20, 2020, Thrasys entered into stock compensation agreements with employees pursuant to the Thrasys 2019 Stock Incentive Plan, a Restricted Stock Award (“RSA”) agreement and a Restricted Stock Unit (“RSU) award agreement. On this date there were 638,684 RSA shares awarded to employees. In addition, there were 437,018 RSUs shares awarded to employees. Vesting for both types of agreements is based on continuing employment with UpHealth and the consummation of the closing of the merger with Gig2. The RSU’s will be cash settled for approximately $6.3 million upon vesting.

Because the vesting for the time- and performance-based awards are contingent upon the consummation of the merger, 0 stock compensation expense is recognized until resolution of the contingency.

11. Revenue

The Company recognizes revenue under ASC 606.

Disaggregation of Revenue

Revenues by the Company’s service offerings consisted of the following:

Fiscal Year Ended December 31 2020
Subscriptions and Licenses	$	3,303,636
Professional IT Services		700,109
Medical Services		964,169
Product Revenues		428,153
	$5,396,067

Revenues by geography consisted of the following:

Americas	$	5,036,463
Europe		359,604
	$	5,396,067

Revenues by geography are determined based on the region of the customer. Revenue attributed to the Americas was approximately 93.34 percent during fiscal 2020. No other region represented more than ten percent of total revenue during fiscal 2020. The Company’s revenues are entirely derived from the healthcare industry.

Revenues recognized over-time approximated 66% of total revenue recognized during the year ended December 31, 2020.

F-26

Contract Balances

The following tables reflect the changes in our contract assets, which we classify as unbilled receivables and our contract liabilities, which we classify as deferred revenues, for the year ended December 31, 2020:

Contract Assets

There were 0 impairments of contract assets during fiscal 2020. The change in contract assets was as follows:

	Contract Assets
	December 31, 2020
Contract asset, beginning of period	$	0
Contract assets acquired in business combination		65,692
Reclassifications to billed receivables		(51,965	)
Revenues recognized in excess of period billings		424,494
Ending Balance	$	438,221

Unearned Revenue

The approximate change in unearned revenue was as follows:

	Deferred Revenue
	December 31, 2020
Beginning Balance, January 1, 2020	$	0
Revenues recognized from balances held at the beginning of the period		0
Fair value of deferred revenues from business combination		700,000
Revenues deferred from period collections on unfulfilled performance obligations		(303,000	)
Ending Balance	$	397,000

Revenue recognized ratably over time is generally billed in advance and includes SyntraNet

™

Cloud Services, and the related consulting, implementation and services support, and advisory services.

Revenue recognized over time as delivered includes professional services billed on a time and materials basis, fixed fee professional services and training classes that are primarily billed, delivered, and recognized within the same reporting period.

Approximately 5.6 percent of the revenue recognized in fiscal 2020 (post-November 20, 2020 acquisition) is from the unearned revenue balance existing as of November 20, 2020, the date of acquisition.

Remaining Performance Obligations

The majority of the Company’s noncurrent remaining performance obligation is expected to be recognized during the next 12 months and is classified as Current in the table below. The remainder will be incurred from 2022 through 2024.

F-27

Remaining performance obligations consisted of the following:

Remaining Performance Obligations	Total		Current		Future
Subscriptions	$	1,016,887		782,512		234,375
Licenses		8,639,166		2,580,000		6,059,166
SaaS and Hosting		48,750		48,750		0
Program Management and Services		1,331,192		1,331,192		0
	$	11,035,995		4,742,454		6,293,541

12. Income Taxes

The CARES Act was enacted on March 27, 2020 in the United States. The CARES Act provided a substantial stimulus and assistance package intended to address the impact of the

COVID-19

pandemic, including tax relief, and government loans, grants, and investments. The CARES Act did not have a material impact on our provision.

Income tax expense consisted of the following for the year ended December 31, 2020:

Current:
Federal	$	577,515
State		95,294
Total current expense		672,809
Deferred:
Federal		(536,497	)
State		(86,118	)
Total deferred benefit		(622,615	)
Income tax expense	$	50,194

Income tax expense (benefit) differed from the amount that would be provided by applying the U.S. federal statutory rate for the year ended December 31, 2020 due to the following:

	Amount			Tax Rate
Federal Statutory income tax		(448,674	)		21.00	%
State income tax, net of federal benefit		(83,884	)		3.93	%
Transactions costs		560,504			-26.23	%
Other		22,248			-1.04	%
Effective Income Tax Rate		50,194			-2.35	%

F-28

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes at December 31, 2020 are as follows:

Deferred Tax Assets
Accrued expenses	$	573,153
Transactions costs		85,727
State credits		738,134
Net operating loss carryforwards		18,984
Total deferred tax assets		1,415,997
Deferred Tax Liabilities
Amortization and depreciation		(6,738,591	)
Deferred revenue		(195,241	)
Total deferred tax liabilities		(6,933,831	)
Less: Valuation allowance		(554,267	)
Net deferred tax asset (liability)	$	(6,072,101	)

We evaluate our deferred tax assets periodically to determine if valuation allowances are required. Ultimately, the realization of deferred tax assets is dependent upon generation of future taxable income during those periods in which temporary differences become deductible and/or credits can be utilized. To this end, management considers the level of historical taxable income, the scheduled reversal of deferred tax liabilities,

tax-planning

strategies, and projected future taxable income. Based on these considerations, and the carry-forward availability of a portion of the deferred tax assets, management believes it is more likely than not that we will realize the benefit of the deferred tax assets with the only exception being a valuation allowance recorded against the California research and development credit of approximately $554,000.

The Internal Revenue Service (IRS) audited Thrasys’ 2008 and 2009 tax returns for the proper year of inclusion of approximately $15,000,000 long-term capital gain on the sale of certain intellectual property rights to Siemens Medical Solutions, Inc. Thrasys was a C corporation for the federal income tax purpose for the year 2008 but was an S corporation for the federal income tax purpose since January 1, 2009. Thrasys’ originally reported the gain on its 2010 S Corporation tax return using the

one-year

deferral method. The corporate level tax was paid to California. and passed the gain through to its shareholders. The IRS asserted that Thrasys owes C Corporation tax of approximately $5,000,000 for 2008 or in the alternative Thrasys owes C Corporation tax of approximately $5,000,000 for 2009 as a Built in Gain. In addition, Thrasys could be assessed additional California Franchise Tax of approximately $1.3 million. If additional income taxes are imposed, there will be interest charged at approximately 4% per year compounded annually, resulting in potential interest of approximately $3 million. The IRS has not asked that penalties be imposed.

The matter is currently pending before the US Tax Court Docket

11565-15.

There are related cases for some of the shareholders for additional income taxes due if the gain is shifted to 2009. In 2018 the IRS filed a motion for Summary Judgment and in Thrasys, Inc. v. Commissioner (T.C. Memo

2018-199)

filed December 4, 2018, and the motion was denied.

In January 2020, Thrasys filed a Motion for Summary judgment arguing that either the gain was properly reported in 2010 and all taxes have been paid or in the alternative it should have been taxable in 2009 with no Built in Gains tax. In either alternative there would be no additional income tax due for 2008 or 2009. The IRS filed an objection to Thrasys’ motion. On March 3, 2021, the US Tax Court issued a Court Order dismissing the Thrasys’ Motion. This and other alternatives are now under consideration. It is not likely this case will be resolved before the end of 2021. Thrasys intends to vigorously defend its position in the case and believes they will prevail if the case is taken to trial. The Company has accrued $200,000 representing probable additional taxes and interest imposed, within accrued liabilities in the consolidated balance sheet as of December 31, 2020.

F-29

13. Earnings (Loss) Per Share

Basic earnings (loss) per share applicable to common stockholders is computed by dividing earnings applicable to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share assumes the conversion of any convertible securities using the treasury stock method or the

if-converted

method. There are currently 0 convertible securities that would be dilutive; accordingly, dilutive earnings (loss) per share equals the basic earnings (loss) per share.

14. Employee Benefit Plans

In connection with acquisition of Thrasys and BHS, the Company has 2 defined contribution plans, that cover substantially all employees with the exception of union employees and employees acquired under a section 401(b)(6)(C) transaction. The plans provide for discretionary matching and profit-sharing contributions. For the year ended December 31, 2020, there were 0 employer matching or employer profit sharing contributions to the plans.

15. Related-Party Transactions

The Company’s chief financial officer is the former shareholder and chairman of TTC Healthcare, Inc., and the former member-manager of TTC Healthcare Partners, LLC (collectively, TTC), a company that has entered into a tentative merger agreement with Uphealth Holdings, Inc.

The consulting firm noted in Note 17 is a related party through an officer of the Company, who is a significant shareholder of the Company and a member of the Company’s board of directors.

Payments to Related Parties

The Company makes guaranteed payments to related parties. Guaranteed payments aggregated $541,202 for the period November 20, 2020 through December 31, 2020. These amounts are presented in cost of goods and services in the consolidated statement of operations. The Company has unpaid guaranteed payments of $145,558 as of December 31, 2020, which is included in accrued liabilities on the consolidated balance sheet.

16. Commitments and Contingencies

Commitments

The Company leases various facilities with related parties in accordance with the terms of operating lease agreements that expire at various dates through December 2023. The leases require monthly payments ranging from $3,234 to $13,362. Total rent expense under related party agreements was approximately $4,900 for the period ended December 31, 2020.

The Company leases various facilities from third parties in accordance with the terms of operating lease agreements requiring monthly payments ranging from $447 to $14,387. The leases expire in December 2021. Total rent expense under third party agreements was approximately $77,951 for the period ended December 31, 2020.

The Company also has various operating leases for office equipment which require monthly payments ranging from $239 to $1,499 through November 2025. Lease expense of approximately $1,050 was charged to operations for the period ended December 31, 2020.

F-30

As of December 31, 2020, future minimum lease payments under

non-cancelable

operating leases are as follows:

Year	Related Party		Third-Party		Total
2021	$	136,800	$	538,033	$	674,833
2022		78,000		199,607		277,607
2023		69,333		10,776		80,109
2024		0		10,776		10,776
2025		0		9,878		9,878
	$	284,133	$	769,070	$	1,053,203

Contingencies

From time to time, the Company and its wholly owned subsidiaries may be subjected to claims or lawsuits which arise in the ordinary course of business, including the previously disclosed tax matter and matters described below. Estimates for resolution of legal and other contingencies are accrued when losses are probable and reasonably estimable in accordance with ASC Topic 450, Contingencies. In the opinion of management, after consulting with legal counsel, none of these other claims are currently expected to have a material adverse effect on the results of operations, financial position or our cash flows.

There are currently 2 medical malpractice suits against the individual providers, other third parties, and BHS as a whole. The medical malpractice suits assert that there is negligence by the providers in treating the patients named in the suits. One of the malpractice suits is seeking damages of approximately $3,656,000 from all defendants, including BHS. The second malpractice suit has not specified monetary damages, however, in the event of an unfavorable outcome, BHS’ legal counsel estimates maximum damages of approximately $2,267,000. BHS is vigorously defending the malpractice suits and was named as a secondary party in each suit. Although the outcome of these malpractice suits is not presently determinable, it is reasonably possible that an unfavorable outcome, for the aforementioned damages sought, could occur. However, BHS, and the individual providers, do have insurance coverage (BHS carries a $1,000,000 per occurrence insurance policy), which could mitigate some or all of the financial effects of potential settlements or judgements. In the event that future settlements or judgements, if any, exceed insurance coverages, BHS may be required to fund a portion of the difference. NaN provision has been made in the accompanying consolidated financial statements for any potential settlement or judgement costs at December 31, 2020, as an unfavorable outcome is not probable at this time.

Covid-19

On January 30, 2020, the World Health Organization (WHO) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the

“COVID-19

outbreak”) and the risks to the international community as the virus spreads globally. On March 11, 2020, the WHO classified the

COVID-19

outbreak as a pandemic, and on March 25, 2020, the US government reached a stimulus package deal. The full impact of the

COVID-19

outbreak continues to evolve as of the date of this report, and likewise, the full impact of the pandemic on the Company’s financial condition, liquidity, and future results of operations is uncertain. Management is actively monitoring the global situation on its financial condition, liquidity, operations, vendors, industry, and workforce. Despite the daily evolution of the

COVID-19

outbreak and the global responses to curb its spread, the Company has not experienced any material impact on its results of operations, financial condition, of liquidity for fiscal year 2020, or beyond.

On March 27, 2020, the CARES Act, was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the

COVID-19

pandemic. The CARES Act includes several significant income and other business tax provisions that, among other things, provides for

non-income

tax-related

relief such as refundable employee retention tax credits and the deferral of the

employer-paid

portion of social security taxes. The Company continues to evaluate the various provisions of the CARES Act and their impact on its consolidated financial statements as a whole.

F-31

UpHealth, Inc.

Financial Statements as of and for the periods ended June 30, 2021 and 2020

F-32

Index to Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	F-34
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020	F-35
Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2021 and 2020	F-36
Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020	F-37
Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2021 and 2020	F-38
Notes to Condensed Consolidated Financial Statements	F-39

F-33

UPHEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)

	June 30, 2021			December 31, 2020
ASSETS
Current Assets:
Cash and cash equivalents	$	98,116		$	1,839
Restricted cash		586			530
Accounts receivable, net		40,636			6,703
Inventories		3,208			117
Due from related parties		13			0
Prepaid expenses and other current assets		7,060			3,501
Total current assets		149,619			12,690
Property and equipment, net		55,154			151
Intangible assets, net		123,463			27,782
Goodwill		567,952			164,194
Equity method investments		0			57,214
Deferred tax assets		0			335
Other assets		1,865			24
Total assets	$	898,053		$	262,390
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	8,232		$	2,680
Accrued expenses		33,764			8,482
Deferred revenue		6,572			397
Due to related party		57			70
Income taxes payable		902			673
Related-party long-term debt, current		670			39
Long-term debt, current		49,487			22,531
Derivative liability, current		38,598			0
Forward share purchase liability		17,123			0
Other current liabilities		1,048			0
Total current liabilities		156,453			34,872
Related-party long-term debt, noncurrent		0			381
Long-term debt, noncurrent		96,131			344
Deferred tax liabilities		24,582			6,072
Warrant liabilities, noncurrent		772			0
Derivative liability, noncurrent		23,225			0
Other long-term liabilities		2,773			0
Total liabilities		303,936			41,669
Commitments and Contingencies (Note 17)		0			0
Stockholders’ Equity:
Preferred stock, $0.0001 par value, 1,000 shares authorized; NaN issued or outstanding		0			0
Common stock, $0.0001 par value, 300,000 shares authorized; 117,605 issued and outstanding at June 30, 2021; 70,021 issued and outstanding at December 31, 2020		12			7
Additional paid-in capital		620,455			222,900
Accumulated deficit		(37,920	)		(2,186	)
Accumulated other comprehensive loss		(3,478	)		0
Total UpHealth, Inc., stockholders’ equity		579,069			220,721
Noncontrolling interests		15,048			0
Total stockholders’ equity		594,117			220,721
Total liabilities and stockholders’ equity	$	898,053		$	262,390

The accompanying notes are an integral part of these financial statements.

F-34

UPHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Revenue
Services	$	14,773		$	0		$	22,911		$	0
Licenses and subscriptions		9,145			0			12,803			0
Products		7,964			0			8,984			0
Total revenue		31,882			0			44,698			0
Cost of goods and services
Services		9,381			0			14,102			0
License and subscriptions		6,173			0			6,670			0
Products		4,727			0			5,644			0
Total cost of goods and services		20,281			0			26,416			0
Gross margin		11,601			0			18,282			0
Operating expenses
Sales and marketing		1,695			0			2,580			0
Research and development		872			0			2,630			0
General and administrative		8,974			336			12,254			539
Depreciation and amortization		2,966			0			3,870			0
Acquisition-related expenses		32,646			0			35,339			0
Total operating expenses		47,153			336			56,673			539
Loss from operations		(35,552	)		(336	)		(38,391	)		(539	)
Other income (expense)
Interest expense		(4,870	)		0			(5,581	)		0
Gain on consolidation of equity method investment		0			0			640			0
Gain on fair value of warrant liabilities		1,074			0			1,074			0
Gain on extinguishment of debt		151			0			151			0
Other expense, net, including interest income		(258	)		0			(221	)		0
Total other expense		(3,903	)		0			(3,937	)		0
Loss before income tax benefit		(39,455	)		(336	)		(42,328	)		(539	)
Income tax benefit		6,647			0			7,053			0
Net loss before loss from equity method investment		(32,808	)		(336	)		(35,275	)		(539	)
Loss from equity method investment		0			0			(561	)		0
Net loss		(32,808	)		(336	)		(35,836	)		(539	)
Less: net loss attributable to noncontrolling interests		(24	)		0			(102	)		0
Net loss attributable to UpHealth, Inc.	$	(32,784	)	$	(336	)	$	(35,734	)	$	(539	)
Net loss per share attributable to UpHealth, Inc.:
Basic	$	(0.35	)	$	(0.01	)	$	(0.43	)	$	(0.01	)
Diluted	$	(0.35	)	$	(0.01	)	$	(0.43	)	$	(0.01	)
Weighted average shares outstanding:
Basic		94,170			50,050			83,585			50,050
Diluted		94,170			50,050			83,585			50,050

The accompanying notes are an integral part of these financial statements.

F-35

UPHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Net loss	$	(32,808	)	$	(336	)	$	(35,836	)	$	(539	)
Foreign currency translation adjustments, net of tax		(2,319	)		0			(3,478	)		0
Comprehensive loss		(35,127	)		(336	)		(39,314	)		(539	)
Less: comprehensive loss attributable to noncontrolling interests		(24	)		0			(102	)		0
Comprehensive loss attributable to UpHealth, Inc.	$	(35,103	)	$	(336	)	$	(39,212	)	$	(539	)

The accompanying notes are an integral part of these financial statements.

F-36

UPHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, unaudited)

	Common Stock				Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total UpHealth, Inc. Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
	Shares		Amount
Balance at December 31, 2020(1)		70,021	$	7	$	222,900		$	(2,186	)	$	0		$	220,721		$	0		$	220,721
Issuance of common stock to consummate business combinations(1)		8,749		1		87,408			—			—			87,409			17,389			104,798
Net loss		—		—		—			(2,950	)		—			(2,950	)		(78	)		(3,028	)
Foreign currency translation adjustments		—		—		—			—			(1,159	)		(1,159	)		—			(1,159	)
Balance at March 31, 2021(1)		78,771	$	8	$	310,308		$	(5,136	)	$	(1,159	)	$	304,021		$	17,311		$	321,332
Issuance of common stock to consummate business combinations		26,162		3		243,584			—			—			243,587			(2,239	)		241,348
Merger recapitalization		9,471		1		54,604			—			—			54,605			—			54,605
PIPE common stock issuance		3,000		—		27,079			—			—			27,079			—			27,079
Forward share repurchase agreement		0		—		(17,000	)		—			—			(17,000	)		—			(17,000	)
Issuance of common stock for debt conversion		200		—		1,879			—			—			1,879			—			1,879
Net loss		—		—		0			(32,784	)		—			(32,784	)		(24	)		(32,808	)
Foreign currency translation adjustments		—		—		0			—			(2,319	)		(2,319	)		0			(2,319	)
Balance at June 30, 2021		117,605	$	12	$	620,455		$	(37,920	)	$	(3,478	)	$	579,069		$	15,048		$	594,117

(1) Amounts as of March 31, 2021 and before that date differ from those published in prior consolidated financial statements as they were retrospectively adjusted as a result of the accounting for the Business Combinations (as defined below in Note 1). Specifically, the number of common shares outstanding during periods before the Business Combinations are computed on the basis of the number of common shares of UpHealth Holdings (accounting acquiror) during those periods multiplied by the exchange ratio established in the stock purchase agreement (1.00 UpHealth Holdings shares converted to 10.28 GigCapital2 shares). Common stock and additional paid-in capital were adjusted accordingly.

	Common Stock				Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss		Total UpHealth, Inc. Stockholders’ Equity			Noncontrolling Interests		Total Stockholders’ Equity
	Shares		Amount
Balance at January 1, 2020(1)		0	$	0	$	0		$	0		$	0	$	0		$	0	$	0
Issuance of common stock for formation(1)		50,050		5		(5	)		—			—		—			—		—
Net loss		—		—		—			(203	)		—		(203	)		—		(203	)
Balance at March 31, 2020(1)		50,050	$	5	$	(5	)	$	(203	)	$	0	$	(203	)	$	0	$	(203	)
Net loss		—		—		—			(336	)		—		(336	)		—		(336	)
Balance at June 30, 2020(1)		50,050	$	5	$	(5	)	$	(539	)	$	0	$	(539	)	$	0	$	(539	)

The accompanying notes are an integral part of these financial statements.

F-37

UPHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Six Months Ended June 30,
	2021			2020
Operating activities:
Net loss	$	(35,836	)	$	(539	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,353			0
Amortization of debt issuance costs and discount on convertible debt		1,913			0
Gain on extinguishment of debt		(151	)		0
Loss from equity method investment		561			0
Gain on consolidation of equity method investment		(640	)		0
Gain on fair value of warrant liabilities		(1,074	)		0
Loss on disposal of property and equipment		78			0
Deferred income taxes		(7,262	)		0
Other		(271	)		0
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(21,000	)		0
Inventories		(80	)		0
Prepaid expenses and other current assets		5			0
Accounts payable and accrued expenses		15,592			539
Income taxes payable		200			0
Deferred revenue		5,877			0
Proceeds from Provider Relief Funds		506			0
Due to (from) related parties		28			0
Other current liabilities		(27	)		0
Net cash used in operating activities		(37,228	)		0
Investing activities:
Purchases of property and equipment		(669	)		0
Due to (from) related parties		265			0
Net cash acquired in acquisition of businesses		4,263			0
Net cash provided by investing activities		3,859			0
Financing activities:
Proceeds from merger and recapitalization transaction		83,435			0
Proceeds from convertible debt		164,500			0
Repayments of debt		(17,333	)		0
Payments of debt issuance costs		(8,100	)		0
Payments of seller notes		(88,056	)
Payments of capital lease obligations		(275	)		0
Distribution to noncontrolling interest		(100	)		0
Payments of amount due to member		(4,270	)		0
Net cash provided by financing activities		129,801			0
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(99	)		0
Net increase in cash, cash equivalents, and restricted cash		96,333			0
Cash, cash equivalents, and restricted cash, beginning of period		2,369			0
Cash, cash equivalents, and restricted cash, end of period	$	98,702		$	0
Supplemental cash flow information:
Cash paid for interest, net of amounts capitalized	$	233		$	0
Cash paid for income taxes	$	0		$	0
Non-cash investing and financing activity:
Issuance of common stock for debt conversion	$	1,879		$	0
Issuance of common stock and promissory note to consummate TTC business combination	$	43,306		$	0
Issuance of common stock and promissory note to consummate Glocal business combination	$	110,421		$	0
Issuance of common stock and promissory note to consummate Innovations business combination	$	160,378		$	0
Issuance of common stock and promissory note to consummate Cloudbreak business combination	$	106,284		$	0
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	98,116		$	0
Restricted cash		586			0
Total cash, cash equivalents, and restricted cash:	$	98,702		$	0

The accompanying notes are an integral part of these financial statements.

F-38

UPHEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in dollars, unaudited)

1. Organization and Business

UpHealth, Inc.

UpHealth, Inc. (“UpHealth,” “we,” “us,” “our,” or the “Company”) is the parent company of both UpHealth Holdings, Inc. (“UpHealth Holdings”) and Cloudbreak Health, LLC (“Cloudbreak”).

GigCapital2, Inc. (“GigCapital2”), the Company’s predecessor, was incorporated in Delaware on March 6, 2019. GigCapital2 was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On November 20, 2020, GigCapital2, UpHealth Merger Sub, Inc. (“UpHealth Merger Sub”), and UpHealth Holdings, entered into a business combination agreement (as subsequently amended on January 29, 2021, March 23, 2021, April 23, 2021, and May 30, 2021, the “UpHealth Business Combination Agreement”). In connection with the UpHealth Business Combination Agreement, UpHealth Merger Sub was merged with and into UpHealth Holdings, with UpHealth Holdings surviving the merger. Also on November 20, 2020, GigCapital2, Cloudbreak Health Merger Sub, LLC, a Delaware limited liability company (“Cloudbreak Merger Sub”), Cloudbreak Health, Dr. Chirinjeev Kathuria and Dr. Mariya Pylypiv, UpHealth Holdings, and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the representative, agent and

attorney-in-fact

of the Cloudbreak members, entered into a business combination agreement (as subsequently amended on April 23, 2021 and June 9, 2021, the “Cloudbreak Business Combination Agreement” and, together with the UpHealth Business Combination Agreement, the “Business Combination Agreements”). In connection with the Cloudbreak Business Combination Agreement, Cloudbreak Merger Sub was merged with and into Cloudbreak, with Cloudbreak surviving the merger (the “Cloudbreak Business Combination” and, together with the UpHealth Business Combination, the “Business Combinations”). The Business Combinations were consummated on June 9, 2021. In connection with the Business Combinations, GigCapital2 changed its corporate name to “UpHealth, Inc.”

Our public units began trading on the NYSE under the symbol “GIX.U” on June 5, 2019. On June 26, 2019, we announced that the holders of our units may elect to separately trade the securities underlying such units. On July 1, 2019, the shares, warrants, and rights began trading on the NYSE under the symbols “GIX”, “GIX.WS,” and “GIX.RT,” respectively. On June 9, 2021, upon the completion of the Business Combinations, our units separated into their underlying shares of common stock, warrants, and rights (and the rights were converted into shares of common stock). Our units and rights ceased to trade, and our common stock and warrants now trade under the symbols “UPH” and “UPH.WS”, respectively.

UpHealth Holdings

UpHealth Holdings, a Delaware corporation formed on October 26, 2020, was established to raise capital and pursue opportunities for investment and acquisition in various healthcare entities, primarily those that bring technology and services to efficiently and profitably manage chronic and complex care, including behavioral health and substance abuse, while also serving the demands for easy access to personalized primary care. UpHealth Holdings merged with UpHealth Services, Inc. (“UpHealth Services”) on October 26, 2020 with UpHealth Holdings deemed the surviving corporation. UpHealth Services’

pre-merger

financial statements are now UpHealth Holdings’

pre-merger

financial statements and are reflected in the three and six months ended June 30, 2020.

UpHealth Services was incorporated in Illinois on November 5, 2019; operations effectively began January 1, 2020 and continued through its October 2020 merger with UpHealth Holdings

.

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On November 20, 2020, UpHealth Holdings completed the acquisition of Thrasys, Inc. (“Thrasys”), a California corporation and a provider of an advanced, comprehensive, and extensible technology platform, marketed under the umbrella “SyntraNetTM,” to manage health, quality of care, and costs, especially for individuals with complex medical, behavioral health, and social needs.

On November 20, 2020, UpHealth Holdings completed the acquisition of Behavioral Health Services, LLC (“BHS”), a Missouri limited liability company and a provider of medical, retail pharmacy and billing services.

On November 20, 2020, UpHealth Holdings completed the acquisition of 43.46% of Glocal Healthcare Systems Private Limited and subsidiaries (“Glocal”), an India-based healthcare company, which was presented as an equity method investment. On March 26, 2021, UpHealth Holdings acquired an additional 45.94% of Glocal and recognized a gain of $0.6 million on our equity method investment through the step-acquisition, which is presented as gain on consolidation of equity method investment in the condensed consolidated statement of operations for the three months ended March 31, 2021. Subsequent to March 31, 2021, UpHealth Holdings acquired an additional 2.8% of Glocal in a step-acquisition, bringing our total ownership to 92.2%. Glocal is included in our condensed consolidated financial statements as of March 26, 2021.

On January 25, 2021, UpHealth Holdings completed the acquisition of TTC Healthcare, Inc. (“TTC”), a Delaware corporation and a provider of medical, retail pharmacy, and billing services for individuals with complex medical and behavioral health needs.

On April 27, 2021, UpHealth Holdings completed the acquisition of Innovations Group, Inc. (d/b/a MedQuest) (“Innovations”), a Utah corporation and a Utah-based internet pharmacy company.

Cloudbreak

Cloudbreak, a Delaware limited liability company that was formed on May 26, 2015, is a unified telemedicine and video medical interpretation solutions provider. On June 9, 2021, contemporaneous with the GigCapital2 merger with UpHealth Holdings, GigCapital2 completed the acquisition of Cloudbreak.

See Note 3,

Business Combinations

, for further information.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements of UpHealth have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information and the instructions to Form

10-Q

and Rule

10-01

of Regulation

S-X.

The unaudited condensed consolidated financial statements, including the condensed notes thereto, are unaudited and exclude some of the disclosures required in audited financial statements. The condensed consolidated balance sheet as of December 31, 2020 has been derived from our audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments and eliminations, consisting only of normal recurring adjustments necessary for a fair presentation in conformity with GAAP. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the period ended December 31, 2020.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of UpHealth and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

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We follow FASB Accounting Standards Codification (“ASC”) guidance for identification and reporting of entities over which control is achieved through means other than voting rights. The guidance defines such entities as Variable Interest Entities (“VIEs”). We consolidate VIEs when we have variable interests and are the primary beneficiary. We continually evaluate our involvement with VIEs to determine when these criteria are met.

One of our consolidated subsidiaries is the primary beneficiary of a real estate VIE since it absorbs a majority of the VIE’s expected losses and receives a majority of its expected residual returns. The VIE was formed for the purpose of acquiring and holding real estate. The VIE’s sole activity is to lease the real estate to our subsidiary. At June 30, 2021, the VIE had total assets of $4.5 million and total liabilities of $4.1 million. For the three month ended June 30, 2021, revenues of $0.1 million were eliminated in consolidation. For the three months ended June 30, 2021, expenses were $25 thousand, primarily for interest and depreciation. Creditors and beneficial holders of the VIE have no recourse to the assets or general credit of our subsidiary.

Emerging Growth Company

Section 102(b)(1) of the Jumpstart Our Business Startups (“JOBS”) Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to

non-emerging

growth companies, but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised accounting standard at the time private companies adopt the new or revised standard.

Fiscal Year

Our fiscal year ends on December 31. References to fiscal year 2021 and fiscal year 2020 refer to our fiscal year ending December 31, 2021 and our fiscal year ended December 31, 2020, respectively.

Use of Estimates and Assumptions

The preparation of the condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes thereto.

Significant estimates and assumptions made by management include the determination of:

• the fair value of assets acquired and liabilities assumed for business combinations;

• the fair value of derivatives and warrants;

• the fair value of stock awards issued;

• the standalone selling price (“SSP”) of performance obligations for revenue contracts with multiple performance obligations;

• the recognition, measurement, and valuation of current and deferred income taxes and uncertain tax positions; and

• the identification and estimated economic lives of intangible assets.

Actual results could differ materially from those estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the result of which forms the basis for making judgments about the carrying values of assets and liabilities.

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Foreign Currency Translation Adjustments

Balance sheet assets and liabilities of subsidiaries which do not use the U.S. dollar as their functional currency are translated at the exchange rate at the end of the reporting period. Income statement amounts are translated using a weighted-average exchange rate during the period. Equity accounts and noncontrolling interests are translated using historical exchange rates at the date the entry to shareholder equity was recorded, except for the change in retained earnings during the reporting period, which is translated using the same weighted-average exchange rate used to translate the condensed consolidated statements of operations. The net cumulative translation adjustment is reported in accumulated other comprehensive income (loss), net of tax, in the condensed consolidated balance sheets.

Foreign Currency Transactions

Foreign exchange transactions are recorded at the exchange rate prevailing on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at foreign exchange rates in effect at the end of the reporting period. Exchange differences arising on

settlements/period-end

translations are recognized in the condensed consolidated statements of operations in the period they arise.

Fair Value Measurements

Fair value is measured in accordance with ASC guidance on fair value measurements, which defines fair value, establishes a framework for measuring fair value, and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. We measure fair value for financial instruments on an ongoing basis. We measure fair value for

non-financial

assets when a valuation is necessary, such as for impairment of long-lived and indefinite-lived assets when indicators of impairment exist.

Cash and Cash Equivalents

We consider all cash on deposit, money market funds, and short-term investments with original maturities of three months or less to be cash and cash equivalents. Cash and cash equivalents consist of amounts we have on deposit with major commercial financial institutions.

Restricted Cash

At June 30, 2021, TTC had restricted cash totaling $0.5 million, representing collateral with a bank for ACHs and corporate credit cards. At December 30, 2020, Thrasys had restricted cash totaling $0.5 million, representing an escrow account containing the balance of its Paycheck Protection Program (“PPP”) loan. The PPP loan was forgiven and the restricted cash returned to Thrasys in the three months ended June 30, 2021.

Receivable

For

software-as-a-service

(“SaaS”) internet hosting, licenses, and subscriptions provided by our integrated care management operations, accounts receivable are carried at original invoice, net of an allowance for doubtful accounts. Management determines the allowance for doubtful accounts by evaluating individual customer receivables on a monthly basis and considering a customer’s financial condition and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. At June 30, 2021 and December 31, 2020, we determined that 0 allowance for doubtful accounts was necessary.

For medical services provided through our behavioral health operations, accounts receivable are recorded without collateral from patients, most of whom are local residents and are insured under third-party payor agreements. Accounts receivable are based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to

self-pay

patients. Estimates for explicit price concessions are based on provider contracts and historical experience adjusted for economic conditions

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and other trends affecting our ability to collect outstanding amounts. At June 30, 2021 and December 31, 2020, the allowance for contractual adjustments was $0.7 million and $1.0 million, respectively. For accounts receivable associated with

self-pay

patients, we record implicit price concessions in the period of service on the basis of our past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible.

For digital pharmacy services, accounts receivable are recorded at net invoice amount from patients, most of whom are insured under third-party payor agreements. For compounded and customized medications, substantially all accounts receivable are paid by credit card at the time of shipment. At June 30, 2021 and December 31, 2020, we determined that 0 allowance for doubtful accounts was necessary.

For the three months ended June 30, 2021, one customer accounted for approximately 24% of total revenues, and for the six months ended June 30, 2021, one customer accounted for approximately 24% of total revenues. At June 30, 2021, one customer accounted for approximately 31% of total accounts receivable, and at December 31, 2020, two customers accounted for approximately 47% and 27% of total accounts receivable.

Inventories

Inventories primarily consist of stock of digital dispensaries, medicines, and pharmaceutical products, and are stated at the lower of cost or net realizable value. Cost comprises purchase price and all incidental expenses incurred in bringing the inventory to its present location and condition. Cost is computed using the weighted average cost method. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation, with a normal margin to sell. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.

Equity Method Investment

As of December 31, 2020, and for the period January 1, 2021 through March 26, 2021, we held an interest in the privately-held equity securities of Glocal in which we did not have a controlling interest, but were able to exercise significant influence. Based on the terms of these privately-held securities, we determined that we exercised significant influence on Glocal, applied the equity method of accounting for our investment in Glocal, and presented our investment in Glocal in equity method investments in the condensed consolidated balance sheets. Any and all gains and losses on privately-held equity securities, realized and unrealized, were recorded in other income (expense) in the condensed consolidated statements of operations. Income recognized in our equity method investments was reduced by the expected amortization from intangible assets recognized through the fair value

step-up,

until we acquired a controlling financial interest and consolidated Glocal.

Valuations of privately-held securities in which we do not have a controlling financial interest are inherently complex due to the lack of readily available market data and requires the use of judgment. The carrying value is not adjusted for our privately-held equity securities if there are no observable price changes in a similar security from the same issuer or if there are no identified events or changes in circumstances that may indicate impairment. Our impairment analysis encompasses an assessment of both qualitative and quantitative factors, including the investee’s financial metrics, market acceptance of the investee’s product or technology, and the rate at which the investee is using its cash. If the investment is considered impaired, we recognize an impairment in the condensed consolidated statements of operations and establish a new carrying value for the investment.

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Property and Equipment

Property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated economic lives of the assets, which range as follows:

Land	Indefinite
Buildings	60	years
Medical and surgical equipment	13	years
Electrical and other equipment	5-7	years
Computer equipment, furniture and fixtures	3-7	years
Vehicles	5-7	years

Leasehold improvements are amortized over the lesser of the remaining lease term or the estimated economic life of the asset.

When assets are retired or disposed of, the asset costs and related accumulated depreciation or amortization are removed from the respective accounts and any related gain or loss is recognized in the condensed consolidated statements of operations. Maintenance and repairs are charged to expense as incurred. Significant expenditures, which extend the economic lives of assets, are capitalized.

Software Development Costs

We capitalize our ongoing costs of developing internal use software for hosting, which consists primarily of personnel costs. Internal and external costs incurred to develop

internal-use

computer software during the application development stage are capitalized.

Costs incurred internally in researching and developing a computer software product are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers.

Intangible Assets

Acquired intangible assets subject to amortization are stated at fair value and are amortized using the straight-line method over the estimated useful lives of the assets. Intangible assets that are subject to amortization are reviewed for potential impairment when events or circumstances indicate that carrying amounts may not be recoverable. No impairment charge was recognized during the three and six months ended June 30, 2021.

Goodwill

Our goodwill represents the excess of the purchase price of business combinations over the fair value of the net assets acquired. We assess goodwill for impairment on an annual basis as of the first day of our fourth quarter, or sooner if events indicate such a review is necessary through a triggering event. An impairment exists if the fair value of a reporting unit to which goodwill has been allocated is less than its respective carrying value. The impairment for goodwill is limited to the total amount of goodwill allocated to the reporting unit. Future changes in the estimates used to conduct the impairment review, including revenue projections, market values, and changes in the discount rate used, could cause the analysis to indicate that our goodwill is impaired in subsequent periods and result in a write-down of a portion or all of goodwill. The discount rate used is based on independently calculated risks, our capital mix, and an estimated market premium. NaN impairment charge was recognized during the three and six months ended June 30, 2021.

Debt Issuance Costs and Original Issue Discounts

The third-party cost of issuing debt results in the recognition of debt issuance costs (“DIC”), which are capitalized and presented as a net reduction to the face amount of the debt. DIC is amortized using the effective interest rate method over the expected life of the debt.

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The reduction in gross proceeds from a debt facility by a lender or lenders results in an original issue discount (“OID”), which is amortized using the effective interest rate method over the expected life of the debt. The amortization of OID for the reporting period results in the recognition of additional interest expense.

Warrant Liabilities

We account for warrants for shares of our common stock that are not indexed to our own stock as liabilities at fair value on the condensed consolidated balance sheets. The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of other income (expense) in the condensed consolidated statements of operations. We will continue to adjust the liabilities for changes in fair value until the earlier of the exercise or expiration of the common stock warrants. At that time, the portion of the warrant liability related to the common stock warrants will be reclassified to additional

paid-in

capital.

Forward Share Purchase Agreement

On June 3, 2021, we entered into a third-party put option arrangement assuming the obligation to repurchase our common stock at a future date by transferring cash to the third-party under certain conditions described in more detail in Note 10,

Capital Structure

. Due to its mandatorily redeemable for cash feature, we have recorded such obligation as a forward share purchase liability in our condensed consolidated balance sheet.

Revenue Recognition

We recognize revenue in accordance with ASC guidance on revenue from contracts with customers. Revenue is reported at the amount that reflects the consideration to which we expect to be entitled in exchange for providing goods and services.

Contract Assets, Contract Liabilities, and Remaining Performance Obligations

We record a contract asset when revenue recognized on a contract exceeds the billings. Thrasys and Cloudbreak generally invoice customers monthly, quarterly, or in installments. BHS, TTC, Glocal, and Innovations generally invoice their customers upon providing services as the performance obligations are deemed complete. Contract assets are included in accounts receivable in the condensed consolidated balance sheets.

We record deferred revenue when billed amounts have been invoiced and received in advance of revenue recognition. It is recognized as revenue when transfer of control to customers has occurred or services have been provided. The deferred revenue balance does not represent the remaining contract value of multi-year,

non-cancelable

subscription agreements. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing, dollar size, and new business linearity within the period.

The transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized, which includes unbilled receivables and deferred revenue that will be recognized as revenue in future periods. The transaction price allocated to the remaining performance obligations is influenced by several factors, including seasonality, the timing of renewals, the timing of delivery of software licenses, average contract terms, and foreign currency exchange rates. Unbilled portions of the remaining performance obligations are subject to future economic risks including bankruptcies, regulatory changes, and other market factors.

We exclude amounts related to performance obligations that are billed and recognized as they are delivered. This primarily consists of professional services contracts that are on a

time-and-materials

basis.

Services Revenues

We derive our service revenues primarily through the provision of HIPAA-compliant medical information technology services through Thrasys; the provision of medical and behavioral health services by accredited

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medical professionals through BHS, TTC, and Glocal; and the provision of subscription-based medical language interpretation services through Cloudbreak, as follows:

• Services– SaaS internet hosting, licenses, and subscriptions

Software license revenue is recognized based on whether or not the license constitutes a distinct performance obligation. If the license can be separated from the rest of the hosting services, it may be fully recognized on the date license rights are granted to the customer and access is granted; otherwise, it is an indistinct performance obligation, which is recognized ratably over the contract term, along with other hosting services beginning on the commencement date of each contract, which is the date license rights are granted to the customer.

Subscription revenue from SaaS hosting access and support and maintenance are recognized ratably over the contract term beginning on the commencement date of each contract, which is the date our service is made available to the customer. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met and whether payments have been made ahead of the hosting services provided. Our subscription service arrangements are noncancellable and do not contain refund-type provisions.

• Services– Professional services for training, set-up, configuration, implementation, and customization services

The majority of our professional services contracts related to SaaS are on a time and materials basis, which may also be independently offered by our competitors. When these services are not combined with other SaaS revenues as a distinct performance obligation, revenue is recognized as the services are rendered for time and materials contracts, and when the milestones are achieved and accepted by the customer for fixed price contracts. Training revenue,

set-up

fees, and configuration fees are recognized as the services are completed

• Services– Medical and behavioral services provided through our hospitals and behavioral services operations

Performance obligations for medical and behavioral services provided by accredited medical and clinical professionals are satisfied over time as services are provided, and revenue is recognized accordingly. Revenue is based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to

self-pay

patients. Estimates for explicit price concessions are based on provider contracts and historical experience, adjusted for economic conditions and other trends affecting our ability to collect outstanding items. Substantially all of our patients are insured under third-party payor agreements.

Generally, patients who are covered by third-party payors are responsible for related deductibles and coinsurance, which may vary in amount. We also provide services to uninsured patients and may offer those uninsured patients a discount from standard charges. We estimate the transaction price for patients with deductibles and coinsurance, and from those who are uninsured, based on historical experience and market conditions. We determined that the nature, amount, timing, and uncertainty of revenue and cash flows are affected by payors having different reimbursement and payment methodologies, length of the patient’s service, and method of reimbursement.

Estimates of net realizable value are subject to significant judgment and approximation by management. It is possible that actual results could differ from the historical estimates management has used to help determine the net realizable value of revenue. If actual collections either exceed or are less than the net realizable value estimates, we record a revenue adjustment, either positive or negative, for the difference between the estimate of the receivable and the amount actually collected in the reporting period in which the collection occurred. No significant adjustments were recorded in the three and six months ended June 30, 2021.

• Services– Subscription-based medical language interpretation services

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Service fees of subscription-based fixed monthly minute medical language interpretation services are recognized monthly on a straight-line basis over the term of the contract due to the stand-ready nature of the services provided. Variable consideration received for medical language interpretation services, information technology services, and for the lease of My Accessible Real-Time Trusted Interpreter (“MARTTI”) devices, our language access solution, is based on a fixed per item charge applied to a variable quantity. Variable consideration for these services is recognized over time in accordance with the “right to invoice” practical expedient and therefore is not subject to revenue constraint evaluation. Revenue related to the sale of MARTTI devices is recognized at a point in time upon delivery of the devices to the customer. We may enter into multiple component services arrangements that bundle the pricing for the lease of MARTTI devices with information technology services. Often, the pricing bundle may also include medical language interpretation services. When an equipment lease is bundled with services, allocation of the transaction price consideration between the lease and nonlease components of the lease is required. We have determined that the consideration allocated to the lease components in its bundled multiple component services arrangements is not material to the financial statements.

Product Revenues

We derive product sales from sales of products through our digital pharmacy operations. Our product sales are primarily a function of the price per unit for pharmaceutical products sold and the number of prescriptions provided to customers.

We recognize revenue at the time the client effectively takes possession and control of the product.

Contracts with Multiple Performance Obligations and Transaction Prices

From time to time, we may enter into contracts that contain multiple performance obligations, particularly with our SaaS internet hosting, licenses, subscriptions, and services. For these arrangements, we allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product or service is transferred to the customer, in satisfaction of the corresponding performance obligations.

A significant portion of our contracts with customers have fixed transaction prices. For some contracts, the amount of consideration to which we will be entitled is variable. We include variable consideration in a contract’s transaction price only to the extent that we have a relatively high level of confidence that the amounts will not be subject to significant reversals. In determining amounts of variable consideration to include in a contract’s transaction price, we rely on our experience and other evidence that supports our qualitative assessment of whether revenue would be subject to significant reversal.

Grants

Since there is no authoritative GAAP governing grant recognition, measurement, and presentation, International Accounting Standards (“IAS”) 20,

Accounting for Government Grants and Disclosure of Government Assistance

(“IAS 20”) is incorporated as the governing guidance. It states that economic benefits of government grants shall not be recognized until there is reasonable assurance that the entity will comply with the conditions attaching to them and the grants will be received.

We recognize grants if we are reasonably assured we will be able to comply with the conditions specified in the grant agreement and the government will have the ability to pay the amounts due under the grant.

Government grants and subsidies received towards specific property and equipment (“PE”) acquisitions reduce the historical basis of the concerned PE. Grant subsidies received during the year towards revenue and related expenses have been recorded as other income in the condensed consolidated statements of operations. We have evaluated the classification and presentation for grant agreements and have elected to treat

non-reimbursable

grants as a grant receivable, earned over the life of the underlying agreement, with the offsetting credit to other income in the condensed consolidated statements of operations. Periodic cash received relieves the grant receivable.

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Cost of Goods and Services (“COGS”)

Cost of goods and services is the accumulated total of all costs used to create a product, which has been sold to generate revenue. These costs include direct materials (resale products and raw and externally sourced materials for internally manufactured products), direct labor, and an appropriately allocated portion of indirect overhead. Direct labor is the direct provision of activities to manufacture or provide a good or service. Indirect overhead costs include allocable costs, such as facilities, information technology, and depreciation costs, and ancillary costs, such as freight, delivery,

non-sales

and

non-income

taxes, and insurance.

The cost of services sold for discrete information technology services includes the cost of direct labor, payroll taxes, and direct benefits of those individuals who provide direct services and/or generate billable hours, and an allocation of facilities, information technology, and depreciation costs.

The cost of services sold for SaaS includes all the accumulated costs of providing a hybrid cloud-based hosting arrangement.

Taxes Collected from Customers and Remitted to Governmental Authorities

We exclude from our measurement of transaction prices all taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-producing transaction and collected from customers. Accordingly, such tax amounts are not included as a component of revenue or cost of goods and services in the condensed consolidated statements of operations.

Research and Development Costs

Research and development costs are expensed as incurred and were $0.9 million and $2.6 million for the three and six months ended June 30, 2021, respectively. There were 0 research and development costs incurred for the three and six months ended June 30, 2020.

Advertising, Marketing, and Promotion Expenses

Advertising, marketing, and promotion costs are expensed as incurred. Advertising expense was $1.1 million and $1.7 million for the three and six months ended June 30, 2021, respectively, and are included within sales and marketing expenses in the condensed consolidated statements of operations. There were 0 sales and marketing expenses incurred for the three and six months ended June 30, 2020.

Income Taxes

Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end, based on enacted tax laws and statutory tax rates applicable to the year in which the differences are expected to affect taxable income. Valuation allowances are established when it is deemed more likely than not that some portion or all of the deferred tax assets will not be realized.

We account for income tax uncertainties in accordance with ASC guidance on income taxes, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

New Accounting Pronouncements Not Yet Adopted

In May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2021-04,

Earnings Per Share (Topic 260), Debt–Modifications and Extinguishments (Subtopic

470-50),

Compensation–Stock Compensation (Topic 718), and Derivatives and Hedging–Contracts in

Entity’s Own Equity

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(Subtopic

815-40).

This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for us on January 1, 2022. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the effect the adoption of this ASU will have on our condensed consolidated financial statements.

In August 2020, the FASB issued ASU

2020-06,

Debt–Debt with Conversion and Other Options (Subtopic

470-20)

and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic

815-40)

. This ASU simplifies the accounting for convertible instruments by eliminating the conversion option separation model for convertible debt that can be settled in cash and by eliminating the measurement model for beneficial conversion features. Convertible instruments that continue to be subject to separation models are (1) those with conversion options that are required to be accounted for as bifurcated derivatives and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as

paid-in

capital. This ASU also requires entities to use the

if-converted

method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This ASU will be effective for us on January 1, 2024. Early adoption is permitted, but no earlier than the fiscal year beginning on January 1, 2021, including interim periods within that fiscal year. We are currently evaluating the effect the adoption of this ASU will have on our condensed consolidated financial statements.

In December 2019, the FASB issued ASU

2019-12,

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

. This ASU removes specific exceptions to the general principles in Topic 740. It eliminates the need for an organization to analyze whether the following apply in a given period: (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exception in interim period income tax accounting for

year-to-date

losses that exceed anticipated losses. This ASU also improves financial statement preparers’ application of income

tax-related

guidance and simplifies GAAP for franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. This ASU will be effective for us for fiscal year beginning January 1, 2022, and to interim periods within the fiscal year beginning on January 1, 2023, with early adoption permitted. We are currently evaluating the effect the adoption of this ASU will have on our condensed consolidated financial statements.

In February 2016, the FASB issued ASU

2016-02,

Leases (Topic 842)

, and subsequently issued several supplemental/clarifying ASUs (collectively, “ASC 842”). Among other things, under this ASU, lessees will be required to recognize, at commencement date, a lease liability representing the lessee’s obligation to make lease payments arising from the lease and a

right-of-use

asset representing the lessee’s right to use or control the use of a specified asset for the lease term for leases greater than 12 months. Under the new guidance, lessor accounting is largely unchanged. This ASU will be effective for us for the fiscal year beginning on January 1, 2022, and to interim periods within the fiscal year beginning on January 1, 2023 using the modified retrospective approach. We are currently evaluating the effect the adoption of this ASU will have on our condensed consolidated financial statements.

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In June 2016, the FASB issued ASU

2016-13,

Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

, and subsequently issued several supplemental/clarifying ASUs (collectively, “ASC 326”). This ASU requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, other long-term financings including available for sale and

held-to-maturity

d

e

bt securities, and loans. Subsequently, the FASB issued ASU

2018-19,

Codification Improvements to Topic 326, Financial Instruments-Credit Losses

, which amended the scope of ASC 326 and clarified that receivables arising from operating leases are not within the scope of the standard and should continue to be accounted for in accordance with ASC 842. This ASU will be effective for us on January 1, 2022. We are currently evaluating the effect the adoption of this ASU will have on our condensed consolidated financial statements.

3. Business Combinations

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the underlying net assets acquired.

Trade Names

A trade name is a legally-protected trade or similar mark. Acquired trade names are valued using an income method approach, generally the relief-from-royalty valuation method. The method uses a royalty rate based on comparable marketplace royalty agreements for similar types of trade names and applies it to the

after-tax

discounted free cash flow attributed to the trade name. The discount rate used is based on an estimated weighted average cost of capital and the anticipated risk for intangible assets.

Technology and Intellectual Property

Technology and intellectual property (“IP”) is a design, work, or invention that is the result of creativity to which one has ownership rights that may be protected through a patent, copyright, trademark, or service mark. IP is valued using the relief-from-royalty valuation method. The method uses a royalty rate based on comparable marketplace royalty agreements for similar types of IP and applies it to the

after-tax

discounted free cash flow attributed to the IP. The discount rate used is based on an estimated weighted average cost of capital and the anticipated risk for intangible assets.

IP is amortized following the pattern in which the expected benefits will be consumed or otherwise used up over each component’s useful life, based on our plans and expectations for the IP going forward, which is generally the underlying IP’s legal expiration dates.

Customer Relationships

Customer relationships are intangible assets that consist of historical and factual information about customers and contacts collected from repeat transactions with customers, with or without any underlying contracts. The information is generally organized as customer lists or customer databases. We have the expectation of repeat patronage from these customers based on the customers’ historical purchase activity, which creates the intrinsic value over a finite period of time and translates into the expectation of future revenue, income, and cash flow.

Customer relationships are valued using projected operating income, adjusted for estimated future existing customer growth, less estimated future customer attrition, net of charges for net tangible assets, IP charge, trade name charge, and work force. The concluded value is the

after-tax

discounted free cash flow.

Measurement Period

The estimated fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of each acquisition date to estimate the fair value of assets acquired and liabilities assumed. We believe that information provides a reasonable basis for estimating the fair values of

F-50

assets acquired and liabilities assumed, but we are waiting for additional information necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. We expect to finalize the valuations and complete the purchase price allocations as soon as practicable, but no later than one year from each acquisition date. In addition, we have not finalized our evaluation of allocating goodwill to reporting units.

In evaluating whether new information obtained meets the criteria for adjusting provisional amounts, management must consider all relevant factors. Relevant factors include:

• The timing of the receipt of the additional information that management could have used in its evaluation on or after the acquisition date, and

• Whether management can identify a reason that a change to the provisional amounts is warranted and not driven by a discrete independent event occurring subsequent to the acquisition.

We have included a measurement period table for each acquisition, identifying the line item or line items where an adjustment was deemed necessary and have quantified its impact.

Merger with UpHealth Services

On October 26, 2020, UpHealth Holdings entered into a merger agreement with UpHealth Services whereby UpHealth Holdings was deemed the surviving entity. All shares of UpHealth Services were exchanged for outstanding common stock in UpHealth Holdings. This was accounted for as a common control transaction with assets and liabilities carried over at book value.

Acquisition of Thrasys

On November 20, 2020, UpHealth Holdings completed the 100% acquisition of Thrasys, in exchange for a promissory note for future cash consideration, as defined in the merger agreements, and common stock interests in UpHealth Holdings totaling $167.4 million, net of cash and restricted cash acquired of $2.5 million. The acquisition brings additional software and support synergies to our consolidated digital healthcare offerings.

Under the terms of the merger agreement, shares of common stock held by two officers of Thrasys, with a value of $10.0 million, have been restricted for 12 months from the closing date of the merger, as security for a potential indemnification claim related to a Thrasys tax matter (see Note 12,

Income Taxes

, for further information).

The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after our acquisition of Thrasys. The goodwill is 0t deductible for tax purposes.

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The following table sets forth the preliminary allocation of the purchase price to Thrasys’ identifiable tangible and intangible assets acquired and liabilities assumed, including measurement period adjustments. The allocation of value in this table is subject to reevaluation during the measurement period.

(In thousands)	As of June 30, 2021		Measurement Period Adjustments			As of November 20, 2020
Accounts receivable	$	3,491	$	—		$	3,491
Prepaid expenses and other		3,001		—			3,001
Identifiable intangible assets		27,875		—			27,875
Property and equipment		101		—			101
Other assets		19		—			19
Goodwill		145,036		(3,052	)		148,088
Total assets acquired		179,523		(3,052	)		182,575
Accounts payable		1,779		—			1,779
Accrued expenses and other current liabilities		5,322		—			5,322
Debt		430		(531	)		961
Deferred tax liabilities		6,378		—			6,378
Deferred revenue		700		—			700
Total liabilities assumed		14,609		(531	)		15,140
Net assets acquired	$	164,914	$	(2,521	)	$	167,435

In connection with the closing of the Business Combinations on June 9, 2021, the purchase consideration was adjusted in accordance with the merger agreement, resulting in a decrease in net assets acquired and goodwill of $2.5 million.

The acquired intangible assets from Thrasys and their related estimated useful lives consisted of the following:

	Value		Useful Life
(In thousands)			(in years)
Definite-lived intangible assets–Trade names	$	6,925		10
Definite-lived intangible assets–Technology and intellectual property		10,825		10
Definite-lived intangible assets–Customer relationships		10,125		10
Total fair value of identifiable intangible assets	$	27,875

Acquisition of BHS

On November 20, 2020, UpHealth Holdings completed the 100% acquisition of BHS in exchange for a promissory note for future cash consideration, as defined in the merger agreements, and common stock interests in UpHealth Holdings totaling $15.8 million, net of cash acquired of $1.0 million. The acquisition brings additional medical synergies to our consolidated digital healthcare offerings.

The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after our acquisition of BHS. The goodwill is 0t deductible for tax purposes.

F-52

The following table sets forth the preliminary allocation of the purchase price to BHS’ identifiable tangible and intangible assets acquired and liabilities assumed, including measurement period adjustments. The allocation of value in this table is subject to reevaluation during the measurement period.

(In thousands)	As of June 30, 2021		Measurement Period Adjustments			As of November 20, 2020
Accounts receivable	$	1,257	$	—		$	1,257
Inventories		100		—			100
Prepaid expenses and other		40		—			40
Identifiable intangible assets		225		—			225
Property and equipment		53		—			53
Other assets		4		—			4
Deferred tax assets		19		—			19
Goodwill		16,344		238			16,106
Total assets acquired		18,042		238			17,804
Accounts payable		374		—			374
Accrued expenses and other current liabilities		847		421			426
Debt		1,234		—			1,234
Total liabilities assumed		2,455		421			2,034
Net assets acquired	$	15,587	$	(183	)	$	15,770

In connection with the closing of the Business Combinations on June 9, 2021, the purchase consideration was adjusted in accordance with the merger agreements, resulting in a decrease in net assets acquired and goodwill of $0.2 million.

The acquired intangible assets from BHS and their related estimated useful lives consisted of the following:

	Value		Useful Life
(In thousands)			(in years)
Definite-lived intangible assets–Trade names	$	225		3
Total fair value of identifiable intangible assets	$	225

Acquisition of TTC

On January 25, 2021, UpHealth Holdings completed the 100% acquisition of TTC in exchange for a promissory note for future cash consideration, as defined in the merger agreements, and common stock interests in UpHealth Holdings totaling $45.9 million, net of cash acquired of $2.4 million. The acquisition brings additional medical synergies to our consolidated digital healthcare offerings.

The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after our acquisition of TTC. The goodwill is 0t deductible for tax purposes.

F-53

The following table sets forth the preliminary allocation of the purchase price to TTC’s identifiable tangible and intangible assets acquired and liabilities assumed, including measurement period adjustments. The allocation of value in this table is subject to reevaluation during the measurement period.

(In thousands)	As of June 30, 2021		Measurement Period Adjustments			As of January 25, 2021
Accounts receivable	$	1,773	$	—		$	1,773
Prepaid expenses and other		187		—			187
Identifiable intangible assets		1,125		—			1,125
Property and equipment		531		—			531
Other assets		281		—			281
Goodwill		57,921		347			57,574
Total assets acquired		61,818		347			61,471
Accounts payable		625		—			625
Accrued expenses and other current liabilities		602		—			602
Due to related parties		4,200		2,807			1,393
Debt		11,217		(1,283	)		12,500
Deferred tax liabilities		474		—			474
Total liabilities assumed		17,118		1,524			15,594
Net assets acquired	$	44,700	$	(1,177	)	$	45,877

In connection with the closing of the Business Combinations on June 9, 2021, the purchase consideration was adjusted in accordance with the merger agreements, resulting in a decrease in net assets acquired and goodwill of $1.2 million.

The acquired intangible assets from TTC and their related estimated useful lives consisted of the following:

	Approximate Fair Value		Estimated Useful Life
(In thousands)			(in years)
Definite-life intangible assets–Trade names	$	1,125		3
Total fair value of identifiable intangible assets	$	1,125

Acquisition of Glocal

On November 20, 2020, UpHealth Holdings entered into a stock purchase agreement to acquire 43.46% of Glocal. On March 26, 2021, UpHealth Holdings completed a step acquisition of an additional 45.94% of Glocal, bringing our total ownership to 89.4%. The acquisition resulted in our ownership exceeding 50.0%, requiring consolidation of Glocal as of March 26, 2021. On May 14, 2021 and June 21, 2021, UpHealth Holdings completed the acquisition of an additional 1.0% and 1.8% of Glocal, respectively, bringing our total ownership to 92.2% as of June 30, 2021. Total purchase price consideration included a promissory note for future cash consideration, as defined in the merger agreements, and common stock interests in UpHealth Holdings totaling $131.5 million, net of cash acquired of $0.4 million. The acquisition brings additional medical synergies to our global telemedicine offerings.

The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after our acquisition of Glocal. The goodwill is 0t deductible for tax purposes.

F-54

The following table sets forth the preliminary allocation of the purchase price to Glocal’s identifiable tangible and intangible assets acquired and liabilities assumed, including measurement period adjustments. The allocation of value in this table is subject to reevaluation during the measurement period.

(In thousands)	As of June 30, 2021		Measurement Period Adjustments			As of March 26, 2021
Accounts receivable, net	$	6,461	$	—		$	6,461
Inventories		326		—			326
Identifiable intangible assets		38,039		—			38,039
Property, equipment, and work in progress		40,726		—			40,726
Other current assets, including short term advances		1,980		—			1,980
Other noncurrent assets, including long term advances		509		—			509
Goodwill		95,913		4,042			91,871
Total assets acquired		183,954		4,042			179,912
Accounts payable		579		—			579
Accrued expenses and other current liabilities		8,271		—			8,271
Deferred tax liability		9,890		9,890			0
Debt		22,212		—			22,212
Noncontrolling interest		17,389		—			17,389
Total liabilities assumed and noncontrolling interest		58,341		9,890			48,451
Net assets acquired	$	125,613	$	(5,848	)	$	131,461

In connection with the closing of the Business Combinations on June 9, 2021, the purchase consideration was adjusted in accordance with the merger agreements, resulting in a decrease in net assets acquired and goodwill of $5.8 million.

The acquired intangible assets from Glocal and their related estimated useful lives consisted of the following:

	Approximate Fair Value		Estimated Useful Life
(In thousands)			(in years)
Definite-lived intangible assets–Technology and intellectual property	$	38,039		8.5
Total fair value of identifiable intangible assets	$	38,039

Acquisition of Innovations

On April 27, 2021, UpHealth Holdings completed the 100% acquisition of Innovations in exchange for a promissory note for future cash consideration, as defined in the merger agreement, and common stock interests in UpHealth Holdings totaling $169.8 million, net of cash acquired of $0.6 million. The acquisition adds the digital pharmacy segment to our operations.

The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after our acquisition of Innovations. The goodwill is 0t deductible for tax purposes.

F-55

The following table sets forth the preliminary allocation of the purchase price to Innovation’s identifiable tangible and intangible assets acquired and liabilities assumed. The allocation of value in this table is subject to reevaluation during the measurement period.

(In thousands)	As of April 27, 2021
Accounts receivable	$	47
Inventories		2,693
Prepaid expenses and other		530
Identifiable intangible assets		28,325
Property and equipment		7,937
Other assets		22
Goodwill		143,730
Total assets acquired		183,284
Accounts payable		472
Accrued expenses and other current liabilities		780
Deferred revenue		302
Deferred tax liability		7,837
Debt		4,069
Total liabilities assumed		13,460
Net assets acquired	$	169,824

The acquired intangible assets from Innovations and their related estimated useful lives consisted of the following:

	Approximate Fair Value		Estimated Useful Life
(In thousands)			(in years)
Definite-lived intangible assets–Trade names	$	10,925		10
Definite-lived intangible assets–Technology and intellectual property		8,075		5 - 7
Definite-lived intangible assets–Customer relationships		9,325		17
Total fair value of identifiable intangible assets	$	28,325

Acquisition of Cloudbreak

On June 9, 2021, UpHealth (fka GigCapital2) completed the Cloudbreak Business Combination in an exchange of cash, notes, and common stock interests in UpHealth totaling $142.0 million, net of cash acquired of $0.9 million. The acquisition brings additional software and support synergies to our global telemedicine offerings.

The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after our acquisition of Cloudbreak. The goodwill is 0t deductible for tax purposes.

F-56

The following table sets forth the preliminary allocation of the purchase price to Cloudbreak’s identifiable tangible and intangible assets acquired and liabilities assumed. The allocation of value in this table is subject to reevaluation during the measurement period.

(In thousands)	As of June 9, 2021
Accounts receivable	$	4,810
Prepaid expenses and other		921
Identifiable intangible assets		32,475
Property and equipment		6,882
Other assets		1,042
Goodwill		110,968
Total assets acquired		157,098
Accounts payable		2,518
Accrued expenses and other current liabilities		905
Deferred revenue		15
Deferred tax liability		7,906
Debt		3,752
Total liabilities assumed		15,096
Net assets acquired	$	142,002

The acquired intangible assets from Cloudbreak and their related estimated useful lives consisted of the following:

	Approximate Fair Value		Estimated Useful Life
(In thousands)			(in years)
Definite-lived intangible assets–Trade names	$	12,975		15
Definite-lived intangible assets–Technology and intellectual property		5,825		5
Definite-lived intangible assets–Customer relationships	$	13,675		10
Total fair value of identifiable intangible assets	$	32,475

Acquisition of UpHealth Holdings

On June 9, 2021, GigCapital2 completed the UpHealth Business Combination as disclosed above, in an exchange of cash, notes, and common stock interests in UpHealth for all the shares of UpHealth Holdings’ capital stock issued and outstanding immediately prior to the effective date of the acquisition. The acquisition was accounted for as a reverse recapitalization, which is the equivalent of UpHealth Holdings issuing stock for the net assets of GigCapital2, accompanied by a recapitalization, with UpHealth Holdings treated as the accounting acquiror. The determination of UpHealth Holdings as the accounting acquiror was primarily based on the fact that subsequent to the acquisition, UpHealth Holdings owns a majority of the voting power of the combined company, UpHealth Holdings will comprise 75% of the ongoing operations of the combined entity, UpHealth Holdings will control a majority of the governing body of the combined company, and UpHealth Holdings’ senior management will comprise most of the senior management of the combined company. The net assets of GigCapital2 were stated at historical cost with 0 goodwill or other intangible assets recorded. Reported results from operations included herein prior to the acquisition are those of UpHealth Holdings. The shares and corresponding capital amounts and loss per share related to UpHealth Holdings’ outstanding common stock prior to the acquisition have been retroactively restated to reflect the exchange ratio (1.0 UpHealth Holdings share to 10.28 GigCapital2 shares) established in the business combination agreement.

F-57

Acquisition-Related Costs

For the three and six months ended June 30, 2021, we have incurred $32.6 million and $35.3 million, respectively, of acquisition-related charges for the acquisitions of UpHealth Holdings and its subsidiaries (Thrasys, BHS, TTC, Glocal, and Innovations), and Cloudbreak, which are included in acquisition-related expenses in the condensed consolidated statements of operations.

Combined Pro Forma Results for the Three and Six Months Ended June 30, 2021 and 2020

The results of operations of UpHealth Holdings and its subsidiaries (BHS, Thrasys, TTC, Glocal, and Innovations), and Cloudbreak have been included in the financial statements subsequent to their acquisition dates. The following unaudited pro forma consolidated financial information reflects the results of operations as if the acquisition of UpHealth Holdings (including all subsidiaries) and Cloudbreak had occurred on January 1, 2020, after giving effect to certain purchase accounting adjustments. These purchase accounting adjustments mainly include incremental depreciation expense related to the fair value adjustment of property and equipment, amortization expense related to identifiable intangible assets, and tax expense related to the combined tax provisions. This information does not purport to be indicative of the actual results that would have occurred if the acquisition had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company:

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2021			2020			2021			2020
Pro Forma
Revenues	$	39,171		$	28,293		$	69,778		$	59,468
Net loss	$	(37,052	)	$	(2,549	)	$	(43,627	)	$	(2,008	)
Basic earnings per share	$	(0.39	)	$	(0.05	)	$	(0.52	)	$	(0.04	)
Diluted earnings per share	$	(0.39	)	$	(0.05	)	$	(0.52	)	$	(0.04	)

Measurement period adjustments in the condensed consolidated financial statements will be disclosed in accordance with ASU

2015-16,

Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments

.

4. Property and Equipment

Property and equipment consisted of the following:

(In thousands)	June 30, 2021			December 31, 2020
Land	$	16,210		$	—
Buildings		21,547			—
Leasehold improvements		3,252			—
Medical and surgical equipment		2,704			—
Electrical and other equipment		494			73
Computer equipment, furniture and fixtures		7,980			33
Vehicles		164			48
Construction in progress		3,816			—
		56,167			154
Accumulated depreciation and amortization		(1,013	)		(3	)
Total property and equipment, net	$	55,154		$	151

Depreciation expense was $0.9 million and 0ne for the three months ended June 30, 2021 and 2020, respectively, and $1.0 million and

0

for the six months ended June 30, 2021 and 2020, respectively.

F-58

5. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill consisted of the following:

(In thousands)	Goodwill
Balance at December 31, 2020	$	164,194
Business acquisition of TTC		57,574
Measurement period adjustment–TTC		347
Business acquisition of Glocal		91,871
Measurement period adjustment–Glocal		4,042
Measurement period adjustment–BHS		238
Measurement period adjustment–Thrasys		(3,052	)
Business acquisition of Innovations		143,730
Business acquisition of Cloudbreak		110,968
Foreign exchange		(1,960	)
Balance at June 30, 2021	$	567,952

The changes in carrying amounts of intangible assets consisted of the following:

(In thousands)	Trade Names			Technology and Intellectual Property			Customer Relationships			Total
December 31, 2020	$	7,065		$	10,705		$	10,012		$	27,782
Additions		25,025			51,939			23,000			99,964
Amortization		(792	)		(2,037	)		(683	)		(3,512	)
Foreign exchange		—			(771	)		—			(771	)
June 30, 2021	$	31,298		$	59,836		$	32,329		$	123,463

The estimated useful lives of trade names are

3-15

years, the estimated useful life of technology and intellectual property is

5-10

years, and the estimated useful life of customer relationships is

10-17

years.

Amortization expense was $2.7 million and 0ne for the three months ended June 30, 2021 and 2020, respectively. Amortization expense was $3.5 million and 0ne for the six months ended June 30, 2021 and 2020, respectively .

The estimated amortization expense related to definite-lived intangible assets for the five succeeding years is as follows:

(In thousands)	Trade Name Amortization		Technology and Intellectual Property Amortization		Customer Relationships Amortization		Total
Remaining 2021	$	1,550	$	4,032	$	1,472	$	7,054
2022		3,100		8,063		2,945		14,108
2023		3,092		8,063		2,945		14,100
2024		2,674		8,063		2,945		13,682
2025		2,650		8,063		2,945		13,658
Thereafter		18,232		23,552		19,077		60,861
	$	31,298	$	59,836	$	32,329	$	123,463

F-59

6. Investment in Unconsolidated Entities

On November 20, 2020, we entered into a stock purchase agreement to acquire 43.46% of Glocal in exchange for a promissory note for future cash consideration, as defined in the stock purchase agreement, and common stock interests in UpHealth, for a purchase price of $57.4 million. Since we did not have a controlling financial interest, this investment was presented as an equity method investment in our condensed consolidated balance sheets for the year ended December 31, 2020. For the period from November 20, 2020 through December 31, 2020, our share of the net income (loss) of Glocal included amortization expense of $0.5 million related to intangible assets being amortized into income over the estimated remaining lives of the assets. For the period from January 1, 2021 through March 25, 2021, our share of the net income (loss) of Glocal included amortization expense of $1.1 million.

We acquired a controlling financial interest in Glocal on March 26, 2021, increasing our ownership to 89.40%, and recognized a fair value gain on the step-acquisition of $0.6 million, prior to consolidation.

On May 14, 2021 and June 21, 2021 UpHealth Holdings completed the acquisition of an additional 1.0% and 1.8% of Glocal, respectively, bringing our total ownership to 92.2% as of June 30, 2021.

See Note 3,

Business Combinations

, for further information.

7. Accrued Expenses

Accrued expenses consisted of the following:

(In thousands)	June 30, 2021		December 31, 2020
Accrued professional fees	$	13,705	$	4,246
Accrued software licenses		6,091		691
Accrued interest on debt		6,781		142
Accrued payroll and bonuses		2,878		1,545
Accrued taxes in connection with shareholder distribution		1,493		1,493
Other accruals		2,816		365
Total accrued expenses	$	33,764	$	8,482

8. Debt

Debt consisted of the following:

(In thousands)	June 30, 2021			December 31, 2020
Convertible notes	$	160,000		$	0
Other debt facilities (various maturities and interest rates)		23,147			0
Paycheck Protection Program loans		1,015			1,545
Provider Relief Funds		735			230
Seller notes		29,831			21,100
Total debt		214,728			22,875
Less: unamortized original issue discount and derivative liability		(69,110	)		0
Total debt, net of unamortized original issued discount and derivative liability		145,618			22,875
Less: current portion of debt		(49,487	)		(22,531	)
Noncurrent portion of debt	$	96,131		$	344

F-60

Unsecured Convertible Notes and Indenture

On January 20, 2021, GigCapital2 entered into convertible note subscription agreements, each dated January 20, 2021 and amended on June 8, 2021, with certain institutional investors, pursuant to which GigCapital2 agreed to issue and sell unsecured convertible notes in a private placement to close immediately prior to the closing of the Business Combinations.

On June 15, 2021, in connection with the closing of the Business Combinations, we entered into an indenture (the “Indenture”) with Wilmington Trust, National Association, a national banking association, (the “Indenture Trustee”) in its capacity as trustee thereunder, in respect of the $160.0 million of unsecured convertible notes due in 2026 (the “2026 Notes”) that were issued to certain institutional investors. The 2026 Notes bear interest at a rate of 6.25% per annum, payable semi-annually, and are convertible into approximately 15,023,475 shares of common stock at a conversion price of $10.65 in accordance with the terms of the Indenture, and will mature on June 15, 2026. The total proceeds received from the 2026 Notes were $151.9 million, net of debt issuance costs of $8.1 million. In accounting for the 2026 Notes, we bifurcated and accounted for the conversion option as a derivative measured at fair value on the issuance date in accordance with ASC 815,

Derivatives and Hedging

. The difference between the proceeds allocated to the 2026 Notes at issuance and the fair value of the conversion option was allocated to the host debt contract. At June 30, 2021, the fair value of the derivative was $61.8 million, of which $38.6 million was included in derivative liability, current, and $23.2 million was included in derivative liability, noncurrent, in the condensed consolidated balance sheet. Total interest expense for the three and six months ended was $1.4 million, of which $0.6 million related to contractual interest expense, $0.7 million related to derivative accretion, and $0.1 million related to debt issuance costs amortization.

We may, at our election, force conversion of the 2026 Notes after the first anniversary of the issuance of the 2026 Notes, subject to a holder’s prior right to convert, if the last reported sale price of our common stock exceeds 130% of the conversion price for at least 20 trading days during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, and the

30-day

average daily trading volume of our common stock ending on, and including, the last trading day of the applicable exercise period is greater than or equal to $2.0 million. Following certain corporate events that occur prior to the maturity date or if we force a mandatory conversion, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or has its notes mandatorily converted, as the case may be. In addition, in the event that a holder of the 2026 Notes elects to convert its 2026 Notes prior to the second anniversary of the issuance of the 2026 Notes, we will be obligated to pay an amount equal to twelve months of interest, or if on or after such second anniversary of the issuance of the 2026 Notes, any remaining amounts that would be owed to, but excluding, the third anniversary of the issuance of the 2026 Notes (the “Interest Make-Whole Payment”). The Interest Make-Whole Payment will be payable in cash or shares of our common stock as set forth in the Indenture.

In addition, we agreed to conduct one or more primary offerings of our equity securities in the aggregate amount of $35.0 million (the “Equity Offering”) and that such equity securities shall be subordinate in right of payment to the 2026 Notes. In the event that such Equity Offering is not consummated by October 9, 2022, the interest rate on the 2026 Notes will increase by an additional 1.0% per annum on the principal amount of the 2026 Notes on and after October 9, 2022 until maturity (unless further increased pursuant to this section), and if the Equity Offering is not consummated by (a) April 9, 2023, (b) October 9, 2023 or (c) April 9, 2024, the interest rate on the 2026 Notes will increase by an additional 1.0% per annum on the principal amount of the 2026 Notes on and after each such date until maturity. For the avoidance of doubt, the interest rate on the 2026 Notes shall not exceed 10.25% per annum, and if the Equity Offering is consummated by us prior to any of the above referenced dates, there will be no increase in the interest rate on the 2026 Notes beyond the rate in effect at such time of consummation of the Equity Offering.

Revolving Line of Credit and Term Loan

One of our subsidiaries had a loan and security agreement (the “Loan Agreement”) with a bank that allowed for maximum borrowings of $1.8 million on a revolving line of credit and a $10.8 million term loan. On June 9,

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2021, in connection with the GigCapital2 merger, we paid off the revolving line of credit and term loan balance of $1.8 million and $9.1 million, respectively, and terminated the Loan Agreement. There were 0 unamortized debt issuance costs and thus 0 gain or loss was recognized on extinguishment.

Other Debt Facilities

Glocal’s debt facilities include

INR-denominated

term loans with an aggregate carrying value of $19.1 million (or INR 1.4 billion) as of June 30, 2021. These term loans are primarily utilized for financing the construction of hospitals, administrative offices, equipment, and working capital and are required to be repaid in monthly and quarterly installments with maturity dates extending to March 31, 2025. The loans are secured by mortgages on real property and personal guarantee of two Glocal Directors. The loans bear interest rates between 11.15%% up to 16.25% per annum. At June 30, 2021 accrued interest on Glocal’s debt facilities was $5.7 million and is included in accrued expenses in the condensed consolidated balance sheet. For the three months ended June 30, 2021 interest expense was $0.5 million.

Prior to our acquisition of Glocal, it had been negotiating with its banks to restructure the payment terms of some of the debt facilities above; however, due to the impact of the

COVID-19

pandemic, there has been a delay in approvals from the banks. The term loans are classified in long-term debt, current, in the condensed consolidated balance sheet due to their default status while negotiations continue. We belief that no penal interest will be charged by the banks and hence no additional provision has been recognized in the condensed consolidate statement of operations, other than the accrued interest discussed above. We expect to be able to restructure Glocal’s debt by the end of 2021.

In March 2018, a VIE of one of our subsidiaries entered into a fifteen-year, 5.12% real estate loan secured by a deed on the real estate. The loan proceeds of $3.4 million were used to purchase the building used for our subsidiary’s headquarters. Monthly principal and interest payments are $20 thousand, plus an estimated lump sum payment of approximately $1.9 million due at maturity on March 23, 2033. At June 30, 2021 the outstanding balance of the loan was $3.2 million.

In March 2020, the VIE discussed above, also entered into a ten year, 3.09% real estate loan secured by a second trust deed on the real estate. The loan proceeds of $0.9 million were used for the purpose of financing the additions to the building during 2019. Monthly payments of principal and interest are $5 thousand, plus an estimated lump sum payment of approximately $0.5 million at maturity on March 11, 2030. At June 30, 2021, the outstanding balance of the loan was $0.9 million.

At June 30, 2021, for both of the real estate loans discussed above, accrued interest was $6 thousand and for the three months ended June 30, 2021, interest expense was $48 thousand.

Convertible Notes

On March 23, 2021, we issued a $4.1 million principal amount, 15.0% convertible note (the “2021 Note”) of which $0.5 million was to be converted and repaid in UpHealth common stock and the remainder in cash. The 2021 Note bears interest at a fixed rate of 15.0% per year, to begin accruing on June 15, 2021 if not repaid previous to this date. Total proceeds received from the 2021 Note were $3.0 million, net of original issue discount of $1.0 million. Additional debt issuance costs of $0.1 million for a placement fee were accrued, and paid at the closing. The principal and accrued interest of the 2021 Note was due and payable by us to the holder on the earlier of (1) the date that is one business day after the closing of the Business Combinations and we begin public trading, (2) the maturity date, which is nine months from the issuance of the 2021 Note, or (3) November 23, 2021, pursuant to its payment provisions. On June 9, 2021, in connection with the closing of the Business Combinations, we paid the holder of the 2021 Note the sum of $3.6 million and the remaining $0.5 million balance due to the holder was converted and exchanged into 50,000 shares of UpHealth common stock. Original issue discount and debt issuance costs of $0.5 million were

written-off

and a $31 thousand gain on extinguishment of debt was recognized and included in other income (expense), net, including interest income, in the condensed consolidated statements of operations.

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On January 6, 2021, we issued a $1.5 million principal amount, 5.0% convertible note due January 6, 2026 (the “2026 5% Note”). The 2026 5% Note is unsecured and bears interest at a fixed rate of 5.0% per year and, unless earlier converted, the principal and accrued interest of the 2026 5% Note will be due and payable by us at any time on or after the maturity date at our election or upon demand by the holder. On June 9, 2021, in connection with the closing of the Business Combinations, the 2026 5% Note was converted into 150,367 of UpHealth common stock representing the total outstanding principal balance and unpaid accrued interest of $1.5 million and $30 thousand, respectively. A $0.1 million gain on extinguishment was recognized and included in other income (expense), net, including interest income, in the condensed consolidated statements of operations.

Paycheck Protection Program Loans

In April 2020, three of our subsidiaries obtained a U.S. government subsidy of $0.5 million, $1.0 million, and $1.9 million (representing 5 loan agreements), respectively, under the Paycheck Protection Program (“PPP’). The PPP is a U.S. government temporary program created with the intent to provide a subsidy to assist businesses in keeping employees employed during the pandemic. The PPP loan may not need to be repaid if certain requirements are met. Under the Coronavirus Aid, Relief and Economic Security (“CARES Act”), as modified, any amounts not forgiven will be required to be repaid over a term having a minimum of five years and a maximum maturity of 10 years from the date on which the borrower applies for forgiveness. The loans carry a 1.0% interest rate.

One of our subsidiaries applied for forgiveness of its $0.5 million PPP loan during 2020 and it was forgiven in full and the subsidiary legally released from repaying the loan by the SBA in June 2021. The forgiveness was recognized as a measurement period adjustment to goodwill during the three months ended June 30, 2021 (see Note 5,

Goodwill and Intangible Assets

, for further information).

One of our subsidiaries submitted a request for forgiveness of its $1.0 million PPP loans. There can be no assurance that any portion of the PPP loan will be forgiven. In the event that the lender and SBA determine that all or a portion of the PPP loan is not forgivable, the subsidiary will be required to remit payments of $0.6 million in 2021 and $0.4 million in 2022. The balance is classified as a current liability due to uncertainty regarding the subsidiary’s eligibility for the loan.

One of our subsidiaries applied for forgiveness of its $1.9 million PPP loans during 2020, of which 3 of the loans, totaling $0.7 million, were forgiven in full by the SBA and the subsidiary was legally released from repaying the loans. In February 2021 and March 2021, the remainder of the PPP loans totaling $0.9 million and $0.3 million, respectively, were forgiven by the SBA and the subsidiary was legally released from repaying the loans. We recorded this as a measurement period adjustment to goodwill during the three months ended March 31, 2021 (see Note 5,

Goodwill and Intangible Assets

, for further information).

Provider Relief Funds

Provider Relief Funds (“PFR”) were made available by the U.S. Department of Health and Human Services (“HHS”) as part of a $100 billion appropriation as part of the CARES Act’s Provider Relief Fund. In April and July 2020, one of our subsidiaries received PFR proceeds aggregating $0.2 million, and in January 2021, another subsidiary received PFR proceeds aggregating $0.5 million. The PFR amounts received will not require repayment as long as the subsidiaries comply with certain terms and conditions outlined by HHS. The terms and conditions first require the subsidiaries to identify health care-related expenses attributed to

COVID-19

that another source has not reimbursed or is obligated to reimburse. If those expenses do not exceed the funding received, the subsidiaries then apply the funds to patient care lost revenue. On January 15, 2021 HHS released a

Post-Payment Notice of Reporting Requirements Notice

that provides healthcare providers three options to calculate patient care lost revenue.

As of June 30, 2021, the subsidiaries have recognized no patient care lost revenue in the condensed consolidated statements of operations. The subsidiaries have $0.2 million and $0.5 million, respectively, recorded within current portion of long-term debt in the condensed consolidated balance sheets as both

subsidiaries have asserted

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they have not yet met all of the terms and conditions and restrictions for the CARES Act relative to these funds as of June 30, 2021. Both subsidiaries had until June 30, 2021 to use amounts remaining for expenses attributable to

COVID-19

(but not reimbursed by other sources) and/or lost patient care revenue. HHS is entitled to recover PRF amounts received by both subsidiaries that are unused as for the purposes disclosed above.

Related Party Debt

One of our subsidiaries has notes payable to related parties totaling $0.7 million and $0.4 million at June 30, 2021 and December 31, 2020, respectively. The notes bear interest at rates ranging from 0.14% to 3.50% per annum. Notes totaling $0.6 million are payable in 8 quarterly installments starting from October 1, 2022, or upon a liquidity event, as defined in the note agreement, and a note totaling $39 thousand was payable on June 30, 2021. The accrued interest payable was $18 thousand and $9 thousand at June 30, 2021 and December 31, 2020, respectively, and is included in accrued expenses in the condensed consolidated balance sheets.

Seller Notes

As part of the purchase price consideration for several of UpHealth Holdings’ merger entities, we entered into seller notes payable to their former shareholders, which accrue interest at specific rates, per the respective merger agreements. On June 9, 2021, in connection with the closing of the Business Combination, we paid $88.1 million of the seller notes. At June 30, 2021 and December 31, 2020, seller notes totaled $29.8 million and $21.1 million, respectively. In August 2021, the maturity date for $18.7 million of the seller notes was deferred to September 2022. The remaining seller notes mature in August 2021.

The accrued interest payable was $0.3 million and $0.1 million at June 30, 2021 and December 31, 2020, respectively, and is included in accrued expenses in the condensed consolidated balance sheets. Interest expense was $0.4 million and $0.8 million for the three and six months ended June 30, 2021, respectively.

Senior Debt Facility Fees

In March 2020, we agreed to pay a financial co

n

sulting firm, an affiliate of a related party, compensation related to finding and executing a senior financing facility, to be funded at the completion of the Business Combinations (see Note 1,

Organization and Business

, for further information). On June 9, 2021, in connection with the Business Combinations we paid the financial consulting firm total cash consideration of $0.5 million, for consummation of the senior financing.

Membership Redemptions and Due to Member

In November 2020, one of our subsidiaries entered into a redemption agreement with a member for $0.1 million. Consideration for the redemption agreement is in the form of a note payable that is

non-interest

bearing, nonsecured, and payable upon demand. The note was repaid in full during the three months ended March 31, 2021.

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Contractual Maturities

At June 30, 2021, long-term debt contractual maturities, excluding unamortized original issue discount, were as follows:

(In thousands)
Remaining 2021	$	49,428
2022		120
2023		126
2024		131
2025		137
Thereafter	$	164,786
Total	$	214,728

9. Fair Value of Financial Instruments

We estimate the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate. As of June 30, 2021 and December 31, 2020, the fair values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses approximate their carrying values due to the short-term nature of these instruments. Additionally, the fair values of short-term and long-term debt instruments approximate their carrying values.

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. Fair value measurements are categorized into one of three levels of the fair value hierarchy based on the lowest level of significant input used. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Considerable judgment and a high degree of subjectivity are involved in developing these estimates. These estimates may differ from the actual amounts that we could realize upon settlement.

The fair value hierarchy is as follows:

Level 1–Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2–Other observable inputs, either directly or indirectly, other than quoted prices included in Level 1, including:

• Quoted prices for similar assets/liabilities in active markets;

• Quoted prices for identical or similar assets/liabilities in non-active markets (e.g., few transactions, limited information, non-current prices, high variability over time);

• Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities, default rates); and

• Inputs that are derived principally from or corroborated by other observable market data.

Level 3–Unobservable inputs that cannot be corroborated by observable market data.

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The following tables present information about our financial assets and liabilities measured at fair value on are recurring basis:

	June 30, 2021
(In thousands)	Level 1		Level 2		Level 3		Total
Liabilities:
Derivative liability	$	0	$	0	$	61,823	$	61,823
Warrant liability	$	0	$	772	$	0	$	772
	$	0	$	772	$	61,823	$	62,595

Derivative Liability

In accounting for the 2026 Notes (see Note 8,

Debt

, for further information), we bifurcated and accounted for the conversion option as a derivative measured at fair value on the issuance date in accordance with ASC 815,

Derivatives and Hedging

. At June 30, 2021, the fair value of the derivative was $61.8 million, of which $38.6 million was included in derivative liability, current, and $23.2 million was included in derivative liability, noncurrent in the condensed consolidated balance sheet.

The fair value of the derivative liability is considered a Level 3 valuation and is determined using a Binomial Lattice Option Pricing Model. The significant assumptions used in the model were:

	June 30, 2021
Stock price	$	9.93
Volatility		68.0	%
Risk free rate		0.75	%
Exercise price	$	10.65
Expected life (in years)		5.02
Conversion periods		2-5 years
Future share price	$	0.01-$151.53

Private Placement Warrants and PIPE Warrants

We have classified the Private Placement Warrants and PIPE Warrants (see Note 10,

Capital Structure)

as liabilities at fair value, due to their redemption characteristics, with subsequent changes in their fair values to be recognized in the consolidated financial statements at each reporting date. At June 30, 2021, the fair value of the Private Placement Warrants and the PIPE Warrants was determined to be $0.89 per warrant, totaling $0.5 million and $0.3 million respectively, and are included in warrant liabilities in the condensed consolidated balance sheet. During the three and six months ended June 30, 2021, we recorded a $0.1 million loss due to the fair value changes in the Private Placement Warrants, and during the three and six months ended June 30, 2021, we recorded a $1.2 million gain due to the fair value changes in the PIPE Warrants, and is included in gain (loss) in fair value of warrant liabilities in the condensed consolidated statement of operations.

The fair value of the Private Placement Warrants and PIPE Warrants is considered a Level 1 valuation as we have derived their value by using quoted market prices. The transfer of the Private Placement Warrants and PIPE Warrants to anyone other than the purchasers or their permitted transferees, would result in these Private Placement Warrants and PIPE Warrants having substantially the same terms as the Public Warrants, which are traded in active markets.

There were no transfers between fair value levels during the three and six months ended June 30, 2021.

10. Capital Structure

The consolidated statements of stockholders’ equity has been retroactively adjusted for all periods presented to reflect the Business Combinations and reverse recapitalization exchange ratio (1.0 UpHealth Holdings shares converted to 10.28 GigCapital2 shares) as discussed in Note 3,

Business Combinations.

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Common Stock

Our Second Amended and Restated Certificate of Incorporation, authorizes the issuance of 300,000,000 shares of common stock, par value of $0.0001. Immediately following the closing of the Business Combinations, and as of June 30, 2021, there were 117,604,610 shares of common stock issued and outstanding.

As discussed in Note 3,

Business Combinations

, we have retroactively adjusted the shares issued and outstanding prior to June 9, 2021 to give effect to the exchange ratio established in the business combinations agreement to determine the number of shares of common stock into which they were converted.

Preferred Stock

Our Second Amended and Restated Certificate of Incorporation authorizes the issuance of 1,000,000 shares of preferred stock, par value $0.0001 with such designation, rights and preferences as may be determined from time to time by our board of directors. At June 30, 2021, there were 0 shares of preferred stock outstanding.

Public Warrants

Warrants (the “Public Warrants”) issued in connection with GigCapital2’s initial public offering are exercisable for $11.50 per share, and the exercise price and number of Public Warrant shares issuable on exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger, or consolidation of GigCapital2 (now UpHealth, Inc.).

Each Public Warrant will become exercisable on the later of 30 days after the completion of the Business Combinations or 12 months from the closing of GigCapital2’s initial public offering and will expire five years after the completion of the Business Combinations or earlier upon redemption or liquidation. If UpHealth is unable to deliver registered shares of common stock to the holder upon exercise of the Public Warrants during the exercise period, there will be no net cash settlement of these Public Warrants and the Public Warrants will expire worthless, unless they may be exercised on a cashless basis in the circumstances described in the Public Warrant agreement. Once the Public Warrants become exercisable, UpHealth may redeem the outstanding Public Warrants in whole and not in part at a price of $0.01 per Public Warrant upon a minimum of 30 days’ prior written notice of redemption, only in the event that the last sale price of UpHealth’s shares of common stock equals or exceeds $18.00 per share for any 20 trading days within the

30-trading

day period ending on the third trading day before UpHealth sends the notice of redemption to the Public Warrant holders.

Under the terms of the Public Warrant agreement, UpHealth has agreed to use its best efforts to file a new registration statement under the Securities Act, following the completion of the initial business combination, for the registration of the shares of common stock issuable upon exercise of the Public Warrants included in private placement units.

As of June 30, 2021, there were 18,117,494 warrants outstanding, including 17,250,000 Public Warrants, 567,500 Private Placement Warrants and 299,994 PIPE Warrants (see

Private Placement

and

Pipe Subscription Agreements

below).

Founder Shares

During the period from March 6, 2019 (date of GigiCapital2’s inception) to March 12, 2019, GigCapital2’s sponsor and Northland Gig2 Investment LLC purchased 2,500,000 shares of GigCapital2 common stock (the “Founder Shares”) for an aggregate purchase price of $25,000, or $0.01 per share. In April 2019, GigCapital2 effected a stock dividend of 0.493 shares of common stock for each outstanding share of common stock, resulting in the sponsor and Northland Gig2 Investment LLC holding an aggregate of 3,732,500 shares of its common stock. Subsequently, the sponsor and Northland Gig2 Investment LLC sold 68,041 shares and 31,959 shares, respectively, to EarlyBirdCapital, Inc. and the EarlyBird Group, collectively, for an aggregate purchase price of $670, or $0.0067 per share. In June 2019, GigCapital2 effected a stock dividend of 0.1541 shares of

 commo

n

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stock for each outstanding share of common stock, resulting in the sponsor, Northland Gig2 Investment LLC, EarlyBirdCapital, Inc., and the EarlyBird Group holding an aggregate of 4,307,500 shares of its common stock as of June 30, 2021. The Founder Shares are identical to the common stock included in the Units sold in GigCapital2’s initial public offering except that the Founder Shares are subject to certain transfer restrictions, as described in more detail below.

Private Placement

The GigCapital2 (now Uphealth, Inc.) founders purchased in a private placement sale (the “Private Placement”), that occurred simultaneously with the completion of the closing of the GigCapital2 initial public offering an aggregate of 492,500 units (the “Private Placement Units”) at a price of $10.00 per unit. The founders also purchased from GigCapital2 an aggregate of 75,000 private placement units at a price of $10.00 per unit in a private placement that occurred simultaneously with the completion of the second closing of the GigCapital2 initial public offering with the exercise of the over-allotment option, for a total of 567,500 Private Placement Units. Among the Private Placement Units, 481,250 units were purchased by GigCapital2’s sponsor, 29,900 units were purchased by EarlyBirdCapital, Inc., a GigCapital2 underwriter, and 56,350 units were purchased by Northland Gig2 Investment LLC, a GigCapital2 underwriter. Each Private Placement Unit consists of 1 share of GigCapital2’s common stock, $0.0001 par value, 1 warrant, and 1 right to receive

one-twentieth

(1/20) of a share of common stock upon the consummation of GigCapital2’s initial business combination. Warrants (the “Private Placement Warrants”) will be exercisable for $11.50 per share, and the exercise price of the Private Placement Warrants may be adjusted in certain circumstances as described in terms of the Private Placement Warrants agreement.

Northland Gig2 Investment LLC, purchased 100,000 private underwriter shares (the “Private Underwriter Shares”), at a purchase price of $10.00 per share in a private placement that occurred simultaneously with the completion of the initial closing of the GigCapital2 initial public offering. Northland Gig2 Investment LLC also purchased from GigCapital2 an aggregate of 20,000 Private Underwriter Shares at a price of $10.00 per share in a private placement that occurred simultaneously with the completion of the second closing of the GigCapital2 initial public offering with the exercise of the over-allotment option. The Private Underwriter Shares are identical to the shares of common stock included in the Private Placement Units.

GigCapital2’s founders and underwriters have agreed not to transfer, assign, or sell any of their Founder Shares, Private Placement Units, shares, or other securities underlying such Private Placement Units, or Private Underwriter Shares until the earlier of (i) twelve months after the completion of GigCapital2’s initial business combination, or earlier if, subsequent to the GigCapital2’s initial business combination, the last sale price of the GigCapital2’s common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any

30-trading

day period commencing at least 90 days after GigCapital2’s initial business combination, or (ii) the date on which GigCapital2 completes a liquidation, merger, stock exchange, or other similar transaction after GigCapital2’s initial business combination that results in all of gigCapital2’s stockholders having the right to exchange their shares of common stock for cash, securities, or other property.

Unlike the Public Warrants included in the units sold in GigCapital2’s initial public offering, if held by the original holder or its permitted transferees, the Private Placement Warrants included in the Private Placement Units are not redeemable by GigCapital2 and subject to certain limited exceptions, will be subject to transfer restrictions until one year following the consummation of GigCapital2’s initial business combination. If the Private Placement Warrants are held by holders other than the initial holders or their permitted transferees, the Private Placement Warrants will be redeemable by GigCapital2 and exercisable by holders on the same basis as the Public Warrants.

We accounted for the Private Placement Warrants as liabilities at fair value (see Note 9,

Fair Value of Financial Instruments

) on the condensed consolidated balance sheets, due to their redemption characteristics, with changes in fair value recognized as a component of other income (expense) in the condensed consolidated

statements of

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operations. At June 30, 2021, the fair value of the Private Placement Warrants was $0.5 million, which is included in warrant liabilities in the condensed consolidated balance sheet. During the three and six months ended June 30, 2021, we recorded a $(0.1) million loss due to the fair value changes in the Private Placement Warrants, which is included in gain (loss) in fair value of warrant liabilities in the condensed consolidated statement of operations.

PIPE Subscription Agreements

On January 20, 2021, GigCapital2 (now UpHealth, Inc.) entered into subscription agreements, each dated January 20, 2021 and amended June 8, 2021 (the “PIPE Subscription Agreements”), with certain institutional investors (collectively the “PIPE Investors”), pursuant to which GigCapital2 agreed to issue and sell to the PIPE Investors, in private placements to close immediately prior to the closing of the Business Combinations, an aggregate of 3,000,000 shares (the “PIPE Shares”) at $10.00 per share, plus warrants to purchase up to an additional 300,000 shares of common stock (1 warrant for every 10 PIPE Shares purchased) at an exercise price of $11.50 per share (the “PIPE Warrants”), for an aggregate purchase price of $30.0 million (collectively the “PIPE Investment”). The PIPE Investment was consummated immediately prior to the closing of the Business Combinations. The total proceeds received from the PIPE Investment were $28.5 million, net of placement fee costs of $1.5 million.

We accounted for the PIPE Warrants as liabilities at fair value (see Note 9,

Fair Value of Financial Instruments

) in the condensed consolidated balance sheets, due to their redemption characteristics, with changes in fair value recognized in gain (loss) on fair value of warrant liabilities in the condensed consolidated statements of operations. At June 30, 2021, the fair value of the PIPE Warrants was $0.3 million, which is included in warrant liabilities in the condensed consolidated balance sheet. During the three and six months ended June 30, 2021, we recorded a $1.2 million gain due to the fair value changes in the PIPE Warrants, which is included in gain (loss) in fair value of warrant liabilities in the condensed consolidated statement of operations.

Forward Share Purchase Agreement

On June 3, 2021, we entered into a forward share purchase agreement (the “Purchase Agreement”) with Kepos Alpha Fund L.P. (“KAF”), a Cayman Islands limited partnership, pursuant to which KAF may elect to sell and transfer to us and we will purchase from KAF, on September 8, 2021 or, in KAF’s sole discretion, any one calendar month anniversary of that date (the “Closing Date”), up to 1,700,000 shares of our common stock that are held by KAF at the closing of the Business Combinations. In August 2021, we entered into an amendment to the Purchase Agreement, which deferred the Closing Date to no earlier than January 9, 2022, provided if (a) we issue any new equity securities, whether of existing or new classes, or (b) an event occurs having a material adverse effect on our management operations, KAF will have the right to designate a Closing Date following such issuance or occurrence on 3 business days’ notice to us. The per share price at which KAF has the right to sell the KAF Shares to us is (a) $10.30225 per KAF Share, plus (b) in the event that the Closing Date occurs after September 8, 2021, $0.0846 per KAF Share for each month (prorated for a partial month) following September 8, 2021.

Notwithstanding anything to the contrary in the Purchase Agreement, KAF is allowed at its election to sell any or all of the KAF Shares in the open market commencing after the closing of the Business Combinations, as long as the sales price is above $10.10 per Share. Nothing in the Purchase Agreement prohibits or restricts KAF with respect to the purchase or sale of our warrants. In exchange for our commitment to purchase the KAF Shares on the Closing Date, KAF agreed to continue to hold, and not offer, sell, contract to sell, pledge, transfer, assign, or otherwise dispose of, directly or indirectly, or hedge (including any transactions involving any derivative securities and including any Short Sales (as defined below) involving any of our securities) the KAF Shares prior to Closing Date. “Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Securities and Exchange Act of 1934 (the “Exchange Act”), whether or not against the box, and all types of direct and indirect stock pledges, forward sales contracts, options, puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule

16a-1(h)

underthe

Exchange Act) and similar

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arrangements (including on a total return basis), and sales and other transactions through

non-U.S.

broker dealers or foreign regulated brokers. KAF is permitted to pledge the KAF Shares in connection with a bona fide margin agreement (and such a pledge is not considered to be a transfer, sale or assignment of the KAF Shares). Due to its mandatorily redeemable for cash feature, we have recorded the Purchase Agreement as a forward share purchase liability in our condensed consolidated balance sheet for up to the 1,700,000 shares, at $10.00 per share, of our common stock that KAF may elect to sell and transfer to us and we will repurchase from KAF, plus imputed interest, totaling $17.1 million.

Equity Plans

Thrasys’ 2019 Stock Incentive Plan

Contemporaneous with its merger with UpHealth Holdings on November 20, 2020, Thrasys entered into stock compensation agreements with employees pursuant to the Thrasys 2019 Stock Incentive Plan, a Restricted Stock Award (“RSA”) agreement, and a Restricted Stock Unit (“RSU”) award agreement, and awarded 536,184 RSA shares and 3,427,316 RSU shares to employees. On June 9, 2021, in connection with the Business Combinations, the RSAs and RSUs were settled with a combination of shares of UpHealth common stock and proceeds from the seller notes. Additionally, under the terms of the merger agreement, we will grant 4,660,226 RSUs to 2 officers of Thrasys under the 2021 Equity Incentive Plan (the “2021 Incentive Plan”), upon the filing of a Form

S-8

with the SEC, which occurred on August 12, 2021.

Cloudbreak 2015 Incentive Plan

On June 19, 2015, Cloudbreak created the 2015 Unit Incentive Plan (the “Cloudbreak Plan”), which had a maximum aggregate number of 2,200,000 common units. Cloudbreak measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized over the period during which an employee is required to provide service in exchange for the award–the requisite service period.

Upon completion of the Business Combinations, UpHealth assumed 1,573,690 options, which were included in purchase consideration, and 134,690 unvested options, which are subject to continued vesting and will be recorded as stock-based compensation prospectively. Cloudbreak ceased granting awards under the Cloudbreak Plan.

2021 Equity Incentive Plan

On June 4, 2021, the GigCapital2 stockholders considered and approved the 2021 Incentive Plan and reserved 16,420,813 shares of UpHealth common stock for issuance thereunder. The 2021 Incentive Plan was previously approved, subject to stockholder approval, by the Board of Directors of GigCapital2 on February 7, 2021. The 2021 Incentive Plan became effective immediately upon the closing of the Business Combinations. The number of shares of common stock reserved for issuance under the 2021 Incentive Plan will automatically increase on January 1 of each year, beginning on January 1, 2022 and each anniversary thereof during the effectiveness of the 2021 Incentive Plan, by an amount equal to the lesser of (i) five percent (5%) of the total number of shares of Company Common Stock outstanding on such date, and (ii) such lesser number of shares as may be determined by the Company’s Board of Directors. During the three months ended June 30, 2021, there were 0 shares granted under the 2021 Incentive Plan.

In conjunction with the approval of the 2021 Incentive Plan, the Company’s Board of Directors also adopted a form of Restricted Stock Units Agreement (the “RSU Agreement”) and a form of Stock Option Agreement (the “Stock Option Agreement”) that the Company will generally use for grants under its 2021 Incentive Plan. The RSU Agreement provides that restricted stock units will vest over a fixed period and be paid as shares of common stock, and that the unvested restricted stock units will expire upon certain terminations of the grantees’ employment or other service relationship with the Company. The Stock Option Agreement provides that stock options will vest over a fixed period, and that the unvested options will expire upon certain terminations of the grantees’ employment or other service relationship with the Company.

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11. Revenue

Disaggregation of Revenue

Revenue by service offering consisted of the following:

(In thousands)	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Services	$	14,773	$	22,911
Licenses and subscriptions		9,145		12,803
Products		7,964		8,984
Total revenue	$	31,882	$	44,698

Revenue by geography consisted of the following:

(In thousands)	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Americas	$	20,126	$	29,352
Europe		7,800		10,800
Asia		3,956		4,546
Total revenue	$	31,882	$	44,698

Our revenue is entirely derived from the healthcare industry. Revenue recognized over-time was approximately 75% and 73% of total revenue during the three and six months ended June 30, 2021.

Contract Assets

There were 0 impairments of contract assets, consisting of unbilled receivables, during the six months ended June 30, 2021.

The change in contract assets was as follows:

(In thousands)	Six Months Ended June 30, 2021
Unbilled receivables, beginning of period	$	3,536
Reclassifications to billed receivables		(1,192	)
Revenues recognized in excess of period billings		9,783
Unbilled receivables, end of period	$	12,127

Contract Liabilities

The change in contract liabilities, consisting of deferred revenue, was as follows:

(In thousands)	Six Months Ended June 30, 2021
Deferred revenue, beginning of period	$	397
Revenues recognized from balances held at the beginning of the period		(397	)
Revenue deferred from period collections on unfulfilled performance obligations		6,572
Deferred revenue, end of period	$	6,572

Revenue recognized ratably over time is generally billed in advance and includes SaaS internet hosting, subscriptions, and related consulting, implementation, services support, and advisory services.

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Revenue recognized as delivered over time includes professional services billed on a time and materials basis, and fixed fee professional services and training classes that are primarily billed, delivered, and recognized within the same reporting period.

Approximately 0.6% and 0.9% of revenue recognized during the three and six months ended June 30, 2021, respectively, was from the deferred revenue balance existing as of December 31, 2020.

Remaining Performance Obligations

Remaining performance obligations consisted of the following at June 30, 2021:

(In thousands)	Total		Remaining 2021		2022 - 2024
Subscriptions	$	10,411		2,607		7,804
Licenses		0		0		0
SaaS and hosting		147		98		49
Program management and services		0		0		0
	$	10,558		2,705		7,853

12. Income Taxes

The CARES Act was enacted on March 27, 2020 in the United States. The CARES Act provided a substantial stimulus and assistance package intended to address the impact of the

COVID-19

pandemic, including tax relief, government loans, grants, and investments. The CARES Act did not have a material impact on our income tax provision.

For interim period reporting, we record income taxes using an estimated effective tax rate for the period, including the forecasted permanent tax differences, discrete items, and statutory rates in states in which we operate. At the end of each interim period, we update the estimated effective tax rate, and if the estimated tax rate changes based on new information, we make a cumulative adjustment in the period. We record the tax effect of an unusual or infrequently occurring item in the interim period in which it occurs as a discrete item of tax.

The income tax benefit was $6.6 million and 0 for the three months ended June 30, 2021 and 2020, respectively. The income tax benefit was $7.1 million and 0 for the six months ended June 30, 2021 and 2020, respectively.

The Internal Revenue Service (“IRS”) audited Thrasys’ 2008 and 2009 tax returns for the proper year of inclusion of approximately $15.0 million in long-term capital gain on the sale of certain intellectual property rights. Thrasys originally reported the gain on its 2010 S Corporation tax return, matching the year of inclusion for financial accounting purposes. The corporate level tax was paid to California and Thrasys passed the gain through to its shareholders. The IRS has asserted that Thrasys owes C Corporation tax of approximately $5.0 million for 2008, or in the alternative, Thrasys owes C Corporation tax of approximately $5.0 million for 2009 as a

built-in

gain. In addition, Thrasys could be assessed additional California franchise tax of approximately $1.3 million. Additionally, if additional income taxes are imposed, interest will be charged at approximately 4% per year, compounded annually, resulting in potential interest of approximately $3.0 million. The IRS has not asked that penalties be imposed.

The matter is currently pending before the U.S. Tax Court, Docket

11565-15.

There are related tax cases for some of the shareholders for additional income taxes due if the gain is shifted to 2009. On December 4, 2018, the IRS filed a motion for summary judgment in Thrasys, Inc. v. Commissioner (T.C. Memo

2018-199);

however, Thrasys prevailed, and the motion was denied. In January 2020, Thrasys filed a motion for summary judgment arguing that either the gain was properly reported in 2010 and all taxes have been paid or in the alternative it

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should have been taxable in 2009 with no

built-in

gains tax. In both cases, there would be no additional income tax due for 2008 or 2009. The IRS filed an objection to Thrasys’ motion. On March 3, 2021, the U.S. Tax Court, without consideration of the merits of the case, issued a very brief court order dismissing Thrasys’ motion. Had the motion been granted, the need for a trial would have been obviated. Counsel for the IRS has contacted counsel for Thrasys and has offered to join Thrasys in a motion to have the case decided without trial. This and other alternatives are now under consideration. It is not likely this case will be resolved before the end of 2021. Thrasys intends to vigorously defend its position in the case and believes it will prevail if the case is taken to trial. Thrasys has accrued $0.2 million, representing probable additional taxes and interest imposed, in other current liabilities in the condensed consolidated balance sheets.

13. Earnings (Loss) Per Share

Basic income (loss) per share applicable to common stockholders is computed by dividing earnings applicable to common stockholders by the weighted-average number of common shares outstanding. Diluted income (loss) per share assumes the conversion of any convertible securities using the treasury stock method or the

if-converted

method.

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per share data)	2021			2020			2021			2020
Numerator:
Net loss attributable to UpHealth, Inc.	$	(32,784	)	$	(336	)	$	(35,734	)	$	(539	)
Denominator:
Weighted average shares outstanding(1)		94,170			50,050			83,585			50,050
Diluted effect of stock awards		0			0			0			0
Weighted average shares outstanding assuming dilution		94,170			50,050			83,585			50,050
Net loss per share attributable to UpHealth, Inc.:
Basic	$	(0.35	)	$	(0.01	)	$	(0.43	)	$	(0.01	)
Diluted	$	(0.35	)	$	(0.01	)	$	(0.43	)	$	(0.01	)

(1) The shares and earnings per share available to our common stock holders, prior to the Business Combinations, have been recasted to reflect the exchange ratio established in the Business Combinations (1.0 UpHealth Holdings share to 10.28 GigCapital2 share). See Note 3, Business Combinations , for more information.

The calculation of dilutive earnings per share excluded outstanding warrants to purchase 18.1 million shares of common stock at $11.50 per share; senior convertible notes, convertible into 15.0 million shares of common stock at $10.65 per share; and 1.7 million assumed equity awards, because the effect would be anti-dilutive.

14. Employee Benefit Plans

In connection with the acquisitions of Thrasys, BHS, TTC, Glocal, Innovations, and Cloudbreak we have 6 defined contribution plans, which cover substantially all employees, with the exception of union employees and employees acquired under a section 401(b)(6)(C) transaction. The plans provide for discretionary matching and profit-sharing contributions. For the three and six months ended June 30, 2021, there were 0 significant employer matching or employer profit sharing contributions to the plans.

In addition, with the acquisition of Glocal, we acquired a defined benefit plan, which entitles an employee, who has rendered at least five years of continuous service, to receive

one-half

month’s salary for each year of completed service at the time of retirement/exit. As of June 30, 2021, the unfunded status of the defined benefit plan was $85 thousand. For the six months ended June 30, 2021, the net periodic pension cost of the defined benefit plan was $5 thousand.

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15. Related Party Transactions

One of our subsidiaries had amounts due to the seller of the subsidiary, in a prior transaction unrelated to the merger with UpHealth Holdings, representing contingent consideration, accrued interest, and accrued preferred dividends totaling $4.2 million. The amount was paid in full during the three months ended June 30, 2021.

The subsidiary also has a management agreement with a related party (our chi

e

f financial officer, who is the former shareholder and chairman of the subsidiary). Management fee expenses incurred were approximately $0.1 million and $0.1 million for the three and six months ended June 30, 2021, respectively. Unpaid management fees were $42 thousand at June 30, 2021.

The consulting firm noted in Note 8,

Debt

, is a related party through an officer of the Company, who is also a significant shareholder and a member of our board of directors.

One of our subsidiaries has amounts due to related parties totaling $0.2 million at June 30, 2021. Amounts are noninterest-bearing, nonsecured and payable upon demand.

See Note 8,

Debt

, for related party long-term debt.

See Note 17,

Commitments and Contingencies

, for leases with related parties.

16. Segment Reporting

Our business is organized into 5 reportable

segments:

• Integrated Care Management–through our Thrasys subsidiary;

• Global Telehealth–through our Glocal and Cloudbreak subsidiaries;

• Digital Pharmacy–through our Innovations subsidiary;

• Behavioral Health–through our BHS and TTC subsidiaries; and

• Corporate–through UpHealth and our UpHealth Holdings subsidiary.

The reportable segments are consistent with how management views our services and products and the financial information reviewed by the chief operating decision makers. We manage our businesses as components of an enterprise for which separate information is available and is evaluated regularly by the chief operating decision makers in deciding how to allocate resources and assess performance.

In the Integrated Care Management segment, we provide our customers with an advanced, comprehensive, and extensible technology platform, marketed under the umbrella “SyntraNetTM” to manage health, quality of care, and costs, especially for individuals with complex medical, behavioral health, and social needs.

In the Global Telehealth segment, we provide technology and process-based healthcare platforms providing our customers comprehensive primary care, specialty consultations, and translation services, through telemedicine, Digital Dispensaries, and technology-based hospital centers.

In the Digital Pharmacy segment, we provide custom compounded medications for the unique needs of every patient and prescriber. We are a full-service pharmacy filling prescriptions from our inventory of compounded medications, as well as drugs purchased from manufacturers.

In the Behavioral Health segment, we provide inpatient and outpatient substance abuse and mental health treatment services for individuals with drug and alcohol addiction and other behavioral health issues. We offer a complete continuum of care from detoxification services, residential care, partial hospitalization programs, and intensive outpatient and outpatient programs.

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In the Corporate segment, we perform executive, administrative, finance, human resources, legal, and information technology services for UpHealth, Inc. and for its subsidiaries, managed in a corporate shared services environment. Since they are not the responsibility of segment operating management, they are not allocated to the operating segments and instead reported within Corporate.

We evaluate performance based on several factors, of which Revenue, Cost of Goods and Services, Adjusted EBITDA, and Total Assets by service and product, are the primary financial measures:

Revenue by segment consisted of the following:

In thousands	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Integrated Care Management	$	11,280	$	17,570
Global Telehealth		6,964		7,554
Digital Pharmacy		5,299		5,299
Behavioral Health		8,339		14,275
Total revenue	$	31,882	$	44,698

Gross margin by segment consisted of the following:

In thousands	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Integrated Care Management	$	4,615	$	9,722
Global Telehealth		2,634		2,933
Digital Pharmacy		1,982		1,982
Behavioral Health		2,370		3,645
Total gross margin	$	11,601	$	18,282

Total assets by segment consisted of the following:

In thousands	June 30, 2021		December 31, 2020
Integrated Care Management	$	195,974		186,476
Global Telehealth		349,238		0
Digital Pharmacy		184,307		0
Behavioral Health		83,350		18,383
Corporate		85,184		57,531
Total assets	$	898,053	$	262,390

17. Commitments and Contingencies

Commitments

We lease various facilities with related parties in accordance with the terms of operating lease agreements that expire at various dates through December 2025. The leases require monthly payments ranging from $3 thousand to $13 thousand.

We lease various facilities and office equipment from third parties in accordance with the terms of operating lease agreements requiring monthly payments ranging from $239 to $68 thousand. The leases expire at various dates through November 2026. In accordance with the lease terms, we may be required to deposit funds with the lessors in the form of a security deposit. The deposits may be returned to us if certain conditions are met, as stated in the lease agreements. Security deposits totaled approximately $0.2 million as of June 30, 2021.

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Total rent expense under related party and third-party agreements was approximately $0.8 million and $1.3 million for the three and six months ended June 30, 2021, respectively.

As of June 30, 2021, future minimum lease payments under

non-cancelable

operating leases were as follows:

(In thousands)	Related Party		Third-Party		Total
Remaining 2021	$	513	$	2,133	$	2,646
2022		1,031		2,561		3,592
2023		984		2,094		3,078
2024		928		1,934		2,862
2025		687		1,485		2,172
Thereafter		0		1,258		1,258
	$	4,143	$	11,465	$	15,608

Contingencies

From time to time, we may be subjected to claims or lawsuits which arise in the ordinary course of business, including the previously disclosed tax matter (see Note 12,

Income Taxes

, for further information) and matters described below. Estimates for resolution of legal and other contingencies are accrued when losses are probable and reasonably estimable in accordance with ASC 450,

Contingencies

. In the opinion of management, after consulting with legal counsel, none of these other claims are currently expected to have a material adverse effect on our consolidated results of operations, financial position or cash flows.

There are currently 2medical malpractice suits against individual providers, other third parties, and BHS, as a whole. The medical malpractice suits assert that there is negligence by the providers in treating the patients named in the suits. One of the malpractice suits is seeking damages of approximately $3.7 million from all defendants, including BHS. The second malpractice suit has not specified monetary damages; however, in the event of an unfavorable outcome, BHS’ legal counsel estimates maximum damages of approximately $2.3 million. BHS is vigorously defending the malpractice suits and was named as a secondary party in each suit. Although the outcome of these malpractice suits is not presently determinable, it is reasonably possible that that an unfavorable outcome, for the aforementioned damages sought, could occur. However, BHS, and the individual providers, do have insurance coverage (BHS carries a $1.0 million per occurrence insurance policy), which could mitigate some or all of the financial effects of potential settlements or judgements. In the event that future settlements or judgements, if any, exceed insurance coverages, BHS may be required to fund a portion of the difference. NaNprovision has been made in the accompanying condensed consolidated financial statements for any potential settlement or judgement costs at June 30, 2021, and December 31, 2020, as an unfavorable outcome is not probable at this time.

On December 17, 2020, a former TTC employee filed an Equal Employment Opportunity Commission (“EEOC”) claim against TTC alleging discrimination based on disability. The former employee cannot file a suit under the federal law until the EEOC issues a notice of right to sue, but can file suit under Florida law if the investigating agency has not rendered a decision within 180 days of the date the charge was filed. As of the date of this report, no lawsuit has been filed. TTC plans to vigorously defend the case, if filed, and does not believe that there is any reasonably estimable loss. However, TTC does have insurance coverage, which could mitigate some or all of the financial effects of potential settlements or judgements. In the event that future settlements or judgements, if any, exceed insurance coverages, TTC would be required to fund the difference. NaNprovision has been made in the accompanying condensed consolidated financial statements for any potential settlement or judgment costs at June 30, 2021 or December 31, 2020. The maximum exposure as it relates to claims made is approximately $0.4 million.

Advisory Services Agreement Dispute

We are in a services agreement dispute with a third-party advisory firm for fees due under the services agreement. Based on consultation with legal counsel, we have proposed a settlement in the amount of

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$8.0 million, which has been accrued for as of June 30, 2021, and is included in accrued expenses in the condensed consolidated balance sheet. However, if the settlement offer is not accepted, the amount of the ultimate loss may range from $8.0 million to $26.3 million.

COVID-19

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the

“COVID-19

outbreak”) and the risks to the international community as the virus spreads globally. On March 11, 2020, the WHO classified the

COVID-19

outbreak as a pandemic, and on March 25, 2020, the U.S. government reached a stimulus package deal. The full impact of the

COVID-19

outbreak continues to evolve as of the date of this report, and likewise, the full impact of the pandemic on our consolidated financial condition, liquidity, and future results of operations is uncertain. Management is actively monitoring the impact of the global situation on our consolidated financial condition, liquidity, operations, vendors, industry, and workforce. Despite the daily evolution of the

COVID-19

outbreak and the global responses to curb its spread, we have not experienced any material impact on our consolidated results of operations, financial condition, or liquidity during the year ended December 31, 2020 or the three and six months ended June 30, 2021.

On March 27, 2020, the CARES Act, was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the

COVID-19

pandemic. The CARES Act includes several significant income and other business tax provisions that, among other things, provides for

non-income

tax-related

relief such as refundable employee retention tax credits and the deferral of the employer-paid portion of social security taxes. We continue to evaluate the various provisions of the CARES Act and their impact on our condensed consolidated financial statements as a whole. See Note 8,

Debt

, for further information.

Indemnification

Certain of our agreements require us to indemnify our customers from any claim or finding of intellectual property infringements, as well as from any losses incurred relating to breach of representations, failure to perform, or specific events as outlined within the particular contract. We have not received any claims or estimated the maximum potential amount of indemnification liability under these agreements and have recorded no liabilities for these agreements.

18. Subsequent Events

Management has determined that no material events or transactions have occurred subsequent to the balance sheet date through August 12, 2021, other than those events noted below, that require disclosure in the condensed consolidated financial statements.

In August 2021, the maturity date for $18.7 million of the seller notes was deferred to September 2022 (see Note 8,

Debt

, for further information).

In August 2021, we entered into an amendment to the Purchase Agreement, which deferred the Closing Date and adjusted the share price at which KAF has the right to sell the KAF Shares to us (see Note 10,

Capital Structure

, for further information).

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Thrasys, Inc. Confidential

THRASYS, INC.

Financial Statements for the period ended November 20, 2020 and year ended December 31, 2019

and Report of Independent Registered Public Accounting Firm

F-78

Thrasys, Inc. Confidential

TABLE OF CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			F-80
	1	Balance Sheets	F-81
	2	Statements of Operations	F-82
	3	Statements of Stockholders’ Deficit	F-83
	4	Statements of Cash Flows	F-84
NOTES TO FINANCIAL STATEMENTS PERIOD ENDED NOVEMBER 20, 2020 AND DECEMBER 31, 2019			F-85
	1	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	F-85
	2	PROPERTY AND EQUIPMENT	F-96
	3	ACCRUED LIABILITIES	F-96
	4	RELATED PARTY LONG-TERM DEBT	F-97
	5	RELATED PARTY CONVERTIBLE NOTES	F-97
	6	VARIAN AGREEMENT	F-97
	7	PROVISION FOR INCOME TAXES	F-98
	8	RETIREMENT PLANS	F-99
	9	COMMITMENTS AND CONTINGENCIES	F-99
	10	PAYCHECK PROTECTION PROGRAM LOAN	F-100
	11	DEPOSITS AND OTHER LONG TERM ASSETS	F-100
	12	STOCKHOLDERS’ EQUITY	F-100
	13	SUBSEQUENT EVENTS	F-102

F-79

Thrasys, Inc. Confidential

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Thrasys, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Thrasys, Inc. (the “Company”) as of November 20, 2020 and December 31, 2019, the related statements of income, stockholders’ equity, and cash flows for the period January 1, 2020 to November 20, 2020 and for the year ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 20, 2020 and December 31, 2019, and the results of its operations and its cash flows for the period January 1, 2020 to November 20, 2020 and for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matters

As discussed in Note 1 to the financial statements, on January 1, 2020, the Company adopted Accounting Standards Codification (ASC) 606,

Revenue from Contracts with Customers

, using the modified retrospective adoption method. Our opinion is not modified with respect to this matter.

/s/ Plante & Moran, PLLC

We have served as the Company’s auditor since 2020.

Denver, Colorado

March 18, 2021

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Thrasys, Inc. Confidential

1 Balance Sheets

AS OF NOVEMBER 20, 2020 AND DECEMBER 31, 2019
	11/20/2020		12/31/2019
ASSETS
CURRENT ASSETS:
Cash	$	1,953,128	$	1,619,098
Restricted cash		530,500		—
Accounts receivable		3,490,738		1,628,551
Prepaid expenses and other		3,001,150		41,146
Total current assets		8,975,516		3,288,795
PROPERTY AND EQUIPMENT, net		101,246		77,622
DEPOSITS AND OTHER LONG TERM ASSETS		19,374		2,823,609
	$	9,096,136	$	6,190,026
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable	$	1,778,849	$	641,384
Accrued liabilities		5,321,761		5,384,345
Deferred revenue		2,405,877		1,752,632
Current portion of related party long-term debt		39,000		—
Current portion of Paycheck Protection Program loan		196,936		—
Total current liabilities		9,742,423		7,778,361
RELATED PARTY LONG-TERM DEBT, net of discount and current portion		381,283		1,114,000
PAYCHECK PROTECTION PROGRAM LOAN, net of current portion		343,564		—
CONVERTIBLE NOTES PAYABLE TO RELATED PARTY		—		1,900,000
DERIVATIVE LIABILITY RELATED TO CONVERTIBLE DEBT		—		668,000
Total liabilities		10,467,270		11,460,361
STOCKHOLDERS’ DEFICIT:
Common stock, no par value, 20,000,000 shares authorized		6,699,222		1,863,031
Accumulated deficit		-8,070,356		-7,133,366
Total stockholders’ deficit		-1,371,134		-5,270,335
	$	9,096,136	$	6,190,026

The accompanying notes are an integral part of these financial statements for the period ended November 20, 2020 and year ended December 31, 2019.

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2 Statements of Operations

FOR THE PERIOD ENDED NOVEMBER 20, 2020 AND YEAR ENDED DECEMBER 31, 2019
	Period ended 11/20/2020			Year ended 12/31/2019
REVENUES
License revenues	$	7,706,201		$	4,933,226
Services revenues		5,798,366			8,527,521
Royalty revenues		—			430,769
TOTAL REVENUES		13,504,567			13,891,516
OPERATING EXPENSES
Cost of Sales		1,686,582			1,456,736
Research & Development		6,584,979			4,992,139
Sales & Marketing		315,747			340,468
General & Administrative		3,350,243			1,880,430
Depreciation expense		26,626			30,311
TOTAL OPERATING EXPENSES		11,964,177			8,700,084
INCOME FROM OPERATIONS		1,540,390			5,191,432
OTHER INCOME (EXPENSE):
Interest income		983			3,516
Interest expense		(297,103	)		(734,607	)
Other expense		—			(20,800	)
		(296,120	)		(751,891	)
INCOME BEFORE INCOME TAXES		1,244,270			4,439,541
INCOME TAXES		0			0
NET INCOME	$	1,244,270		$	4,439,541

The accompanying notes are an integral part of these financial statements for the period ended November 20, 2020 and year ended December 31, 2019.

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3 Statements of Stockholders ’ Deficit

Period ended November 20, 2020 and year ended December 31, 2019

	Common Stock					Additional Paid in Capital		Total Common Stock			Accumulated Deficit			Total Stockholders’ Deficit
	Shares		Amount
Balance at December 31, 2018		6,124,226	$	1,763,579		$	81,833	$	1,845,412		$	(11,572,907	)	$	(9,727,495	)
Options and warrants expense		—		—			18,599		18,599			—			18,599
Loan to a shareholder		—		(980	)		—		(980	)		—			(980	)
Net Income		—		—			—		—			4,439,541			4,439,541
Balance at December 31, 2019		6,124,226		1,762,599			100,432		1,863,031			(7,133,366	)		(5,270,335	)
Adjustment for adoption of accounting standard (ASC 606)												(688,260	)		(688,260	)
Loan to a shareholder				(732	)				(732	)					(732	)
Options and warrants expense							6,508		6,508						6,508
Exercise of stock options		36,500		34,100					34,100						34,100
Exercise of warrants		228,370		1,543,515					1,543,515						1,543,515
Conversion of convertible notes into Common Stock		249,980		2,499,800			753,000		3,252,800						3,252,800
Distributions declared												(1,493,000	)		(1,493,000	)
Net Income												1,244,270			1,244,270
Balance at November 20, 2020		6,639,076	$	5,839,282		$	859,940	$	6,699,222		$	(8,070,356	)	$	(1,371,134	)

The accompanying notes are an integral part of these financial statements for the period ended November 20, 2020 and year ended December 31, 2019.

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4 Statements of Cash Flows

FOR THE PERIOD ENDED NOVEMBER 20, 2020 AND YEAR ENDED DECEMBER 31, 2019

	Period ended 11/20/2020			Year ended 12/31/2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	1,244,270		$	4,439,541
Adjustments from Net Income:
Depreciation expense		26,626			30,311
Options and warrant expense		6,508			18,599
Amortization of debt discount		0			21,724
Change in fair value of derivative liability related to convertible debt		85,000			341,000
Changes In:
Accounts receivable		(1,884,424	)		(1,286,277	)
Prepaid expenses and other assets		(155,768	)		(2,394,589	)
Deferred revenue		(12,780	)		(1,402,787	)
Accounts payable and accrued expenses		1,106,480			2,588,291
Net cash provided by operating activities		415,912			2,355,813
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(50,250	)		(6,094	)
Net cash used by investing activities		(50,250	)		(6,094	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt		(1,075,000	)		(850,000	)
Proceeds from issuance of PPP and EIDL loans		540,500			—
Loan to a minority shareholder		(732	)		(980	)
Proceeds from exercise of warrants and stock options		1,034,100			—
Net cash provided/(used) by financing activities		498,868			(850,980	)
NET INCREASE IN CASH		864,530			1,498,739
CASH, beginning of period		1,619,098			120,359
CASH, end of period	$	2,483,628		$	1,619,098
Supplemental cash flow information:
Interest paid		64,051			36,552
Taxes paid		—			—
Significant noncash transactions:
Conversion of convertible debt, conversion option and accrued interest to equity	$	3,252,800			—
Issuance of note payable in settlement of accounts payable		381,283			—
Set-off of accounts payable and accrued interest against warrant exercise		543,516			—
Accrued distributions to shareholders		1,493,000
Cumulative effect of change in accounting principle		688,260

The accompanying notes are an integral part of these financial statements for the period ended November 20, 2020 and year ended December 31, 2019.

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NOTES TO FINANCIAL STATEMENTS FOR PERIOD ENDED NOVEMBER 20, 2020 AND YEAR ENDED DECEMBER 31, 2019

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.1 Nature of Business

Thrasys, Inc. (“Thrasys” or the “Company”), provides its customers with an advanced, comprehensive, and extensible technology platform—marketed under the umbrella “SyntraNet”—to manage health, quality of care, and costs—especially for individuals with complex medical, behavioral health, and social needs.

We have one operating and reportable segment, which is at the consolidated company level. Our Chief Executive Officer manages our operations on a consolidated basis for purposes of assessing performance and allocating resources.

Effective November 20, 2020, the Company became a fully owned subsidiary of UpHealth Holdings, Inc. (“UpHealth”). As a result, the financial statements are reflected as of November 20, 2020 and for the period January 1, 2020 to November 20, 2020.

The Company focuses on both the United States and international markets. The Company’s mission is to deploy innovative software and other technologies to transform the more than $8 trillion global healthcare industry to new models of care.

SyntraNet creates virtual, connected communities of care where cross-sector teams—physicians, nurses, care managers, community health workers, patients, families—from organizations participating in these communities can collaborate to manage health and coordinate the delivery of clinical, behavioral health, social and other services. The care community can be small—a single organization with internal care teams, or large—a county-wide network of multiple stakeholder organizations and agencies. Care communities can be connected in a distributed hierarchy of nodes to enable province and nation-wide networks of connected care.

SyntraNet is offered as a software as a service (“SaaS”) platform. Information, analytics, and applications are delivered to care team members on desktops, tablets and phones as needed. An advanced protected health information (“PHI”) framework controls access to information based on roles, rights, policies, and scope of consent.

The platform includes innovations in a number of areas: application and information models for connected care communities (an extension of multi-tenant architectures), integration and normalization of heterogeneous data sources, configurable software services and open application programming interfaces (“APIs”), advanced analytics and intelligence, scalable workflows and rules, protected health information management, and user interfaces ready for the proliferation of device types and interaction modes.

SyntraNet provides customers the ability to:

• Integrate and normalize information across heterogeneous data sources to create 360-degree view of patients and members;

• Deploy advanced analytics to gain insight into health risks for individuals and populations;

• Qualify individuals and groups for enrollment into care management programs;

• Manage programs with interdisciplinary teams, configurable rules and workflows, embedded intelligence, and guidelines;

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• Monitor and measure critical success factors—outcomes, costs, quality, performance—and compliance with regulatory requirements;

The Company’s customers include value added resellers, health systems, health plans, physician groups, and accountable care and care management organizations. SyntraNet is built on a

state-of-the-art

technology platform hosted in a secure HIPAA-compliant cloud. Information, applications, and analytics are delivered to users on desktops, browsers, tablets, and phones.

1.2 Accounts Receivable

Accounts receivables are carried at original invoice less an estimate for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance by regularly evaluating individual customer receivables and considering a customer’s financial condition and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. As of November 20, 2020 and December 31, 2019, the management determined that no allowance for doubtful accounts was necessary.

An account receivable is considered to be past due if any portion of the receivable balance is outstanding for more than 60 days. Management monitors the receivable, pursues all available methods of collecting the balance due. The Company does not charge interest on outstanding account receivables. Unbilled accounts receivable as of November 20, 2020 and December 31, 2019 were $57,557 and $32,643, respectively.

1.3 Prepaid expenses and Other

Prepaid licenses and prepaid expenses that relate to a future accounting period or future customer projects are carried at cost under Prepaid expenses and other. These will be expensed in the relevant future accounting periods.

1.4 Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight- line method for financial reporting purposes and accelerated methods for income tax purposes, based on useful lives of three to seven years.

Information technology equipment	Three years
Office furniture & other equipment	Seven years
Vehicles	Seven years

1.5 Long lived asset impairment

Recoverability of the carrying value of long-lived assets is evaluated under the provisions of ASC Topic 360,

Property, Plant, and Equipment

, whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. There were no impairments necessary during the period ended November 20, 2020 and year ended December 31, 2019.

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1.6. Revenues

Revenues Under ASC 606

The Company implemented ASC 606 for revenue recognition for the period ended November 20, 2020 using the modified retrospective method. This method calculates revenues under ASC 606 for each existing contract at December 31, 2019 and creates a transition adjustment as of January 1, 2020 through retained earnings for the difference. Unbilled accounts receivable, billed accounts receivable, deferred revenues, and contract assets are each adjusted as well. The revenue recognition for ASC 606 varies somewhat from its predecessor, ASC 605 and is therefore not necessarily comparable. The key disclosures for ASC 606 during the period ended November 20, 2020 are presented first, with the key disclosures for ASC 605 during fiscal year 2019 presented subsequently.

Disaggregation of Revenue

Subscription and Support Revenue by the Company’s service offerings

Subscription and support revenues consisted of the following:

Period Ended November 20 2020
Subscriptions and Licenses	$	7,706,201
Implementation and Professional Services		5,798,366
	$	13,504,567

Total Revenue by Geographic Locations

Revenues by geographical region consisted of the following:

Period Ended November 20 2020
Americas	$	10,706,671
Europe		2,797,896
	$	13,504,567

The Company’s revenues are entirely derived from the healthcare industry.

Revenues by geography are determined based on the region of the customer. Americas revenue attributed to the United States was 100 percent during fiscal 2020. Germany, in the European region, represented approximately

twenty-one

percent of total revenue during fiscal 2020.

A significant portion of the Company’s contracts with customers have fixed transaction prices. For some contracts, the amount of consideration to which the Company will be entitled is variable. The Company includes variable consideration in a contract’s transaction price only to the extent that the Company has a relatively high level of confidence that the amounts will not be subject to significant reversals. In determining amounts of variable consideration to include in a contract’s transaction price, the Company relies on its experience and other evidence that supports its qualitative assessment of whether revenue would be subject to significant reversal.

For contracts with multiple performance obligations, the transaction price is allocated to the separate performance obligations based on stand-alone selling prices based on stand- alone sales and historical pricing.

Contract Asset

Subscription and support revenue, and indistinct licenses are generally recognized ratably over the contract term beginning on the first customer access date of each contract.

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License revenue is recognized as the licenses are delivered, if they are distinct obligations. The Company records a contract asset when revenue recognized on a contract exceeds the billings. The Company’s standard billing terms are annual or quarterly in advance. Contract assets were $10 thousand as of January 1, 2020, and $66 thousand as of November 20, 2020, and are included in prepaid expenses and other current assets on the consolidated balance sheet. There were no impairments of contract assets during 2020.

Unearned Revenue

Unearned revenue represents amounts that have been invoiced in advance of revenue recognition and is recognized as revenue when transfer of control to customers has occurred or services have been provided. The unearned revenue balance does not represent the total contract value of annual or multi-year,

non-cancelable

subscription agreements. The Company generally invoices customers in annual or quarterly installments. The unearned revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing, dollar size and new business linearity within the quarter.

The change in unearned revenue was as follows (in thousands):

Period Ended November 20, 2020

	Deferred Revenue Period Ending
	November 20, 2020
Beginning Balance, January 1, 2020	$	(1,924	)
Revenues recognized from balances held at the beginning of the period		913
Revenues deferred from period collections on unfulfilled performance obligations		(1,395	)
Ending Balance, November 20, 2020	$	(2,406	)

Revenue recognized ratably over time is generally billed in advance and includes SyntraNet Cloud Services and related licenses, and the related consulting, implementation and services support, and advisory services.

Revenue recognized over time as delivered includes professional services billed on a time and materials basis, fixed fee professional services and training classes that are primarily billed, delivered and recognized within the same reporting period.

There is no material Revenue recognized at a point in time during the period ended November 20, 2020.

Approximately 7 percent of total revenue recognized in fiscal 2020 is from the unearned revenue balance as of December 31, 2019.

Remaining Performance Obligation

Transaction price allocated to the remaining performance obligations, referred to by the Company as remaining performance obligations, represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods. Transaction price allocated to the remaining performance obligations are influenced by several factors, including seasonality, the timing of renewals, the timing of delivery of software licenses, average contract terms and foreign currency exchange rates. Unbilled portions of the remaining performance obligations are subject to future economic risks including bankruptcies, regulatory changes and other market factors.

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The Company excludes amounts related to performance obligations that are billed and recognized as they are delivered. This primarily consists of professional services contracts that are on a

time-and-materials

basis.

The majority of the Company’s noncurrent remaining performance obligation is expected to be recognized in the next 12 to 24 months.

Remaining performance obligation consisted of the following (in thousands):

Remaining Performance Obligations	Total		Current		Future
Subscriptions	$	1,017		783		234
Licenses		8,639		2,580		6,059
SaaS and Hosting		49		49		—
Program Management and Services		1,331		1,331		—
	$	11,036		4,742		6,294

Revenues Under ASC 605

The Company derives its revenues mainly from:

• Subscription revenues, which are comprised of subscription fees from customers accessing the Company’s cloud computing services

• Services revenues

• Royalty income

• Support and maintenance

• Sale of intellectual property assets

The Company commences revenue recognition when all of the following conditions are satisfied:

• There is persuasive evidence of an arrangement;

• The service has been or is being provided to the customer;

• The collection of the fees is reasonably assured; and

• The amount of fees to be paid by the customer is fixed or determinable

Software License Revenues

License revenues are recognized based on the nature of the license provided, either fully on the date license rights are granted to the customer if there are no further obligations or ratably over the contract term beginning on the commencement date of each contract, which is the date license rights are granted to the customer. If an entity does not have VSOE of fair value for all elements within multiple-element software arrangements, revenue can be recognized using the residual method, provided VSOE of fair value exists for any undelivered elements of the arrangement. If VSOE does not exist for any undelivered elements in a contract, the revenue is recognized ratably over the life of the contract. License fees are sometimes bundled with maintenance fees. The Company also licenses its technology platform and solutions to third-party solution providers to be bundled with other solutions and services.

Subscription Revenues

Subscription revenues are recognized ratably over the contract terms beginning on the commencement date of each contract, which is the date the Company’s service is made available to customers. Amounts that have been

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invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. The Company’s subscription service arrangements are

non-cancelable

and do not contain refund-type provisions.

Services Revenues

The majority of the Company’s professional services contracts are on a time and material basis. When these services are not combined with subscription revenues as a single unit of accounting, as discussed below, revenues are recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the customer for fixed price contracts. Training revenues,

set-up

fees and configuration fees are recognized as the services are completed.

Loan conversion to License

License and such license revenues were recognized by the Company over the performance period. The Company has not entered into similar contracts since 2014.

Support and Maintenance Revenues

Support and Maintenance revenues are recognized over the term of maintenance contracts.

Multiple Deliverable Arrangements

The Company enters into arrangements with multiple deliverables that generally include subscription, set up, and professional services. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately.

Subscription services have standalone value as such services are often sold separately. In determining whether professional services have standalone value, the Company considers the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the subscription service start date, and the contractual dependence of the subscription service on the customer’s satisfaction with the professional services work. To date, the Company has concluded that all of the professional services included in multiple deliverable arrangements executed have standalone value.

Multiple-deliverables included in an arrangement are separated into different units of accounting and the arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy. The Company determines the relative selling price for a deliverable based on its vendor-specific objective evidence of selling price (“VSOE”), if available, or its best estimate of selling price (“BESP”), if VSOE is not available. The Company has determined that third-party evidence of selling price (‘TPE”) is not a practical alternative due to differences in its service offerings compared to other parties and the availability of relevant third-party pricing information. The amount of revenue allocated to delivered items is limited by contingent revenue, if any.

For certain professional services, the Company has established VSOE, as a consistent number of standalone sales of this deliverable have been priced within a reasonably narrow range. The Company has not established VSOE for its subscription services due to lack of pricing consistency, the introduction of new services and other factors. Accordingly, the Company uses its BESP to determine the relative selling price.

The Company determined BESP by considering its overall pricing objectives and market conditions. Significant pricing practices considered include the Company’s discounting practices, the size and volume of the Company’s

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transactions, the customer demographic, the geographic area where services are sold, price lists, its

go-to-market

strategy, historical standalone sales, and contract prices. The determination of BESP is made through consultation with and approval by the Company’s management, taking into consideration the

go-to-market

strategy. As the Company’s

go-to-market

strategies evolve, the Company may modify its pricing practices in the future, which could result in changes in relative selling prices, including both VSOE and BESP.

Deferred Revenue

Deferred revenue primarily consists of billings in advance of revenue recognition from subscription services described above and is recognized as the revenue recognition criteria are met. The deferred revenue balance does not represent the total contract value of annual or multi-year,

non-cancelable

subscription agreements. The Company generally invoices customers in annual or quarterly installments.

Deferred revenue balances at December 31, 2019 were $1,752,632, prior to the transition adjustment for ASC 606. These were primarily recognized during 2020.

1.7 Income Taxes

The Company has elected as of January 1, 2009, to be treated as an

S-Corporation

for federal and California income tax purposes. No provision has been made for federal income taxes for the period ended November 20, 2020 and year ended December 31, 2019 since these taxes are the responsibility of the stockholders. The State of California imposes a 1.5% tax on the taxable income of

S-Corporations.

Deferred tax assets and liabilities are recorded for future tax consequences attributable to temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases, including methods of accounting for revenue recognition, accrued expenses, depreciation, and net operating losses.

The Company has adopted Financial Accounting Standards Board guidance on uncertainty in income taxes. Management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. With few exceptions, the Company is no longer subject to income tax examinations by the U.S. federal, state or local tax authorities for years before 2017.

1.8 Cash and Cash equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value due to the short-term nature of these investments.

1.9 Restricted Cash

Under the terms of the merger agreement with UpHealth as discussed in Note 1.1 and in accordance with the Small Business Administration (“SBA”) Procedural Notice effective October 2, 2020, the Company has agreed to maintain the balance of the Paycheck Protection Program (“PPP”) Loan in an escrow account until forgiveness has been determined by the SBA.

1.10 Credit Risk

At November 20, 2020 and December 31, 2019, the Company had balances at two banks. At various times, bank balances may exceed Federally insured limits; however, management does not believe that there is significant credit risk associated with bank balances.

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1.11 Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. At November 20, 2020 and December 31, 2019, the Company uses estimates for the derivative liability relating to convertible debt, accrual for contingent tax liability, fair value of stock options and warrants. Actual results could differ from those estimates.

1.12 Fair Value of Financial Instruments

The balance sheets as of November 20, 2020 and December 31, 2019 include the following financial instruments: cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and debt. No events have occurred since the issuance of the debt that would materially impact its fair value, the fair value of the debt is determined to be equal to the carrying cost as of November 20, 2020 and December 31, 2019. The carrying amounts of accounts receivable, accounts payable, and accrued expenses approximate fair value because of the relatively short period of time between the origination of these instruments and expected realization.

The Company follows authoritative guidance on accounting for fair value measurements and disclosures, which address how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under U.S. generally accepted accounting principles.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance related to fair value measures establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

Level Input	Input Definition
Level 1	Inputs are unadjusted quoted prices for identical assets or liabilities in active markets at the measurement date.
Level 2	Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3	Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

When quoted prices in active markets for identical assets are available, the Company uses these quoted market prices to determine the fair value of financial assets and classifies these assets as Level 1. In other cases where a quoted market price for identical assets in an active market is either not available or not observable, the Company obtains the fair value from a third-party vendor that uses pricing models, such as matrix pricing, to determine fair value. These financial assets would then be classified as Level 2. In the event quoted market prices for similar assets were not available, the Company would determine fair value using broker quotes or an internal analysis of each investment’s financial statements and cash flow projections. In these instances, financial assets would be classified based upon the lowest level of input that is significant to the valuation. Thus, financial assets might be classified in Level 3 even though there could be some significant inputs that may be readily available.

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The fair value of the derivative liability relating to convertible debt is primarily based on Level 3 inputs as described above. The Company estimated the fair value of derivative liability relating to convertible debt using the following inputs:

	Period ended November 20, 2020			Year ended December 31, 2019
Expected stock price		$10		$	2.8686
Estimated term (in years)		1.1 years			2 years
Risk free rate		0.12	%		1.58	%
Expected volatility		70.0	%		47.5	%

Changes in the fair value of the derivative liability relating to convertible debt for the period ended November 20, 2020 and year ended December 31, 2019 are as follows:

Fair value of derivative liability relating to convertible debt
	Amount
Balance at December 31, 2018	$	327,000
Increase in fair value		341,000
Balance at December 31, 2019		668,000
Increase in fair value		85,000
Transferred to equity upon conversion of notes	$	(753,000	)
Balance at November 20, 2020	$	—

1.13 Stock Based Compensation

The Company has a stock-based compensation plan and grants stock options and restricted stock awards to employees. The Company’s stock-based compensation is estimated at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period of the award. Determining the appropriate fair value and calculating the fair value of stock-based awards requires judgment, including estimating stock price, volatility, forfeiture rates, expected dividends, and expected life.

The fair value of each stock option grant was estimated on the date of grant using the Black- Scholes option pricing model with the following assumptions and fair value per share:

Year Ended December 31	2019
Stock price per share	$	1.62
Option period (in years)		10 years
Estimated term (in years)		6.7 years
Interest rate		2.1	%
Expected volatility		60.0	%

The fair value of the stock price is determined annually by the board of directors with input from management based upon information available at the time of the valuation. Given the absence of a public trading market of Company stock, the board of directors has exercised reasonable judgment and considered numerous factors to determine the best estimate of the fair value of Company stock. These factors include historical operating and financial performance, current business conditions and projections, and history and stage of development.

The Company’s current estimate of volatility is based on the volatility of comparable public companies. To the extent volatility of the Company’s stock price increases in the future, the Company’s estimate of the fair value of options granted in the future could increase, thereby increasing stock-based compensation expense in future periods.

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The computation of expected lives is based on expectations of future employee behavior. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. In addition, the Company applies an expected forfeiture rate when amortizing stock-based compensation expense.

1.14 Software Development Costs

The Company does not capitalize its ongoing costs of developing its software, which consists primarily of personnel costs. Capitalization of software development costs is only required upon the establishment of technological feasibility of the product. New product versions are released on a regular basis and the time between establishing technological feasibility and product release is very short. As a result, amounts that would qualify for capitalization are not significant.

1.15 Research and Development Costs

Research and development costs are expensed as incurred and were $6,584,979 and $4,992,139 for the period ended November 20, 2020 and year ended December 31, 2019 respectively.

1.16 Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No. 2016-02,

Leases

, which supersedes Accounting Standards Codification (“ASC”) Topic 840,

Leases

, and creates a new topic, ASC Topic 842,

Leases

. This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2021, with earlier adoption permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the effect of this update on its consolidated financial statements.

In June 2016, the FASB issued ASU

No. 2016-13,

Credit Losses,

which provides financial statement users with information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The update is effective for fiscal years beginning after December 15, 2021, with earlier adoption permitted. This update will be applied using a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (a modified-retrospective approach). The Company is currently evaluating the effect of this update on its consolidated financial statements.

1.17 Recently Adopted Accounting Standards

In May 2014, the FASB issued ASU

2014-09,

Revenue from Contracts with Customers

(ASC 606). ASC 606 supersedes the revenue recognition requirements in ASC 605,

Revenue Recognition

(ASC 605), and requires the recognition of revenue as promised goods or services are transferred to customers in an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services. ASC 606 also includes Subtopic

340-40,

Other Assets

and

Deferred Costs—Contracts with Customers,

which requires the deferral of incremental costs of obtaining a contract with a customer. Collectively, we refer to ASC 606 and Subtopic

340-40

as the “new standard.” The Company adopted the new standard as of January 1, 2020, utilizing the modified retrospective method of adoption by applying the new standard to the periods impacted post-adoption The guidance was applied to contracts that are not substantially complete as of the date of initial application in accordance with practical expedient ASC

606-10-65-1(h).

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Adoption Date Impact

The following tables summarize the impacts of adopting the new standard on the Company’s consolidated financial statements as of adoption on January 1, 2020. Select consolidated balance sheet line items that reflect the adoption of the new standard are as follows:

	As reported on December 31 2019			Impact of adoption			As adjusted on January 1 2020
Assets:
Contract assets, current	$	32,643			22,236			54,879
Liabilities:
Deferred revenue, current	$	1,752,632			666,024			2,418,656
Stockholders’ equity:
Accumulated deficit	$	(7,133,366	)		(688,260	)		(7,821,626	)

Current Period Impact

The following tables summarize the impacts of adopting the new standard on the Company’s consolidated financial statements for the period ended November 20, 2020. Select consolidated balance sheet line items that reflect the adoption of the new standard are as follows:

	November 20, 2020
	As reported			Adjustments			Balances without adoption of Topic 606
Assets:
Contract assets		57,557			(662,814	)		720,371
Liabilities and stockholders’ equity
Deferred revenue, current		2,405,877			185,854			2,220,023
Stockholders’ equity:
Accumulated deficit	$	(8,070,356	)		(476,960	)		(7,593,396	)

Select consolidated statement of operations line items for the period ended November 20, 2020 that reflect the adoption of the new standard are as follows:

	Period ended November 20, 2020
	As reported		Adjustments			Balance without adoption of Topic 606
Revenues
License revenues	$	7,706,201		(169,493	)		7,536,708
Services revenues		5,798,366		(41,807	)		5,756,559
Total revenues		13,504,567		(211,300	)		13,293,267
Income from Operations		1,540,390		(211,300	)		1,329,090
Net Income	$	1,244,270		(211,300	)		1,032,970

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Select statement of cash flows line items for the period ended November 20, 2020 that reflect the adoption of the new standard are as follows:

	Period ended November 20, 2020
	As reported			Adjustments			Balance without adoption of ASC 606
Statement of cash flows:
Net Income	$	1,244,270			(211,300	)		1,032,970
Adjustments to Net Income
Cash provided by operating activities:
Changes in operating assets and liabilities:
Accounts receivable and contract assets		(1,884,424	)		640,578			(1,243,846	)
Deferred revenue		(12,780	)		(851,878	)		(864,658	)

2 PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at November 20, 2020 and December 31, 2019:

	2020		2019
Computer equipment	$	121,312		121,312
Furnitures & Fixtures		86,152		86,152
Other Equipment		91,992		91,992
Vehicles		50,250		—
Artwork		13,000		13,000
		362,706		312,456
Less accumulated depreciation		261,460		234,834
Total	$	101,246		77,622

Depreciation expense related to property and equipment was $26,626 and $30,311 for the period ended November 20, 2020 and year ended December 31, 2019, respectively, and is included in operating expenses in the Statements of Operations.

3 ACCRUED LIABILITIES

Accrued liabilities as of November 20, 2020 and December 31, 2019 were:

	2020		2019
Accrued legal expenses	$	240,267	$	299,988
Accrued consulting fees	$	1,350,953	$	1,343,678
Accrued software licenses	$	888,419	$	2,099,740
Accrued interest on debt	$	9,113	$	966,918
Accrued bonuses	$	447,855		0
Accrued shareholder distribution	$	1,493,000		0
Accrued tax liability	$	200,000	$	200,000
Other accruals	$	692,154	$	474,021
Total	$	5,321,761	$	5,384,345

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4 RELATED PARTY DEBT

The Company has notes payable to related parties totaling $420,283 and $1,114,000 at November 20, 2020 and December 31, 2019, respectively. The notes outstanding as of November 20, 2020 bear interest at rates ranging from 0.14% to 3.5% per annum. Notes totaling $381,283 are payable in eight quarterly installments starting from October 1, 2022, or upon a liquidity event, as defined in the note agreement and a note totaling $39,000 is payable in 2021. With the exception of a $39,000 note, the notes outstanding as of December 31, 2019 were repaid during 2020 and bore interest at rates ranging from 10% to 20%. The accrued interest payable was $9,113 and $459,453 at November 20, 2020 and December 31, 2019, respectively. During 2019, the Company issued warrants to two of the note holders as part of the debt transactions and warrants for 223,874 shares of Common Stock totaling $1,499,551 were exercised by a note holder on November 20, 2020.

The fair value of each warrant grant was estimated on the date of grant using the Black- Scholes option pricing model with the following assumptions and fair value per share:

	Period ended November 20, 2020			Year ended December 31, 2019
Stock price per share	$	11.42		$	1.62
Warrant period (in years)		5 years			6 years
Estimated term (in years)		5 years			6 years
Interest rate		0.30	%		2.1	%
Expected volatility		60.0	%		60.0	%

See Note 13 for additional details on the warrants.

5 RELATED PARTY CONVERTIBLE NOTES

During a previous year, the Company issued five convertible notes to a minority stockholder totaling $1,900,000 as of December 31, 2019. The interest rate on the notes was 5% per annum on notes totaling $1,150,000 and 6.25% on notes totaling $750,000. The principal of $1,900,000 and accrued interest of $599,800 on the notes were converted into the Company’s Common Stock on November 20, 2020 in anticipation of the change in control at $10 per share and the Company issued 249,980 Common shares upon conversion. The accrued interest payable was $507,425 at December 31, 2019.

Upon issuance, the Company concluded that the conversion option required bifurcation due to the lack of a fixed number of shares into which the debt is convertible. Accordingly, the Company completed a valuation of the conversion option and accounted for a derivative liability of $248,000 in 2013 when the first convertible notes were issued and amortized this amount as interest expenses during 2013 and 2014. The Company revalued the derivative liability quarterly and the difference is booked as expense or income at each revaluation period. The Company booked an interest expense of $85,000 and $341,000 during the period ended November 20, 2020 and year ended December 31, 2019, respectively, as part of the revaluation of this derivative.

The derivative liability (a Level 3 fair value measurement) relating to the convertible note was $668,000 as of December 31, 2019. The derivative liability of $753,000 was transferred to equity on November 20, 2020 when the convertible notes were converted into Common Stock.

6 VARIAN AGREEMENT

In 2014, the Company entered into a software license and enhancement agreement with Varian Medical Systems International A.G. and Varian Medical Systems, Inc. (Varian).

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The agreement granted Varian a development license for a collaboration period at no fee with an option for Varian to convert the development license to a perpetual license with an automatic conversion to perpetual license if the contract terms are met. The Agreement also provided for royalty payable to the Company on any sales of products that incorporated the Company’s technology.

The Company also entered into a loan agreement with Varian under which the Company borrowed a total of $10,000,000 in three different tranches during 2014 and 2015 and accrued interest at 10% annual interest. Varian exercised its option in July 2016 to convert the development license into perpetual license and the loan of $10,000,000 plus accrued interest of $1,776,712 until conversion date, were set off against perpetual license fee payable by Varian to the Company. Varian was also granted 36 months’ exclusivity period from conversion where the Company agreed to provide updates and maintenance and also not offer the technology to other companies in the field of Oncology. In May 2017, the Company and Varian entered into an amendment of the Agreement wherein Varian paid $1,600,000 to the Company as full and final settlement of all their royalty obligations under the Agreement.

The Company recognized the full sum of $13,376,712 over the 36 months’ exclusivity period from July 2016 to July 2019. The total revenue recognized under this agreement was $2,720,685 for the year ended December 31, 2019.

7 PROVISION FOR INCOME TAXES

The provision for income taxes consists of California franchise taxes.

The net deferred income tax asset consists of:

	2019			2020
Deferred tax assets		847,515			957,515
Less valuation allowance		(847,515	)		(957,515	)
		0			0

The Company has established a valuation allowance for deferred tax assets which more likely than not will not be utilized. The deferred tax assets as of December 31, 2019 and November 20, 2020 are research and development credits and net operating loss carryforwards.

The Company has state research and development tax credit and net operating loss carryforwards of approximately $14,973,415 and $13,864,264 expiring through December 31, 2039 as of November 20, 2020 and December 31, 2019, respectively.

The Internal Revenue Service (IRS) audited the Company’s 2008 and 2009 tax returns for the proper year of inclusion of a $15 million long-term capital gain on the sale of certain intellectual property rights to Siemens Medical Solutions, Inc. The Company had originally reported the gain on its 2010 S Corporation tax return matching the year of inclusion for financial accounting purposes. The corporate level tax was paid to California and passed the gain through to its shareholders. The IRS has asserted that the Company owes C Corporation tax of approximately $5 million for 2008 or in the alternative the Company owes C Corporation tax of approximately $5 million for 2009 as a Built in Gain. In addition, the Company could be assessed additional California Franchise Tax of approximately $1.3 million. If additional income taxes are imposed there will be interest charged at approximately 4% per year compounded annually, resulting in potential interest of approximately $3 million. The IRS has not asked that penalties be imposed.

The matter is currently pending before the US Tax Court Docket

11565-15.

There are related cases for some of the shareholders for additional income taxes due if the gain is shifted to 2009. In 2018 the IRS filed a motion for

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Summary Judgment and in

Thrasys, Inc. v. Commissioner

(T.C. Memo

2018-199)

filed December 4, 2018, Thrasys prevailed and the motion was denied.

In January 2020, the Company filed a Motion for Summary judgment arguing that either the gain was properly reported in 2010 and all taxes have been paid or in the alternative it should have been taxable in 2009 with no Built in Gains tax. In either alternative there would be no additional income tax due for 2008 or 2009. The Internal Revenue Service filed an objection to the Company’s motion. On March 3, 2021, the US Tax Court, without consideration of the merits of the case issued a very brief Court Order dismissing the Company’s Motion. Had the motion been granted the need for a trial would have been obviated. Counsel for the IRS has contacted counsel for the Company and has offered to join the Company in a motion to have the case decided without trial. This and other alternatives are now under consideration. It is not likely this case will be resolved before the end of 2021. The Company intends to vigorously defend its position in the case and believes they will prevail if the case is taken to trial. The Company has accrued $200,000, representing probable additional taxes and interest imposed, in the financial statements and as included in Table 3 (Accrued Liabilities).

8 RETIREMENT PLANS

The Company has a 401(k) profit sharing plan that covers substantially all employees. Participants may contribute a portion of their compensation subject to limitations imposed by the Internal Revenue Code. The plan allows for discretionary contributions by the Company, determined annually by the Board of Directors. For the period ended November 20, 2020 and year ended December 31, 2019, there were no discretionary contributions.

9 COMMITMENTS AND CONTINGENCIES

9.1 Facility Lease

The Company leases its facilities in San Francisco. The lease expires in June 2022. The lease requires monthly rent of $19,374 plus utilities, maintenance and property taxes. Rent increases annually. Rent expense for the period ended November 20, 2020 and year ended December 31, 2019 was $288,994 and $314,701, respectively.

Minimum facility rentals for future years are summarized as follows:

Years Ending December 31	Amount
2020 (remaining)	$	32,399
2021		331,035
2022		170,483
	$	533,917

9.2 Indemnification

Certain of the Company’s agreements require the Company to indemnify its customers from any claim or finding of intellectual property infringements, as well as from any losses incurred relating to breach of representations, failure to perform, or specific events as outlined within the particular contract. The Company has not received any claims or estimated the maximum potential amount of indemnification liability under these agreements and has no liabilities recorded for these agreements.

9.3 Warranty

The Company generally provides a warranty for its software products and services to its customers. The Company’s products are generally warranted to perform substantially as described in the associated product

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Thrasys, Inc. Confidential

documentation or a period of 90 days. The Company has not provided for a warranty accrual because, to date, the Company’s warranty expense has not been significant and future warranty expense is not expected to be significant.

9.4 Contingencies

Estimates for resolution of legal and other contingencies are accrued when losses are probable and reasonably estimable in accordance with ASC Topic 450, Contingencies. Aside from the previously disclosed tax matter, the Company currently has no material pending litigation or other contingencies.

10 PAYCHECK PROTECTION PROGRAM LOAN

In April 2020, the Company obtained a United States government loan of $530,500 under the PPP. The PPP is a United States government temporary program created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act with the intent to assist businesses in keeping employees employed during the pandemic. The PPP loan may not need to be repaid if the loan proceeds are spent on qualifying expenses and if staffing level and salary maintenance requirements are met. The Company may use the funds on qualifying expenses over a covered period of up to 24 weeks. Any amounts not forgiven will be required to be repaid beginning ten months after the conclusion of the covered period, over a term having a minimum of five years and a maximum maturity of 10 years from the date on which the borrower applies for forgiveness. The loan carries a 1% interest rate. The Company has applied for forgiveness for the entire amount of the loan and is awaiting decision from the SBA as of the date of this report, however, there can be no assurance given that any portion of the PPP Loan will be forgiven.

11 DEPOSITS AND OTHER CURRENT ASSETS

The Company entered into an agreement with a German company for purchase of Compliant IHE products during 2019 for use in an international project where the Company has been awarded the prime contract by the customer. The total value of the licenses was $2,804,235 out of which $1,964,337 was paid as of November 20, 2020. The balance amount of $839,898 is payable by the Company in 4 equal monthly installments by May 2021. The Company has accrued $888,419 (including foreign exchange difference since the amounts are payable in euros) in the financial statements and is included in Table 3 (Accrued Liabilities). The international project is expected to commence during 2021 and hence the software licenses have been included in the Prepaid expenses and other section in the Balance Sheet as of November 20, 2020. As of December 31, 2019, the amount is included in the Deposits and other long term assets section in the Balance Sheet.

12 MAJOR CUSTOMERS

The Company grants credit to its customers. For the period ended November 20, 2020, three customers accounted for approximately 36%, 33%, and 22% of total revenues. At November 20, 2020, two customers accounted for 52% and 28% of total accounts receivable of the Company.

For the year ended December 31, 2019, three customers accounted for approximately 45%, 22%, and 20% of total revenues. At December 31, 2019, two customers accounted for 50% and 38% of total accounts receivable of the Company.

13 STOCKHOLDERS ’ EQUITY

13.1 Common Stock

The Company has 6,639,076 shares of no par value Common stock issued and outstanding as of November 20, 2020 (6,124,226 as of December 31, 2019). The Company issued 514,850 shares of Common Stock during the

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Thrasys, Inc. Confidential

period ended November 20, 2020 (no Common stock was issued during the year ended December 31, 2019). During 2020, the Company also issued 4,066,000 restricted stock units which will fully vest only once certain conditions are fulfilled. Of the restricted stock units, 3,427,316 units are to be settled with a cash payment totaling $6,376,894. No compensation expense on the restricted stock units has been recognized since they are subject to a performance condition that was not probable as of the Balance Sheet date.

13.2 Equity Incentive Plan

Under the 2002 Equity Incentive Plan, the Company grants incentive and nonqualified options to its employees, directors, and consultants, as provided by the Plan. The Board of Directors designated 1,000,000 shares of common stock for the plan. The plan expires September 2022.

Options may be granted at prices not less than 85% of the estimated fair value of the common stock on the date of grant for

non-qualified

options (100% for incentive stock options), as determined by the Board of Directors. The options vest over a period of up to four years from the date of grant and are exercisable for a period up to ten years from the option grant date. Under the Plan, the Board of Directors have the authority to make exceptions to both the pricing and vesting guidelines mentioned above.

Certain other information for the period ended November 20, 2020 and year ended December 31, 2019 for stock options is as follows:

	2020					2019
	Shares			Weighted average exercise price		Shares		Weighted average exercise price
Outstanding at January 1		36,500		$	0.93		29,000	$	1.15
Granted		—			—		7,500		0.10
Exercised		(36,500	)		0.93		—		—
Forfeited/expired		—			—		—		—
End of period		—			—		36,500		0.93
Exercisable		—		$	—		36,500	$	0.93

All of 36,500 outstanding options were exercised into 36,500 shares of Common stock of the Company on November 20, 2020 for a total of $34,100.

At December 31, 2019, options outstanding had a weighted average remaining contractual term of 4.78 years and an intrinsic value of $25,030. The stock options expense was $0 and $11,550 for 2020 and 2019, respectively.

13.3 Warrants

The following warrants were outstanding as of November 20, 2020 and December 31, 2019:

	2020					2019
	Shares			Weighted average exercise price		Shares		Weighted average exercise price
Outstanding at January 1		149,026		$	12.80		147,026	$	12.96
Granted		79,344			11.42		2,000		1.00
Exercised		(228,370	)		12.32		—		—
Forfeited/expired		—			—		—		—
Outstanding at End of period		—			—		149,026		12.80
Exercisable		—		$	—		149,026	$	12.80

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The warrants expense was $6,508 and $7,049 for 2020 and 2019 respectively.

14 SUBSEQUENT EVENTS

The Company has evaluated subsequent events from the balance sheet date through March 18, 2021, the date at which the financial statements were available to be issued.

F-102

Glocal Healthcare Systems Private Limited

Consolidated Financial Statements as of and for the years ended March 31, 2020 and 2019

F-103

Independent Auditor’s Report	F-105
Consolidated Balance Sheets as at March 31, 2020	F-107
Consolidated Statement of Profit and Loss for the Years Ended March 31, 2020 and 2019	F-108
Consolidated Cash Flow Statement for the Years Ended March 31, 2020 and 2019	F-109
Notes to Consolidated Financial Statements	F-110

F-104

D. K. CHHAJER & CO.   CHARTERED ACCOUNTANTS NILHAT HOUSE   11, R. N. MUKHERJEE ROAD   GROUND FL., KOLKATA- 700 001 PHONES: 033-2262 7280 / 2262 7279 TELE-FAX : 033 2230-6106 E-mail.: dkchhaJer @gmall . com kolkata@dkc lndla.com

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of Glocal Healthcare Systems Private Limited

Report on the Audit of the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Glocal Healthcare Systems Private Limited and its subsidiaries, which comprise the consolidated balance sheet as of March 31, 2019 and March 31, 2020, and the related consolidated statements of profit and loss and cash flows for the years then ended and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with generally accepted accounting principles in India; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Glocal Healthcare Systems Private Limited and its subsidiaries as of March 31, 2019 and March 31, 2020, and their consolidated financial performance and their consolidated cash flows for the years then ended in accordance with generally accepted accounting principles in India.

F-105

Emphasis of Matter

(i) As discussed in Note 1 (x) to the financial statements, the Company has incurred losses in its initial stage of operations resulting in net liquidity constraints. Management’s evaluation of the events and conditions and management’s plans to mitigate these matters are also described in Note 1 (x). Our opinion is not modified with respect to this matter.

(ii) The management has discussed in Note 42 of the financial statements regarding the uncertainties and the management’s assessment of the financial impact due to the lock-down and other restrictions and conditions related to the COVID-19 pandemic situation, for which a definitive assessment of the impact is highly dependent upon circumstances / developments as they evolve in the subsequent periods. Our opinion is not modified with respect to this matter.

(iii) Generally accepted accounting principles in India vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in note 41 to the consolidated financial statements. Our opinion is not modified with respect to this matter.

D. K. Chhajer & Co.

UDIN: 20017483AAAAEP8861

Kolkata

30

th

December, 2020

F-106

Glocal Healthcare Systems Private Limited

Consolidated Balance Sheet as at 31 March 2020

Amount in USD

	Note		31 March 2020		31 March 2019
EQUITY AND LIABILITIES
Shareholders’ funds
Share capital		2		6,812,652		6,812,652
Reserves and surplus		3		713,832		(1,001,696	)
				7,526,484		5,810,956
Minority interest		34		1,728,427		1,705,624
Non-current liabilities
Long-term borrowings		4		1,578,912		13,281,012
Long-term provisions		5		129,685		111,200
				1,708,597		13,392,212
Current liabilities
Short-term borrowings		6		3,892,608		3,943,193
Trade payables		7
—total outstanding dues of micro enterprises and small enterprises				—		—
—total outstanding dues of creditors other than micro enterprises and small enterprises				1,471,145		2,418,496
Other current liabilities		8		23,834,963		13,901,348
Short-term provisions		5		7,651		8,769
				29,206,367		20,271,806
TOTAL				40,169,875		41,180,599
ASSETS
Non-current assets
Goodwill		9		459,982		598,136
Property, plant and equipment		10		24,378,417		27,108,428
Intangible assets		11		2,865,890		2,991,695
Capital work-in-progress				4,637,925		4,390,896
Deferred tax assets		30		—		—
Long-term loans and advances		12		1,125,061		1,137,008
Other non-current assets		13		20,626		54,393
				33,487,901		36,280,556
Current assets
Inventories		14		269,296		259,664
Trade receivables		15		4,719,956		3,257,573
Cash and bank balances		16		171,867		621,199
Short-term loans and advances		17		1,008,242		418,651
Other current assets		18		512,613		342,956
				6,681,974		4,900,043
TOTAL				40,169,875		41,180,599
Significant accounting policies		1

The notes referred to above form an integral part of the consolidated financial statements.

As per our report of even date attached

For D.K. CHHAJER & CO. Chartered Accountants Firm’s Registration Number: 304138E For and on behalf of the Board of Directors

Tapan K Mukhopadhyay Partner	Dr. Syed Sabahat Azim Director	Richa Sana Azim Director
Membership No.: 017483	DIN: 03122895	DIN: 02609003
Place: Kolkata Date: 30th December 2020

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Glocal Healthcare Systems Private Limited

Consolidated Statement of Profit and Loss for the year ended 31 March 2020

Amount in USD

			For the year ended			For the year ended
	Note		31 March 2020			31 March 2019
Revenue from operations		19		9,057,344			7,220,982
Other income		20		2,136,145			57,205
Total revenue				11,193,489			7,278,187
Expenses
Purchase		21		961,711			1,239,083
Course operating expenses		22		—			—
Changes in inventories		23		(38,620	)		(50,666	)
Employee benefits expense		24		1,437,745			2,167,548
Finance costs		25		2,150,174			2,778,598
Depreciation and amortisation		26		1,404,801			1,183,020
Other expenses		27		2,870,913			4,427,102
Total expenses				8,786,723			11,744,683
Profit/(Loss) before tax				2,406,766			(4,466,496	)
Income tax expense
Current tax				—			6,123
Deferred tax		30		—			—
Profit/(Loss) after tax (before adjustment of minority interest)				2,406,766			(4,472,620	)
Minority Interest				22,802			(462,252	)
Profit/(Loss) for the year				2,383,964			(4,010,368	)
Earnings/(loss) per equity share [nominal value of share INR 10 each (Previous year INR 10 each)]		28
Basic				4.84			(8.14	)
Diluted				0.09			(8.14	)
Significant accounting policies		1

The notes referred to above form an integral part of the consolidated financial statements.

As per our report of even date attached

For D.K. CHHAJER & CO. Chartered Accountants Firm’s Registration Number: 304138E For and on behalf of the Board of Directors

Tapan K Mukhopadhyay Partner	Dr. Syed Sabahat Azim Director	Richa Sana Azim Director
Membership No.: 017483	DIN: 03122895	DIN: 02609003
Place: Kolkata Date: 30th December 2020

F-108

Glocal Healthcare Systems Private Limited

Consolidated Cash Flow Statement for the year ended 31 March 2020

Amount in USD

		31 March 2020			31 March 2019
A.	Cash flow from operating activities
	Profit/(Loss) before tax		2,406,766			(4,466,496	)
	Adjustments for :
	Depreciation and amortisation		1,404,801			1,183,020
	Provisions/liabilities no longer required written back		(2,109,763	)		(41,727	)
	Interest income		—			(12,513	)
	Finance costs		2,150,174			2,778,598
			1,445,212			3,907,377
	Operating cash flow before working capital changes		3,851,977			(559,120	)
	Adjustments for:
	(Increase) in trade and other receivables/advances		(2,817,928	)		847,409
	Decrease in inventories		(9,631	)		35,257
	Increase in trade payables, other liabilities and provisions		332,248			1,599,791
			(2,495,312	)		2,482,457
	Cash (used in) operations		1,356,665			1,923,337
	Income taxes refund (net)		16,628			(94,462	)
	Net cash (used in) operating activities (A)		1,373,293			1,828,874
B.	Cash flow from investing activities
	Purchase or construction of property, plant and equipment and intangible assets and movement in capital work in progress and capital advances and capital creditors		(985,522	)		(2,422,765	)
	Proceeds from sale of property, plant & equipment		—			10,929
	Bank deposits (having original maturity of more than 3 months)		(8,958	)		122,810
	Interest received		(10,231	)		40,082
	Net cash (used in) investing activities (B)		(1,004,711	)		(2,248,945	)
C.	Cash flow from financing activities
	Acquisition of minority interest		—			69,839
	Proceeds from borrowings (net)		(537,770	)		3,298,150
	Principal payments under finance lease		—			(987	)
	Finance costs paid		(311,595	)		(2,493,507	)
	Net cash provided by financing activities (C)		(849,365	)		873,495
	Net (decrease) in cash and cash equivalent (A+B+C)		(480,782	)		453,425
	Cash and cash equivalents at the beginning of the year		592,684			139,258
	Cash and cash equivalents at the end of the year (Refer Note (i) below)		111,902			592,683
	Notes:
(i)	Components of cash and cash equivalent (refer note 16)
	Cash on hand		32,083			41,300
	Balance with banks
	On current accounts		71,853			551,025
	On deposit accounts (with original maturity of 3 months or less)		7,965			359
			111,901			592,684

The above cash flow statement has been prepared under the ‘Indirect Method’ as set out in the Accounting

(ii) Standard 3 on Cash Flow Statement (AS 3 ) specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014.

The notes referred to above form an integral part of the consolidated financial statements.

As per our report of even date

For D.K. CHHAJER & CO. Chartered Accountants Firm’s Registration Number: 304138E For and on behalf of the Board of Directors

Tapan K Mukhopadhyay Partner	Dr. Syed Sabahat Azim Director	Richa Sana Azim Director
Membership No.: 017483	DIN: 03122895	DIN: 02609003
Place: Kolkata Date: 30th December 2020

F-109

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020

Group information

Glocal Healthcare Systems Private Limited (“the Company” or “the Holding Company” or “the hospital”) was incorporated on 22 July 2010 as a private limited company under the Companies Act, 1956 to set up a chain of modern hospitals across rural India. The Company is primarily engaged in business of rendering medical and health care services. As part of its business activities, the Company holds interests in its subsidiaries and Limited Liability Partnerships (LLPs) firms through which it manages and operates a networks of hospitals across rural India.

The Company, its subsidiaries and LLPs, over which the Company exercise control (jointly referred to as the ‘Group’ herein under), considered in these consolidated financial statements are:

Subsidiary Companies

S.No	Name of the subsidiaries	Country of incorporation	Percentage of ownership interest as at 31 March 2020	Percentage of ownership interest as at 31 March 2019
1	GHSPL Multispeciality Hospital & Trauma Centre Private Limited	India	100%	100%
2	Ficus Health-Infra Private Limited	India	100%	100%

Subsidiary - Limited Liability Partnership firms (over which the Company exercise control)

S.No	Name of the subsidiaries	Country of incorporation	Percentage of ownership interest as at 31 March 2020		Percentage of ownership interest as at 31 March 2019
			Capital contribution ratio	Profit sharing ratio	Capital contribution ratio	Profit sharing ratio
1	GHSPL AMRO Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
2	GHSPL BEGUSARAI Healthcare LLP	India	95.00%	95.00%	95.00%	95.00%
3	GHSPL BGLP Super Speciality Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
4	GHSPL FATEHPUR Super Speciality Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
5	GHSPL JEYPORE Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
6	GHSPL SAMBHAV KNJ Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
7	GHSPL MLD Super Speciality Healthcare LLP	India	63.00%	78.00%	63.00%	78.00%
8	GHSPL MUZF Super Speciality Healthcare LLP	India	42.00%	62.00%	42.00%	62.00%
9	GHSPL SAMBHAV RP Healthcare LLP	India	83.33%	96.00%	83.33%	96.00%
10	GHSPL SAMBHAV BSP Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
11	GHSPL JAUNPUR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
12	GHSPL JSPR Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
13	GHSPL BEM Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%

F-110

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

S.No	Name of the subsidiaries	Country of incorporation	Percentage of ownership interest as at 31 March 2020		Percentage of ownership interest as at 31 March 2019
			Capital contribution ratio	Profit sharing ratio	Capital contribution ratio	Profit sharing ratio
14	GHSPL AMBEDKAR SCAN Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
15	GHSPL ARA Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
16	GHSPL ASNSL Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
17	GHSPL FRBD Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
18	GHSPL MDPR Super Speciality Healthcare LLP	India	92.00%	98.00%	92.00%	98.00%
19	GHSPL SHRNPR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
20	GHSPL SJPR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
21	GHSPL STP Super Speciality Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
22	GHSPL SW Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
23	GHSPL DGHR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
24	GHSPL DNBD Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
25	GHSPL GYA Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
26	GHSPL PRN Super Speciality Healthcare LLP	India	60.00%	76.00%	60.00%	76.00%
27	GHSPL DARBHANGA Super Speciality Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
28	GHSPL BALASORE Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
29	GHSPL BASTI Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
30	GHSPL VARANASI Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
31	GHSPL PURI Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
32	GHSPL CNTA Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
33	GHSPL JHRSD Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
34	GHSPL ALIGR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%

F-111

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

Subsidiary—Limited Liability Partnership firms (over which the Company exercise control)

S.No	Name of the subsidiaries	Country of incorporation	Percentage of ownership interest as at 31 March 2020		Percentage of ownership interest as at 31 March 2019
			Capital contribution ratio	Profit sharing ratio	Capital contribution ratio	Profit sharing ratio
35	GHSPL BHNGAR Super Speciality Healthcare LLP	India	56.00%	89.00%	56.00%	89.00%
36	GHSPL MRBD Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
37	GHSPL SMBL Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
38	GHSPL KNPR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
39	GHSPL Patna Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
40	GHSPL Dhubri Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%

(This space is intentionally left blank)

F-112

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

1 Significant accounting policies

The accounting policies set out below have been applied consistently to the periods presented in these consolidated financial statements.

(a) Basis of preparation of consolidated financial statements:

The consolidated financial statements (“CFS”) have been prepared to comply in all material aspects with applicable accounting principles in India, the applicable Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (‘Act’) read with Rule 7 of the Companies (Accounts) Rules, 2014, read with Companies (Accounting Standards) Amendment Rules, 2016 applicable with effect from 1 April 2016, the provisions of the Act (to the extent notified) and other accounting principles generally accepted in India, to the extent applicable and in particular Accounting Standard 21 (AS 21) - ‘Consolidated Financial Statements’. The CFS has been prepared on an accrual basis and under the historical cost convention.

The consolidated financial statements are presented in Indian Rupees, in the same format as that adopted by the parent Group for its standalone financial statements. The consolidated financial statement of the group is prepared in reporting currency as USD for the specific purpose of transaction with UpHealth Holdings, INC (Refer Note 39) and for the purpose of filing with SEC for their upcoming IPO. The functional currency and reporting currency for statutory reporting in India is INR. The financial line items of Profit and Loss have been converted using average INR/USD conversion rate for the respective financial year, balance sheet items have been converted using spot INR/USD conversion rate as on the reporting date. Opening balances as on 1st April 2018 has been converted using spot INR/USD conversion rate as on 1st April 2018 except for equity is continued at historical rate. Any differences arising out of the conversion has been debited/credited to Foreign Currency Translation Reserve

(b) Principles of consolidation

The CFS have been prepared on the following basis:

(i) Subsidiary companies are consolidated on a

line-by-line

basis by adding together the book values of the like items of assets, liabilities, income and expenses, after eliminating all significant intragroup balances and intra-group transactions and also unrealized profits or losses in accordance with Accounting Standard 21 - “Consolidated Financial Statements”. The results of operations of a subsidiary are included in the consolidated financial statements from the date on which the parent subsidiary relationship comes into existence.

(ii) The difference between the cost to the Group of its investment in the subsidiary and its proportionate share in the equity of the subsidiary as at the date of acquisition of stake is recognised as goodwill or capital reserve, as the case may be. Goodwill is tested for impairment at the end of each accounting year or if there is any indication of impairment. For impairment, the carrying value of goodwill is compared with the present value of discounted cash flows of the respective subsidiaries and loss, if any, is adjusted to the carrying value of the goodwill.

(iii) Minorities’ interest in net profits/losses of the subsidiary for the year is identified and included in the income in order to arrive at the net income attributable to the shareholders of the Group. Their share of net assets is identified and presented in the consolidated balance sheet separately. Where accumulated losses attributable to the minorities are in excess of their share of losses as per the contractual agreement, the same are accounted for by the holding Group.

(iv) As far as possible, the CFS are prepared using uniform accounting policies for like transactions and other events in similar circumstances and are presented, to the extent possible, in the same manner as the

F-113

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

Group’s separate financial statements, Where it is not practicable to use uniform accounting policies, differences in accounting policies are disclosed separately in accordance with AS 21 (Consolidated Financial Statements).

(v) The financial statements of the group entities used for the purpose of consolidation are drawn up to the same reporting date as that of the Group i.e. year ended 31 March 2020. In case where the subsidiaries are registered under the Limited Liability Partnership Act, 2008 (LLP Act), financial statements for them have been prepared as per the LLP Act.

(c) Use of estimates

The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses and the disclosure of contingent liabilities on the date of the consolidated financial statements. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates is recognised prospectively in current and future periods.

(d) Current - non-current classification

All assets and liabilities have been classified as current or

non-current

as per the Group’s normal operating cycle. Based on the nature of services and the time between the providing services and their realisation in cash and cash equivalents, the Group has ascertained its operating cycle as 12 months for the purpose of current - non-current classification of assets and liabilities.

Assets

An asset is classified as current when it satisfies any of the following criteria:

(a) it is expected to be realised in, or is intended for sale or consumption in, the Group’s normal operating cycle;

(b) it is held primarily for the purpose of being traded;

(c) it is expected to be realised within 12 months after the reporting date; or

(d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.

All other assets are classified as

non-current.

Current assets include the current portion of

non-current

financial assets.

Liabilities

A liability is classified as current when it satisfies any of the following criteria:

(a) it is expected to be settled in the Group’s normal operating cycle;

(b) it is held primarily for the purpose of being traded;

(c) it is due to be settled within 12 months after the reporting date; or

(d) the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

F-114

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

All other liabilities are classified as

non-current.

Current liabilities include current portion of

non-current

financial liabilities.

(e) Revenue recognition

The Group derives its revenue primarily from rendering medical and healthcare services. Income from medical and healthcare services comprise income from hospital services and sale of pharma products.

Revenue from hospital and digital consultancy services to patients is recognised as revenue when the related services are rendered unless significant future uncertainties exist. Revenue is also recognised in relation to the services rendered to the patients who are undergoing treatment/observation on the balance sheet date to the extent of services rendered.

Revenue from sale of medicine and medical consumables within hospital premises is recognised on sale of medicines and similar products to the buyer. The amount of revenue recognised is net of sales returns and trade discounts.

Revenue from digital dispensary

set-up

is recognised when risk and reward of ownership have been transferred to the customer and accepted by the customer, the sale price is fixed or determinable and collectability is reasonably assured.

Unbilled revenue represents value of medical and healthcare services rendered to the patients but not invoiced as at the balance sheet date.

Interest is recognised on time proportion basis taking into account the amount outstanding and the interest rate applicable.

Dividend income is recognised when the right to receive payment is established.

Income from loyalty card sales are recognised when the related services are rendered to the patients.

(f) Liabilities Written back

The group assesses its payment of its liabilities at reporting date and write back liabilities that is no longer required and same is recorded in other income.

(g) Property, plant and equipment(PPE)

Land and building:

Land and buildings are initially recognised at cost. Freehold land (except land under capital work in progress) is subsequently carried at the revalued amount less accumulated impairment losses. Buildings are subsequently carried at the revalued amounts less accumulated depreciation and accumulated impairment losses.

Land and buildings are revalued by independent professional valuers on once in a 5-year basis and whenever their carrying amounts are likely to differ materially from their revalued amounts. When an asset is revalued, any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset. The net amount is then restated to the revalued amount of the asset. In case of revaluation of PPE, any increase in net book value arising on revaluation is credited to revaluation surplus, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as a charge in the Statement of Profit and Loss, in which case the increase is credited to the Statement of Profit and Loss. A decrease in net book value arising on revaluation is recognised as a charge in the Statement of Profit and Loss, except to the extent it offsets an existing surplus on the same asset recognised in the revaluation reserve, in which case the decrease is recognised directly in that reserve.

F-115

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

Other property, plant and equipment

All other items of property, plant and equipment are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses.

Components of costs

The cost of an item of property, plant and equipment initially recognized includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

Borrowing costs are interest and other cost (including exchange differences arising from foreign currency

(h) Depreciation

Depreciation on Property, plant and equipment (PPE) is provided on the straight-line method over the useful lives of assets prescribed in Schedule II of the Companies Act 2013. Depreciation for assets purchased /sold during a period is proportionately charged.

Leasehold land is amortised on a straight-line basis over the period of lease, i.e. 33 years.

(i) Intangible assets

Goodwill

Goodwill arising on acquisition of business is measured at cost less any accumulated amortisation and accumulated impairment loss. Goodwill is tested for impairment annually.

Acquired intangible assets

Intangible assets that are acquired by the Group are measured initially at cost. After initial recognition, an intangible asset is carried at its cost less any accumulated amortisation and any accumulated impairment loss.

Internally generated intangible assets

Internally generated goodwill is not recognised as an asset. With regard to other internally generated intangible assets:

• Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the Consolidated Statement of Profit and Loss as incurred.

• Development activities involve a plan or design for the production of new or substantially improved products or processes. Development cost is capitalised only if the development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and directly attributable borrowing costs (in the same manner as in the case of property, plant & equipment). Other development expenditure is recognised in Consolidated Statement of Profit and Loss as incurred.

F-116

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

(j) Amortisation

Goodwill generated on acquisition of business is amortised over a period of 5 years.

Intangible assets are amortised in Consolidated Statement of Profit or Loss over their estimated useful lives, from the date that they are available for use based on the expected pattern of consumption of economic benefits of the asset. Accordingly, at present, these are being amortised on straight line basis.

Computer software, content development and license is amortised over its useful life of 5 years to 10 years as estimated by management. Amortisation on additions/deletions is provided on

pro-rata

basis in the year of purchase/disposal.

(k) Government grants

Government grants / subsidies received towards specific property, plant and equipment (PPE) have been deducted from the gross value of the concerned PPE and grant / subsidies received during the year towards revenue expenses have been shown as other operating income in the Statement of Profit and Loss.

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received.

(l) Impairment of property, plant  & equipment and intangible assets

The carrying amounts of assets are reviewed at each Consolidated Balance Sheet date in accordance with Accounting Standard 28 on ‘Impairment of Assets’ prescribed in the Rule 7 of the Companies (Accounts) Rules, 2014, to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amounts are estimated at each reporting date. For the purpose of impairment testing, assets are grouped together into the smallest group of assets (cash generating unit or CGU) that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. An impairment loss is recognised whenever the carrying amount of an asset or the cash generating unit of which it is a part exceeds the corresponding recoverable amount. Impairment losses are recognised in the Consolidated Statement of Profit and Loss. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined net of depreciation or amortisation, if no impairment loss had been recognised.

(m) Inventories

Inventories comprising of medicines and consumables are carried at lower of cost and realisable value. Cost comprise purchase price and all incidental expenses incurred in bringing the inventory to its present location and condition. In determining the cost, weighted average cost method is used.

Stores and spares consists of surgical instruments, linen, crockery and cutlery are valued at cost (using FIFO method). Based on the estimated life of 3 years, 1/3rd of value of stores and spares are charged to Consolidated Statement of Profit and Loss every year.

(n) Foreign currency transaction

Foreign exchange transactions are recorded at the exchange rate prevailing on the dates of the transactions. Year end monetary assets and liabilities denominated in foreign currencies are translated at the

year-end

foreign exchange rates. Exchange differences arising on settlements/ year end translations are recognised in the Consolidated Statement of Profit and Loss for the year in which they arise.

F-117

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

(o) Operating leases

Lease payments under an operating lease arrangements are recognised as expense in the Consolidated Statement of Profit and Loss on a straight line basis over the period of lease.

(p) Investments

Investments that are readily realisable and intended to be held for not more than a year from the date of acquisition are classified as current investments. All other investments are classified as long-term investments. However, that part of long term investments which is expected to be realised within 12 months after the reporting date is also presented under ‘current assets’ as “current portion of long term investments” in consonance with the current and

non-current

classification scheme of Schedule III.

Long-term investments (including current portion thereof) are carried at cost less any other-than-temporary diminution in value, determined separately for each individual investment.

Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each category of investments.

Any reductions in the carrying amount and any reversals of such reductions are charged or credited to the Consolidated Statement of Profit and Loss.

Profit or loss on sale of investments is determined on the basis of carrying amount of investments disposed of.

(q) Employee benefits

The Group’s obligations towards various employee benefits have been recognised as follows:

Short-term employee benefits

Employee benefits payable wholly within twelve months of receiving employee services are classified as short-term employee benefits. These benefits include salaries, bonus and

ex-gratia.

The undiscounted amount of short-term employee benefits to be paid in exchange for employee services is recognised as an expense as the related service is rendered by employees.

Post employment benefits Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays specified contributions to a separate entity and has no obligation to pay any further amounts. The Group makes specified monthly contributions towards employee provident fund to Government administered provident fund scheme which is a defined contribution plan. The Group’s contribution is recognised as an expense in the Consolidated Statement of Profit and Loss during the period in which the employee renders the related service.

Defined benefit plans

The Group’s gratuity benefit scheme is defined benefit plans. The Group’s net obligation in respect of a defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, that benefit is discounted to determine its present value. Any unrecognised past service costs are deducted. The calculation of the Group’s obligation under the plan is performed annually by an independent actuary using the projected unit credit method carried out at the balance sheet date.

F-118

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

The Group recognises all actuarial gains and losses arising from defined benefit plan immediately in the Consolidated Statement of Profit and Loss. All expenses related to defined benefit plan are recognised in employee benefits expense in the Consolidated Statement of Profit and Loss.

Compensated Absences

The employees can carry-forward a portion of the unutilised accrued compensated absences and utilise it in future service periods or receive cash compensation on termination of employment. Since the compensated absences do not fall due wholly within twelve months after the end of the period in which the employees render the related service and are also not expected to be utilized wholly within twelve months after the end of such period, the benefit is classified as a long-term employee benefit. The Group records an obligation for such compensated absences in the period in which the employee renders the services that increase this entitlement. The obligation is measured on the basis of independent actuarial valuation using the projected unit credit method.

Termination benefits

Termination benefits are recognised as an expense when, as a result of a past event, the Group has a present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

(r) Taxation

Income-tax

expense comprises current tax (i.e. amount of tax for the period determined in accordance with the

income-tax

law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period).

Income-tax

expense is recognised in the Consolidated Statement of Profit and Loss.

Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws. Deferred tax is recognised in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed as at each balance sheet date and written down or

written-up

to reflect the amount that is reasonably/virtually certain (as the case may be) to be realised.

Minimum Alternative Tax (‘MAT’) under the provisions of the

Income-tax

Act, 1961 is recognised as current tax in the Statement of Profit and Loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the Group will pay normal income tax during the period for which the MAT credit can be carried forward for

set-off

against the normal tax liability. MAT credit recognised as an asset is reviewed at each balance sheet date and written down to the extent the aforesaid convincing evidence no longer exists.

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Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

(s) Provisions and contingent liabilities

A provision is created when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Contingent assets are neither recognised nor disclosed in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

(t) Earnings/(loss) per share

Basic earnings/ (loss) per share is calculated by dividing the net profit/(loss) for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of equity and dilutive potential equity shares outstanding during the year, except where the results would be anti-dilutive.

(u) Discount on issue of debentures

Discount on issue of debentures and expenditure incurred in connection with such issue are amortised over the term of the debentures in proportion to the principal amount outstanding.

(v) Cash and cash equivalents

Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and short term investements with original maturity of three months or less.

(w) Cash flow statement

Cash flows are reported using indirect method, whereby net profits before tax is adjusted for the effects of transactions of a

non-cash

nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regular revenue generating, investing and financing activities of the Group are segregated.

(x) Going Concern

The group consolidated financial statements have been prepared on the basis that the group will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. The group have incurred losses till year end March 31, 2019 and have delays in repayment of loan. The Company is under discussion with the bank for extension, however due to the COVID situation, there has been delay in approvals from Bank, the management expects to receive the approvals for extension in certain period of time shortly. The Group has earned profits for year end March 31, 2020 and also expects to earn profits in subsequent years based on the management projections and contracts entered. The Group also have received guarantee for the creditors of $35,000,000 from Uphealth, Inc. as part of the share purchase agreement dated October 22, 2020 (Refer note 39). With the positive cash flows from operation and the transaction with Uphealth, Inc., the management believes that there are no concerns towards near term access to capital and meeting its obligations.

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Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

2 Share capital

								Amount in USD
	31 March 2020				31 March 2019
	Number of shares		Amount		Number of shares			Amount
Authorised
Equity shares of INR 10 each		13,500,000		2,075,515		13,500,000			2,075,515
Preference shares of INR 100 each		5,000,000		7,687,092		5,000,000			7,687,092
Preference shares of Re. 1 each		3,200,000		49,197		3,200,000			49,197
		21,700,000		9,811,805		21,700,000			9,811,805
Issued, subscribed and paid up
Equity Shares
Equity shares of INR 10 each		492,904		104,371		492,904			104,371
Preferred Stock
0.001% Compulsorily Convertible Cumulative Preference Shares - Series A of INR 100 each		240,777		508,086		240,777			508,086
0.001% Compulsorily Convertible Cumulative Preference Shares - Series C of INR 100 each		254,936		406,102		254,936			406,102
0.001% Compulsorily Convertible Cumulative Preference Shares - Series C1 of INR 100 each		157,234		243,565		157,234.00			243,565
8% Compulsorily Convertible Cumulative Preference Shares of INR 100 each		3,499,588		5,550,528		3,499,588			5,550,528
Total		4,645,439		6,812,652		4,645,439			6,812,652
a)  Reconciliation of the shares outstanding at the beginning and at the end of the year:
Equity shares of INR10 each fully paid up
At the commencement and at the end of the year		492,904		104,371		492,904			104,371
Shares issued during the year		—		—		—			—
At the end of the year		492,904		104,371		492,904			104,371
0.001% Compulsorily Convertible Cumulative Preference Shares - Series A
At the commencement and at the end of the year		240,777		508,086		240,777			508,086
Shares converted into equity shares during the year		—		—		—			—
At the end of the year		240,777		508,086		240,777			508,086
0.001% Compulsorily Convertible Cumulative Preference Shares - Series C
At the commencement and at the end of the year		254,936		406,102		254,936			406,102
Shares issued during the year		—		—		—			—
At the end of the year		254,936		406,102		254,936			406,102

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Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

							Amount in USD
	31 March 2020				31 March 2019
	Number of shares		Amount		Number of shares		Amount
0.001% Compulsorily Convertible Cumulative Preference Shares - Series C1
At the commencement and at the end of the year		157,234		243,565		157,234		243,565
Shares issued during the year		—		—		—		—
At the end of the year		157,234		243,565		157,234		243,565
8% Compulsorily Convertible Cumulative Preference Shares
At the commencement of the year		3,499,588		5,550,528		3,499,588		5,550,528
Shares issued during the year		—		—		—		—
At the end of the year		3,499,588		5,550,528		3,499,588		5,550,528

b) Shares held by holding company:

The Company does not have a holding company.

c) Details of shareholders holding more than 5% are as follows

	Number of shares		% of shares held		Number of shares		% of shares held
Equity shares of INR 10 each fully paid up held by
Dr. Syed Sabahat Azim		154,000		31.24		154,000		31.24
Mrs. Richa Sana Azim		154,000		31.24		154,000		31.24
Mr. M. Damodaran		52,855		10.72		52,855		10.72
Elevar Equity Mauritius		52,555		10.66		52,555		10.66
0.001% Compulsorily Convertible Cumulative Preference Shares - Series A
Elevar Equity Mauritius		146,616		60.89		146,616		60.89
Sequoia Capital India Investment Holdings III		94,161		39.11		94,161		39.11
0.001% Compulsorily Convertible Cumulative Preference Shares - Series C
Elevar Equity Mauritius		125,774		49.34		125,774		49.34
Sequoia Capital India Investment Holdings III		62,887		24.67		62,887		24.67
Mr. M. Damodaran		45,311		17.77		45,311		17.77
Kimberlite Social Infra Private Limited		20,964		8.22		20,964		8.22
0.001% Compulsorily Convertible Cumulative Preference Shares - Series C1
Elevar Equity Mauritius		157,234		100		157,234		100
8% Compulsorily Convertible Cumulative Preference Shares
SIDBI Trustee Company Limited A/C Samridhi		3,499,588		100		3,499,588		100

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Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

d) Rights, preferences and restrictions in respect of each class of shares including restrictions on the distribution of dividends and the repayment of capital:

i) The Company has a single class of equity shares. Each holder of equity share is entitled to one vote per share, when present in person on a show of hands. In case of poll, each holder of equity shares shall be entitled to vote in proportion to his

paid-up

equity share capital.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

ii) The Company has a class of preference shares referred to as “0.001% Compulsorily Convertible Cumulative Preference Shares - Series A” having a par value of INR 100 each. These preference shares carry a

pre-determined

cumulative dividend rate of 0.001% p.a. on the subscription amount. The holders of preference shares may convert the preference shares in whole or part into equity shares at any time before January 13, 2026 at the rate of one (01) fully paid up equity share per one (01) preference share. The preference shares, or any of them, if not converted earlier, shall automatically convert into equity shares at the then applicable conversion rate, (i) two (02) days prior to the filing of the draft red herring prospectus in connection with the occurrence of the Qualified IPO, or (ii) on January 13, 2026, whichever may be earlier. The Company shall and the founders shall cause the Company to undertake a Qualified IPO (‘IPO’) at a price equal to the fair market value or a strategic sale, in the event the Company fails to complete the qualified IPO or strategic sale, the investor shall have the right, to call or buyback of all or part of the investor shares by the Company whether through one or more successive buyback offer at fair value. The buyback is subject to the meeting the conditions as provided by Companies Act 2013. The agreement is subsequently been amended on December 11, 2020 which provides the investor had no point in time intent to exercise such buyback rights and based on the addendum letter, such buyback rights may be deemed to have been removed from the shareholders agreement.

iii) The Company has a class of preference shares referred to as “0.001% Compulsorily Convertible Cumulative Preference Shares - Series C” having a par value of INR100 each. These preference shares carry a

pre-determined

cumulative dividend rate of 0.001% p.a. on the subscription amount or such higher percentage as declared in respect of the holders of equity shares. The holders of the preference shares may convert the preference shares in whole or part into equity shares at any time before December 31, 2030 at the rate of one (01) fully paid up equity share per one (01) preference share. The preference shares, or any of them, if not converted earlier, shall automatically convert into equity shares, (i) two (02) days prior to the filing of the draft red herring prospectus in connection with the occurrence of the Qualified IPO, or (ii) on January 13, 2026, whichever may be earlier.

iv) The Company has a class of preference shares referred to as “0.001% Compulsorily Convertible Cumulative Preference Shares - Series C1” having a par value of INR100 each. These preference shares carry a

pre-determined

cumulative dividend rate of 0.001% p.a. in addition, if the holders of equity shares or any other class of shares (other than shares held by SIDBI) are proposed to be paid dividend in excess of 0.001% , the holders of Series

C1-

Compulsorily Convertible Cumulative Preference Shares shall be entitled to dividend at such higher rate. The holders of the Series

C1-Compulsorily

Convertible Cumulative Preference Shares may convert at 1:1 in whole or part into equity shares at any time before 19 years from the date of issuance.

v) The Company has a class of preference shares referred to as “8% Compulsorily Convertible Cumulative Preference Shares”, having a par value of INR 100 each allotted on 24 September 2013 and 13 August 2014. These preference shares carry a

pre-determined

cumulative dividend rate of 8% p.a. on the capital for the time being paid up on the subscribed preference shares. The Company and/or the

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Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

promoters or their nominees may on or before the October 31, 2018, or such later date as agreed by the investors after giving notice of at least thirty (30) days to the investor, buy back/redeem/purchase the preference shares held by the investor either in full or in part at any time during the tenure of this Agreement. In case the Company/Promoters have not bought back/redemed/purchased the subscription preference shares, the Company shall convert the outstanding preference shares at an

pre-agreed

IRR of 16%, this is later amended in agreement dated March 31, 2017, In the event the PAT for the Financial Year ending March 31, 2018 is negative (i.e. there is a loss), the conversion of the Outstanding Preference Shares (issued as per the SSHA) into Equity Shares shall be at the par value of the Equity Shares. The Companies have a negative PAT in year end March 31, 2018 and hence the preference shares are convertible at 1:1 ratio. There is subsequent round of preference shares issued as per agreement dated March 31, 2017 at similar terms.

3 Reserves and surplus

	31 March 2020			31 March 2019
Securities premium account		8,320,698			8,320,698
Revaluation surplus		10,128,170			10,128,170
General reserve		331,361			331,361
Foreign Currency Translation reserve		(2,576,594	)		(1,908,158	)
Surplus in Statement of Profit and Loss
At the commencement of the year		(17,873,766	)		(13,863,398	)
Add: Profit/(Loss) for the year		2,383,964			(4,010,368	)
Balance as at the end of the year		(15,489,802	)		(17,873,766	)
Total reserves and surplus		713,832			(1,001,696	)

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Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

4 Long-term borrowings

									Amount in USD
			Non-current portion				Current portion*
	Secured/ unsecured		31 March 2020		31 March 2019		31 March 2020		31 March 2019
204,540 (previous year: 204,540) 13.55% non-convertible debentures of INR 1,000 each		Secured		—		—		2,715,433		2,940,868
Less: Discount on issue of debenture to the extent not written off or adjusted				—		—		—		2,713
				—		—		2,715,433		2,938,155
Term loans from Banks		Secured		—		10,297,067		12,630,603		3,487,525
Term loan from Small Industries Development Bank of India		Secured		561,155		718,898		107,534		93,457
Term loan from National Skill Development Corporation		Secured		695,997		1,129,351		1,396,354		1,136,706
Term loan from Caspian Impact Investments Private Limited		Unsecured		—		359,449		1,327,580		1,078,347
Term loan from Blacksoil capital Private
Limited		secured		—		245,079		362,333		588,477
Equipment loan		Secured		321,760		531,167		237,157		297,165
				1,578,912		13,281,012		18,776,995		9,619,832

* Amount disclosed under Other current liabilities - Note 8

(a) Secured non-convertible debenture

(i) The Company had issued 13.55% redeemable non-convertible debenture of face value of INR 1,000 each agreegating to INR 204,540,000 (USD 2,715,433) at a discount of 0.95% on face value on 19 March 2016 to Essential Capital Consortium BV on private placement basis. These debentures are redeemable at par in two equal instalments of INR 102,270,000 (USD 1,478,574) each on 5 May 2019 and 5 November 2019 and in case put option is exercised by debenture holder, the total balance of INR 204,540,000 (USD 287,172) has to be repaid on any date not earlier than 11 February 2019. Interest is payable semi-annually at the rate of 13.55% per annum (net of withholding tax) on interest payment dates or earlier in case upon the exercise of the put option (interest payment starting from 5 May 2016 and ending on 5 November 2019 and in case put option is exercised, starting from 5 May 2016 and ending on 11 February 2019 ) as per Mortgage Cum Debenture Trust Deed dated 4 February 2016.

(ii) These debentures are secured by way of a second ranking and continuing charge by way of registered mortgage on the;

(a) immovable secured properties i.e rights in relation to;

(i) piece and parcel of garden land at Sonamukhi (District: Bankura) together with all buildings, constructions and plant and machinery erected thereon, both present and future.

(ii) piece and parcel of land at Bolpur (District: Birbhum) together with all buildings, constructions and plant and machinery erected thereon, both present and future.

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Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

(iii) piece and parcel of land at Behrampore (District: Murshidabad) together with all buildings, constructions and plant and machinery erected thereon, both present and future.

(iv) rooftop of

one-storied

building, ground floor stalls and rear vacant land at Dubrajpur (District: Birbhum) together with all buildings, constructions and plant and machinery erected thereon, both present and future

(v) office space together with all constructions and plant and machinery erected thereon at Ecospace, New Town Rajarhat (Kolkata)

(b) movable assets in relation to hospitals at Sonamukhi (District: Bankura), Dubrajpur (District: Birbhum), Behrampur (District: Bankura), Bolpur (District: Birbhum) and head office at Ecospace, New Town Rajarhat (Kolkata).

(iii) In view of contribution of the company in the field of medicine especially during the COVID situation, USAID has decided to approve grant by paying off its debts towards Essential Capital Consortium (ECC). The grant has approved as on date of signing off balance sheet and ROC filing ahs been completed in June 2020.

(b) Term loans from Allahabad Bank

(i) Term loan from Allahabad Bank amounting to INR 952,256,998 (USD 12,641,978) [previous year INR 958,730,792 (USD 13,784,592)] is secured by;

(a) For term loan I and II: First and exclusive charge by way of equitable mortgage on freehold land of Sonamukhi Unit, Bolpur Unit and Berhampore Unit and leasehold land of Dubrajpur Unit and construction thereon including hospital building, staff quarters etc (both present and future). Further, first and exclusive charge by way of hypothecation of plant and machineries, furniture and fixtures, entire computer systems, software packages, hardware, vehicles and other fixed assets both moveable and immovable of the respective five units and administrative office of the Company (both present and future). Second charge on the entire current assets of the five units and administrative office of the Company (both present and future).

(b) For term loan III,IV & V: 1. First Charge by way of Equitable Mortgage on land and building for the proposed 10 hospitals under LLPs i.e. Amroha Unit, Krishnanagar Unit, Jeypore Unit,, Muzzafarpur Unit, Bhagalpur Unit, Medinipur Unit, Malda Unit, Fatehpur Unit, Basti Unit and Bhangar Unit and construction thereon including hospital building, staff quarters, offices etc. (both present and future)

2. First Charge by way of Hypothecation of plant and machineries, furniture and fixtures, entire computer systems, software packages, hardware, vehicles, hospital equipments and other fixed assets both moveable and immovable of the proposed 10 hospitals under LLPs (both present and future)

3. Assignment of free cash-flows available to the Company as its share in the LLPs

Second charge on the entire current assets of the 10 hospitals operated by LLPs (Both present and future). Personal guarantee of two Directors, Dr. Syed Sabahat Azim and Mrs. Richa Sana Azim.

(ii) Interest on the above Term Loan-I, II & III carries an interest of 1-year MCLR plus 3.10% p.a. at monthly rests and is payable as and when due. And Term Loan IV and V carries an interest of 1-year MCLR plus 4.10% p.a. at monthly rests and is payable as and when due.

(iii) The Company has been disputing the EMIs being deducted by Allahabad bank since 2017 in respect to hospital projects that have not achieved COD especially as the disbursal also started

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Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

late. The Bank and the Company are entering into a restructuring proposal to resolve this issue. The Techno Economic viability report with positive recommendation has been submitted by Dun & Bradstreet which was appointed by bank to examine and report on the viability and Independent Credit Rating has been given by the approved rating agency. It is expected that the restructuring process will be completed in 2021. During this time the loan has been classified by the Bank as technical NPA pending closure of restructuring process.

(c) Term loan from Small Industries Development Bank of India (SIDBI)

(i) Term loan from SIDBI amounting to INR 50,900,000 (USD 675,738) [previous year INR56,500,000 (USD 812,355) ] is secured by:

(a) First charge by way of mortgage of leasehold rights of the borrower in favour of SIDBI over immovable properties and measuring 34.188 decimal and situated at Thana no.557, Tauji no.827,3665,3666 Khata no,134,1 & 5, Khasra no,912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar together with building & structure thereon, both present and future owned by the LLP.

(b) Hypothecation of all the movables acquired / to be acquired under the project including the movables, plant, machinery, spares, tools & accessories, office equipment, computers, furniture and fixtures situated at 34.188 decimal situated at Thana no.557, Tauji no.827,3665,3666 Khata no,134,1 & 5, Khasra no,912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar.

(c) Personal guarantee of Dr. Syed Sabahat Azim and corporate guarantee of Glocal Healthcare Systems Private Limited (partner in the LLP).

(ii) Above term loan carries an interest of SIDBI’s Prime Lending Rate (PLR) plus 1.50%, at monthly rests and is payable as and when applied.

(d) Term loan from National Skill Development Corporation

(i) Term loan from National Skill Development Corporation amounting to INR 157,606,322 (USD 2,092,351) [previous year : INR 157,606,322 (USD 2,266,057)] is secured by:

(a) Charge on the movable, immovable acquired assets and receivables including revenue from franchisee arrangements, earnings from training programs.

(b) Deeds of hypothecation to be executed as and when assets are acquired and intimation forwarded to NSDC.

The term loan has been sanctioned for INR 189,000,000 (USD 2,500,000) and is to be disbursed in five instalments. The period of loan is ten years with two years moratorium on interest and principal from the date of first disbursement of the loan, final repayment by Q4 of the year

2021-22.

The loan is repayable on quarterly basis, after moratorium period, as per the repayment schedule given in the loan agreement. The Company has not repaid of principal and interest as per the repayment schedule. Principal and interest is outstanding from fourth quarter of the financial year ended 31 March 2017 till date. The current skilling structure has resulted in pendencies for the Company and hence the Company has approached NSDC for changes in the structure. The rate of interest being charged is simple interest of 6% p.a. payable on a quarterly basis after the interest-free moratorium period of two years from the date of first disbursement of the loan.

(ii) The rate of interest being charged is simple interest of 6% p.a. payable on a quarterly basis after the interest-free moratorium period of two years from the date of first disbursement of the loan.

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Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

(e) Term loan from Caspian Impact Investments Pvt. Ltd.

(i) Term loan from Caspian Impact Investments Pvt. Ltd. amounting to INR 100,000,000 (USD 1,327,580) [previous year: INR 100,000,000 (USD 1,437,796)] is unsecured and other terms are:

(a) Carries an interest rate of 15% p.a.

(b) Purpose is to finance working capital.

(c) At the end of the tenor of the credit facility or upon prepayment of credit facility,whichever is earlier the borrower shall pay such additional interest that resulting in the overall XIRR of 18% on the entire credit facility from the First Disbursement date until the repayment date.

(d) Additionally the lender shall have the option but not an obligation to convert whole or part of the unpaid amount under the Credit Facility and/or invest additional amount cumulatively upto a maximum of INR 100,000,000 (USD 1,327,580) at the share price of the next round of equity investment immediately after the execution date for subscription of shares whether equity or preference.

(e) As per revised schedule dt. April 24, 2020 entire loan will be repaid on December 31, 2020 and interest will be charged on monthly rest.

As per revised repayment schedule there is no continuing overdue as on date of signing of balance sheet.

(f) Equipment loan

(i) Equipment loan from India Infoline Finance Limited amounting to INR 11,356,719 (USD 150,770) [previous year: INR 13,548,550 (USD 198,400)] consists of:

(i) Rs 8,529,123 (previous year: Rs 8,529,123) secured by way of exclusive hypothecation charge over equipment being financed and personal guarantee of two Directors, Dr. Syed Sabahat Azim and Mrs. Richa Sana Azim. This equipment loan has been sanctioned with limit of INR 13,541,350 and at the margin of 11%. This loan is repayable in 72 equated monthly instalments starting from 15 January 2016. Interest on equipment loan carries an interest rate of 13% p.a.

(ii) Rs 5,019,427 (previous year: INR 5,019,427) secured by way of exclusive hypothecation charge over equipment being financed and personal guarantee of two Directors, Dr. Syed Sabahat Azim and Mrs. Richa Sana Azim. This equipment loan has been sanctioned with limit of INR 6,942,000 at the margin of 11%. This loan is repayable in 72 equated monthly instalments starting from 1 August 2016. Interest on equipment loan carries an interest rate of 13.01% p.a.

(ii) Equipment loan from India Infoline Finance Limited taken in the books of GHSPL Amroha Super Speciality Healthcare LLP amounting to INR 5,822,799 (USD 77,302) [previous year: INR 7,524,662 (USD 108,189)] is secured by way of exclusive hypothecation charge over equipment being financed and personal guarantee of Dr. Syed Sabahat Azim and Mrs. Richa Sana Azim (Directors of Glocal Healthcare Systems Pvt ltd.- partner in LLP). This equipment loan has been sanctioned with a limit of INR 11,738,210 (USD 155,834) and at the margin of 11%. This loan is repayable in 72 equated monthly instalments of INR 150,100 (USD 2220) starting from 15 January 2016, INR 213,750 (USD 3,138) starting from 15 January 2017 and INR 260,450 (USD 3,899) starting from 15 February 2017. Equipment loan carries an interest at the rate of 13% p.a.

(iii) Equipment loan from India Infoline Finance Limited taken in the books of GHSPL Sambhav KNJ Healthcare LLP amounting to INR 8,040,442 (USD 106,743) [previous year: INR 10,971,843

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Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

(USD 157,753)] is secured by way of exclusive hypothecation charge over equipment being financed and personal guarantee of Dr. Syed Sabahat Azim and Mrs. Richa Sana Azim (Directors of Glocal Healthcare Systems Pvt ltd.- partner in LLP). This equipment loan has been sanctioned with a limit of INR17,048,720 and at the margin of 11%. This loan is repayable in 72 monthly installments of INR 201,500 (USD 2,980) starting from 15 January 2016 and INR 383,000 (USD 5,623) starting from 15 January 2017. Equipment loan carries an interest at the rate of 13% p.a.

(iv) Equipment loan from India Infoline Finance Limited taken in the books of GHSPL MUZF Super Speciality Healthcare LLP amounting to INR 9,305,242 (USD 123,535) [previous year: INR 12,837,321 (USD 184,574) is secured by way of exclusive hypothecation charge over equipment being financed and personal guarantee of Dr. Syed Sabahat Azim and Mrs. Richa Sana Azim (Directors of Glocal Healthcare Systems Pvt ltd.- partner in LLP). This equipment loan has been sanctioned with a limit of INR 21,587,395 (USD 286,590) and at the margin of 11%. This loan is repayable in 72 monthly installments of INR 272,500 (USD 4,073) starting from 15 February 2016 and INR 480,000 (USD 7,047) starting from 15 January 2017. Equipment loan carries an interest at the rate of 13% p.a.

(v) Equipment loan from Dewan Housing Finance Limited taken in the books of GHSPL BGLP Super Speciality Healthcare LLP amounting to INR 2,459,836 (USD 32,656) [previous year: INR 4,529,609 (USD 65,127 )] is secured by way of exclusive hypothecation charge over equipment being financed and personal guarantee of Dr. Syed Sabahat Azim and Mrs. Richa Sana Azim (Directors of Glocal Healthcare Systems Pvt ltd.- partner in LLP). This equipment loan has been sanctioned with a limit of INR 9,999,591 (USD 132,753) and at the margin of 11%. This loan is repayable in 60 monthly installments of INR 224,991 starting from March 2016. Equipment loan carries an interest at the rate of 12.50% p.a.

(vi) Equipment loan from Dewan Housing Finance Limited taken in the books of GHSPL Jeypore Healthcare LLP amounting to INR 2,693,833 (USD 35,763) [previous year: INR 4,916,556 (USD 70,690) is secured by way of exclusive hypothecation charge over equipment being financed and personal guarantee of two Directors of Glocal Healthcare Systems Private Limited- partner, Dr. Syed Sabahat Azim and Mrs. Richa Sana Azim. This equipment loan has been sanctioned with a limit of INR 10,011,423 (USD 132,910). This loan is repayable in 60 equated monthly instalments of INR 225,257 (USD 3,396) starting from April 2016. Equipment loan carries an interest at the rate of 12.50% p.a.

(vii) Equipment loan from India Infoline Finance Limited taken in the books of GHSPL Begusarai Healthcare LLP amounting to INR 2,421,567 (USD 32,148) [previous year: INR 3,282,710 (USD 47,199)] is secured by way of exclusive hypothecation charge over equipment being financed and personal guarantee of Dr. Syed Sabahat Azim and Mrs. Richa Sana Azim [Directors of GHSPL (partner in the LLP)]. This equipment loan has been sanctioned with a limit of INR 5,226,970 (USD 69,392). This loan is repayable in 72 monthly installments (including first 12 months as principle moratoriam) starting from 15 January, 2016. Equipment loan carries an interest of 13% p.a

(g) Term loan from Blacksoil Capital Private Limited

Term loan from Black Soil Private Limited amounting to INR 27,272,723 (USD 362,067) [previous year: INR 57,945,543 (USD 833,139)] is unsecured and other terms are:

(a) Carries an interest rate of 16.25% p.a.

(b) The loan of INR 75,000,000 (USD 995,685) has been sanctioned for business purpose.

F-129

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

(c) The facility is secured by way of hypothecation created in favour of Black Soil Private Limited over following:

(i) a first & exclusive charge over inventory.

(ii) a first & exclusive charge on the Identified Receivables accruing to the borrowers, both present & future.

(iii) if the DSRA in the form of fixed deposit, then first & exclusive charge on DSRA.

(d) Loan is to be repaid in 22 equated monthly installment of INR 3,409,091 (USD 45,258) starting from 30th November, 2018 till 31st August, 2020.

(e) In light of the stress in the financial sector caused by the

COVID-19

pandemic, the Tenure shall stand extended by 12 (twelve) months starting from September, 2020. The extension has come after the reporting date.

(f) There is no continuing overdue as on date of signing of balance sheet

(h) Loan from Hero Fincorp

(i) Term loan amounting to Nil (previous year Nil) is secured by:

(a) Exclusive charge over land & building and entire equipment of Begusarai Hospital immovable properties and measuring 34.188 decimal and situated at Thana no.557, Tauji no. 827, 3665, 3666 Khata no,134,1 & 5, Khasra no,912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar together with building & structure thereon, both present and future owned by the LLP.

(b) Exclusive charge on cash flow of the company

(c) Escrow of routing of receivables from digital dispensaries opened in Odisha

(d) Personal guarantee of Dr. Syed Sabahat Azim, Richa Sana Azim and corporate guarantee of Glocal Healthcare Systems Private Limited (partner in the LLP).

(ii) The term loan has been sanctioned for INR 70,000,000 (USD 929,306) as working capital loan & INR 60,000,000 (USD 796,548) as term loan for capex requirements- production & expansion of digital dispensary business and takeover of existing term loan from SIDBI & IIFL respectively.

(iii) Above term loan is carries an interest of Hero Fincorp Prime Lending Rate @ 13% p.a. at monthly rests

(i) Overdue payment of loan

			( IN USD)
Particulars	Principal Amount		Interest Amount		Period
Allahabad Bank Loan
TL-1		394,117		226,182	1.Principal Amount due from June 2018 2.Interest amount due from March 2019
TL-2		256,965		152,985
TL-3		491,216		344,725	1.Principal Amount due from June 2018 2.Interest amount due from January 2019
TL-4		373,050		390,837	1.Principal Amount due from July 2018 2.Interest amount due from January 2019
TL-5		1,059,409		778,657	1. Principal & Interest due from Janurary’2019 to March 2020

F-130

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

			( IN USD)
Particulars	Principal Amount		Interest Amount		Period
Caspian Impact Investments Private Limited (Refer point “f” above)		331,895		33,278	Feruary 2019 to March 2020
Blacksoil Capital Private Limited (Refer point “h” above)		135,775		12,393	January 2019 to March 2020
National Skill Development Corporation (NSDC)		346,783		130,903	April 2019 to March 2020
Small Industries Development Bank Ltd.		15,931		15,912	January 2020 to February 2020
Total		3,405,142		5,491,013

There is no continuing overdue in respect of loan from Caspian Impact Investments Private limited & Black soil Private Limited as on date of signing of balance sheet.

(k)

As per circular

DOR.No.BP.BC.47/21.04.048/2019-20

dated March 27, 2020 regulatory measures were announced by RBI to mitigate the burden of debt servicing brought about by disruptions on account of

COVID-19

pandemic by granting a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020. Further, this relief is extended till August 31, 2020 and this package has been taken up the company and installments has been rescheduled accordingly.

5 Provisions

							Amount in USD
	Long-term				Short-term
	31 March 2020		31 March 2019		31 March 2020		31 March 2019
Provision for employee benefits
Gratuity Compensated		78,161		66,285		3,322		3,683
Absences		51,524		44,916		2,471		3,073
		129,685		111,200		5,793		6,756
Other provisions
Provision for Income
Tax		—		—		1,859		2,013
		—		—		1,859		2,013
		129,685		111,200		7,651		8,769

5.1 Actuarial valuation has not been done for non-operative LLP’s and LLP’s which are given on O&M or where there are no employees as on March 31, 2020. Hence, for those LLP’s closing balance is taken as it is from March 31, 2019. Name of LLP’s for whom Actuarial valuation was done in March 31, 2019 but not done in March 31, 2020 as follows:

a. GHSPL JEYPORE Healthcare LLP

b. GHSPL SAMBHAV KNJ Healthcare LLP

c. GHSPL MUZF Super Speciality Healthcare LLP

d. GHSPL MDPR Super Speciality Healthcare LLP

F-131

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

6 Short-term borrowings

	31 March 2020		31 March 2019
Cash credit facilities from bank (secured)		1,117,699		1,336,656
Unsecured loan
- loan from Hero Fincorp Ltd		929,306		431,339
- loan from related party (refer note 35)		373,962		406,005
- loan from directors (refer note 35)		20,312		28,468
- loan from others		1,451,329		1,740,725
		3,892,608		3,943,193

6.1(i) Cash credit facilities from Allahabad Bank has been sanctioned with a limit of INR 50,000,000 (USD 663,790) (for working capital requirement of the five existing operational hospitals of the Company with a margin of 25%) and is secured by first and exclusive charge of hypothecation of all the current assets of the five units and administrative office of the Company (both present and future). Further, secured by (along with bank guarantee) second charge on land and building, plant and machineries and other fixed assets of the five existing operational hospitals under the Company’s direct ownership (both present and future). The cash credit facilitities carry an interest rate of one year MCLR plus 3.10% p.a. computed on a monthly basis on the actual amount utilised and are repayable as and when due.

(ii) During the financial year ended 31 March 2020, the Group has availed cash credit facilities from Allahabad Bank for Amroha, Krishnanagar, Jeypore, Begusarai, Bhagalpur, Medinapur, Malda, Bhangar, Basti and Muzafarpur LLP’s. Cash Credit from Allahabad Bank has been sanctioned with a limit of INR 30,000,000 (USD 398,287.15) and is secured by stock (margin of 25% on stocks and 40% on book debts up to 90 days old). The cash credit facilities carry an interest rate of 1 year Allahabad Bank MCLR + 4.10% p.a. computed on a monthly basis on the actual amount utilised and are repayable on demand.

(iii) The company has been disputing the EMIs being deducted by Allahabad bank since 2017 in respect to hospital projects that have not achieved COD especially as the disbursal also started late. The Bank and the company are entering into a restructuring proposal to resolve this issue. The Techno Economic viability report with positive recommendation has been submitted by Dun & Bradstreet which was appointed by bank to examine and report on the viability and Independent Credit Rating has been given by the approved rating agency. It is expected that the restructuring process will be completed in 2021. During this time the loan has been classified by the Bank as NPA pending closure of restructuring process.

6.2 Interest free loan taken from directors and related parties are repayable on demand.

6.3 a. Loan taken from others is repayable on demand.

b. Loan taken from others carries an interest rate of 12% to 15% p.a. (except for three parties)

6.4 Loan from Hero Fincorp

(i) Term loan amounting to INR 70,000,000 (USD 929,306) [previous year INR 30,000,000 (USD 431,339)] is secured by:

(a) Exclusive charge over land & building and entire equipment of Begusarai Hospital immovable properties and measuring 34.188 decimal and situated at Thana no.557, Tauji no.827,3665,3666 Khata no,134,1 & 5, Khasra no,912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar together with building & structure thereon, both present and future owned by the LLP.

(b) Exclusive charge on cash flow of the company

(c) Escrow of routing of receivables from digital dispensaries opened in Odisha

F-132

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

(d) Personal guarantee of Dr. Syed Sabahat Azim, Richa Sana Azim and corporate guarantee of Glocal Healthcare Systems Private Limited (partner in the LLP).

(ii) The term loan has been sanctioned for INR 70,000,000 (USD 929,306) as working capital loan & INR 60,000,000 (USD 862,678) as term loan for capex requirements- production & expansion of digital dispensary business and takeover of existing term loan from SIDBI & IIFL respectively. The term loan facility for takeover of loan from SIDBI & IIFL has not been availed and hence got expired. So the charge created against immovable property is still lying with SIDBI.

(iii) Above term loan is carries an interest of Hero Fincorp Prime Lending Rate @ 13% p.a. at monthly rests

(iv) The repayment of loan has not started yet.

(v) As per circular DOR.No.BP.BC.47/21.04.048/2019-20 dated March 27, 2020 regulatory measures were announced by RBI to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic by granting a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020. Further, this relief is extended till August 31, 2020 and this package has been taken up the company and installments has been rescheduled accordingly.

7 Trade payables

	31 March 2020		31 March 2019
Total outstanding dues of micro enterprises and small enterprises		—		—
Total outstanding dues of creditors other than micro enterprises and small enterprises		1,471,145		2,418,496
		1,471,145		2,418,496

7.1 For dues to micro and small suppliers, refer to note 31

8 Other current liabilities

	31 March 2020		31 March 2019
Current maturities of long-term debts (refer note 4)		18,776,995		9,619,832
Interest accrued and due on term loans		2,275,228		596,171
Interest accrued and due on cash credit		145,101		—
Interest accrued and due on equipment loan		32,465		19,072
Interest accrued and due on other loan		118,523		—
Interest accrued but not due on debentures		—		158,953
Interest accrued but and due on debentures		182,050		—
Creditors for capital goods		178,446		717,026
Employee benefits payable		539,903		911,934
Advance from TPA & Customers		431,960		431,339
Partner’s Current A/c		17,259		18,691
Statutory dues payable
Provident fund		274,585		176,766
Professional tax		12,484		10,175
Employee state insurance payable		166,695		150,015
Tax deducted at source payable		327,555		457,415
Goods and services tax payable		88,504		207,322
Unearned revenue		131,424		341,605
Advance from patients and others		7,220		35,623
Other liabilities/ payables		128,565		49,409
		23,834,963		13,901,348

F-133

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

i. Major clients of the company are ESIC, PSU’s and various other government departments. There has been major delay in receipt of payment from their side which is creating challenges for the company to meet its operational expenses which includes statutory obligations also.

8.1 Due to this financial crunch there has been continuing delay in payment of statutory dues on the part of the company.

ii. As per Income Tax Act tax is to be deducted on payment or credit whichever is earlier, ignoring the fact whether payment has been made or not. Hence, TDS liability is deposited in respect of those to whom payment has been made.

8.2 Advance receipt of INR 30 mm from S.S Earth Moving Mining was for setup of dispensary setup in their mining area. But no space was allocated to us by them, hence setup is not done.

8.3 Advance include amount received from African medical supply for supply of Digital Dispensary setup but due to COVID outbreak same could not be fulfilled

8.4 Regarding interest accrued and due on term loan taken from Allahabad bank,the company has been disputing the EMIs being deducted by the bank since 2017 in respect to hospital projects, that have not achieved COD especially as the disbursal also started late. The Bank and the company are entering into a restructuring proposal to resolve this issue. The Techno Economic viability report with positive recommendation has been submitted by Dun & Bradstreet which was appointed by bank to examine and report on the viability and Independent Credit Rating has been given by the approved rating agency. It is expected that the restructuring process will be completed in 2021. During this time the loan has been classified by the Bank as technical NPA pending closure of restructuring process. As the account has been declared technical NPA by the bank so no interest has been charged by the bank but following the concept of mercantile system of accounting interest on term loan from Allahabad Bank and interest on cash credit limit has been calculated and charged in expenses. This interest has been classified as Interest accrued and due under other current liabilities.

9 Goodwill

	31 March 2020			31 March 2019
Opening balance		598,136			639,580
Amortisation of Goodwill		(95,982	)		—
Forex Adjustment		(42,172	)		(41,444	)
Closing balance		459,982			598,136

12 Long-term loans and advances

	31 March 2020		31 March 2019
(Unsecured and considered good)
To parties other than related parties
(a) Capital advances		544,996		559,029
(b) Security deposits		166,558		179,882
		711,553		738,911
(c) Other loans and advances
TDS receivables		413,507		398,097
		413,507		398,097
		1,125,061		1,137,008

F-134

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

13 Other non-current assets

	31 March 2020		31 March 2019
(Unsecured and considered good)
Bank deposits (due to mature after 12 months from the reporting date) [refer note 16]*		19,289		47,989
Balance with government authorities		661		716
Interest accrued on bank deposits		41		4,999
Interest accrued on electricity deposits		636		688
		20,626		54,393

14 Inventories

(Valued at lower of cost and net realisable value)
Stock of digital dispensary	51,168	—
Stock of medicines and medical consumables	214,162	247,135
Stores and spares	3,966	12,529
	269,296	259,664

15 Trade receivables

Receivables outstanding for a period exceeding six months from the date they become due for payment

(a) Unsecured and considered good	1,520,746		2,289,379
(b) Doubtful	434,940		471,048
Less: Provision for doubtful receivables	(434,940	)	(471,048	)
	1,520,746		2,289,379
Other receivables
(a) Unsecured, considered good	3,199,210		968,194
	4,719,956		3,257,573

16 Cash and bank balances

	31 March 2020		31 March 2019
Cash and cash equivalents
Cash on hand		32,083		41,300
Balance with banks:
On current accounts		71,853		551,025
On deposit accounts (with original maturity of 3 months or less)		7,965		359
		111,901		592,684
Other bank balances:
Deposits in banks with maturity of more than 3 months but less than 12 months*		59,965		28,515
		171,867		621,199

F-135

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

* Bank deposits of USD 13,276 (31 March 2019: USD 14,378) have been pledged with Black Soil as security for term loan

* Bank deposits of USD 30,421 (31 March 2019: USD 44,323) have been given as cash margin to banks for issuing bank guarantees to government authorities.

17 Short-term loans and advances

(Unsecured and considered good)
To parties other than related parties
Security deposits	37,376	40,479
Prepaid expenses	2,652	3,378
Advance for supply of goods and services	493,214	221,913
Advance to doctors	26,339	14,513
Advances to employees	396,399	99,368
Advances to others	52,262	39,000
	1,008,242	418,651

18 Other current assets

(Unsecured and considered good)
Interest accrued on bank deposits	16,261	6,030
Government grant receivable	492,567	309,455
Unbilled revenue	3,786	27,472
	512,613	342,956

F-136

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

10 Property, Plant & Equipment

	Freehold land			Leasehold land			Buildings			Electrical equipment			Medical & surgical equipments			Furniture and fixtures			Vehicles			Office equipment			Computers and accessories			Total
Gross block
As at 1 April 2018		6,058,520			32,426			20,286,052			930,781			4,066,207			684,259			13,958			190,944			347,028			32,610,176
Adjustments		—			—			—			—			—			—			—			—			—			—
Additions		—			—			112,135			491			20,382			3,451			—			350			2,418			139,225
Disposals		—			—			—			—			13,390			284			—			89			—			13,763
Forex Adjustment		(392,584	)		(2,101	)		(1,318,141	)		(60,329	)		(290,491	)		(45,009	)		(904	)		(12,560	)		(22,565	)		(2,144,684	)
As at 31 March 2019		5,665,936			30,325			19,080,046			870,943			3,809,487			642,984			13,054			178,824			326,881			30,618,480
As at 1 April 2019		5,665,936			30,325			19,080,046			870,943			3,809,487			642,984			13,054			178,824			326,881			30,618,480
Adjustment		—			—			—			—			—			—			—			—			—			—
Additions		—			—			—			16,981			52,856			1,683			—			1,750			1,651			74,921
Discard/Disposals		—			—			—			—			—			—			—			—			—			—
Forex Adjustment		(434,327	)		(2,325	)		(1,462,597	)		(67,414	)		(294,045	)		(49,353	)		(1,001	)		(13,775	)		(25,121	)		(2,349,956	)
As at 31 March 2020		5,231,609			28,001			17,617,449			820,510			3,568,298			595,315			12,053			166,799			303,411			28,343,444
Accumulated depreciation
As at 1 April 2018		—			3,588			1,339,858			239,065			741,386			254,169			7,055			95,186			236,580			2,916,887
Depreciation for the year		—			1,156			316,919			92,589			287,994			57,194			1,485			10,054			43,809			811,200
Accumulated depreciation on disposals		—			—			—			—			2,692			83			—			59			—			2,834
Forex Adjustment		—			(270	)		(97,089	)		(18,491	)		(62,668	)		(18,486	)		(505	)		(6,610	)		(16,749	)		(220,869	)
As at 31 March 2019		—			4,474			1,559,688			313,163			969,404			292,960			8,035			98,688			263,640			3,510,052
As at 1 April 2019		—			4,474			1,559,688			313,163			969,404			292,960			8,035			98,688			263,640			3,510,052
Depreciation for the year		—			1,074			296,259			84,338			274,743			52,971			838			8,730			33,945			752,899
Accumulated depreciation on disposals		—			—			—			—			—			—			—			—			—			—
Forex Adjustment		—			(384	)		(130,914	)		(27,238	)		(84,841	)		(24,487	)		(648	)		(7,900	)		(21,511	)		(297,923	)
As at 31 March 2020		—			5,164			1,725,033			370,263			1,159,306			321,444			8,225			99,519			276,075			3,965,028
Net block
31 March 2019		5,665,936			25,851			17,520,358			557,779			2,840,084			350,024			5,019			80,135			63,240			27,108,428
31 March 2020		5,231,609			22,837			15,892,417			450,247			2,408,992			273,870			3,828			67,280			27,336			24,378,417

F-137

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

11 Intangible assets

Amount in USD

	Computer software (internally generated platform/applications)			Computer software			Trademark			Content development			Total
Gross block
As at 1 April 2018		2,206,079			495,707			246			468,139			3,170,171
Additions		1,203,852			—			—			—			1,203,852
Deletions		—			—			—			—
Forex Adjustment		(181,955	)		(32,121	)		(16	)		(30,335	)		(244,427	)
As at 31 March 2019		3,227,976			463,586			230			437,804			4,129,596
As at 1 April 2019		3,227,976			463,586			230			437,804			4,129,596
Additions (refer note)		663,573			—			—			—			663,573
Deletions		—			—			—			—			—
Forex Adjustment		(272,877	)		(35,537	)		(18	)		(33,560	)		(341,991	)
As at 31 March 2020		3,618,673			428,050			212			404,244			4,451,178
Amortisation
As at 1 April 2018		401,396			239,159			111			191,378			832,044
Amortisation for the year		219,398			61,881			48			90,493			371,820
Deletions		—			—			—			—			—
Forex Adjustment		(33,118	)		(17,502	)		(9	)		(15,333	)		(65,962	)
As at 31 March 2019		587,676			283,538			150			266,538			1,137,902
As at 1 April 2019		587,676			283,538			150			266,538			1,137,902
Amortisation for the year		414,315			57,490			44			84,071			555,920
Deletions		—			—			—			—
Forex Adjustment		75,249			(79,225	)		(56	)		(104,503	)		(108,534	)
As at 31 March 2020		1,077,240			261,804			138			246,106			1,585,288
Net block
31 March 2019		2,640,301			180,048			80			171,266			2,991,695
31 March 2020		2,541,433			166,246			74			158,137			2,865,890

HeloLYF application is internally developed by the company and it’s been recognized by the UN, WEF etc. The Company have incurred cost for further developments and enhancements in the current year. The company is generating revenue from sale of the licencses. The Company has capitalised the expense incurred post the technical feasibility of the application is established and the company would receive economic benefits through the licencsing to the customers.

In the current year Rs. 48,067,844 (USD 638,139) has been capitalised towards new added features and upgradation in the software. The application is amortised over a period of 5 years based on estimated useful by management.

F-138

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

19 Revenue from operations

			Amount in USD
	31 March 2020		31 March 2019
Sale of services:
Income from hospital services		4,534,912		4,909,053
Income from training fees		—		17,622
Income from digital dispensary consultancy		1,226,063		964,183
Income from consultancy		—		10,448
Sale of goods:
Sale of pharmacy/ medicines		746,317		930,339
Sale of digital dispensary (net of Sales return USD 545,714 (31 March 2019: 365,378))		2,191,804		21,510
Other operating revenue:
Income from government grant		256,771		352,077
Miscellaneous income		101,477		15,751
		9,057,344		7,220,982

19.1 During the year company has entered into revenue sharing arrangement, the contractual arrangement is on principal to principal basis for hospital at Bolpur, Sonamukhi, Malda, Jeypore & Mednipore. These hospitals were earlier operated by Company itself. The non-refundable deposit is recognised as revenue at time of entering into contract and include under income from hospital services.

19.2 Income from government grant represents interest and tax subsidy from government of Bihar under Bihar Industrial Investment Promotion Act, 2016. Interest subsidy is available to GHSPL Muzafarpur Healthcare LLP, GHSPL Bhaglpur Healtcare LLP & GHSPL Begusari Healthcare LLP on the term loan availed by the LLP from Allahabad Bank & State Industrial Development Bank of India.

20 Other income

Interest on bank deposits	6,994	9,956
Interest on income tax refund	18,521	2,556
Provision/ liability no longer required written back	2,109,763	41,727
Miscellaneous income	868	2,966
	2,136,145	57,205

21 Purchases

			Amount in USD
	31 March 2020		31 March 2019
Medicines and medical consumables		898,589		1,094,256
Purchase of digital dispensary		63,122		144,826
		961,711		1,239,083

F-139

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

22 Course operating expenses

Training cost/ professional fees	—	—
Fooding and lodging	—	—
Externship expenses	—	—
	—	—

23 Changes in inventories

Inventory at the beginning of the year	237,285		204,744
Inventory at the end of the year	275,905		255,410
	(38,620	)	(50,666	)

24 Employee benefits expense

Salaries, wages and bonus	1,291,639	1,962,288
Contribution to provident and other funds	110,974	178,045
Staff welfare expenses	35,132	27,215
	1,437,745	2,167,548

25 Finance costs

	31 March 2020			31 March 2019
Interest expense on:
- debenture		38,743			448,909
- term loan		1,918,935			1,825,196
- other loan		93,988			126,817
- Cash credit		144,621			130,832
- finance lease		—			109
Other borrowing costs		530,982			517,794
		2,727,269			3,049,659
Less: Borrowing costs capita lised to qualifying assets		(577,095	)		(271,061	)
		2,150,174			2,778,598

25.1 Interest expenses has been calculated as per contractual term mentioned in sanction letter of Banks/ Financial Insitutions. The company is in discussion with Allahabad Bank for restructuring and other financial institutions for rescheduling of the repayment terms. The management beliefs that no penal interest will be charged by the banks & financial institution and hence no provision has been recognised in the statement of profit & loss.

F-140

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

26 Depreciation and amortisaton

Depreciation of property, plant and equipment (PPE	752,899	811,200
Amortisation of Goodwill	95,982	—
Amortisation of intangible assets	555,920	371,820
	1,404,801	1,183,020

27 Other expenses

	31 March 2020		Amount in USD 31 March 2019
Consumption of stores and spares		6,445		46,321
Housekeeping expenses		95,406		146,309
Assets/Receivable written off		7,015		—
Power and fuel		176,237		337,314
Rates and taxes		30,818		27,634
Rent (refer note 36)
- equipments		3,918		58,294
- others		94,755		150,103
Patient food expenses		68,707		108,387
Professional fees:
- to doctors		1,579,504		2,320,968
- to others		13,482		8,226
Repairs to building		72,581		52,990
Repairs to surgical/medical equipment/machinery		47,845		44,960
Repairs to others		8,222		12,425
Payment to auditors *		26,329		24,555
Travelling and conveyance expenses		168,930		325,064
Advertisement and sales promotion		231,583		422,016
Testing expenses		60,538		90,702
Printing and stationery		30,137		60,508
Telephone and communication expenses		60,786		44,474
Miscellaneous expenses		87,675		145,850
		2,870,913		4,427,102

* Payment to auditors

As auditor
Statutory audit	21,501	19,503
Tax audit	3,313	5,052
Reimbursement of Expenses	1,515	—
	26,329	24,555

F-141

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

28 Earnings/ (loss) per share

			Amount in USD
	31 March 2020		31 March 2019
Particulars
(Loss) attributable to equity shareholders (a)		2,383,964		(4,010,368	)
Less: Dividend on cumulative compulsorily convertible preference shares and tax thereon (b)		1,976,118		1,199,941
Net (loss) adjusted for the effects of dilutive potential equity shares for calculation of diluted EPS [(c) = (a) - (b)]		407,846		(5,210,308	)
Weighted average number of equity shares of face value of INR 10 each outstanding during the year (used for calculating Basic EPS) (d)		492,904		492,904
Add: Effect of potential equity shares to be issued under Compulsory		4,152,535		652,947
Convertible Preference Shares (e)
Weighted average number of equity shares of face value of INR 10 each outstanding during the year (used for calculating Diluted EPS) [(f) = (d) + (e)]		4,645,439		1,145,851
Basic earnings per share of INR 10 each [(g)= (a)/(d)]		4.84		(8.14	)
Diluted earnings per share of INR 10 each [(h) = (c)/(f)]**		0.09		(8.14	)

** Considering the impact of weighted average number of potential equity shares on account of compulsorily convertible preference shares in computation of Diluted EPS for F.Y 2018-19, the same becomes Anti-Dilutive. Accordingly Diluted EPS is equal to Basic EPS as shown above for the F.Y.2018-19.

29 Contingent liability and commitments

	31 March 2020		31 March 2019
(to the extent not provided for)
(a) Claims against the company not acknowledged as debts
(i) Bank guarantee		156,570		235,385
(ii) Claims not acknowledged as debts (in respect of compensation demanded by the patients/ their relatives for deficiency in service)		106,777		115,642
(iii) Arrear dividends on cumulative convertible preference shares (net of tax) from the date of issue to balance sheet date		1,107,958		1,199,941
(iv) Others claims against the company not acknowledged as debts		—		—
- Income tax matters		295,874		320,437
		1,667,179		1,871,405
(b) Commitments:
(i) Estimated amount of contracts remaining to be executed on capital account and not provided for		9,617		114,405

F-142

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

30 Deferred tax asset/ (liability)

				Amount in USD
	31 March 2020			31 March 2019
Deferred tax liability
Difference between net book value of depreciable assets as per books and written down value as per Income tax Act, 1961		(3,990,796	)		(4,301,893	)
Deferred tax asset
Provision for employee benefits		50,613			78,997
Losses carried forward in tax returns (including current year Business losses & Unabsorbed Depreciation)		8,001,724			10,499,935
Provision for doubtful receivables		113,084			70,389
Others		595,529			78,550
		8,760,951			10,727,871
Deferred tax asset/(liability) recognised (to the extent of deferred tax liability above)		—			—

Note: As per Accounting Standard 22 on Accounting for taxes on income, the Group would have deferred tax assets as at 31 March 2020 primarily comprising of carried forward losses and unabsorbed depreciation under tax laws. However in the absence of virtual certainty of realisation of this asset, the management is of the view that it is prudent not to recognise deferred tax asset as at 31 March 2020. Accordingly, the net deferred tax asset of USD 4,770,155 (31 March 2019 USD 6,425,978) is not recognised in the financial statements as at 31 March 2020.

31 There are no Micro, Small & Medium Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days as 31 March 2020. The information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED) has been determined to the extent such parties have been identified on the basis of information available with the Company.

	31 March 2020		31 March 2019
(a) The principal amount and the interest due thereon remaining unpaid to micro and small suppliers at the end of each accounting year
- Principal		Nil		Nil
- Interest		Nil		Nil
(b) The amount of interest paid by the buyer in terms of section 16 of the Micro, Small and Medium Enterprises Development Act, 2006, along with the amount of the payment made to the supplier beyond the appointed day during each accounting year;		Nil		Nil
(c) The amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under MSMED;		Nil		Nil
(d) The amount of interest accrued and remaining unpaid at the end of each accounting year;		Nil		Nil
(e) The amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues above are actually paid to the small enterprise for the purpose of disallowance as a deductible expenditure under Section 23 of MSMED.		Nil		Nil

F-143

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

32 Employee benefits

Defined contribution plans

The Group makes contributions, determined as a specified percentage of employee salaries, in respect of qualifying employees towards Provident fund, which is a defined contribution plan. The Group has no obligations other than to make the specified contributions.

The contributions are charged to the Statement of Profit and Loss as they accrue. The amount recognised as an expense towards contribution to Provident fund for the year aggregated to USD 84667 (previous year USD 82047).

Defined benefit plan

The group operates one post-employment defined benefit plan for gratuity. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive

one-half

month’s salary for each year of completed service at the time of retirement/exit. Refer Note 5.1.

					Amount in USD
Sl. No.	Particulars	31 March 2020 Gratuity (unfunded)			31 March 2019 Gratuity (unfunded)
(i)	Net Asset / (liability) recognised in Consolidated Balance Sheet as at the
	Present value of defined obligation at year end		75,724			69,968
	Fair value of plan assets at year end
	Net Asset / (liability) recognised in the consolidated balance sheet		(75,724	)		(69,968	)
(ii)	Components of employer expense
	Current service costs		19,071			26,864
	Interest costs		4,559			6,589
	Actuarial loss/(gain) recognised		(6,118	)		(46,762	)
	Past service cost		—			55
	Expense recognised in the Consolidated Statement of Profit and Loss The gratuity expenses have been recognised in ‘Employee benefits expense’ under note 24		17,511			(13,254	)
(iii)	Change in defined benefit obligations
	Obligation at beginning of the year		63,773			88,530
	Service cost		19,071			26,864
	Past service cost		—			55
	Interest cost		4,559			6,589
	Actuarial loss/(gain) recognised		(6,118	)		(46,762	)
	Benefits paid		—			—
	Defined benefit obligation at end of the year		75,724			69,968
(iv)	Assumptions
	Discount rate		7.70	%		7.70	%
	Salary increase		6.5% to 10%			6.5% to 10%
	Mortality rate		IALM 06-08 Ultimate			IALM 06-08 Ultimate
	Withdrawal rate		2.00% to 7.20% p.a.			2.00% to 7.20% p.a.

F-144

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

			Amount in USD
Sl. No.	Particulars	31 March 2020 Gratuity (unfunded)	31 March 2019 Gratuity (unfunded)
(v)	The estimates of future salary increases, considered in actuarial valuation, take into account inflation, seniority, promotions and other relevant factors.
(vi)	Discount rate is based on the prevailing market yield of Indian Government securities as at the year end for the estimated term of the obligation. The calculation of the defined benefit obligation is sensitive to the mortality assumptions.

Sl. No	Particulars	31 March 2020			31 March 2019			31 March 2018			31 March 2017			31 March 2016
(vii)	Experience history - Amount of current and previous four years
	Defined benefit obligation at the end of the year		75,724			69,968			88,530			71,529			48,956
	Plan assets at the end of the year		—			—			—			—			—
	Surplus/(deficit)		(75,724	)		(69,968	)		(88,530	)		(71,529	)		(48,956	)
	Experience gain/(loss) adjustment on plan liabilities		25,124			27,210			13,215			14,691			10,894
	Actuarial (gain)/loss due to change in assumption		(31,008	)		(32,283	)		(35,950	)		—			—
	Experience (gain)/loss adjustment on plan assets		—			—			—			—			—

33 Disclosure under Section 186 of the Companies Act 2013

The operations of the Group are classified as ‘infrastructure facilities’ as defined under Schedule VI to the Act. Accordingly, the disclosure requirements specified in

sub-section

4 of Section 186 of the Act in respect of loans given, investment made or guarantee given or security provided and the related disclosures on purposes/ utilisation by recipient companies, are not applicable to the Group.

34 Minority interest

The following table summarises the information relating to Group’s subsidiaries and the carrying value of minority interests:

							Amount in USD
Name of the LLPs	Minority % 31 March 2020			Minority % 31 March 2019			31 March 2020		31 March 2019
GHSPL BEGUSARAI Healthcare LLP		5	%		5	%		30,168		23,506
GHSPL BGLP Super Speciality Healthcare LLP		35	%		35	%		344,304		303,399
GHSPL FATEHPUR Super Speciality Healthcare LLP		35	%		35	%		37,148		37,148
GHSPL JEYPORE Healthcare LLP		35	%		35	%		396,836		409,385
GHSPL SAMBHAV KNJ Healthcare LLP		35	%		35	%		75,317		114,676
GHSPL MLD Super Speciality Healthcare LLP		22	%		22	%		90,740		44,578
GHSPL MUZF Super Speciality Healthcare LLP		38	%		38	%		453,144		476,402
GHSPL MDPR Super Speciality Healthcare LLP		2	%		2	%		58,753		54,513
GHSPL PRN Super Speciality Healthcare LLP		24	%		24	%		190,007		190,007
GHSPL BHNGAR Super Speciality Healthcare LLP		11	%		11	%		52,008		52,008
								1,728,427		1,705,624

F-145

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

35 Related Party disclosures in accordance with Accounting Standard 18 prescribed under Section 133 of the Companies Act, 2013 (‘Act’) read with Rule 7 of the Companies (Accounts) Rules, 2014.

(a) List of Related parties

(i) Key management personnel

Dr. Syed Sabahat Azim

Mrs. Richa Sana Azim

Mr. Gautam Chowdhury

Mr. Ashutosh Kumar Shrivastava

Mr. Paresh Singhal

(ii) Partner in Limited Liability Partnership firms

Dr. Hemant Kumar (partner in GHSPL Begusarai Healthcare LLP)

Dr. Mahesh Kumar (partner in GHSPL BGLP Super Speciality Healthcare LLP)

Mr. Ragaba Mohapatro (partner in GHSPL Jeypore Healthcare LLP)

Dr. Mahmudul Hassan (partner in GHSPL MUZF Super Speciality Healthcare LLP)

Sumaiyah Hassan (partner in GHSPL MUZF Super Speciality Healthcare LLP)

Heena Bazmi (partner in GHSPL MUZF Super Speciality Healthcare LLP)

Sambhav Learning Private Limited (partner in GHSPL Sambhav KNJ Healthcare LLP and GHSPL SAMBHAV RP Healthcare LLP)

Ratan Guha (partner in GHSPL MDPR Super Speciality Healthcare LLP)

Shahnaz Begum (partner in GHSPL BHNGAR Super Speciality Healthcare LLP)

Mohammed Jamal Khan (partner in GHSPL BHNGAR Super Speciality Healthcare LLP)

Mohammad Amjad Khan (partner in GHSPL BHNGAR Super Speciality Healthcare LLP)

Mohammad Akbar Khan (partner in GHSPL BHNGAR Super Speciality Healthcare LLP)

Good Deal Mercantile Pvt Ltd (partner in GHSPL PRN Super Speciality Healthcare LLP)

Jinia Dasgupta (partner in GHSPL MLD Super Speciality Healthcare LLP)

Suraj Agarwal (partner in GHSPL MLD Super Speciality Healthcare LLP)

Ankush Agarwala (partner in GHSPL MLD Super Speciality Healthcare LLP)

Sairal Agarwal (partner in GHSPL MLD Super Speciality Healthcare LLP)

Rahul Agarwala (partner in GHSPL MLD Super Speciality Healthcare LLP)

(iii) Enterprise over which directors have significant influence

Kimberlite Social Infra Private Limited

(iv) Relative of key managerial personel

Ms. Sarwat Azim (Sister of Dr. Syed Sabahat Azim)

Sampa Guha(Relative Of Ratam Guha)

F-146

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

Transaction with related parties during the year

										Amount in USD
Sl. No.	Particulars	Key management personnel and their relatives				Enterprise over which directors have significant influence				Partners in LLP
		2019-20		2018-19		2019-20		2018-19		2019-20		2018-19
1 Remuneration
Dr. Syed Sabahat Azim			65,271		70,257		—		—
Mrs. Richa Sana Azim			47,121		50,720		—		—
Gautam Chowdhury			52,379		56,380
Mr. Ashutosh Kumar Shrivastava			—		31,322
2 Short-term borrowings (taken)
Kimberlite Social Infra Private Limited			—		—		200,862		—
Mrs. Richa Sana Azim			—		743
Sampa Guha (relative of partner- Ratan Guha)											49,234		29,422
3 Short-term borrowings- repaid
Kimberlite Social Infra Private Limited			—		—		794		—��
Mrs. Richa Sana Azim			6,212		—
Gautam Chowdhury			9,443		11,858
4 Contribution Received
Dr Mahmudul Hassan													22,289
Sumaiyah Hassan													17,831
5 Advance for supply of goods & services
Ragaba Mohapatro											1,380

Balances outstanding at the end of the year

										Amount in USD
Sl. No.	Particulars	Key management personnel and their relatives				Enterprise over which directors have significant influence				Partners in LLP
		2019-20		2018-19		2019-20		2018-19		2019-20		2018-19
1 Remuneration payable
Dr. Syed Sabahat Azim			41,457		42,613		—		—
Mrs. Richa Sana Azim			50,208		27,553		—		—
Gautam Chowdhury
Mr. Ashutosh Kumar Shrivastava
2 Short-term borrowings
Kimberlite Social Infra Private Limited			—		—		368,503		190,724
Richa Sana Azim			11,948		19,410
Gautam Chowdhury			6,040		16,376
Paresh Singhal			11,284		12,221
Paresh Singhal(Ficus)			8,364		9,058
Dr Mahesh Kumar											19,914		21,567
Sampa Guha (relative of partner- Ratan Guha)											73,633		28,468

F-147

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

						Amount in USD
Sl. No.	Particulars	Key management personnel and their relatives		Enterprise over which directors have significant influence		Partners in LLP
		2019-20	2018-19	2019-20	2018-19	2019-20		2018-19
3 Capital Contribution
Dr. Hemant Kumar							15,931		17,254
Dr. Hemant Kumar (current account)							17,259		18,691
Dr Mahesh Kumar							195,482		211,711
Ragaba Mohapatro							185,861		201,291
Ratan Guha							26,552		28,756
Dr Mahmudul Hassan							172,585		186,913
Heena Bazmi							19,914		21,567
Sumaiyah Hassan							35,845		38,820
Sambhav Learning Private Limited							238,964		258,803
Jinia Dasgupta							39,827		43,134
Dr. Parwez Khan							33,190		35,945
Shahnaz Begum and others							46,465		50,323
Good Deal Mercantile Pvt Ltd							169,758		183,851
4 Advance for supply of goods & services
Ragaba Mohapatro							1,328		—

36 The Company has entered into lease agreements for office premises, residential for doctors accommodations, computers & accessories and medical equipment which are cancelable during the life of the agreement at the option of either party. Minimum lease payments charged during the year to Consolidated Statement of Profit and Loss aggregates USD 98,673 (2018-19: USD 208,397).

37 Expenditure in foreign currency

	31 March 2020		31 March 2019
Interest expense on debenture (net of TDS)		38,743		448,909

38 Income in foreign currency

Income from Digital dispensary consultancy 2,038,117 —  

39 On October 22, 2020, the Company has entered into a business combination agreement with UpHealth Holdings, Inc. The transaction is agreed at a purchase consideration of $171,000,000. Post the consummation of transaction, UpHealth Holdings, Inc. will hold 100% shares in the Company.

40 Segment information in accordance with Accounting Standard 17 prescribed under Section 133 of the Companies Act, 2013 (‘Act’) read with Rule 7 of the Companies (Accounts) Rules, 2014.

As per Accounting Standard 17 on “Segment Reporting”, the Group is engaged in only one primary business of providing medical & healthcare services. There is no other reportable segment other than Medical & Healthcare Services so, reporting under Accounting Standard 17 on “ Segment Reporting” is not applicable on the Group.

F-148

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

In respect of secondary segment information, the Group operates in a single geography (within India), hence no reportable secondary segment information.

41 This note presents the reconciliation of (i) the consolidated balance sheets, consolidated statement of profit and loss and consolidated statement of cash flows of Glocal Healthcare Systems Private Limited (“Glocal” or the “Company”) as derived from the consolidated financial statements of the Company for the year ended 31 March 2019 and 31 March 2020, prepared in accordance with the accounting principles generally accepted in India (“Indian GAAP”),incorporated above in this document, to (ii) the consolidated balance sheets, consolidated statements of operations and statement of comprehensive income and loss and consolidated statement of cash flows of the Company prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the U.S. GAAP accounting policies as set out below.

41.1 Accounting Policies

(a) Revenue Recognition

The Group derives its revenue primarily from rendering medical and healthcare services. Income from medical and healthcare services comprise income from hospital services and sale of pharma products.

Revenue from hospital and digital consultancy services to patients is recognised as revenue when the related services are rendered unless significant future uncertainties exist. Revenue is also recognised in relation to the services rendered to the patients who are undergoing treatment/observation on the Statement of Financial Position date to the extent of services rendered.

Revenue from sale of medicine and medical consumables within hospital premises is recognised on sale of medicines and similar products to the buyer. The amount of revenue recognised is net of sales returns and trade discounts.

Revenue from digital dispensary is recognised when risk and reward of ownership have been transferred to the customer and accepted by the customer, the sale price is fixed or determinable and collectability is reasonably assured.

Unbilled revenue represents value of medical and healthcare services rendered to the patients but not invoiced as at the Statement of Financial Position date.

(b) Liabilities written back

The group assesses its payment of its liabilities at reporting date and write back liabilities that is no longer required and same is recorded in other income.

(c) Research and Development Expenses

The group capitalises the internal and external cost incurred after technological feasibility for application development. Other costs including research phase are expensed as incurred by the group.

(d) Employee Benefit

The costs of the defined benefit plans granted to employees charged to the income statement are determined by actuarial calculation.

F-149

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

(e) Preference Shares

Series A preference shares is classified Mezzanine as they are redeemable at the option of the holder in absence of an IPO event/strategic sale not under the control of the Company. Subsequent to the balance sheet date, the investor have waived the redemption rights.

Other preference shares are classified as equity as there is no contractual obligation to deliver cash or any other financial asset, and will or may be settled in its own equity instruments.

Transaction costs are deducted from equity, net of associated income tax.

(f) Business Combination

In accordance with ASC Topic 805, “Business combination”, the Company uses the acquisition method of accounting for all business combinations. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their fair values as of the closing date of the acquisition. The Company measures the fair values of the acquired assets and liabilities assumed on the closing date which is the date on which the Company transfers the purchase consideration or definitive control agreement is signed and achieves the control of the acquiree. Intangible assets acquired in a business combination are recognized and reported apart from goodwill if they meet the criteria specified in ASC Topic 805.

Acquisition-related costs are recognized as period costs, as incurred, except the costs to issue debt or equity securities which are reduced from the fair value of instruments issued.

Transaction that results in increase or decrease in a group’s/parents ownership interest in a subsidiary without the loss of control are accounted as equity transaction.

(g) Income Taxes

The Company accounts for income taxes in accordance with the asset and liability approach. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized.

The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to uncertain tax positions in the provision for income taxes in the consolidated statements of operations.

(h) Foreign Currency Translation

The functional currency of the Company’s is the INR.

Accordingly, the subsidiaries remeasure monetary assets and liabilities at

period-end

exchange rates, while

non-monetary

items are remeasured at historical rates. Revenue and expense accounts are remeasured at the average exchange rate in effect during the year. Remeasurement adjustments are recognized in the consolidated statements of operations as other income or expense in the year of occurrence. Foreign currency transaction gains and losses were insignificant for all periods presented.

F-150

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

For subsidiaries where the functional currency is a foreign currency, adjustments resulting from translating the financial statements into INR are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Monetary assets and liabilities denominated in a foreign currency are translated into INR at the exchange rate on the balance sheet date.

Revenue and expenses are translated at the weighted average exchange rates during the period. Equity transactions are translated using historical exchange rates. Foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations.

(i) Comprehensive Income (Loss)

Comprehensive income (loss) refers to net income (loss) and other revenue, expenses, gains and losses that, under generally accepted accounting principles, are recorded as an element of stockholders’ equity but are excluded from the calculation of net income (loss).

(j) Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents

(k) Accounts Receivable and Allowance for Doubtful

Accounts receivable are recorded net of the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on the Company’s assessment of its ability to collect on customer accounts receivable. The Company regularly reviews the allowance by considering certain factors such as historical experience, credit quality, age of accounts receivable balances and other known conditions that may affect a customer’s ability to pay. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet their financial obligations, a specific allowance is recorded against amounts due from the customer which reduces the net recognized receivable to the amount the Company reasonably believe will be collected. The Company

writes-off

accounts receivable against the allowance when a determination is made that the balance is uncollectable and collection of the receivable is no longer being actively pursued.

(l) Property and Equipment, net

Property and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation is computed using the straight-line method over the estimated useful life of the related asset. Maintenance and repairs are charged to expenses as incurred.

(m) Impairment or disposal of long-lived assets

The Company accounts for impairment losses on long-lived asset in accordance with ASC

360-“Property,

plant and equipment”. The Company reviews long-lived asset for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company measures recoverability of assets to be held and used by a comparison of the carrying value of an asset to undiscounted future net cash flows the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Fair value of long-lived assets, including identifiable intangible assets, is determined either by using the discounted cash flow method or for assets to be disposed of at their net realizable value which includes an estimate for any potential costs to dispose.

F-151

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the year ended 31 March 2020 (Continued)

(n) Fair Value of Financial Instruments

The Company applies fair value accounting for all financial instruments on a recurring basis. The Company’s financial instruments, which include cash, cash equivalents, accounts receivable and accounts payable are recorded at their carrying amounts, which approximate their fair values due to their short-term nature. Restricted cash is long-term in nature and consists of cash in a savings account, hence its carrying amount approximates its fair value. All marketable securities are considered to be

available-for-sale

and recorded at their estimated fair values. Unrealized gains and losses for

available-for-sale

securities are recorded in other comprehensive income (loss). In valuing these items, the Company uses inputs and assumptions that market participants would use to determine their fair value, utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the security will be sold before the recovery of its cost basis. Realized gains and losses and declines in value deemed to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net.

The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

• Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Indian GAAP versus U.S. GAAP Reconciliation tables

The following tables set forth the reconciliation of (i) the consolidated balance sheet, consolidated statement of operations and consolidated statement of cash flows of the group for the year ended 31 March 2019 and the year ended 31 March 2020 prepared in accordance with Indian GAAP and reclassified based on the classification format adopted by UpHealth for the U.S. GAAP Financial Statements to (ii) the consolidated balance sheets, consolidated statements of operations and consolidated statement of cash flows of the Company prepared in accordance with U.S. GAAP.

F-152

Consolidated Balance Sheet as at 31 March 2020

Amount in USD

Particulars	31 March 2020 Indian GAAP			Revaluation Reserve			Deferred Tax		Goodwill			Classification of Mezzanine Equity			Others*			31 March 2020 US GAAP
Assets
Current Assets
Cash and cash equivalents		171,867			—			—		—			—			(43,697	)		128,170
Restricted cash		—			—			—		—			—			43,697			43,697
Accounts Receivables, net of allowance		4,719,956			—			—		—			—			—			4,719,956
Inventories		269,296			—			—		—			—			—			269,296
Other current assets		1,520,855			—			—		—			—			22,837			1,543,692
		6,681,974			—			—		—			—			22,837			6,704,811
Property, Plant & Equipment (Net)		24,378,417			(12,159,329	)		—		—						(22,837	)		12,196,251
Goodwill		459,982			—			—		(459,982	)		—			—			—
Other Intangible Assets (Net)		2,865,890			—			—		—			—			—			2,865,890
Capital work in progress		4,637,925			—			—		—			—			—			4,637,925
Restricted cash		—			—			—		—			—			—			—
Deferred Tax Assets		—			—			3,036,053		—			—			—			3,036,053
Other assets		1,145,687			—			—		—			—			—			1,145,687
		33,487,901			(12,159,329	)		3,036,053		(459,982	)		—			(22,837	)		23,881,806
Total Assets		40,169,875			(12,159,329	)		3,036,053		(459,982	)		—			—			30,586,617
Liabilities and Stockholders Equity
Current Liabilities
Trade Payables		1,471,145			—			—		—			—			—			1,471,145
Accrued Liabilities		5,057,967			—			—		—			—			85,742			5,143,709
Short-term borrowings		3,892,608			—			—		—			—			—			3,892,608
Current portion of long-term borrowings		18,776,995			—			—		—			—			—			18,776,995
Short-term provisions		7,651			—			—		—			—			—			7,651
		29,206,367			—			—		—			—			85,742			29,292,109
Long-term borrowings		1,578,912			—			—		—			—			—			1,578,912
Long-term provisions		129,685			—			—		—			—			—			129,685
Total liabilities		30,914,964			—			—		—			—			85,742			31,000,706
Mezzanine Equity
Series A preferreds		—			—			—		—			2,463,470			—			2,463,470
Stockholders Equity
Common Stock		104,371			—			—		—			—			—			104,371
Preferred Stock		6,708,281			—			—		—			(508,086	)		—			6,200,194
Additional paid-in-capital		8,320,698			—			—		(105,118	)		(1,955,383	)		—			6,260,197
Revaluation Surplus		10,128,170			(10,128,170	)		—		—			—			—			—
Retained Earnings		(15,158,441	)		—			2,912,325		(354,865	)		—			(92,331	)		(12,693,312	)
Foreign Currency Translation Reserve		(2,576,594	)		—			—		—			—			6,589			(2,570,005	)
Total shareholders equity attributable to the Group		7,526,484			(10,128,170	)		2,912,325		(459,982	)		(0	)		(85,742	)		(235,085	)
NonControlling Interest		1,728,427			(2,031,159	)		123,728		—			—			—			(179,005	)
Total Stockholders Equity		9,254,911			(12,159,329	)		3,036,053		(459,982	)		(0	)		(85,742	)		(414,089	)
Total liabilities and stockholders equity		40,169,875			(12,159,329	)		3,036,053		(459,982	)		(0	)		—			30,586,617

* Others include Lease classification and interest expense.

F-153

Consolidated Income Statement for the year ended 31 March 2020

Amount in USD

Particulars	31 March 2020 Indian GAAP			Deferred Tax			Goodwill			Others			31 March 2020 US GAAP
Revenue		9,057,344			—			—			—			9,057,344
Cost of revenues		2,956,059			—			—			—			2,956,059
Gross Profit		6,101,285			—			—			—			6,101,285
Operating expenses
Selling & Distribution expense		231,583			—			—			—			231,583
General & Administrative expense		2,275,690			—			—			—			2,275,690
Depreciation and amortisation		1,404,801			—			(95,982	)		—			1,308,820
Total Operating Expenses		3,912,074			—			(95,982	)		—			3,816,092
Operating Income		2,189,211			—			95,982			—			2,285,193
Other income		2,136,145			—			—			—			2,136,145
Interest expense		2,150,174			—						47,631			2,197,805
Income before income tax		2,175,182			—			95,982			(47,631	)		2,223,533
Income tax expense		—			1,468,328			—			—			1,468,328
Net Income		2,175,182			(1,468,328	)		95,982			(47,631	)		755,205
Net income attributable to non controlling interest		22,802			(25,339	)		—			—			(2,536	)
Net income available to the owners of the parent		2,152,380			(1,442,990	)		95,982			(47,631	)		757,741
Net Income		2,152,380			(1,442,990	)		95,982			(47,631	)		757,741
Other Comprehensive Income/(loss), net of tax
Translation adjustments with no taxes effects		(668,436	)								6,589			(661,846	)
Total other comprehensive income/(loss)		(668,436	)		—			—			6,589			(661,846	)
Comprehensive Income		1,483,944			(1,442,990	)		95,982			(41,042	)		95,895
Comprehensive Income (loss) attributable to the non- controlling interest		—			—			—			—			—
Comprehensive Income attributable to the owners of the parent		1,483,944			(1,442,990	)		95,982			(41,042	)		95,895

F-154

Consolidated Cash Flow Statement for the year ended 31 March 2020

Amount in USD

Particulars	31 March 2020 Indian GAAP			Others		31 March 2020 US GAAP
Net cash (used in) operating activities (A)		1,373,293			—		1,373,293
Net cash (used in) investing activities (B)		(1,004,711	)		—		(1,004,711	)
Net cash provided by financing activities (C)		(849,365	)		—		(849,365	)
Net (decrease) in cash and cash equivalent (A+B+C)		(480,782	)		—		(480,782	)
Cash and cash equivalents at the beginning of the year		592,684			—		592,684
Cash and cash equivalents at the end of the year		111,902			—		111,902

F-155

Consolidated Balance Sheet as at 31 March 2019

Amount in USD

Particulars	31 March 2019 Indian GAAP			Revaluation Reserve			Deferred Tax		Goodwill			Classification of Mezzanine Equity			Others*			31 March 2019 US GAAP
Assets
Current Assets
Cash and cash equivalents		621,199			—			—		—			—			(58,701	)		562,498
Restricted Cash		—			—			—		—			—			58,701			58,701
Accounts Receivables, net of allowance		3,257,573			—			—		—			—			—			3,257,573
Inventories		259,664			—			—		—			—			—			259,664
Other current assets		761,607			—			—		—			—			25,851			787,458
		4,900,043			—			—		—			—			25,851			4,925,894
Property, Plant & Equipment (Net)		27,108,428			(12,159,329	)		—		—			—			(25,851	)		14,923,248
Goodwill		598,136			—			—		(598,136	)		—			—			0.00
Other Intangible Assets (Net)		2,991,695			—			—		—			—			—			2,991,695
Capital work in progress		4,390,896			—			—		—			—			—			4,390,896
Deferred Tax Assets		—			—			4,228,945		—			—			—			4,228,945
Other assets		1,191,401			—			—		—			—			—			1,191,401
		36,280,556			(12,159,329	)		4,228,945		(598,136	)		—			(25,851	)		27,726,186
Total Assets		41,180,599			(12,159,329	)		4,228,945		(598,136	)		—			—			32,652,080
Liabilities and Stockholders Equity
Current Liabilities
Accounts payables		2,418,496			—			—		—			—			—			2,418,496
Accrued Liabilities		4,281,517			—			—		—			—			43,252			4,324,769
Short-term borrowings		3,943,193			—			—		—			—			—			3,943,193
Current portion of long-term borrowings		9,619,832			—			—		—			—			—			9,619,832
Short-term provisions		8,769			—			—		—			—			—			8,769
		20,271,806			—			—		—			—			43,252			20,315,058
Long-term borrowings		13,281,012																	13,281,012
Long-term provisions		111,200			—			—		—			—			—			111,200
Total liabilities		33,664,018			—			—		—			—	��		43,252			33,707,270
Mezzanine Equity
Series A preferred shares		—			—			—		—			2,463,470			—			2,463,470
Stockholders Equity
Common Stock		104,371			—			—		—			—			—			104,371
Redeemable Preferred Stock		6,708,281			—			—		—			(508,086	)		—			6,200,194
Additional paid-in-capital		8,320,698			—			—		(98,306	)		(1,955,383	)		—			6,267,009
Revaluation Surplus		10,128,170			(10,128,170	)		—		—			—			—			—
Retained Earnings		(17,542,405	)					4,079,879		(499,830	)		—			(44,700	)		(14,007,056	)
Foreign Currency Translation Reserve		(1,908,158	)		—			—		—			—			1,448			(1,906,710	)
Total shareholders equity attributable to the Group		5,810,956			(10,128,170	)		4,079,879		(598,136	)		(0	)		(43,252	)		(878,722	)
Non Controlling Interest		1,705,624			(2,031,159	)		149,066		—			—			—			(176,468	)
Total Stockholders Equity		7,516,581			(12,159,329	)		4,228,945		(598,136	)		(0	)		(43,252	)		(1,055,190	)
Total liabilities and stockholders equity		41,180,599			(12,159,329	)		4,228,945		(598,136	)		(0	)		—			32,652,080

* Others include Lease classification and interest expense.

F-156

Consolidated Income Statement for the year ended 31 March 2019

Amount in USD

Particulars	31 March 2019 Indian GAAP			Deferred Tax			Others			31 March 2019 US GAAP
Revenue		7,220,982			—			—			7,220,982
Cost of revenues		4,242,677			—			—			4,242,677
Gross Profit		2,978,305			—			—			2,978,305
Operating expenses
Selling & Distribution expense		422,016			—			—			422,016
General & Administrative expense		4,804,762			—			—			4,804,762
Depreciation and amortisation		1,183,020			—			—			1,183,020
Total Operating Expenses		6,409,798			—			—			6,409,798
Operating Income		(3,431,494	)		—			—			(3,431,494	)
Other income		57,205			—			—			57,205
Interest expense		2,778,598			—			44,700			2,823,298
Income before income tax		(6,152,886	)		—			(44,700	)		(6,197,587	)
Income tax expense		6,123			(671,815	)		—			(665,691	)
Net Income		(6,159,010	)		671,815			(44,700	)		(5,531,895	)
Net income attributable to non controlling interest		(462,252	)		(11,914	)		—			(474,166	)
Net income available to the owners of the parent		(5,696,758	)		683,729			(44,700	)		(5,057,729	)
Net Income		(5,696,758	)		683,729			(44,700	)		(5,057,729	)
Other Comprehensive Income/(loss), net of tax
Translation adjustments with no tax effects		(903,872	)		—			1,448			(902,424	)
Total other comprehensive income/(loss)		(903,872	)		—			1,448			(902,424	)
Comprehensive Income		(6,600,630	)		683,729			(43,252	)		(5,960,153	)
Comprehensive Income (loss) attributable to the non-controlling interest
Comprehensive Income attributable to the owners of the parent		(6,600,630	)		683,729			(43,252	)		(5,960,153	)

Consolidated Cash Flow Statement for the year ended 31 March 2019

Amount in USD

Particulars	31 March 2019 Indian GAAP			Other		31 March 2019 US GAAP
Net cash (used in) operating activities (A)		1,828,874			—		1,828,874
Net cash (used in) investing activities (B)		(2,248,945	)		—		(2,248,945	)
Net cash provided by financing activities (C)		873,495			—		873,495
Net (decrease) in cash and cash equivalent (A+B+C)		453,425			—		453,425
Cash and cash equivalents at the beginning of the year		139,258			—		139,258
Cash and cash equivalents at the end of the year		592,683			—		592,683

Disclosure Notes:

A. Revaluation Reserve

Under Indian GAAP, Revaluation of asset is permitted, an increase in revaluation is recognised directly to owners interest (under the heading Revaluation Reserve). Under US GAAP property, plant and equipment is carried at historical cost, revaluation is not permitted. Therefore, the revaluation amount has been reduced

F-157

from the property, plant and equipment and Retained earnings amounting to USD 12,159,329 for year end 31 March 2020 and 31 March 2019 with a corresponding effect to the retained earnings and

non-controlling

interest.

B. Recognition of Deferred Taxes

Under US GAAP Deferred tax is recognised in full and a valuation allowance is provided to reduce the deferred tax assets to an amount that is more likely than not to be realised. Under IGAAP, virtual certainty is required for recognising the deferred tax asset on carry forward losses.

Accordingly, deferred tax asset of USD 3,803,599 (Net of valuation allowance of USD 1,821,592) has been recognised as on 1 April 2018, USD 4,228,945 (Net of valuation allowance of USD 2,196,959) as on 31 March 2019 and USD 2,436,444 (Net of valuation allowance of USD 2,333,711) as on March 31, 2020.

The deferred tax income of USD 671815 is recognised in year 31 March 2019 and deferred tax charge of USD 4228945 in year 31 March 2020. The effect on profit pertaining to entities with

non-controlling

interest (NCI) is recognised in NCI.

C. Goodwill

The Goodwill amount of USD 98,306 under IGAAP pertains to the acquisition of shares from minority shareholders without change in control, under USGAAP transaction that results in increase in a group’s/parents ownership interest in a subsidiary without the change of control are accounted as equity transaction. The Goodwill amount is reversed with a corresponding effect to additional paid in capital. The Group also has a goodwill pertaining to a subsidiary in IGAAP, the goodwill does not meet the recognition condition as per Business Combination and hence have been written off under USGAAP as on 1 April 2018.

D. Classification of Preference Shares

Series A preference shares is classified Mezzanine equity, as they are redeemable at the option of the holder in absence of an IPO event/strategic sale not under the control of the Company. Subsequent to the balance sheet date, the investor have waived the redemption rights.

E. Lease classification

In Indian GAAP - Land Leases taken for 33 years are shown under Property, Plant & Equipment and amortised over the lease period. Under US GAAP, the condition for finance lease is not satisfied, hence the carrying balance of upfront payment is reclassified to other current and

non-current

assets as prepayments and amortised over the lease term.

F. Restricted cash classification

As at 31 March 2020 restricted cash includes deposits restricted as to usage under lien to banks for guarantees given by the Company and lien with Black Soil amounting to USD 30,421 (March 31, 2019: USD 44,323) and USD 13,276 (31 March 2019 USD 14,378) respectively. As per Accounting Standards Update

No. 2016-18

(ASU

2016-18)

“Restricted Cash—Statement of Cash Flows (Topic 230)”, the restricted cash and restricted cash equivalents is included within cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows.

G. Interest Expense

Terms loan from Caspian has interest rate of 15% p.a., the arrangement also requires an IRR of 18% at the end of tenor of the credit facility or prepayment of loan, Under IGAAP interest is accounted at 15%, the differential interest of 3% is accounted for amortised cost accounting of loan under USGAAP. The group has accounted differential interest of USD 47,631 (31 March 2019: USD 44,700) with a corresponding effect to accrued interest.

F-158

42 Estimation of uncertainties relating to the global health pandemic from COVID-19 :

The Company has considered the possible effects that may result from the pandemic relating to

COVID-19

on the carrying amounts of receivables and investment in subsidiaries. In developing the assumptions relating to the possible future uncertainties in the global economic conditions because of this pandemic, the Company, as at the date of approval of these financial statements has used internal and external sources of information including credit economic forecasts. The management is under discussion with Banks & financials institutions for restructuring of its loans. Also, the company has entered into a merger agreement with UpHealth Inc. on October 20, 2020 which is expected to close in first quarter of 2021.

Apart, from this the management is expecting positive cash flow from its operations which together with events as stated above will result in meeting its statutory liabilities, obligation towards banks & financials institutions and other operational dues in next 12 months.

The management does not see any medium to long term risks in the company’s ability to continue as going concern and meeting its liabilities as and when they fall due. The impact of

COVID-19

remains uncertain and may be different from what we have estimated as of the date of approval of these consolidated financial statements and the Company will continue to closely monitor any material changes to future economic conditions.

Previous year’s figures have been regrouped/ reclassified wherever necessary to conform to current year’s classification/

43 disclosure.

For D.K. CHHAJER  & CO.	For and on behalf of the Board of Directors of
Chartered Accountants
Firm’s Registration Number:304138E

Tapan K Mukhopadhyay Partner	Dr. Syed Sabahat Azim Director	Richa Sana Azim Director
Membership No.: 017483	DIN: 03122895	DIN: 02609003
Place: Kolkata Date: 30th December 2020

F-159

Glocal Healthcare Systems Private Limited

Consolidated Financial Statements as of and for the periods ended December 31, 2020 and 2019

F-160

Glocal Healthcare Systems Private Limited

Consolidated Balance Sheet as at 31 December 2020

					Amount in USD
	Note		31 December 2020		31 March 2020
			Unaudited		Audited
EQUITY AND LIABILITIES
Shareholders’ funds
Share capital		2		6,812,652		6,812,652
Reserves and surplus		3		3,394,029		713,832
				10,206,681		7,526,484
Minority interest		29		1,787,333		1,728,427
Non-current liabilities
Long-term borrowings		4		1,239,889		1,578,912
Long-term provisions		5		158,553		129,685
				1,398,442		1,708,597
Current liabilities
Short-term borrowings		6		3,830,163		3,892,608
Trade payables		7
- total outstanding dues of micro enterprises and small enterprises				—		—
- total outstanding dues of creditors other than micro enterprises and small enterprises				1,037,888		1,471,145
Other current liabilities		8		23,868,737		23,834,963
Short-term provisions		5		5,972		7,651
				28,742,760		29,206,367
TOTAL				42,135,216		40,169,875
ASSETS
Non-current assets
Goodwill		9		402,884		459,982
Property, plant and equipment		10		24,624,769		24,378,417
Intangible assets		11		2,747,256		2,865,890
Capital work-in-progress				5,252,093		4,637,925
Long-term loans and advances		12		1,043,844		1,125,061
Other non-current assets		13		44,044		20,626
				34,114,889		33,487,901
Current assets
Inventories		14		311,504		269,296
Trade receivables		15		5,912,534		4,719,956
Cash and bank balances		16		342,409		171,867
Short-term loans and advances		17		725,669		1,008,242
Other current assets		18		728,210		512,613
				8,020,326		6,681,974
TOTAL				42,135,215		40,169,875
Significant accounting policies		1

For and on behalf of the Board of Directors of

Glocal Healthcare Systems Private Limited

Dr. Syed Sabahat Azim	Richa Sana Azim
Director	Director
DIN: 03122895	DIN: 02609003

F-161

Glocal Healthcare Systems Private Limited

Consolidated Statement of Profit and Loss for the nine months ended 31 December 2020

						Amount in USD
			For nine months ended			For nine months ended
	Note		31 December 2020			31 December 2019
			Unaudited			Unaudited
Revenue from operations		19		5,757,140			4,831,992
Other income		20		3,009,732			196,297
Total revenue				8,766,872			5,028,289
Expenses
Purchase		21		714,850			788,659
Course operating expenses		22		—			—
Changes in inventories		23		(33,543	)		9,013
Employee benefits expense		24		901,658			1,149,475
Finance costs		25		1,743,487			1,641,864
Depreciation and amortisation		26		994,403			1,083,670
Other expenses		27		1,993,736			2,283,134
Total expenses				6,314,592			6,955,815
Profit/(Loss) before tax				2,452,280			(1,927,526	)
Income tax expense
Current tax				—			—
Deferred tax				—			—
Profit/(Loss) after tax (before adjustment of minority interest)				2,452,280			(1,927,526	)
Minority Interest				58,906			(131,621	)
Profit/(Loss) for the year				2,393,374			(1,795,906	)
Earnings/(loss) per equity share [nominal value of share INR 10 each (Previous year INR 10 each)]		28
Basic (not annualised)				4.86			(3.64	)
Diluted (not annualised)				0.52			(3.64	)
Significant accounting policies		1

For and on behalf of the Board of Directors of

Glocal Healthcare Systems Private Limited

Dr. Syed Sabahat Azim	Richa Sana Azim
Director	Director
DIN: 03122895	DIN: 02609003

F-162

Glocal Healthcare Systems Private Limited

Consolidated Cash Flow Statement for nine months ended 31 December 2020

				Amount in USD
	31 December 2020			31 December 2019
	Unaudited			Unaudited
A. Cash flow from operating activities
Profit/(Loss) before tax		2,452,280			(1,927,526	)
Adjustments for :
Depreciation and amortisation		994,403			1,083,670
Provisions/liabilities no longer required written back		(3,009,179	)		(174,239	)
Interest income		—			(19,053	)
Finance costs		1,743,487			1,641,864
		(271,289	)		2,532,241
Operating cash flow before working capital changes		2,180,991			604,715
Adjustments for:
(Increase) in trade and other receivables/advances		(583,634	)		2,008,538
Decrease in inventories		(42,208	)		17,433
Increase in trade payables, other liabilities and provisions		538,010			840,354
		(87,832	)		2,866,325
Cash (used in) operations		2,093,160			3,471,040
Income taxes refund (net)		(40,561	)		(9,472	)
Net cash (used in) operating activities (A)		2,052,599			3,461,567
B. Cash flow from investing activities
Purchase or construction of property, plant and equipment and intangible assets and movement in capital work in progress		(159,238	)		(392,294	)
Proceeds from sale of property, plant & equipment		—			—
Bank deposits (having original maturity of more than 3 months)		(6,740	)		(486,194	)
Interest received		(547	)		19,170
Net cash (used in) investing activities (B)		(166,524	)		(859,318	)
C. Cash flow from financing activities
Proceeds from borrowings (net)		(1,479,939	)		(2,416,024	)
Finance costs paid		(158,354	)		(730,133	)
Net cash provided by financing activities (C)		(1,638,293	)		(3,146,157	)
Net (decrease) in cash and cash equivalent (A+B+C)		247,782			(543,907	)
Cash and cash equivalents at the beginning of the year		48,777			592,684
Cash and cash equivalents at the end of the year (Refer Note (i) below)		296,559			48,777
Notes:
(i) Components of cash and cash equivalent (refer note 16)
Cash on hand		216,092			39,578
Balance with banks
On current accounts		79,098			8,847
On deposit accounts (with original maturity of 3 months or less)		1,369			352
		296,559			48,777

(ii) The above cash flow statement has been prepared under the ‘Indirect Method’ as set out in the Accounting Standard 3 on Cash Flow Statement (AS 3 ) specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014.

F-163

The notes referred to above form an integral part of the consolidated financial statements.

For and on behalf of the Board of Directors of Glocal Healthcare Systems Private Limited

Dr. Syed Sabahat Azim	Richa Sana Azim
Director	Director
DIN: 03122895	DIN: 02609003

F-164

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December, 2020

Group information

Glocal Healthcare Systems Private Limited (“the Company” or “the Holding Company” or “the hospital”) was incorporated on 22 July 2010 as a private limited company under the Companies Act, 1956 to set up a chain of modern hospitals across rural India. The Company is primarily engaged in business of rendering medical and health care services. As part of its business activities, the Company holds interests in its subsidiaries and Limited Liability Partnerships (LLPs) firms through which it manages and operates a networks of hospitals across rural India.

The Company, its subsidiaries and LLPs, over which the Company exercise control (jointly referred to as the ‘Group’ herein under), considered in these consolidated financial statements are:

Subsidiary Companies

S.No	Name of the subsidiaries	Country of incorporation	Percentage of ownership interest as at 31 December 2020	Percentage of ownership interest as at 31 December 2019
1	GHSPL Multispeciality Hospital & Trauma Centre Private Limited	India	100%	100%
2	Ficus Health-Infra Private Limited	India	100%	100%

Subsidiary - Limited Liability Partnership firms (over which the Company exercise control)

S.No	Name of the subsidiaries	Country of incorporation	Percentage of ownership interest as at 31 December 2020		Percentage of ownership interest as at 31 December 2019
			Capital contribution ratio	Profit sharing ratio	Capital contribution ratio	Profit sharing ratio
1	GHSPL AMRO Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
2	GHSPL BEGUSARAI Healthcare LLP	India	95.00%	95.00%	95.00%	95.00%
3	GHSPL BGLP Super Speciality Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
4	GHSPL FATEHPUR Super Speciality Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
5	GHSPL JEYPORE Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
6	GHSPL SAMBHAV KNJ Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
7	GHSPL MLD Super Speciality Healthcare LLP	India	63.00%	78.00%	63.00%	78.00%
8	GHSPL MUZF Super Speciality Healthcare LLP	India	42.00%	62.00%	42.00%	62.00%
9	GHSPL SAMBHAV RP Healthcare LLP	India	83.33%	96.00%	83.33%	96.00%
10	GHSPL SAMBHAV BSP Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
11	GHSPL JAUNPUR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
12	GHSPL JSPR Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
13	GHSPL BEM Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%

F-165

S.No	Name of the subsidiaries	Country of incorporation	Percentage of ownership interest as at 31 December 2020		Percentage of ownership interest as at 31 December 2019
			Capital contribution ratio	Profit sharing ratio	Capital contribution ratio	Profit sharing ratio
14	GHSPL AMBEDKAR SCAN Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
15	GHSPL ARA Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
16	GHSPL ASNSL Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
17	GHSPL FRBD Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
18	GHSPL MDPR Super Speciality Healthcare LLP	India	92.00%	98.00%	92.00%	98.00%
19	GHSPL SHRNPR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
20	GHSPL SJPR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
21	GHSPL STP Super Speciality Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
22	GHSPL SW Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
23	GHSPL DGHR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
24	GHSPL DNBD Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
25	GHSPL GYA Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
26	GHSPL PRN Super Speciality Healthcare LLP	India	60.00%	76.00%	60.00%	76.00%
27	GHSPL DARBHANGA Super Speciality Healthcare LLP	India	50.00%	65.00%	50.00%	65.00%
28	GHSPL BALASORE Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
29	GHSPL BASTI Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
30	GHSPL VARANASI Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
31	GHSPL PURI Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
32	GHSPL CNTA Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
33	GHSPL JHRSD Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
34	GHSPL ALIGR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
35	GHSPL BHNGAR Super Speciality Healthcare LLP	India	56.00%	89.00%	56.00%	89.00%
36	GHSPL MRBD Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
37	GHSPL SMBL Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%

F-166

S.No	Name of the subsidiaries	Country of incorporation	Percentage of ownership interest as at 31 December 2020		Percentage of ownership interest as at 31 December 2019
			Capital contribution ratio	Profit sharing ratio	Capital contribution ratio	Profit sharing ratio
38	GHSPL KNPR Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
39	GHSPL Patna Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%
40	GHSPL Dhubri Super Speciality Healthcare LLP	India	100.00%	100.00%	100.00%	100.00%

(This space is intentionally left blank)

F-167

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

1 Significant accounting policies

The accounting policies set out below have been applied consistently to the periods presented in these consolidated financial statements.

(a) Basis of preparation of consolidated financial statements:

The consolidated financial statements (“CFS”) have been prepared to comply in all material aspects with applicable accounting principles in India, the applicable Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (‘Act’) read with Rule 7 of the Companies (Accounts) Rules, 2014, read with Companies (Accounting Standards) Amendment Rules, 2016 applicable with effect from 1 April 2016, the provisions of the Act (to the extent notified) and other accounting principles generally accepted in India, to the extent applicable and in particular Accounting Standard 21 (AS 21)—‘Consolidated Financial Statements’ and Accounting Standard 25 (AS 25)—“Interim Financial Reporting”. The CFS has been prepared on an accrual basis and under the historical cost convention.

The consolidated financial statements are presented in Indian Rupees, in the same format as that adopted by the parent Group for its standalone financial statements. The consolidated financial statement of the group is prepared in reporting currency as USD for the specific purpose of transaction with UpHealth Holdings, INC (Refer Note 30) and for the purpose of filing with SEC for their upcoming IPO. The functional currency and reporting currency for statutory reporting in India is INR. The financial line items of Profit and Loss have been converted using average INR/USD conversion rate for the respective financial year, balance sheet items have been converted using spot INR/USD conversion rate as on the reporting date. Opening balances of reporting period has been converted using spot INR/USD conversion rate as on last day of the previous reporting period. except for equity is continued at historical rate. Any differences arising out of the conversion has been debited/credited to Foreign Currency Translation Reserve.

The interim financial statements have been prepared for the period 01 April 2020 to 31 December 2020 and 01 April 2019 to 31 December 2019 and has not been subjected to audit. The management has used estimates for provision of expenses and income for nine months ended December 2019 and 2020 which are generally booked at the period end for closure of accounts.

(b) Principles of consolidation

The CFS have been prepared on the following basis:

(i) Subsidiary companies are consolidated on a

line-by-line

basis by adding together the book values of the like items of assets, liabilities, income and expenses, after eliminating all significant intragroup balances and intra-group transactions and also unrealized profits or losses in accordance with Accounting Standard 21—“Consolidated Financial Statements”. The results of operations of a subsidiary are included in the consolidated financial statements from the date on which the parent subsidiary relationship comes into existence.

(ii) The difference between the cost to the Group of its investment in the subsidiary and its proportionate share in the equity of the subsidiary as at the date of acquisition of stake is recognised as goodwill or capital reserve, as the case may be. Goodwill is tested for impairment at the end of each accounting year or if there is any indication of impairment. For impairment, the carrying value of goodwill is compared with the present value of discounted cash flows of the respective subsidiaries and loss, if any, is adjusted to the carrying value of the goodwill.

(iii) Minorities’ interest in net profits/losses of the subsidiary for the year is identified and included in the income in order to arrive at the net income attributable to the shareholders of the Group. Their share of net assets is identified and presented in the consolidated balance sheet separately. Where accumulated losses

F-168

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

attributable to the minorities are in excess of their share of losses as per the contractual agreement, the same are accounted for by the holding Group.

(iv) As far as possible, the CFS are prepared using uniform accounting policies for like transactions and other events in similar circumstances and are presented, to the extent possible, in the same manner as the Group’s separate financial statements, Where it is not practicable to use uniform accounting policies, differences in accounting policies are disclosed separately in accordance with AS 21 (Consolidated Financial Statements).

(v) The financial statements of the group entities used for the purpose of consolidation are drawn up to the same reporting date as that of the Group. In case where the subsidiaries are registered under the Limited Liability Partnership Act, 2008 (LLP Act), financial statements for them have been prepared as per the LLP Act.

(c) Use of estimates

The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses and the disclosure of contingent liabilities on the date of the consolidated financial statements. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates is recognised prospectively in current and future periods.

(d) Current–non-current classification

All assets and liabilities have been classified as current or

non-current

as per the Group’s normal operating cycle. Based on the nature of services and the time between the providing services and their realisation in cash and cash equivalents, the Group has ascertained its operating cycle as 12 months for the purpose of current – non-current classification of assets and liabilities.

Assets

An asset is classified as current when it satisfies any of the following criteria:

(a) it is expected to be realised in, or is intended for sale or consumption in, the Group’s normal operating cycle;

(b) it is held primarily for the purpose of being traded;

(c) it is expected to be realised within 12 months after the reporting date; or

(d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.

All other assets are classified as

non-current.

Current assets include the current portion of

non-current

financial assets.

Liabilities

A liability is classified as current when it satisfies any of the following criteria:

(a) it is expected to be settled in the Group’s normal operating cycle;

(b) it is held primarily for the purpose of being traded;

(c) it is due to be settled within 12 months after the reporting date; or

F-169

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

(d) the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

All other liabilities are classified as

non-current.

Current liabilities include current portion of

non-current

financial liabilities.

(e) Revenue recognition

The Group derives its revenue primarily from rendering medical and healthcare services. Income from medical and healthcare services comprise income from hospital services and sale of pharma products.

Revenue from hospital and digital consultancy services to patients is recognised as revenue when the related services are rendered unless significant future uncertainties exist. Revenue is also recognised in relation to the services rendered to the patients who are undergoing treatment/observation on the balance sheet date to the extent of services rendered.

Revenue from sale of medicine and medical consumables within hospital premises is recognised on sale of medicines and similar products to the buyer. The amount of revenue recognised is net of sales returns and trade discounts.

Revenue from digital dispensary

set-up

is recognised when risk and reward of ownership have been transferred to the customer and accepted by the customer, the sale price is fixed or determinable and collectability is reasonably assured.

Unbilled revenue represents value of medical and healthcare services rendered to the patients but not invoiced as at the balance sheet Interest is recognised on time proportion basis taking into account the amount outstanding and the interest rate applicable.

Dividend income is recognised when the right to receive payment is established.

Income from loyalty card sales are recognised when the related services are rendered to the patients.

(f) Liabilities Written back

The group assesses its payment of its liabilities at reporting date and write back liabilities that is no longer required and same is recorded in other income.

(g) Property, plant and equipment(PPE)

Land and building:

Land and buildings are initially recognised at cost. Freehold land (except land under capital work in progress) is subsequently carried at the revalued amount less accumulated impairment losses. Buildings are subsequently carried at the revalued amounts less accumulated depreciation and accumulated impairment losses.

Land and buildings are revalued by independent professional valuers on once in a 5-year basis and whenever their carrying amounts are likely to differ materially from their revalued amounts. When an asset is revalued, any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset. The net amount is then restated to the revalued amount of the asset. In case of revaluation of PPE, any increase in net book value arising on revaluation is credited to revaluation surplus, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as a charge in the Statement of Profit and Loss, in which case the increase is credited to the Statement of Profit

F-170

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

and Loss. A decrease in net book value arising on revaluation is recognised as a charge in the Statement of Profit and Loss, except to the extent it offsets an existing surplus on the same asset recognised in the revaluation reserve, in which case the decrease is recognised directly in that reserve.

Other property, plant and equipment

All other items of property, plant and equipment are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses.

Components of costs

The cost of an item of property, plant and equipment initially recognized includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by

Borrowing costs are interest and other cost (including exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred by the Group in connection with the borrowing of funds. Borrowing costs directly attributable to acquisition or construction of those PPE or intangible assets which necessary take a substantial period of time to get ready for their intended use are capitalised. Other borrowing costs are recognised as an expense in the period in which they are incurred.

Subsequent expenditure

Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repair and maintenance expenses are recognised in Statement of profit and loss when incurred.

Disposal

On disposal of an item of property, plant and equipment, the difference between the disposal proceeds and its carrying amount is recognised in Statement of profit and loss. Any amount in revaluation reserve relating to that asset is transferred to reserves directly.

(h) Depreciation

Depreciation on Property, plant and equipment (PPE) is provided on the straight-line method over the useful lives of assets prescribed in Schedule II of the Companies Act 2013. Depreciation for assets purchased /sold during a period is proportionately charged.

Leasehold land is amortised on a straight-line basis over the period of lease, i.e. 33 years.

Useful life:

Building	60 years
Electrical Equipment	10 years
Medical & Surgical Equipment	13 years
Furniture & Fixtures	10 years
Vehicles	10 years
Office Equipment	5 Years
Computers and accessories	3 Years

F-171

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

(i) Intangible assets

Goodwill

Goodwill arising on acquisition of business is measured at cost less any accumulated amortisation and accumulated impairment loss. Goodwill is tested for impairment annually.

Acquired intangible assets

Intangible assets that are acquired by the Group are measured initially at cost. After initial recognition, an intangible asset is carried at its cost less any accumulated amortisation and any accumulated impairment loss.

Internally generated intangible assets

Internally generated goodwill is not recognised as an asset. With regard to other internally generated intangible assets:

- Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the Consolidated Statement of Profit and Loss as incurred.

- Development activities involve a plan or design for the production of new or substantially improved products or processes. Development cost is capitalised only if the development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and directly attributable borrowing costs (in the same manner as in the case of property, plant & equipment). Other development expenditure is recognised in Consolidated Statement of Profit and Loss as incurred.

(j) Amortisation

Goodwill generated on acquisition of business is amortised over a period of 5 years.

Intangible assets are amortised in Consolidated Statement of Profit or Loss over their estimated useful lives, from the date that they are available for use based on the expected pattern of consumption of economic benefits of the asset. Accordingly, at present, these are being amortised on straight line basis.

Computer software, content development and license is amortised over its useful life of 5 years to 10 years as estimated by management. Amortisation on additions/deletions is provided on

pro-rata

basis in the year of purchase/disposal.

(k) Government grants

Government grants / subsidies received towards specific property, plant and equipment (PPE) have been deducted from the gross value of the concerned PPE and grant / subsidies received during the year towards revenue expenses have been shown as other operating income in the Statement of Profit and Loss.

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received.

(l) Impairment of property, plant & equipment and intangible assets

The carrying amounts of assets are reviewed at each Consolidated Balance Sheet date in accordance with Accounting Standard 28 on ‘Impairment of Assets’ prescribed in the Rule 7 of the Companies (Accounts) Rules, 2014, to determine whether there is any indication of impairment. If any such indication exists, the

F-172

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

assets recoverable amounts are estimated at each reporting date. For the purpose of impairment testing, assets are grouped together into the smallest group of assets (cash generating unit or CGU) that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. An impairment loss is recognised whenever the carrying amount of an asset or the cash generating unit of which it is a part exceeds the corresponding recoverable amount. Impairment losses are recognised in the Consolidated Statement of Profit and Loss. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined net of depreciation or amortisation, if no impairment loss had been recognised.

(m) Inventories

Inventories comprising of medicines and consumables are carried at lower of cost and realisable value. Cost comprise purchase price and all incidental expenses incurred in bringing the inventory to its present location and condition. In determining the cost, weighted average cost method is used.

Stores and spares consists of surgical instruments, linen, crockery and cutlery are valued at cost (using FIFO method). Based on the estimated life of 3 years, 1/3rd of value of stores and spares are charged to Consolidated Statement of Profit and Loss every year.

(n) Foreign currency transaction

Foreign exchange transactions are recorded at the exchange rate prevailing on the dates of the transactions.

Year-end

monetary assets and liabilities denominated in foreign currencies are translated at the

year-end

foreign exchange rates. Exchange differences arising on settlements/ year end translations are recognised in the Consolidated Statement of Profit and Loss for the year in which they arise.

(o) Operating leases

Lease payments under an operating lease arrangement are recognised as expense in the Consolidated Statement of Profit and Loss on a straight-line basis over the period of lease.

(p) Investments

Investments that are readily realisable and intended to be held for not more than a year from the date of acquisition are classified as current investments. All other investments are classified as long-term investments. However, that part of long term investments which is expected to be realised within 12 months after the reporting date is also presented under ‘current assets’ as “current portion of long term investments” in consonance with the current and

non-current

classification scheme of Schedule III.

Long-term investments (including current portion thereof) are carried at cost less any other-than-temporary diminution in value, determined separately for each individual investment.

Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each category of investments.

Any reductions in the carrying amount and any reversals of such reductions are charged or credited to the Consolidated Statement of Profit and Loss.

Profit or loss on sale of investments is determined on the basis of carrying amount of investments disposed of.

F-173

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

(q) Employee benefits

The Group’s obligations towards various employee benefits have been recognised as follows:

Short-term employee benefits

Employee benefits payable wholly within twelve months of receiving employee services are classified as short-term employee benefits.

Post-employment benefits

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays specified contributions to a separate entity and has no obligation to pay any further amounts. The Group makes specified monthly contributions towards employee provident fund to Government administered provident fund scheme which is a defined contribution plan. The Group’s contribution is recognised as an expense in the Consolidated Statement of Profit and Loss during the period in which the employee renders the related service.

Defined benefit plans

The Group’s gratuity benefit scheme is defined benefit plans. The Group’s net obligation in respect of a defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, that benefit is discounted to determine its present value. Any unrecognised past service costs are deducted. The calculation of the Group’s obligation under the plan is performed annually by an independent actuary using the projected unit credit method carried out at the balance sheet date.

The Group recognises all actuarial gains and losses arising from defined benefit plan immediately in the Consolidated Statement of Profit and Loss. All expenses related to defined benefit plan are recognised in employee benefits expense in the Consolidated Statement of Profit and Loss.

Compensated Absences

The employees can carry-forward a portion of the unutilised accrued compensated absences and utilise it in future service periods or receive cash compensation on termination of employment. Since the compensated absences do not fall due wholly within twelve months after the end of the period in which the employees render the related service and are also not expected to be utilized wholly within twelve months after the end of such period, the benefit is classified as a long-term employee benefit. The Group records an obligation for such compensated absences in the period in which the employee renders the services that increase this entitlement. The obligation is measured on the basis of independent actuarial valuation using the projected unit credit method.

Termination benefits

Termination benefits are recognised as an expense when, as a result of a past event, the Group has a present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

F-174

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

(r) Taxation

Income-tax

expense comprises current tax (i.e. amount of tax for the period determined in accordance with the

income-tax

law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period).

Income-tax

expense is recognised in the Consolidated Statement of Profit and Loss.

Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws. Deferred tax is recognised in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed as at each balance sheet date and written down or

written-up

to reflect the amount that is reasonably/virtually certain (as the case may be) to be realised.

Minimum Alternative Tax (‘MAT’) under the provisions of the

Income-tax

Act, 1961 is recognised as current tax in the Statement of Profit and Loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the Group will pay normal income tax during the period for which the MAT credit can be carried forward for

set-off

against the normal tax liability. MAT credit recognised as an asset is reviewed at each balance sheet date and written down to the extent the aforesaid convincing evidence no longer exists.

(s) Provisions and contingent liabilities

A provision is created when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Contingent assets are neither recognised nor disclosed in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

(t) Earnings/(loss) per share

Basic earnings/ (loss) per share is calculated by dividing the net profit/(loss) for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of equity and dilutive potential equity shares outstanding during the year, except where the results would be anti-

(u) Discount on issue of debentures

Discount on issue of debentures and expenditure incurred in connection with such issue are amortised over the term of the debentures in proportion to the principal amount outstanding.

F-175

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

(v) Cash and cash equivalents

Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and short term investments with original maturity of three months or less.

(w) Cash flow statement

Cash flows are reported using indirect method, whereby net profits before tax is adjusted for the effects of transactions of a

non-cash

nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regular revenue generating, investing and financing activities of the Group are segregated.

(x) Going Concern

The group consolidated financial statements have been prepared on the basis that the group will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. The group have incurred losses till year end March 31, 2019 and have delays in repayment of loan. The Company is under discussion with the bank for extension, however due to the COVID situation, there has been delay in approvals from Bank, the management expects to receive the approvals for extension in certain period of time shortly. The Group has earned profits for year end March 31, 2020 and nine months ended December 30, 2020 and also expects to earn profits in subsequent years based on the management projections and contracts entered.

The Group also have received guarantee for the creditors of $35million from UpHealth, Inc. as part of the share purchase agreement dated October 22, 2020 (Refer note 39). With the positive cash flows from operation and the transaction with UpHealth, Inc., the management believes that there are no concerns towards near term access to capital and meeting its obligations.

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F-176

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

2 Share capital

							Amount in USD
	31 December 2020				31 March 2020
	Number of shares		Amount		Number of shares		Amount
Authorised
Equity shares of INR 10 each		13,500,000		2,075,515		13,500,000		2,075,515
Preference shares of INR 100 each		5,000,000		7,049,949		5,000,000		7,687,092
Preference shares of Re. 1 each		3,200,000		45,120		3,200,000		49,197
		21,700,000		9,170,583		21,700,000		9,811,805
Issued, subscribed and paid up
Equity Shares
Equity shares of INR 10 each		492,904		104,371		492,904		104,371
Preferred Stock
0.001% Compulsorily Convertible Cumulative Preference Shares—Series A of INR 100 each		240,777		508,086		240,777		508,086
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C of INR 100 each		254,936		406,102		254,936		406,102
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C1 of INR 100 each		157,234		243,565		157,234		243,565
8% Compulsorily Convertible Cumulative Preference Shares of INR 100 each		3,499,588		5,550,528		3,499,588		5,550,528
Total		4,645,439		6,812,652		4,645,439		6,812,652

a) Reconciliation of the shares outstanding at the beginning and at the end of the period:

Equity shares of INR10 each fully paid up
At the commencement and at the end of the period	492,904	104,371	492,904	104,371
Shares issued during the period	—	—	—	—
At the end of the period	492,904	104,371	492,904	104,371
0.001% Compulsorily Convertible Cumulative Preference Shares—Series A
At the commencement and at the end of the period	240,777	508,086	240,777	508,086
Shares converted into equity shares during the period	—	—	—	—
At the end of the period	240,777	508,086	240,777	508,086
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C
At the commencement and at the end of the period	254,936	406,102	254,936	406,102
Shares issued during the period	—	—	—	—
At the end of the period	254,936	406,102	254,936	406,102
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C1
At the commencement and at the end of the period	157,234	243,565	157,234	243,565
Shares issued during the period	—	—	—	—
At the end of the period	157,234	243,565	157,234	243,565
8% Compulsorily Convertible Cumulative Preference Shares
At the commencement of the period	3,499,588	5,550,528	3,499,588	5,550,528
Shares issued during the period	—	—	—	—
At the end of the period	3,499,588	5,550,528	3,499,588	5,550,528

F-177

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

b) Shares held by holding company:

The Company does not have a holding company.

c) Details of shareholders holding more than 5% are as follows

	Number of shares		% of shares held		Number of shares		% of shares held
Equity shares of INR 10 each fully paid up held by
Dr. Syed Sabahat Azim		154,000		31.24		154,000		31.24
Mrs. Richa Sana Azim		154,000		31.24		154,000		31.24
Mr. M. Damodaran		52,855		10.72		52,855		10.72
Elevar Equity Mauritius		52,555		10.66		52,555		10.66
0.001% Compulsorily Convertible Cumulative Preference Shares—Series A
Elevar Equity Mauritius		146,616		60.89		146,616		60.89
Sequoia Capital India Investment Holdings III		94,161		39.11		94,161		39.11
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C
Elevar Equity Mauritius		125,774		49.34		125,774		49.34
Sequoia Capital India Investment Holdings III		62,887		24.67		62,887		24.67
Mr. M. Damodaran		45,311		17.77		45,311		17.77
Kimberlite Social Infra Private Limited		20,964		8.22		20,964		8.22
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C1
Elevar Equity Mauritius		157,234		100		157,234		100
8% Compulsorily Convertible Cumulative Preference Shares SIDBI Trustee Company Limited A/C Samridhi Fund		3,499,588		100		3,499,588		100

d) Rights, preferences and restrictions in respect of each class of shares including restrictions on the distribution of dividends and the repayment of capital:

i) The Company has a single class of equity shares. Each holder of equity share is entitled to one vote per share, when present in person on a show of hands. In case of poll, each holder of equity shares shall be entitled to vote in proportion to his

paid-up

equity share capital.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

ii) The Company has a class of preference shares referred to as “0.001% Compulsorily Convertible Cumulative Preference Shares - Series A” having a par value of INR 100 each. These preference shares carry a

pre-determined

cumulative dividend rate of 0.001% p.a. on the subscription amount. The holders of preference shares may convert the preference shares in whole or part into equity shares at any time before January 13, 2026 at the rate of one (01) fully paid up equity share per one (01) preference share. The preference shares, or any of them, if not converted earlier, shall automatically convert into equity shares at the then applicable conversion rate, (i) two (02) days prior to the filing of the draft red herring prospectus in connection with the occurrence of the Qualified IPO, or (ii) on January 13, 2026, whichever may be earlier. The Company shall and the founders shall cause the Company to undertake a Qualified IPO (‘IPO’) at a price equal to the fair market value or a strategic sale, in the event the Company fails to complete the qualified IPO or strategic sale, the investor shall have the right, to call or buyback of all or part of the investor shares by the Company whether through one or more successive buyback offer at fair value. The buyback is subject to the meeting the conditions as provided by Companies Act 2013. The agreement is subsequently been amended on December 11, 2020 which provides the investor had no point in time intent to exercise such buyback rights and based on the addendum letter, such buyback rights may be deemed to have been removed from the shareholders agreement.

F-178

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

iii) The Company has a class of preference shares referred to as “0.001% Compulsorily Convertible Cumulative Preference Shares—Series C” having a par value of INR100 each. These preference shares carry a

pre-determined

cumulative dividend rate of 0.001% p.a. on the subscription amount or such higher percentage as declared in respect of the holders of equity shares. The holders of the preference shares may convert the preference shares in whole or part into equity shares at any time before December 31, 2030 at the rate of one (01) fully paid up equity share per one (01) preference share. The preference shares, or any of them, if not converted earlier, shall automatically convert into equity shares, (i) two (02) days prior to the filing of the draft red herring prospectus in connection with the occurrence of the Qualified IPO, or (ii) on January 13, 2026, whichever may be earlier.

iv) The Company has a class of preference shares referred to as “0.001% Compulsorily Convertible Cumulative Preference Shares—Series C1” having a par value of INR100 each. These preference shares carry a

pre-determined

cumulative dividend rate of 0.001% p.a. in addition, if the holders of equity shares or any other class of shares (other than shares held by SIDBI) are proposed to be paid dividend in excess of 0.001% , the holders of Series

C1-Compulsorily

Convertible Cumulative Preference Shares shall be entitled to dividend at such higher rate. The holders of the Series

C1-Compulsorily

Convertible Cumulative Preference Shares may convert at 1:1 in whole or part into equity shares at any time before 19 periods from the date of issuance.

v) The Company has a class of preference shares referred to as “8% Compulsorily Convertible Cumulative Preference Shares”, having a par value of INR 100 each allotted on 24 December 2013 and 13 August 2014. These preference shares carry a

pre-determined

cumulative dividend rate of 8% p.a. on the capital for the time being paid up on the subscribed preference shares. The Company and/or the promoters or their nominees may on or before the October 31, 2018, or such later date as agreed by the investors after giving notice of at least thirty (30) days to the investor, buy back/redeem/purchase the preference shares held by the investor either in full or in part at any time during the tenure of this Agreement. In case the Company/Promoters have not bought back/redeemed/purchased the subscription preference shares, the Company shall convert the outstanding preference shares at an

pre-agreed

IRR of 16%, this is later amended in agreement dated March 31, 2017, In the event the PAT for the Financial period ending March 31, 2018 is negative (i.e. there is a loss), the conversion of the Outstanding Preference Shares (issued as per the SSHA) into Equity Shares shall be at the par value of the Equity Shares. The Company have a negative PAT in period end March 31, 2018 and hence the preference shares are convertible at 1:1 ratio. There is subsequent round of preference shares issued as per agreement dated March 31, 2017 at similar terms.

3 Reserves and surplus

	31 December 2020			31 March 2020
Securities premium account		8,320,698			8,320,698
Revaluation surplus		10,128,170			10,128,170
General reserve		331,361			331,361
Foreign Currency Translation reserve		(2,289,772	)		(2,576,594	)
Surplus in Statement of Profit and Loss
At the commencement of the period (1st April)		(15,489,802	)		(17,873,766	)
Add: Profit/(Loss) for the period		2,393,374			2,383,964
Balance as at the end of the period		(13,096,428	)		(15,489,802	)
Total reserves and surplus		3,394,029			713,832

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F-179

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

4 Long-term borrowings

							Amount in USD
			Non-current portion				Current portion*
	Secured/ unsecured		31 December 2020		31 March 2020		31 December 2020		31 March 2020
204,540 (previous year: 204,540) 13.55% non-convertible debentures of INR 1,000 each		Secured		—		—		—		2,715,433
Less: Discount on issue of debenture to the extent not written off or adjusted				—		—		—		—
				—		—		—		2,715,433
Term loans from Banks		Secured		—		—		13,019,207		12,630,603
Term loan from Small Industries Development Bank of India		Secured		515,531		561,155		119,084		107,534
Term loan from National Skill Development Corporation		Secured		363,730		695,997		1,793,564		1,396,354
Term loan from Caspian Impact Investments Private Limited		Unsecured		—		—		1,369,060		1,327,580
Term loan from Blacksoil capital Private Limited		secured		193,327		—		217,493		362,333
Equipment loan		Secured		167,300		321,760		427,475		237,157
				1,239,889		1,578,912		16,945,884		18,776,995

* Amount disclosed under Other current liabilities - Note 8

(a) Secured non-convertible debenture

(i) The Company had issued 13.55% redeemable non-convertible debenture of face value of INR 1,000 each aggregating to INR 204,540,000 (USD 2,715,433) at a discount of 0.95% on face value on 19 March 2016 to Essential Capital Consortium BV on private placement basis. These debentures are redeemable at par in two equal instalments of INR 102,270,000 (USD 1,478,574) each on 5 May 2019 and 5 November 2019 and in case put option is exercised by debenture holder, the total balance of INR 204,540,000 (USD 287,172) has to be repaid on any date not earlier than 11 February 2019. Interest is payable semi-annually at the rate of 13.55% per annum (net of withholding tax) on interest payment dates or earlier in case upon the exercise of the put option (interest payment starting from 5 May 2016 and ending on 5 November 2019 and in case put option is exercised, starting from 5 May 2016 and ending on 11 February 2019 ) as per Mortgage Cum Debenture Trust Deed dated 4 February 2016.

In view of contribution of company in the field of medicine especially during the COVID situation, USAID has decided to approve grant by paying off its debts towards Essential Capital Consortium (ECC). The grant has been approved and charged satisfaction has been filed on 13th June 2020.The company has written back the debenture of INR 204,540,000 (USD 2,799,716) and interest accrued and due on debenture of INR 13,712,945 (USD 187,701)under other income.

(ii) These debentures are secured by way of a second ranking and continuing charge by way of registered mortgage on the;

(a) immovable secured properties i.e rights in relation to;

(i) piece and parcel of garden land at Sonamukhi (District: Bankura) together with all buildings, constructions and plant and machinery erected thereon, both present and future.

(ii) piece and parcel of land at Bolpur (District: Birbhum) together with all buildings, constructions and plant and machinery erected thereon, both present and future.

F-180

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

(iii) piece and parcel of land at Behrampore (District: Murshidabad) together with all buildings, constructions and plant and machinery erected thereon, both present and future.

(iv) rooftop of one-storied building, ground floor stalls and rear vacant land at Dubrajpur (District: Birbhum) together with all buildings, constructions and plant and machinery erected thereon, both present and future

(v) office space together with all constructions and plant and machinery erected thereon at Ecospace, New Town Rajarhat (Kolkata)

(b) movable assets in relation to hospitals at Sonamukhi (District: Bankura), Dubrajpur (District: Birbhum), Behrampur (District: Bankura), Bolpur (District: Birbhum) and head office at Ecospace, New Town Rajarhat (Kolkata).

(b) Term loans from Allahabad Bank

(i) Term loan from Allahabad Bank is secured by;

(a) For term loan I and II: First and exclusive charge by way of equitable mortgage on freehold land of Sonamukhi Unit, Bolpur Unit and Berhampore Unit and leasehold land of Dubrajpur Unit and construction thereon including hospital building, staff quarters etc (both present and future). Further, first and exclusive charge by way of hypothecation of plant and machineries, furniture and fixtures, entire computer systems, software packages, hardware, vehicles and other fixed assets both moveable and immovable of the respective five units and administrative office of the Company (both present and future). Second charge on the entire current assets of the five units and administrative office of the Company (both present and future).

(b) For term loan III,IV & V: 1. First Charge by way of Equitable Mortgage on land and building for the proposed 10 hospitals under LLPs i.e. Amroha Unit, Krishnanagar Unit, Jeypore Unit,, Muzzafarpur Unit, Bhagalpur Unit, Medinipur Unit, Malda Unit, Fatehpur Unit, Basti Unit and Bhangar Unit and construction thereon including hospital building, staff quarters, offices etc. (both present and future)

2. First Charge by way of Hypothecation of plant and machineries, furniture and fixtures, entire computer systems, software packages, hardware, vehicles, hospital equipment and other fixed assets both moveable and immovable of the proposed 10 hospitals under LLPs (both present and future)

3. Assignment of free cash-flows available to the Company as its share in the LLPs

Second charge on the entire current assets of the 10 hospitals operated by LLPs (Both present and future)

(c) Personal guarantee of two Directors, Dr. Syed Sabahat Azim and Mrs. Richa Sana Azim.

(ii) Interest on the above Term Loan-I, II & III carries an interest of 1-year MCLR plus 3.10% p.a. at monthly rests and is payable as and when due. And Term Loan IV and V carries an interest of 1-year MCLR plus 4.10% p.a. at monthly rests and is payable as and when due.

(iii) The Company has been disputing the EMIs being deducted by Allahabad bank since 2017 in respect to hospital projects that have not achieved COD especially as the disbursal also started late. The Bank and the Company are entering into a restructuring proposal to resolve this issue. The Techno Economic viability report with positive recommendation has been submitted by Dun & Bradstreet which was appointed by bank to examine and report on the viability and Independent Credit Rating has been given by the approved rating agency. It is expected that the restructuring process will be completed in 2021. During this time the loan has been classified by the Bank as technical npa pending closure of restructuring process.

F-181

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

(c) Term loan from Small Industries Development Bank of India (SIDBI)

(i) Term loan from SIDBI is secured by :

(a) First charge by way of mortgage of leasehold rights of the borrower in favour of SIDBI over immovable properties and measuring 34.188 decimal and situated at Thana no.557, Tauji no.827,3665,3666 Khata no,134,1 & 5, Khasra no,912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar together with building & structure thereon, both present and future owned by the LLP.

(b) Hypothecation of all the movables acquired / to be acquired under the project including the movables, plant, machinery, spares, tools & accessories, office equipment, computers, furniture and fixtures situated at 34.188 decimal situated at Thana no.557, Tauji no.827,3665,3666 Khata no,134,1 & 5, Khasra no, 912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar.

(c) Personal guarantee of Dr. Syed Sabahat Azim and corporate guarantee of Glocal Healthcare Systems Private Limited (partner in the LLP).

(ii) The term loan have been sanctioned for INR 66,500,000 (USD 882,841) for setting up of hospital and purchase of medical instruments and surgical equipment at Beguasarai, Bihar and is repayable in 96 monthly instalments after a moratorium of 2 years from the date of first disbursement of loan. Tentative start date is 10 April 2017 and tentative last instalment date is 10 March 2025.

(iii) Above term loan carries an interest of SIDBI’s Prime Lending Rate (PLR) plus 1.50%, at monthly rests and is payable as and when applied.

(d) Term loan from National Skill Development Corporation

(i) Term loan from National Skill Development Corporation is secured by:

(a) Charge on the movable, immovable acquired assets and receivables including revenue from franchisee arrangements, earnings from training programs.

(b) Deeds of hypothecation to be executed as and when assets are acquired and intimation forwarded to NSDC.

The term loan has been sanctioned for INR 189,000,000 (USD 2,500,000) and is to be disbursed in five instalments. The period of loan is ten years with two years moratorium on interest and principal from the date of first disbursement of the loan, final repayment by Q4 of the year 2021- 22. The loan is repayable on quarterly basis, after moratorium period, as per the repayment schedule given in the loan agreement. The Company has not repaid of principal and interest as per the repayment schedule. Principal and interest is outstanding from fourth quarter of the financial year ended 31 March 2017 till date. The current skilling structure has resulted in pendencies for the Company and hence the Company has approached NSDC for changes in the structure. The rate of interest being charged is simple interest of 6% p.a. payable on a quarterly basis after the interest-free moratorium period of two years from the date of first disbursement of the loan.

(ii) The rate of interest being charged is simple interest of 6% p.a. payable on a quarterly basis after the interest-free moratorium period of two years from the date of first disbursement of the loan.

(iii) The principal and interest is overdue as on 30th December 2020.

(e) Term loan from Caspian Impact Investments Pvt. Ltd.

(i) Term loan from Caspian Impact Investments Pvt. Ltd. is unsecured and other terms are:

(a) Carries an interest rate of 15% p.a.

(b) Purpose is to finance working capital.

F-182

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

(c) At the end of the tenor of the credit facility or upon prepayment of credit facility,whichever is earlier the borrower shall pay such additional interest that resulting in the overall XIRR of 18% on the entire credit facility from the First Disbursement date until the repayment date.

(d) Additionally the lender shall have the option but not an obligation to convert whole or part of the unpaid amount under the Credit Facility and/or invest additional amount cumulatively up to a maximum of INR 100,000,000 (USD 1,327,580) at the share price of the next round of equity investment immediately after the execution date for subscription of shares whether equity or preference.

(e) As per revised schedule dt. April 24, 2020 entire loan will be repaid on December 31, 2020 and interest will be charged on monthly rest.

(f) Term loan from Blacksoil Capital Private Limited

Term loan from Black Soil Private Limited is unsecured and other terms are:

(a) Carries an interest rate of 16.25% p.a.

(b) The loan of INR 75,000,000 (USD 995,685) has been sanctioned for business purpose.

(c) The facility is secured by way of hypothecation created in favour of Black Soil Private Limited over following:

(i) a first & exclusive charge over inventory.

(ii) a first & exclusive charge on the Identified Receivables accruing to the borrowers, both present & future.

(iii) if the DSRA in the form of fixed deposit, then first & exclusive charge on DSRA.

(d) Loan is to be repaid in 22 equated monthly installment of INR 3,409,091 (USD 45,258) starting from 30th November, 2018 till 31st August, 2020.

(e) In light of the stress in the financial sector caused by the

COVID-19

pandemic, the Tenure shall stand extended by 12 (twelve) months starting from December, 2020.

(g) Loan from Hero Fincorp

(i) Term loan amounting to Nil (previous year Nil) is secured by:

(a) Exclusive charge over land & building and entire equipment of Begusarai Hospital immovable properties and measuring 34.188 decimal and situated at Thana no.557, Tauji no. 827, 3665, 3666 Khata no,134,1 & 5, Khasra no,912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar together with building & structure thereon, both present and future owned by the LLP.

(b) Exclusive charge on cash flow of the company

(c) Escrow of routing of receivables from digital dispensaries opened in Odisha

(d) Personal guarantee of Dr. Syed Sabahat Azim, Richa Sana Azim and corporate guarantee of Glocal Healthcare Systems Private Limited (partner in the LLP).

(ii) The term loan has been sanctioned for INR 70,000,000 (USD 929,306) as working capital loan & INR 60,000,000 (USD 796,548) as term loan for capex requirements- production & expansion of digital dispensary business and takeover of existing term loan from SIDBI & IIFL respectively.

(iii) Above term loan is carries an interest of Hero Fincorp Prime Lending Rate @ 13% p.a. at monthly rests

F-183

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

(h) Overdue payment of loan

(IN USD)

Particulars	Principal Amount		Interest Amount		Period
Allahabad Bank Loan
TL-1		1,979,263		391,485	1. Principal Amount due upto December 2020 2. Interest amount due upto December 2020
TL-2		1,336,147		264,765
TL-3		2,366,672		573,124	1. Principal Amount due upto December 2020
TL-4		2,539,829		657,246	1. Principal Amount due upto December 2020 2. Interest amount due upto December 2020
TL-5		5,686,335		1,391,224	1. Principal Amount due upto December 2020 2. Interest amount due upto December 2020
National Skill Development Corporation (NSDC)		1,082,148		460,282	1. Principal Amount due upto December 2020
Total		14,990,393		3,738,126

(j)

As per circular

DOR.No.BP.BC.47/21.04.048/2019-20

dated March 27, 2020 regulatory measures were announced by RBI to mitigate the burden of debt servicing brought about by disruptions on account of

COVID-19

pandemic by granting a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020. Further, this relief was extended till August 31, 2020 and this package has been taken up the company and installments has been rescheduled accordingly.

5   Provisions Amount in USD

	Long-term				Short-term
	31 December 2020		31 March 2020		31 December 2020		31 March 2020
Provision for employee benefits
Gratuity		94,856		78,161		3,425		3,322
Compensated absences		63,697		51,524		2,547		2,471
		158,553		129,685		5,972		5,793
Other provisions
Provision for Income Tax		—		—		—		1,859
		—		—		—		1,859
		158,553		129,685		5,972		7,651

6 Short-term borrowings

	31 December 2020		31 March 2020
Cash credit facilities from bank (secured)		1,035,788		1,117,699
Unsecured loan
- loan from Hero Fincorp Ltd		958,151		929,306
- loan from related party		362,679		373,962
- loan from directors		20,942		20,312
- loan from others		1,452,602		1,451,329
		3,830,163		3,892,608

F-184

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

6.1 Cash credit facilities from Allahabad Bank has been sanctioned with a limit of INR 50,000,000 (USD 663,790) for working capital requirement of the five existing operational hospitals of the Company with a margin of 25% and is secured by first and exclusive charge of hypothecation of all the current assets of the five units and administrative office of the Company (both present and future), further, secured by (along with bank guarantee) second charge on land and building, plant and machineries and other fixed assets of the five existing operational hospitals under the Company’s direct ownership (both present and future). The cash credit facilities carry an interest rate of one year MCLR plus 3.10% p.a. computed on a monthly basis on the actual amount utilised and are repayable as and when due.

The Group has availed cash credit facilities from Allahabad Bank for Amroha, Krishnanagar, Jeypore, Begusarai, Bhagalpur, Medinapur, Malda, Bhangar, Basti and Muzafarpur LLP’s. Cash Credit from Allahabad Bank has been sanctioned with a limit of INR 30,000,000 (USD 398,287.15) and is secured by stock (margin of 25% on stocks and 40% on book debts up to 90 days old). The cash credit facilities carry an interest rate of 1 year Allahabad Bank MCLR + 4.10% p.a. computed on a monthly basis on the actual amount utilised and are repayable on demand.

The company has been disputing the EMIs being deducted by Allahabad bank since 2017 in respect to hospital projects that have not achieved COD especially as the disbursal also started late. The Bank and the company are entering into a restructuring proposal to resolve this issue. The Techno Economic viability report with positive recommendation has been submitted by Dun & Bradstreet which was appointed by bank to examine and report on the viability and Independent Credit Rating has been given by the approved rating agency. It is expected that the restructuring process will be completed in 2021. During this time the loan has been classified by the Bank as Technical NPA pending closure of restructuring process.

6.2 Interest free loan taken from directors and related parties are repayable on demand.

6.3 a. Loan taken from others is repayable on demand.

b. Loan taken from others carries an interest rate of 12% to 15% p.a. (except for three parties)

6.4 Loan from Hero Fincorp

(i) Term loan is secured by:

(a)    Exclusive charge over land & building and entire equipment of Begusarai Hospital immovable properties and measuring 34.188 decimal and situated at Thana no.557, Tauji no.827,3665,3666 Khata no,134,1 & 5, Khasra no,912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar together with building & structure thereon, both present and future owned by the LLP.

(b) Exclusive charge on cash flow of the company

(c) Escrow of routing of receivables from digital dispensaries opened in Odisha

(d)    Personal guarantee of Dr. Syed Sabahat Azim, Richa Sana Azim and corporate guarantee of Glocal Healthcare Systems Private Limited (partner in the LLP).

(ii) The term loan has been sanctioned for INR 70,000,000 (USD 929,306) as working capital loan & INR 60,000,000 (USD 862,678) as term loan for capex requirements- production & expansion of digital dispensary business and takeover of existing term loan from SIDBI & IIFL respectively. The term loan facility for takeover of loan from SIDBI & IIFL has not been availed and hence got expired. So the charge created against immovable property is still lying with SIDBI.

(iii) Above term loan carries an interest of Hero Fincorp Prime Lending Rate @ 13% p.a. at monthly rests

(iv) As per circular DOR.No.BP.BC.47/21.04.048/2019-20 dated March 27, 2020 regulatory measures were announced by RBI to mitigate the burden of debt servicing brought about by disruptions on account of

F-185

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

COVID-19

pandemic by granting a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020. Further, this relief was extended till August 31, 2020 and this package has been taken up the company and installments has been rescheduled accordingly.

7 Trade payables

	31 December 2020		31 March 2020
Total outstanding dues of micro enterprises and small enterprises		—		—
Total outstanding dues of creditors other than micro enterprises and small enterprises (Net of Advances for goods)		1,037,888		1,471,145
		1,037,888		1,471,145

8 Other current liabilities

	31 December 2020		31 March 2020
Current maturities of long-term debts (refer note 4)		16,945,884		18,776,995
Interest accrued and due on term loans		4,019,143		2,275,228
Interest accrued but not due on loan		100,238		—
Interest accrued and due on cash credit		256,787		145,101
Interest accrued and due on equipment loan		33,592		32,465
Interest accrued and due on other loan		277,995		118,523
Interest accrued but not due on debentures		—		—
Interest accrued but and due on debentures		—		182,050
Creditors for capital goods (Net of Capital Advances)		—		178,446
Employee benefits payable		596,325		539,903
Temporary Book Overdraft		3,732		—
Advance from TPA & Customers		445,367		431,960
Partner’s Current A/c		17,794		17,259
Statutory dues payable
Provident fund		346,879		274,585
Professional tax		15,027		12,484
Employee state insurance payable		188,519		166,695
Tax deducted at source payable		289,960		327,555
Goods and services tax payable		45,163		88,504
Unearned revenue		135,504		131,424
Advance from patients and others		13,675		7,220
Other liabilities/ payables		137,154		128,565
		23,868,737		23,834,963

8.1 i. Major clients of the company are ESIC, PSU’s and various other government departments. There has been major delay in receipt of payment from their side which is creating challenges for the company to meet its operational expenses which includes statutory obligations also.

Due to this financial crunch there has been continuing delay in payment of statutory dues on the part of the company.

ii. As per Income Tax Act tax is to be deducted on payment or credit whichever is earlier, ignoring the fact whether payment has been made or not. Hence, TDS liability is deposited in respect of those to whom payment has been made.

F-186

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

8.2 Advance receipt of INR 30 mm from S.S Earth Moving Mining was for setup of dispensary setup in their mining area. But no space was allocated to us by them, hence setup is not done.

8.3 Advance include amount received from African medical supply for supply of DD setup but due to COVID outbreak same could not be fulfilled.

8.4 Regarding interest accrued and due with respect to the term loan taken from Allahabad bank, the company has been disputing the EMIs being deducted by the bank since 2017 in respect to hospital projects, that have not achieved COD especially as the disbursal also started late. The Bank and the company are entering into a restructuring proposal to resolve this issue. The Techno Economic viability report with positive recommendation has been submitted by Dun & Bradstreet which was appointed by bank to examine and report on the viability and Independent Credit Rating has been given by the approved rating agency. It is expected that the restructuring process will be completed in 2021. During this time the loan has been classified by the Bank as technical NPA pending closure of restructuring process. As the account has been declared technical NPA by the bank so no interest has been charged by the bank but following the concept of mercantile system of accounting interest on term loan from Allahabad Bank and interest on cash credit limit has been calculated and charged in expenses. This interest has been classified as Interest accrued and due under other current liabilities.

9 Goodwill

	31 December 2020			31 March 2020
Opening balance		459,982			598,136
Amortisation of Goodwill		(70,285	)		(95,982	)
Forex Adjustment		13,187			(42,172	)
Closing balance		402,884			459,982

12 Long-term loans and advances

	31 December 2020		31 March 2020
(Unsecured and considered good)
To parties other than related parties
(a) Capital advances (net of Creditors for Capital goods)		417,032		544,996
(b) Security deposits		170,885		166,558
		587,917		711,553
(c) Other loans and advances
TDS receivables		455,927		413,507
		455,927		413,507
		1,043,844		1,125,061

13 Other non-current assets

	31 December 2020		31 March 2020
(Unsecured and considered good)
Bank deposits (due to mature after 12 months from the reporting date) [refer note 16]*		42,707		19,289
Balance with government authorities		682		661
Interest accrued on bank deposits		—		41
Interest accrued on electricity deposits		655		636
		44,044		20,626

F-187

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

14 Inventories

(Valued at lower of cost and net realisable value)
Stock of digital dispensary, medicine and medical consumables	307,629	265,330
Stores and spares	3,875	3,966
	311,504	269,296

15 Trade receivables

(a) Unsecured and considered good	5,912,534		4,719,956
(b) Doubtful	(448,440	)	434,940
Less: Provision for doubtful receivables	448,440		(434,940	)
	5,912,534		4,719,956
Other receivables
(a) Unsecured, considered good			—
			—
			—

16 Cash and bank balances

	31 December 2020		31 March 2020
Cash and cash equivalents
Cash on hand		216,092		32,083
Balance with banks:				—
On current accounts		79,098		71,853
On deposit accounts (with original maturity of 3 months or less)		1,369		7,965
		296,558		111,901
Other bank balances:				—
Deposits in banks with maturity of more than 3 months but less than 12 months*		45,851		59,965
		342,409		171,867

*Bank deposits of USD 13,688 as on 31 December 2020 ( 31 March 2020—USD 13,276) have been pledged with Black Soil as security for term loan

*Bank deposits of USD 31,365 as on 31 December 2020 ( 31 March 2020- USD 30,421) have been given as cash margin to banks for issuing bank guarantees to government authorities.

F-188

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

17 Short-term loans and advances

(Unsecured and considered good)
To parties other than related parties
Security deposits	39,379	37,376
Prepaid expenses	1,483	2,652
Advance for supply of goods and services	73,245	493,214
Advance to doctors	—	26,339
Advances to employees	549,456	396,399
Advances to others	62,106	52,262
	725,669	1,008,242

18 Other current assets

(Unsecured and considered good)
Interest accrued on bank deposits	16,807	16,261
Government grant receivable	707,500	492,567
Unbilled revenue	3,903	3,786
	728,210	512,613

Note 10- Property, Plant & Equipment

Amount in USD

Particulars	WDV as on 31.12.2020		WDV as on 31.03.2020
Freehold land		5,393,991		5,231,609
Leasehold land		22,747		22,837
Buildings		16,169,070		15,892,417
Electrical equipment		405,390		450,247
Medical & surgical equipment		2,304,044		2,408,993
Furniture and fixtures		243,973		273,870
Vehicles		3,280		3,828
Office equipment		64,599		67,280
Computers and accessories		17,675		27,336
Total		24,624,769		24,378,417

Note

11-

Intangible Assets

Particulars	WDV as on 31.12.2020		WDV as on 31.03.2020
Computer software (internally generated platform/applications)		2,553,133		2,541,433
Computer software		114,403		166,246
Trademark		33		74
Content development		79,687		158,137
Total		2,747,256		2,865,890

F-189

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

19 Revenue from operations

			Amount in USD
	31 December 2020		31 December 2019
Sale of services:
Income from hospital services		3,923,554		3,442,155
Income from digital dispensary consultancy		979,116		885,709
Sale of goods:
Sale of pharmacy/ medicines		581,675		613,423
Sale of digital dispensary (net of Sales return :Nil (31 December 2019: USD 530,802 ))		—		(381,022	)
Other operating revenue:
Income from government grant*		188,028		213,028
Miscellaneous income		84,767		58,699
		5,757,140		4,831,992

19.1 The company has entered into revenue sharing arrangement, the contractual arrangement is on principal to principal basis for hospital at Bolpur, Sonamukhi, Malda, Jeypore & Mednipore. These hospitals were earlier operated by Company itself. Reveue sharing arrangement is included within Income from Hospital Services.

19.2 Income from government grant represents interest and tax subsidy from government of Bihar under Bihar Industrial Investment Promotion Act, 2016. Interest subsidy is available to GHSPL Muzafarpur Healthcare LLP, GHSPL Bhaglpur Healtcare LLP & GHSPL Begusari Healthcare LLP on the term loan availed by the LLP from Allahabad Bank & State Industrial Development Bank of India.

20 Other income

Interest on income tax refund	—	19,053
Provision/ liability no longer required written back (N	3,009,179	174,239
Miscellaneous income	553	3,004
	3,009,732	196,297

20.1 On March 19, 2016 company has issued 13.55% Non-convertible Debentures worth INR 204,540,000 (USD 2,715,433) to Essential Consortium Capital but in view of the contribution of company in the field of medicine, especially during the COVID situation, USAID has decided to approve grants by paying off its debts towards Essential Capital Consortium(ECC). Hence, provision /liability no longer required includes write off Debentures, Interest thereon and liability towards ECC worth INR 223,673,406 (USD 3,014,824)

21 Purchases

Medicines and medical consumables	692,497	723,745
Purchase of digital dispensary	22,353	64,912
	714,850	788,659

F-190

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

22 Course operating expenses

Training cost/ professional fees	—	—
Food and lodging	—	—
Externship expenses	—	—
	—	—

23 Changes in inventories

Inventory at the beginning of the year	269,385		244,108
Inventory at the end of the year	302,928		235,094
	(33,543	)	9,013

24 Employee benefits expense

Salaries, wages and bonus	799,744	1,069,157
Contribution to provident and other funds	90,672	54,943
Staff welfare expenses	11,242	25,375
	901,658	1,149,475

25 Finance costs

Interest expense on:
- debenture	—		39,857
- term loan	1,693,351		1,472,201
- other loan	210,416		244,643
- equipment loan	49,701		60,436
- Cash credit	102,055		103,366
Unsecured loan	150,856		144,226
Other borrowing costs	80		23,064
	2,206,457		2,087,794
Less: Borrowing costs capitalised to qualifying assets	(462,970	)	(445,930	)
	1,743,487		1,641,864

25.1 Interest expenses as been calculated as per contractual term mentioned in sanction letter of Banks/ Financial Institutions. The company is in discussion with Allahabad Bank for restructuring and other financial institutions for rescheduling of the repayment terms. The management beliefs that no penal interest will be charged by the banks & financial institution and hence no provision has been recognised in the statement of profit & loss.

26 Depreciation and amortisaton

Depreciation of property, plant and equipment (PPE)	527,556	580,685
Amortisation of Goodwill	70,285	74,056
Amortisation of intangible assets	396,562	428,929
	994,403	1,083,670

F-191

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

27 Other expenses

Consumption of stores and spares	9,914		1,827
Share of O&M Partner	160,850		—
Housekeeping expenses	60,585		83,212
Power and fuel	103,320		186,882
Rates and taxes	12,241		18,054
Rent (refer note 36)
- equipment	2,667		5,111
- others	55,311		76,300
Patient food expenses	41,634		56,404
Professional fees:
- to doctors	1,110,138		1,222,559
- to others	8,447		29,112
Repairs to building	49,077		63,415
Repairs to surgical/medical equipment/machinery	19,508		35,362
Repairs to others	6,447		5,823
Payment to auditors	18,196		14,873
Travelling and conveyance expenses	102,767		156,770
Advertisement and sales promotion	106,732		253,094
Testing expenses	71,034		56,980
Printing and stationery	20,352		32,006
Telephone and communication expenses	26,224		51,386
Miscellaneous expenses	77,189		73,173
Less: Capitalisation for internally generated software	(68,898	)	(139,207	)
	1,993,736		2,283,134

Amount in USD

28 Earnings/ (loss) per share

	31 December 2020		31 December 2019
Particulars
Profit/(Loss) attributable to equity shareholders (a)		2,393,374		(1,795,906	)
Less: Dividend on cumulative compulsorily convertible preference shares and tax thereon (b)		2,037,454		903,956
Net profit/(loss) adjusted for the effects of dilutive potential equity shares for calculation of diluted EPS [(c) = (a)—(b)]		355,920		(2,699,861	)
Weighted average number of equity shares of face value of INR 10 each outstanding during the year (used for calculating Basic EPS) (d)		492,904		492,904
Add: Effect of potential equity shares to be issued under Compulsory Convertible Preference Shares (e)*		4,152,535		652,947
Weighted average number of equity shares of face value of INR 10 each outstanding during the year (used for calculating Diluted EPS) [(f) = (d) + (e)]		4,645,439		1,145,851
Basic earnings per share of INR 10 each [(g)= (a)/(d)] (not annualised)		4.86		(3.64	)
Diluted earnings per share of INR 10 each [(h) = (c)/(f)] (not annualised)**		0.52		(3.64	)

** Considering the impact of weighted average number of potential equity shares on account of compulsorily convertible preference shares in computation of Diluted EPS, the same becomes Anti- Dilutive. Accordingly, Diluted EPS is equal to Basic EPS as on 30th December 2019.

F-192

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

29 Minority interest

The following table summarises the information relating to Group’s subsidiaries and the carrying value of minority interests:

									Amount in USD
Name of the LLPs	Minority % 31 December 2020			Minority% 31 March 2020			31 December 2020		31 March 2020
GHSPL BEGUSARAI Healthcare LLP		5	%		5	%		40,264		30,168
GHSPL BGLP Super Speciality Healthcare LLP		35	%		35	%		347,441		344,304
GHSPL FATEHPUR Super Speciality Healthcare LLP		35	%		35	%		37,148		37,148
GHSPL JEYPORE Healthcare LLP		35	%		35	%		349,164		396,836
GHSPL SAMBHAV KNJ Healthcare LLP		35	%		35	%		110,098		75,317
GHSPL MLD Super Speciality Healthcare LLP		22	%		22	%		121,579		90,740
GHSPL MUZF Super Speciality Healthcare LLP		38	%		38	%		479,589		453,144
GHSPL MDPR Super Speciality Healthcare LLP		2	%		2	%		60,034		58,753
GHSPL PRN Super Speciality Healthcare LLP		24	%		24	%		190,007		190,007
GHSPL BHNGAR Super Speciality Healthcare LLP		11	%		11	%		52,008		52,008
								1,787,333		1,728,427

30 On October 22, 2020, the Company has entered into a business combination agreement with UpHealth Holdings, Inc. The transaction is agreed at a purchase consideration of $171 million. Post the consummation of transaction, UpHealth Holdings, Inc. will hold 100% shares in the Company.

31. This note presents the reconciliation of (i) the unaudited interim consolidated balance sheets, unaudited interim consolidated statement of profit and loss and unaudited interim consolidated statement of cash flows of Glocal Healthcare Systems Private Limited (“Glocal” or the “Company”) as derived from the unaudited interim consolidated financial statements of the Company for the nine months ended 31 December 2019 and 31 December 2020, prepared in accordance with the accounting principles generally accepted in India (“Indian GAAP”),incorporated above in this document, to (ii) the unaudited interim consolidated balance sheets, unaudited interim consolidated statements of operations and unaudited statement of comprehensive income and loss and unaudited consolidated statement of cash flows of the Company prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the U.S. GAAP accounting policies as set out below.

31.1 Accounting Policies

(a) Revenue Recognition

The Group derives its revenue primarily from rendering medical and healthcare services. Income from medical and healthcare services comprise income from hospital services and sale of pharma products.

Revenue from hospital and digital consultancy services to patients is recognised as revenue when the related services are rendered unless significant future uncertainties exist. Revenue is also recognised in relation to the services rendered to the patients who are undergoing treatment/observation on the Statement of Financial Position date to the extent of services rendered.

Revenue from sale of medicine and medical consumables within hospital premises is recognised on sale of medicines and similar products to the buyer. The amount of revenue recognised is net of sales returns and trade discounts.

F-193

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

Revenue from digital dispensary is recognised when risk and reward of ownership have been transferred to the customer and accepted by the customer, the sale price is fixed or determinable and collectability is reasonably assured.

Unbilled revenue represents value of medical and healthcare services rendered to the patients but not invoiced as at the Statement of Financial Position date.

(b) Liabilities written back

The group assesses its payment of its liabilities at reporting date and write back liabilities that is no longer required and same is recorded in other income.

(c) Research and Development Expenses

The group capitalises the internal and extenal cost incurred after technological feasibility for application development. Other costs including research phase are expensed as incurred by the group.

(d) Employee Benefit

The costs of the defined benefit plans granted to employees charged to the income statement are determined by actuarial calculation.

(e) Preference Shares

8% Compulsorily Convertible Cumulative Preference Shares is classified Mezzanine as they are redeemable at the option of the holder in absence of an IPO event/strategic sale not under the control of the Company. Subsequent to the balance sheet date, the investor have waived the redemption rights.

Other preference shares are classified as equity as there is no contractual obligation to deliver cash or any other financial asset, and will or may be settled in its own equity instruments.

Transaction costs are deducted from equity, net of associated income tax.

(f) Business Combination

In accordance with ASC Topic 805, “Business combination”, the Company uses the acquisition method of accounting for all business combinations. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their fair values as of the closing date of the acquisition. The Company measures the fair values of the acquired assets and liabilities assumed on the closing date which is the date on which the Company transfers the purchase consideration or definitive control agreement is signed and achieves the control of the acquiree. Intangible assets acquired in a business combination are recognized and reported apart from goodwill if they meet the criteria specified in ASC Topic 805.

Acquisition-related costs are recognized as period costs, as incurred, except the costs to issue debt or equity securities which are reduced from the fair value of instruments issued.

Transaction that results in increase or decrease in a group’s/parents ownership interest in a subsidiary without the loss of control are accounted as equity transaction.

F-194

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

(g) Income Taxes

The Company accounts for income taxes in accordance with the asset and liability approach. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized.

The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to uncertain tax positions in the provision for income taxes in the consolidated statements of operations.

(h) Foreign Currency Translation

The functional currency of the Company’s is the INR.

Accordingly, the subsidiaries remeasure monetary assets and liabilities at

period-end

exchange rates, while

non-monetary

items are remeasured at historical rates. Revenue and expense accounts are remeasured at the average exchange rate in effect during the year. Remeasurement adjustments are recognized in the consolidated statements of operations as other income or expense in the year of occurrence. Foreign currency transaction gains and losses were insignificant for all periods presented.

For subsidiaries where the functional currency is a foreign currency, adjustments resulting from translating the financial statements into INR are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Monetary assets and liabilities denominated in a foreign currency are translated into INR at the exchange rate on the balance sheet date.

Revenue and expenses are translated at the weighted average exchange rates during the period. Equity transactions are translated using historical exchange rates. Foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations.

(i) Comprehensive Income (Loss)

Comprehensive income (loss) refers to net income (loss) and other revenue, expenses, gains and losses that, under generally accepted accounting principles, are recorded as an element of stockholders’ equity but are excluded from the calculation of net income (loss).

(j) Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

As at 31 December 2020 restricted cash includes deposits restricted as to usage under lien to banks for guarantees given by the Company amounting to USD 31,365 (31 December, 2019: USD 32,309) and USD 13,688 (31 December 2019 USD 14,100) lien with banks for bank guarantee to government authorities & Black Soil respectively. As per Accounting Standards Update

No. 2016-18

(ASU

2016-18)

“Restricted Cash—Statement of Cash Flows (Topic 230)”, the restricted cash and restricted cash equivalents is included within cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows.

F-195

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

(k) Accounts Receivable and Allowance for Doubtful

Accounts receivable are recorded net of the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on the Company’s assessment of its ability to collect on customer accounts receivable. The Company regularly reviews the allowance by considering certain factors such as historical experience, credit quality, age of accounts receivable balances and other known conditions that may affect a customer’s ability to pay. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet their financial obligations, a specific allowance is recorded against amounts due from the customer which reduces the net recognized receivable to the amount the Company reasonably believe will be collected. The Company

writes-off

accounts receivable against the allowance when a determination is made that the balance is uncollectible and collection of the receivable is no longer being actively pursued.

(l) Property and Equipment, net

Property and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation is computed using the straight-line method over the estimated useful life of the related asset. Maintenance and repairs are charged to expenses as incurred.

(m) Impairment or disposal of long-lived assets

The Company accounts for impairment losses on long-lived asset in accordance with ASC

360-“Property,

plant and equipment”. The Company reviews long-lived asset for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company measures recoverability of assets to be held and used by a comparison of the carrying value of an asset to undiscounted future net cash flows the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Fair value of long-lived assets, including identifiable intangible assets, is determined either by using the discounted cash flow method or for assets to be disposed of at their net realizable value which includes an estimate for any potential costs to dispose.

(n) Fair Value of Financial Instruments

The Company applies fair value accounting for all financial instruments on a recurring basis. The Company’s financial instruments, which include cash, cash equivalents, accounts receivable and accounts payable are recorded at their carrying amounts, which approximate their fair values due to their short-term nature. Restricted cash is long-term in nature and consists of cash in a savings account, hence its carrying amount approximates its fair value. All marketable securities are considered to be

available-for-sale

and recorded at their estimated fair values. Unrealized gains and losses for

available-for-sale

securities are recorded in other comprehensive income (loss). In valuing these items, the Company uses inputs and assumptions that market participants would use to determine their fair value, utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the security will be sold before the recovery of its cost basis. Realized gains and losses and declines in value deemed to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net.

The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly

F-196

Glocal Healthcare Systems Private Limited

Notes to consolidated financial statements for the nine months ended 31 December 2020

transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

• Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Indian GAAP versus U.S. GAAP Reconciliation tables

The following tables set forth the reconciliation of (i) the unaudited interim consolidated balance sheet, unaudited interim consolidated statement of operations and unaudited interim consolidated statement of cash flows of the group for the nine months ended 31 December 2019 and the nine months ended 31 December 2020 prepared in accordance with Indian GAAP and reclassified based on the classification format adopted by Uphealth for the U.S. GAAP Financial Statements to (ii) the unaudited interim consolidated balance sheets, unaudited interim consolidated statements of operations and unaudited interim consolidated statement of cash flows of the Company prepared in accordance with U.S. GAAP.

F-197

Unaudited Consolidated Balance Sheet as at 31 December 2020

Amount in USD

Particulars	31 December 2020 Indian GAAP			Revaluation Reserve			Deferred Tax		Goodwill			Classification of Mezzanine Equity			Others*			31 December 2020 US GAAP
Assets
Current Assets
Cash and cash equivalents		342,409			—			—		—			—			(45,053	)		297,356
Restricted cash		—			—			—		—			—			45,053			45,053
Accounts Receivables, net of allowance		5,912,534			—			—		—			—			—			5,912,534
Inventories		311,504			—			—		—			—			—			311,504
Other current assets		1,453,879			—			—		—			—			22,747			1,476,626
		8,020,326			—			—		—			—			22,747			8,043,073
Property, Plant & Equipment (Net)		24,624,769			(12,159,329	)		—		—						(22,747	)		12,442,693
Goodwill		402,884			—			—		(402,884	)		—			—			—
Other Intangible Assets (Net)		2,747,256			—			—		—			—			—			2,747,256
Capital work in progress		5,252,093			—			—		—			—			—			5,252,093
Restricted cash		—			—			—		—			—			—			—
Deferred Tax Assets		—			—			3,855,318		—			—			—			3,855,318
Other assets		1,087,888			—			—		—			—			—			1,087,888
		34,114,889			(12,159,329	)		3,855,318		(402,884	)		—			(22,747	)		25,385,249
Total Assets		42,135,215			(12,159,329	)		3,855,318		(402,884	)		—			—			33,428,322
Liabilities and Stockholders Equity
Current Liabilities
Accounts payables		1,037,888			—			—		—			—			—			1,037,888
Accrued Liabilities		6,922,853			—			—		—			—			123,824			7,046,677
Short-term borrowings		3,830,163			—			—		—			—			—			3,830,163
Current portion of long- term borrowings		16,945,884			—			—		—			—			—			16,945,884
Short-term provisions		5,972			—			—		—			—			—			5,972
		28,742,760			—			—		—			—			123,824			28,866,584
Long-term borrowings		1,239,889			—			—		—			—			—			1,239,889
Long-term provisions		158,553			—			—		—			—			—			158,553
Total liabilities		30,141,202			—			—		—			—			123,824			30,265,026
Mezzanine Equity
Series A preferred shares		—			—			—		—			2,463,470			—			2,463,470
Stockholders Equity
Common Stock		104,371			—			—		—			—			—			104,371
Money received against share warrant		—			—			—		—			—			—			—
Preferred Stock		6,708,281			—			—		—			(508,086	)		—			6,200,194
Additional paid-in-capital		8,320,698			—			—		(105,118	)		(1,955,383	)		—			6,260,197
Revaluation Surplus		10,128,170			(10,128,170	)		—		—			—			—			—
Retained Earnings		(12,765,067	)		—			3,731,590		(310,953	)		—			(115,584	)		(9,460,013	)
Foreign Currency Translation Reserve		(2,289,772	)		—			—		13,187			—			(8,240	)		(2,284,825	)
Total shareholders equity attributable to the Group		10,206,680			(10,128,170	)		3,731,590		(402,884	)		(0	)		(123,824	)		3,283,394
Non Controlling Interest		1,787,333			(2,031,159	)		123,728		—			—			—			(120,099	)
Total Stockholders Equity		11,994,013			(12,159,329	)		3,855,318		(402,884	)		(0	)		(123,824	)		3,163,295
Total liabilities and stockholders equity		42,135,215			(12,159,329	)		3,855,318		(402,884	)		(0	)		—			33,428,321

* Others include Lease classification and interest expense.

F-198

Unaudited Consolidated Income Statement for nine months ended 31 December 2020

Amount in USD

Particulars	31 December 2020 Indian GAAP		Deferred Tax			Goodwill			Others			31 December 2020 US GAAP
Revenue		5,757,140		—			—			—			5,757,140
Cost of revenues		2,226,596		—			—			—			2,226,596
Gross Profit		3,530,544		—			—			—			3,530,544
Operating expenses
Selling & Distribution expense		106,732		—			—			—			106,732
General & Administrative expense		341,715		—			—			—			341,715
Employee benefits expense		901,658		—			—			—			901,658
Depreciation and amortisation		994,403		—			(70,285	)		—			924,118
Total Operating Expenses		2,344,508		—			(70,285	)		—			2,274,223
Operating Income		1,186,036		—			70,285			—			1,256,321
Other income		3,009,732		—			—			—			3,009,732
Interest expense		1,743,487		—						23,253			1,766,740
Income before income tax		2,452,280		—			70,285			(23,253	)		2,499,313
Income tax expense		—		(819,265	)		—			—			(819,265	)
													—
Net Income		2,452,280		819,265			70,285			(23,253	)		3,318,578
Net income attributable to non controlling interest		58,906		50,868			—			—			109,774
Net income available to the owners of the parent		2,393,374		768,397			70,285			(23,253	)		3,208,804
Net Income		2,393,374		768,397			70,285			(23,253	)		3,208,804
Other Comprehensive Income/(loss), net of tax
Translation adjustments		286,822								(8,240	)		278,583
Total other comprehensive income/(loss)		286,822		—			—			(8,240	)		278,583
Comprehensive Income		2,680,197		768,397			70,285			(31,492	)		3,487,387
Comprehensive Income (loss) attributable to the non- controlling interest		—		—			—			—			—
Comprehensive Income attributable to the owners of the parent		2,680,197		768,397			70,285			(31,492	)		3,487,387

Unaudited Consolidated Cash Flow Statement for nine months ended 31 December 2020

Amount in USD

Particulars	31 December 2020 Indian GAAP			Others		31 December 2020 US GAAP
Net cash (used in) operating activities (A)		2,052,599			—		2,052,599
Net cash (used in) investing activities (B)		(166,524	)		—		(166,524	)
Net cash provided by financing activities (C)		(1,638,293	)		—		(1,638,293	)
Net (decrease) in cash and cash equivalent (A+B+C)		247,782			—		247,782
Cash and cash equivalents at the beginning of the year		48,777			—		48,777
Cash and cash equivalents at the end of the year		296,559			—		296,559

F-199

Unaudited Consolidated Balance Sheet as at 31 March 2020

Amount in USD

Particulars	31 March 2020 Indian GAAP			Revaluation Reserve			Deferred Tax		Goodwill			Classification of Mezzanine Equity			Others*			31 March 2020 US GAAP
Assets
Current Assets
Cash and cash equivalents		171,867			—			—		—			—			(43,697	)		128,170
Restricted Cash		—			—			—		—			—			43,697			43,697
Accounts Receivables, net of allowance		4,719,956			—			—		—			—			—			4,719,956
Inventories		269,296			—			—		—			—			—			269,296
Other current assets		1,520,855			—			—		—			—			22,837			1,543,692
		6,681,974			—			—		—			—			22,837			6,704,810
Property, Plant & Equipment (Net)		24,378,417			(12,159,329	)		—		—			—			(22,837	)		12,196,252
Goodwill		459,982			—			—		(459,982	)		—			—			—
Other Intangible Assets (Net)		2,865,890			—			—		—			—			—			2,865,890
Capital work in progress		4,637,925			—			—		—			—			—			4,637,925
Deferred Tax Assets		—			—			3,036,053		—			—			—			3,036,053
Other assets		1,145,687			—			—		—			—			—			1,145,687
		33,487,901			(12,159,329	)		3,036,053		(459,982	)		—			(22,837	)		23,881,806
Total Assets		40,169,874			(12,159,329	)		3,036,053		(459,982	)		—			—			30,586,616
Liabilities and Stockholders Equity
Current Liabilities
Accounts payables		1,471,145			—			—		—			—			—			1,471,145
Accrued Liabilities		3,991,240			—			—		—			—			85,742			4,076,983
Short-term borrowings		3,892,608			—			—		—			—			—			3,892,608
Current portion of long- term borrowings		19,843,722			—			—		—			—			—			19,843,722
Short-term provisions		7,651			—			—		—			—			—			7,651
		29,206,367			—			—		—			—			85,742			29,292,109
Long-term borrowings		1,578,912																	1,578,912
Long-term provisions		129,685			—			—		—			—			—			129,685
Total liabilities		30,914,964			—			—		—			—			85,742			31,000,706
Mezzanine Equity
Series A preferred shares		—			—			—		—			2,463,470			—			2,463,470
Stockholders Equity
Common Stock		104,371			—			—		—			—			—			104,371
Redeemable Preferred Stock		6,708,281			—			—		—			(508,086	)		—			6,200,194
Additional paid-in-capital		8,320,698			—			—		(105,118	)		(1,955,383	)		—			6,260,197
Revaluation Surplus		10,128,170			(10,128,170	)		—		—			—			—			—
Retained Earnings		(15,158,441	)					2,912,325		(354,865	)		—			(92,331	)		(12,693,312	)
Foreign Currency Translation Reserve		(2,576,594	)		—			—		—			—			6,589			(2,570,005	)
Total shareholders equity attributable to the Group		7,526,484			(10,128,170	)		2,912,325		(459,982	)		(0	)		(85,742	)		(235,085	)
Non Controlling Interest		1,728,427			(2,031,159	)		123,728		—			—			—			(179,005	)
Total Stockholders Equity		9,254,911			(12,159,329	)		3,036,053		(459,982	)		(0	)		(85,742	)		(414,089	)
Total liabilities and stockholders equity		40,169,875			(12,159,329	)		3,036,053		(459,982	)		(0	)		—			30,586,617

* Others include Lease classification and interest expense.

F-200

Unaudited Consolidated Income Statement for nine months ended 31 December 2019

Amount in USD

Particulars	31 December 2019 Indian GAAP			Deferred Tax			Goodwill			Others			31 December 2019 US GAAP
Revenue		4,831,992			—			—			—			4,831,992
Cost of revenues		2,414,182			—			—			—			2,414,182
Gross Profit		2,417,810			—			—			—			2,417,810
Operating expenses
Selling & Distribution expense		253,094			—			—			—			253,094
General & Administrative expense		413,530			—			—			—			413,530
Employee benefits expense		1,149,475			—			—			—			1,149,475
Depreciation and amortisation		1,083,670			—			(70,285	)		—			1,013,385
Total Operating Expenses		2,899,769			—			(70,285	)		—			2,829,484
Operating Income		(481,959	)		—			70,285			—			(411,674	)
Other income		196,297			—			—			—			196,297
Interest expense		1,641,864			—						32,042			1,673,906
Income before income tax		(1,927,526	)		—			70,285			(32,042	)		(1,889,283	)
Income tax expense		—			(967,452	)		—			—			(967,452	)
Net Income		(1,927,526	)		967,452			70,285			(32,042	)		(921,830	)
Net income attributable to non controlling interest		(131,621	)		17,485			—			—			(114,135	)
Net income available to the owners of the parent		(1,795,906	)		949,967			70,285			(32,042	)		(807,695	)
Net Income		(1,795,906	)		949,967			70,285			(32,042	)		(807,695	)
Other Comprehensive Income/(loss), net of tax
Translation adjustments		(390,819	)		—						6,589			(384,229	)
Comprehensive Income		(390,819	)		—			—			6,589			(384,229	)
Total other comprehensive income/(loss)		(2,186,724	)		949,967			70,285			(25,452	)		(1,191,924	)
Comprehensive Income (loss) attributable to the non- controlling interest		—						—						—
Comprehensive Income attributable to the owners of the parent		(2,186,724	)		949,967			70,285			(25,452	)		(1,191,924	)

Unaudited Consolidated Cash Flow Statement for nine months ended 31 December 2019

Amount in USD

Particulars	31 December 2019 Indian GAAP			Other		31 December 2019 US GAAP
Net cash (used in) operating activities (A)		3,461,567			—		3,461,567
Net cash (used in) investing activities (B)		(859,318	)		—		(859,318	)
Net cash provided by financing activities (C)		(3,146,157	)		—		(3,146,157	)
Net (decrease) in cash and cash equivalent (A+B+C)		(543,907	)		—		(543,907	)
Cash and cash equivalents at the beginning of the year		592,684			—		592,684
Cash and cash equivalents at the end of the year		48,777			—		48,777

F-201

Disclosure Notes:

A. Revaluation Reserve

Under Indian GAAP, Revaluation of asset is permitted, an increase in revaluation is recognised directly to owners interest (under the heading Revaluation Reserve). Under US GAAP property, plant and equipment is carried at historical cost, revaluation is not permitted. Therefore, the revaluation amount has been reduced from the property, plant and equipment amounting to USD 90,17,262 for period ended 31 December 2020 and USD 12,159,329 for the period ended 31 March 2020 with a corresponding effect to the revaluation reserve, foreign currency translation reserve and

non-controlling

interest.

B. Recognition of Deferred Taxes

Under US GAAP Deferred tax is recognised in full and a valuation allowance is provided to reduce the deferred tax assets to an amount that is more likely than not to be realised. Under IGAAP, virtual certainty is required for recognising the deferred tax asset on carry forward losses.

The deferred tax income of USD 819265 in year 31 December 2020 and deferred tax income of USD 967452 is recognised in year 31 December 2019. The effect on profit pertaining to entities with

non-controlling

interest (NCI) is recognised in NCI.

C. Goodwill

The Goodwill amount of USD 402,884 and USD 459,882 for nine months ended 31 December 2020 and year ended 31 March 2020 respectively under IGAAP pertains to the acquisition of shares from minority shareholders without change in control, under USGAAP transaction that results in increase in a group’s/parents ownership interest in a subsidiary without the change of control are accounted as equity transaction. The Goodwill amount is reversed with a corresponding effect to additional paid in capital. The Group also has a goodwill pertaining to a subsidiary in IGAAP, the goodwill does not meet the recognition condition as per Business Combination and hence have been written off under USGAAP.

D. Classification of Preference Shares

Series A preference shares is classified Mezzanine equity, as they are redeemable at the option of the holder in absence of an IPO event/strategic sale not under the control of the Company. Subsequent to the balance sheet date, the investor have waived the redemption rights.

E. Lease classification

In Indian GAAP - Land Leases taken for 33 years are shown under Property, Plant & Equipment and amortised over the lease period. Under US GAAP, the condition for finance lease is not satisfied, hence the carrying balance of upfront payment is reclassified to other assets as prepayments and amortised over the lease term.

F. Restricted cash classification

As at 31 December 2020 restricted cash includes deposits restricted as to usage under lien to banks for guarantees given by the Company amounting to USD 31,125 (31 March, 2020: USD 30,421) and USD 13,583 (31 March 2020 USD 13,276) lien with banks for bank guarantee to government authorities & Black Soil respectively. As per Accounting Standards Update

No. 2016-18

(ASU

2016-18)

“Restricted Cash—Statement of Cash Flows (Topic 230)”, the restricted cash and restricted cash equivalents is included within cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows.

F-202

G. Interest Expense

Terms loan from Caspian has interest rate of 15% p.a., the arrangement also requires an IRR of 18% at the end of tenor of the credit facility or prepayment of loan, Under IGAAP interest is accounted at 15%, the differential interest of 3% is accounted for amortised cost accounting of loan under USGAAP. The group has accounted differential interest of USD 23,253 (31 December 2019: USD 32,042 ) with a corresponding effect to accrued interest.

32 The Company has considered the possible effects that may result from the pandemic relating to COVID-19 on the carrying amounts of receivables and investment in subsidiaries. In developing the assumptions relating to the possible future uncertainties in the global economic conditions because of this pandemic, the Company, as at the date of approval of these financial statements has used internal and external sources of information including credit economic forecasts. There is no significant impact on the Group’s Business on account of pandemic. The impact of COVID-19 remains uncertain and may be different from what we have estimated as of the date of approval of these consolidated financial statements and the Company will continue to closely monitor any material changes to future economic conditions.

Previous year’s figures have been regrouped/ reclassified wherever necessary to conform to current year’s classification/

33

disclosure.

For and on behalf of the Board of Directors of

Glocal Healthcare Systems Private Limited

Dr. Syed Sabahat Azim Director	Richa Sana Azim Director
DIN: 03122895	DIN: 02609003

F-203

Glocal Healthcare Systems Private Limited

Consolidated Financial Statements as of and for the period 01 April 2020 to 25 March 2021

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Glocal Healthcare Systems Private Limited

Consolidated Balance Sheet as at 25 March 2021

					Amount in USD
	Note		25 March 2021		31-Mar-20
			Unaudited		Audited
EQUITY AND LIABILITIES
Shareholders’ funds
Share capital		2		6,812,652		6,812,652
Reserves and surplus		3		3,214,839		713,832
				10,027,491		7,526,484
Minority interest		30		1,852,582		1,728,427
Non-current liabilities
Long-term borrowings		4		1,611,624		1,578,912
Long-term provisions		5		167,539		129,685
				17,79,163		17,08,597
Current liabilities
Short-term borrowings		6		3,853,498		3,892,608
Trade payables		7
- total outstanding dues of micro enterprises and small enterprises				—
- total outstanding dues of creditors other than micro enterprises and small enterprises				578,719		1,471,145
Other current liabilities		8		24,714,399		23,834,963
Short-term provisions		5		8,252		7,651
				29,154,868		29,206,367
TOTAL				42,814,105		40,169,875
ASSETS
Non-current assets
Goodwill		9		383,005		459,982
Property, plant and equipment		10		24,678,070		24,378,417
Intangible assets		11		2,665,821		2,865,890
Capital work-in-progress				5,462,687		4,637,925
Long-term loans and advances		12		925,521		1,125,061
Other non-current assets		13		44,313		20,626
				34,159,417		33,487,901
Current assets
Inventories		14		325,572		269,296
Trade receivables		15		6,460,982		4,719,956
Cash and bank balances		16		369,984		171,867
Short-term loans and advances		17		768,489		1,008,242
Other current assets		18		729,660		512,613
				8,654,687		6,681,974
TOTAL				42,814,105		40,169,875
Significant accounting policies		1

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Glocal Healthcare Systems Private Limited

Consolidated Statement of Profit and Loss for the period 01 April 2020 to 25 March 2021

						Amount in USD
			For the period			For the period
	Note		01 April 2020-25			01 April 2019-31
			March 2021			March 2020
			Unaudited			Audited
Revenue from operations		19		8,013,504			9,057,344
Other income		20		3,009,732			2,136,145
Total revenue				11,023,236			11,193,489
Expenses
Purchase		21		958,447			961,711
Course operating expenses		22		—			—
Changes in inventories		23		(56,187	)		(38,620	)
Employee benefits expense		24		1,149,108			1,437,745
Finance costs		25		2,311,323			2,150,174
Depreciation and amortisation		26		1,402,718			1,404,801
Other expenses		27		3,003,651			2,870,913
Extra Ordinary expenses		28		—			—
Total expenses				8,769,061			8,786,724
Profit/(Loss) before tax				2,254,175			2,406,765
Income tax expense
Current tax
Deferred tax
Profit/(Loss) after tax (before adjustment of				2,254,175			2,406,765
minority interest)
Minority Interest				63,618			22,802
Profit/(Loss) for the year				2,190,558			2,383,963
Earnings/(loss) per equity share [nominal value of share INR 10 each (Previous year INR 10 each)]		29
Basic (not annualized)				4.44			4.84
Diluted (not annualized)				0.47			0.51
Significant accounting policies		1

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Glocal Healthcare Systems Private Limited

Consolidated Cash Flow Statement for the period 01 April 2020 to 25 March 2021

				Amount in USD
	25 March 2021			31 March 2020
	Unaudited			Audited
A. Cash flow from operating activities
Profit/(Loss) before tax		2,254,175			2,406,765
Adjustments for:
Depreciation and amortisation		1,402,718			1,404,801
Provisions/liabilities no longer required written back		(3,009,179	)		(2,109,763	)
Interest income		—			—
Finance costs		2,311,323			2,150,174
		704,862			1,445,212
Operating cash flow before working capital changes		2,959,038			3,851,978
Adjustments for:
(Increase) in trade and other receivables/advances		(1,338,207	)		(2,817,928	)
Decrease in inventories		(57,612	)		(9,632	)
Increase in trade payables, other liabilities and provisions		(267,031	)		332,248
		(1,662,849	)		(2,495,313	)
Cash (used in) operations		1,296,188			1,356,665
Income taxes refund (net)		(31,282	)		16,628
Net cash (used in) operating activities (A)		1,264,906			1,373,293
B. Cash flow from investing activities
Purchase or construction of property, plant and equipment and intangible assets and movement in capital work in progress		(409,959	)		(985,522	)
Proceeds from sale of property, plant & equipment		(6,739	)		—
Bank deposits (having original maturity of more than 3 months)		—			(8,958	)
Interest received		0			(10,231	)
Net cash (used in) investing activities (B)		(416,699	)		(1,004,711	)
C. Cash flow from financing activities
Proceeds from borrowings (net)		(107,150	)		(537,770	)
Finance costs paid		(529,105	)		(311,595	)
Net cash provided by financing activities (C)		(636,256	)		(849,365	)
Net (decrease) in cash and cash equivalent (A+B+C)		211,951			(480,782	)
Cash and cash equivalents at the beginning of the year		111,902			592,684
Cash and cash equivalents at the end of the year (Refer Note (i) below)		323,854			111,902
Notes:
(i) Components of cash and cash equivalent (refer note 16)
Cash on hand		322,475			32,083
Balance with banks
On current accounts		—			71,853
On deposit accounts (with original maturity of 3 months or less)		1,377			7,965
		323,854			111,902

(ii) The above cash flow statement has been prepared under the ‘Indirect Method’ as set out in the Accounting Standard 3 on Cash Flow Statement (AS 3 ) specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014.

The notes referred to above form an integral part of the consolidated financial statements.

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1 Significant accounting policies

The accounting policies set out below have been applied consistently to the periods presented in these consolidated financial statements.

(a) Basis of preparation of consolidated financial statements:

The consolidated financial statements (“CFS”) have been prepared to comply in all material aspects with applicable accounting principles in India, the applicable Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (‘Act’) read with Rule 7 of the Companies (Accounts) Rules, 2014, read with Companies (Accounting Standards) Amendment Rules, 2016 applicable with effect from 1 April 2016, the provisions of the Act (to the extent notified) and other accounting principles generally accepted in India, to the extent applicable and in particular Accounting Standard 21 (AS 21)—‘Consolidated Financial Statements’ and Accounting Standard 25 (AS 25)—“Interim Financial Reporting”. The CFS has been prepared on an accrual basis and under the historical cost convention.

The consolidated financial statements are presented in Indian Rupees, in the same format as that adopted by the parent Group for its standalone financial statements. The consolidated financial statement of the group is prepared in reporting currency as USD for the specific purpose of transaction with Uphealth Holdings, INC (Refer Note 30) and for the purpose of filing with SEC for their upcoming IPO. The functional currency and reporting currency for statutory reporting in India is INR. The financial line items of Profit and Loss have been converted using average INR/USD conversion rate for the respective financial year, balance sheet items have been converted using spot INR/USD conversion rate as on the reporting date. Opening balances of reporting period has been converted using spot INR/USD conversion rate as on last day of the previous reporting period. except for equity is continued at historical rate. Any differences arising out of the conversion has been debited/credited to Foreign Currency Translation Reserve. The interim financial statements have been prepared for the period 01 April 2020 to 25 March 2021 and has not been subjected to audit. The management has used estimates for provision of expenses and income for the period 01 April 2020 to 25 March 2021 which are generally booked at the period end for closure of accounts.

(b) Principles of consolidation

The CFS have been prepared on the following basis:

(i) Subsidiary companies are consolidated on a

line-by-line

basis by adding together the book values of the like items of assets, liabilities, income and expenses, after eliminating all significant intragroup balances and intra-group transactions and also unrealized profits or losses in accordance with Accounting Standard 21—“Consolidated Financial Statements”. The results of operations of a subsidiary are included in the consolidated financial statements from the date on which the parent subsidiary relationship comes into existence.

(ii) The difference between the cost to the Group of its investment in the subsidiary and its proportionate share in the equity of the subsidiary as at the date of acquisition of stake is recognised as goodwill or capital reserve, as the case may be. Goodwill is tested for impairment at the end of each accounting year or if there is any indication of impairment. For impairment, the carrying value of goodwill is compared with the present value of discounted cash flows of the respective subsidiaries and loss, if any, is adjusted to the carrying value of the goodwill.

(iii) Minorities’ interest in net profits/losses of the subsidiary for the year is identified and included in the income in order to arrive at the net income attributable to the shareholders of the Group. Their share of net assets is identified and presented in the consolidated balance sheet separately. Where accumulated losses attributable to the minorities are in excess of their share of losses as per the contractual agreement, the same are accounted for by the holding Group.

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(iv) As far as possible, the CFS are prepared using uniform accounting policies for like transactions and other events in similar circumstances and are presented, to the extent possible, in the same manner as the Group’s separate financial statements, Where it is not practicable to use uniform accounting policies, differences in accounting policies are disclosed separately in accordance with AS 21 (Consolidated Financial Statements).

(v) The financial statements of the group entities used for the purpose of consolidation are drawn up to the same reporting date as that of the Group. In case where the subsidiaries are registered under the Limited Liability Partnership Act, 2008 (LLP Act), financial statements for them have been prepared as per the LLP Act.

(c) Use of estimates

The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses and the disclosure of contingent liabilities on the date of the consolidated financial statements. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates is recognised prospectively in current and future periods.

(d) Current–non-current classification

All assets and liabilities have been classified as current or

non-current

as per the Group’s normal operating cycle. Based on the nature of services and the time between the providing services and their realisation in cash and cash equivalents, the Group has ascertained its operating cycle as 12 months for the purpose of current – non current classification of assets and liabilities.

Assets

An asset is classified as current when it satisfies any of the following criteria:

(a) it is expected to be realised in, or is intended for sale or consumption in, the Group’s normal operating cycle;

(b) it is held primarily for the purpose of being traded;

(c) it is expected to be realised within 12 months after the reporting date; or

(d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.

All other assets are classified as

non-current.

Current assets include the current portion of

non-current

financial assets.

Liabilities

A liability is classified as current when it satisfies any of the following criteria:

(a) it is expected to be settled in the Group’s normal operating cycle;

(b) it is held primarily for the purpose of being traded;

(c) it is due to be settled within 12 months after the reporting date; or

(d) the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

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All other liabilities are classified as

non-current.

Current liabilities include current portion of

non-current

financial liabilities.

(e) Revenue recognition

The Group derives its revenue primarily from rendering medical and healthcare services. Income from medical and healthcare services comprise income from hospital services and sale of pharma products.

Revenue from hospital and digital consultancy services to patients is recognised as revenue when the related services are rendered unless significant future uncertainties exist. Revenue is also recognised in relation to the services rendered to the patients who are undergoing treatment/observation on the balance sheet date to the extent of services rendered.

Revenue from sale of medicine and medical consumables within hospital premises is recognised on sale of medicines and similar products to the buyer. The amount of revenue recognised is net of sales returns and trade discounts.

Revenue from digital dispensary

set-up

is recognised when risk and reward of ownership have been transferred to the customer and accepted by the customer, the sale price is fixed or determinable and collectability is reasonably assured.

Unbilled revenue represents value of medical and healthcare services rendered to the patients but not invoiced as at the balance sheet date.

Interest is recognised on time proportion basis taking into account the amount outstanding and the interest rate applicable.

Dividend income is recognised when the right to receive payment is established.

Income from loyalty card sales are recognised when the related services are rendered to the patients.

(f) Liabilities Written back

The group assesses its payment of its liabilities at reporting date and write back liabilities that is no longer required and same is recorded in other income.

(g) Property, plant and equipment(PPE)

Land and building:

Land and buildings are initially recognised at cost. Freehold land (except land under capital work in progress) is subsequently carried at the revalued amount less accumulated impairment losses. Buildings are subsequently carried at the revalued amounts less accumulated depreciation and accumulated impairment losses.

Land and buildings are revalued by independent professional valuers on once in a 5 year basis and whenever their carrying amounts are likely to differ materially from their revalued amounts. When an asset is revalued, any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset. The net amount is then restated to the revalued amount of the asset. In case of revaluation of PPE, any increase in net book value arising on revaluation is credited to revaluation surplus, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as a charge in the Statement of Profit and Loss, in which case the increase is credited to the Statement of Profit and Loss. A decrease in net book value arising on revaluation is recognised as a charge in the Statement of Profit and Loss, except to the extent it offsets an existing surplus on the same asset recognised in the revaluation reserve, in which case the decrease is recognised directly in that reserve.

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Other property, plant and equipment

All other items of property, plant and equipment are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses.

Components of costs

The cost of an item of property, plant and equipment initially recognized includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

Borrowing costs are interest and other cost (including exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred by the Group in connection with the borrowing of funds. Borrowing costs directly attributable to acquisition or construction of those PPE or intangible assets which necessary take a substantial period of time to get ready for their intended use are capitalised. Other borrowing costs are recognised as an expense in the period in which they are incurred.

Subsequent expenditure

Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repair and maintenance expenses are recognised in Statement of profit and loss when incurred.

Disposal

On disposal of an item of property, plant and equipment, the difference between the disposal proceeds and its carrying amount is recognised in Statement of profit and loss. Any amount in revaluation reserve relating to that asset is transferred to reserves directly.

(h) Depreciation

Depreciation on Property, plant and equipment (PPE) is provided on the straight-line method over the useful lives of assets prescribed in Schedule II of the Companies Act 2013. Depreciation for assets purchased /sold during a period is proportionately charged.

Leasehold land is amortised on a straight line basis over the period of lease, i.e. 33 years.

Useful life:

Building	60 years
Electrical Equipments	10 years
Medical & Surgical Equipment	13 years
Furniture & Fixtures	10 years
Vehicles	10 years
Office Equipment	5 Years
Computers and accessories	3 Years

(i) Intangible assets

Goodwill

Goodwill arising on acquisition of business is measured at cost less any accumulated amortisation and accumulated impairment loss. Goodwill is tested for impairment annually.

Acquired intangible assets Intangible assets that are acquired by the Group are measured initially at cost. After initial recognition, an intangible asset is carried at its cost less any accumulated amortisation and any accumulated impairment loss.

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Internally generated intangible assets Internally generated goodwill is not recognised as an asset. With regard to other internally generated intangible assets:

- Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the Consolidated Statement of Profit and Loss as incurred.

- Development activities involve a plan or design for the production of new or substantially improved products or processes. Development cost is capitalised only if the development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attibutable to preparing the asset for its intended use, and directly attributable borrowing costs (in the same manner as in the case of property, plant & equipment). Other development expenditure is recognised in Consolidated Statement of Profit and Loss as incurred.

(j) Amortisation

Goodwill generated on acquistion of business is amortised over a period of 5 years.

Intangible assets are amortised in Consolidated Statement of Profit or Loss over their estimated useful lives, from the date that they are available for use based on the expected pattern of consumption of economic benefits of the asset. Accordingly, at present, these are being amortised on straight line basis.

Computer software, content development and license is amortised over its useful life of 5 years to 10 years as estimated by management.

Amortisation on additions/deletions is provided on

pro-rata

basis in the year of purchase/disposal.

(k) Government grants

Government grants / subsidies received towards specific property, plant and equipment (PPE) have been deducted from the gross value of the concerned PPE and grant / subsidies received during the year towards revenue expenses have been shown as other operating income in the Statement of Profit and Loss.

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received.

(l) Impairment of property, plant & equipment and intangible assets

The carrying amounts of assets are reviewed at each Consolidated Balance Sheet date in accordance with Accounting Standard 28 on ‘Impairment of Assets’ prescribed in the Rule 7 of the Companies (Accounts) Rules, 2014, to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amounts are estimated at each reporting date. For the purpose of impairment testing, assets are grouped together into the smallest group of assets (cash generating unit or CGU) that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. An impairment loss is recognised whenever the carrying amount of an asset or the cash generating unit of which it is a part exceeds the corresponding recoverable amount. Impairment losses are recognised in the Consolidated Statement of Profit and Loss. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined net of depreciation or amortisation, if no impairment loss had been recognised.

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(m) Inventories

Inventories comprising of medicines and consumables are carried at lower of cost and realisable value. Cost comprise purchase price and all incidental expenses incurred in bringing the inventory to its present location and condition. In determining the cost, weighted average cost method is used.

Stores and spares consists of surgical instruments, linen, crockery and cutlery are valued at cost(using FIFO method). Based on the estimated life of 3 years, 1/3rd of value of stores and spares are charged to Consolidated Statement of Profit and Loss every year.

(n) Foreign currency transaction

Foreign exchange transactions are recorded at the exchange rate prevailing on the dates of the transactions. Year end monetary assets and liabilities denominated in foreign currencies are translated at the

year-end

foreign exchange rates. Exchange differences arising on settlements/ year end translations are recognised in the Consolidated Statement of Profit and Loss for the year in which they arise.

(o) Operating leases

Lease payments under an operating lease arrangements are recognised as expense in the Consolidated Statement of Profit and Loss on a straight line basis over the period of lease.

(p) Investments

Investments that are readily realisable and intended to be held for not more than a year from the date of acquisition are classified as current investments. All other investments are classified as long-term investments. However, that part of long term investments which is expected to be realised within 12 months after the reporting date is also presented under ‘current assets’ as “current portion of long term investments” in consonance with the current and

non-current

classification scheme of Schedule III.

Long-term investments (including current portion thereof) are carried at cost less any other-than-temporary diminution in value, determined separately for each individual investment.

Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each category of investments.

Any reductions in the carrying amount and any reversals of such reductions are charged or credited to the Consolidated Statement of Profit and Loss.

Profit or loss on sale of investments is determined on the basis of carrying amount of investments disposed off.

(q) Employee benefits

The Group’s obligations towards various employee benefits have been recognised as follows:

Short-term employee benefits

Employee benefits payable wholly within twelve months of receiving employee services are classified as short-term employee benefits. These

Post employment benefits

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays specified contributions to a separate entity and has no obligation to pay any further amounts. The Group makes

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specified monthly contributions towards employee provident fund to Government administered provident fund scheme which is a defined contribution plan. The Group’s contribution is recognised as an expense in the Consolidated Statement of Profit and Loss during the period in which the employee renders the related service.

Defined benefit plans

The Group’s gratuity benefit scheme is defined benefit plans. The Group’s net obligation in respect of a defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, that benefit is discounted to determine its present value. Any unrecognised past service costs are deducted. The calculation of the Group’s obligation under the plan is performed annually by an independent actuary using the projected unit credit method carried out at the balance sheet date.

The Group recognises all actuarial gains and losses arising from defined benefit plan immediately in the Consolidated Statement of Profit and Loss. All expenses related to defined benefit plan are recognised in employee benefits expense in the Consolidated Statement of Profit and Loss.

Compensated Absences

The employees can carry-forward a portion of the unutilised accrued compensated absences and utilise it in future service periods or receive cash compensation on termination of employment. Since the compensated absences do not fall due wholly within twelve months after the end of the period in which the employees render the related service and are also not expected to be utilized wholly within twelve months after the end of such period, the benefit is classified as a long-term employee benefit. The Group records an obligation for such compensated absences in the period in which the employee renders the services that increase this entitlement. The obligation is measured on the basis of independent actuarial valuation using the projected unit credit method.

Termination benefits

Termination benefits are recognised as an expense when, as a result of a past event, the Group has a present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

(r) Taxation

Income-tax

expense comprises current tax (i.e. amount of tax for the period determined in accordance with the

income-tax

law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period).

Income-tax

expense is recognised in the Consolidated Statement of Profit and Loss.

Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws. Deferred tax is recognised in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed as at each balance sheet date and written down or

written-up

to reflect the amount that is reasonably/virtually certain (as the case may be) to be realised.

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Minimum Alternative Tax (‘MAT’) under the provisions of the

Income-tax

Act, 1961 is recognised as current tax in the Statement of Profit and Loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the Group will pay normal income tax during the period for which the MAT credit can be carried forward for

set-off

against the normal tax liability. MAT credit recognised as an asset is reviewed at each balance sheet date and written down to the extent the aforesaid convincing evidence no longer exists.

(s) Provisions and contingent liabilities

A provision is created when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Contingent assets are neither recognised nor disclosed in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

(t) Earnings/(loss) per share

Basic earnings/ (loss) per share is calculated by dividing the net profit/(loss) for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of equity and dilutive potential equity shares outstanding during the year, except where the results would be anti-dilutive.

(u) Discount on issue of debentures

Discount on issue of debentures and expenditure incurred in connection with such issue are amortised over the term of the debentures in proportion to the principal amount outstanding.

(v) Cash and cash equivalents

Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and short term investements with original maturity of three months or less.

(w) Cash flow statement

Cash flows are reported using indirect method, whereby net profits before tax is adjusted for the effects of transactions of a

non-cash

nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regular revenue generating, investing and financing activities of the Group are segregated.

(x) Going Concern

The group consolidated financial statements have been prepared on the basis that the group will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. The group have incurred losses till year end March 31, 2019 and have delays in repayment of loan. The Company is under discussion with the bank for extension, however due to the COVID situation, there has been delay in approvals from Bank, the management expects to receive the approvals for extension in certain period of time shortly. The Group has earned profits for year end March 31, 2020 and twelve months ended March 25, 2021 and also expects to earn profits in subsequent years based on the management projections and contracts entered. The Group also have received guarantee for the creditors of $35million from Uphealth, Inc. as part of the share purchase agreement dated October 22, 2020 (Refer note 31). With the positive cash flows from operation and the transaction with Uphealth, Inc., the management believes that there are no concerns towards near term access to capital and meeting its obligations.

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2 Share capital

							Amount in USD
	25 March 2021				31 March 2020
	Number of shares		Amount		Number of shares		Amount
Authorised
Equity shares of INR 10 each		13,500,000		1,859,158		13,500,000		2,075,515
Preference shares of INR 100 each		5,000,000		6,885,772		5,000,000		7,687,092
Preference shares of Re. 1 each		3,200,000		44,069		3,200,000		49,197
		21,700,000		8,788,999		21,700,000		9,811,805
Issued, subscribed and paid up
Equity Shares
Equity shares of INR 10 each		492,904		104,371		492,904		104,371
Preferred Stock
0.001% Compulsorily Convertible Cumulative Preference Shares—Series A of INR 100 each		240,777		508,086		240,777		508,086
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C of INR 100 each		254,936		406,102		254,936		406,102
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C1 of INR 100 each		157,234		243,565		157,234		243,565
8% Compulsorily Convertible Cumulative Preference Shares of INR 100 each		3,499,588		5,550,528		3,499,588		5,550,528
Total		4,645,439		6,812,652		4,645,439		6,812,652

a) Reconciliation of the shares outstanding at the beginning and at the end of the period:

Equity shares of INR10 each fully paid up
At the commencement and at the end of the period	492,904	104,371	492,904	104,371
Shares issued during the period	—	—	—	—
At the end of the period	492,904	104,371	492,904	104,371
0.001% Compulsorily Convertible Cumulative Preference Shares—Series A
At the commencement and at the end of the period	240,777	508,086	240,777	508,086
Shares converted into equity shares during the period	—	—	—	—
At the end of the period	240,777	508,086	240,777	508,086
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C
At the commencement and at the end of the period	254,936	406,102	254,936	406,102
Shares issued during the period	—	—	—	—
At the end of the period	254,936	406,102	254,936	406,102
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C1
At the commencement and at the end of the period	157,234	243,565	157,234	243,565
Shares issued during the period	—	—	—	—
At the end of the period	157,234	243,565	157,234	243,565
8% Compulsorily Convertible Cumulative Preference Shares
At the commencement of the period	3,499,588	5,550,528	3,499,588	5,550,528
Shares issued during the period	—	—	—	—
At the end of the period	3,499,588	5,550,528	3,499,588	5,550,528

b) Shares held by holding company:

The Company does not have a holding company.

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c) Details of shareholders holding more than 5% are as follows

	Number of shares		% of shares held		Number of shares		% of shares held
Equity shares of INR 10 each fully paid up held by
Dr. Syed Sabahat Azim		154,000		31.24		154,000		31.24
Mrs. Richa Sana Azim		1,54,000		31.24		1,54,000		31.24
Mr. M. Damodaran		52,855		10.72		52,855		10.72
Elevar Equity Mauritius		52,555		10.66		52,555		10.66
0.001% Compulsorily Convertible Cumulative Preference Shares—Series A
Elevar Equity Mauritius		146,616		60.89		146,616		60.89
Sequoia Capital India Investment Holdings III		94,161		39.11		94,161		39.11
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C
Elevar Equity Mauritius		125,774		49.34		125,774		49.34
Sequoia Capital India Investment Holdings III		62,887		24.67		62,887		24.67
Mr. M. Damodaran		45,311		17.77		45,311		17.77
Kimberlite Social Infra Private Limited		20,964		8.22		20,964		8.22
0.001% Compulsorily Convertible Cumulative Preference Shares—Series C1
Elevar Equity Mauritius		157,234		100		157,234		100
8% Compulsorily Convertible Cumulative Preference Shares SIDBI Trustee Company Limited A/C Samridhi Fund		3,499,588		100		3,499,588		100

d) Rights, preferences and restrictions in respect of each class of shares including restrictions on the distribution of dividends and the repayment of capital:

i) The Company has a single class of equity shares. Each holder of equity share is entitled to one vote per share, when present in person on a show of hands. In case of poll, each holder of equity shares shall be entitled to vote in proportion to his

paid-up

equity share capital.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

ii) The Company has a class of preference shares referred to as “0.001% Compulsorily Convertible Cumulative Preference Shares—Series A” having a par value of INR 100 each. These preference shares carry a

pre-determined

cumulative dividend rate of 0.001% p.a. on the subscription amount. The holders of preference shares may convert the preference shares in whole or part into equity shares at any time before January 13, 2026 at the rate of one (01) fully paid up equity share per one (01) preference share. The preference shares, or any of them, if not converted earlier, shall automatically convert into equity shares at the then applicable conversion rate, (i) two (02) days prior to the filing of the draft red herring prospectus in connection with the occurrence of the Qualified IPO, or (ii) on January 13, 2026, whichever may be earlier. The Company shall and the founders shall cause the Company to undertake a Qualified IPO (‘IPO’) at a price equal to the fair market value or a strategic sale, in the event the Company fails to complete the qualified IPO or strategic sale, the investor shall have the right, to call or buyback of all or part of the investor shares by the Company whether through one or more successive buyback offer at fair value. The buyback is subject to the meeting the conditions as provided by Companies Act 2013. The agreement is subsequently been amended on December 11, 2020 which provides the investor had no point in time intent to exercise such buyback rights and based on the addendum letter, such buyback rights may be deemed to have been removed from the shareholders agreement.

iii) The Company has a class of preference shares referred to as “0.001% Compulsorily Convertible Cumulative Preference Shares—Series C” having a par value of INR100 each. These preference shares carry a

pre-determined

cumulative dividend rate of 0.001% p.a. on the subscription amount or such higher percentage as declared in respect of the holders of equity shares. The holders of the preference shares may

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convert the preference shares in whole or part into equity shares at any time before December 31, 2030 at the rate of one (01) fully paid up equity share per one (01) preference share. The preference shares, or any of them, if not converted earlier, shall automatically convert into equity shares, (i) two (02) days prior to the filing of the draft red herring prospectus in connection with the occurrence of the Qualified IPO, or (ii) on January 13, 2026, whichever may be earlier.

iv) The Company has a class of preference shares referred to as “0.001% Compulsorily Convertible Cumulative Preference Shares—Series C1” having a par value of INR100 each. These preference shares carry a

pre-determined

cumulative dividend rate of 0.001% p.a. in addition, if the holders of equity shares or any other class of shares (other than shares held by SIDBI) are proposed to be paid dividend in excess of 0.001% , the holders of Series

C1-Compulsorily

Covertible Cumulative Preference Shares shall be entitled to dividend at such higher rate. The holders of the Series

C1-Compulsorily

Covertible Cumulative Preference Shares may convert at 1:1 in whole or part into equity shares at any time before 19 periods from the date of issuance.

v) The Company has a class of preference shares referred to as “8% Compulsorily Convertible Cumulative Preference Shares”, having a par value of INR 100 each alloted on 24 December 2013 and 13 August 2014. These preference shares carry a

pre-determined

cumulative dividend rate of 8% p.a. on the capital for the time being paid up on the subscriped preference shares. The Company and/or the promoters or their nominees may on or before the October 31, 2018, or such later date as agreed by the investors after giving notice of at least thirty (30) days to the investor, buy back/redeem/purchase the preference shares held by the investor either in full or in part at any time during the tenure of this Agreement. In case the Company/Promoters have not bought back/reedemed/purchased the subscription preference shares, the Company shall convert the outstanding preference shares at an

pre-agreed

IRR of 16%, this is later amended in agreement dated March 31, 2017, In the event the PAT for the Financial period ending March 31, 2018 is negative (i.e. there is a loss), the conversion of the Outstanding Preference Shares (issued as per the SSHA) into Equity Shares shall be at the par value of the Equity Shares. The Company have a negative PAT in period end March 31, 2018 and hence the preference shares are convertible at 1:1 ratio. There is subsequent round of preference shares issued as per agreement dated March 31, 2017 at similar terms.

3 Reserves and surplus

	25 March 2021			31 March 2020
Securities premium account		8,320,698			8,320,698
Revaluation surplus		10,128,170			10,128,170
General reserve		331,361			331,361
Foreign Currency Translation reserve		(2,266,144	)		(2,576,594	)
Surplus in Statement of Profit and Loss
At the commencement of the period (1st April)		(15,489,802	)		(17,873,766	)
Add: Profit/(Loss) for the period		2,190,556			2,383,964
Balance as at the end of the period		(13,299,246	)		(15,489,802	)
Total reserves and surplus		3,214,839			713,832

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4 Long-term borrowings

			Non-current portion				Current portion*
	Secured/ unsecured		25 March 2021		31 March 2020		25 March 2021		31 March 2020
204,540 (previous year: 204,540) 13.55% non-convertible debentures of INR 1,000 each		Secured		—		—		—		2,715,433
Less: Discount on issue of debenture to the extent not written off or adjusted				—		—		—		—
				—		—		—		2,715,433
Term loans from Banks		Secured		—		—		13,095,050		12,630,603
Term loan from Small Industries Development Bank of India		Secured		464,423		561,155		123,944		107,534
Term loan from National Skill Development Corporation		Secured		721,986		695,997		1,448,496		1,396,354
Term loan from Caspian Impact Investments Private Limited		Unsecured		—		—		1,377,430		1,327,580
Term loan from Blacksoil capital Private Limited		secured		121,651		—		291,681		362,333
Equipment loan		Secured		303,564		321,760		242,911		237,157
				1,611,624		1,578,912		16,579,512		18,776,995

* Amount disclosed under Other current liabilities - Note 8

(a) ) Secured non-convertible debenture

(i) The Company had issued 13.55% redeemable non-convertible debenture of face value of INR 1,000 each aggregating to INR 204,540,000 (USD 2,715,433) at a discount of 0.95% on face value on 19 March 2016 to Essential Capital Consortium BV on private placement basis. These debentures are redeemable at par in two equal instalments of INR 102,270,000 (USD 1,478,574) each on 5 May 2019 and 5 November 2019 and in case put option is exercised by debenture holder, the total balance of INR 204,540,000 (USD 287,172) has to be repaid on any date not earlier than 11 February 2019. Interest is payable semiannually at the rate of 13.55% per annum (net of withholding tax) on interest payment dates or earlier in case upon the exercise of the put option (interest payment starting from 5 May 2016 and ending on 5 November 2019 and in case put option is exercised, starting from 5 May 2016 and ending on 11 February 2019 ) as per Mortgage Cum Debenture Trust Deed dated 4 February 2016.

In view of contribution of company in the field of medicine especially during the COVID situation, USAID has decided to approve grant by paying off its debts towards Essential Capital Consortium (ECC). The grant has been approved and charged satisfaction has been filed on 13th June 2020. The company has written back the debenture of INR 204,540,000 (USD 2,799,716) and interest accrued and due on debenture of INR 13,712,945 (USD 187,701) under other income.

(ii) These debentures are secured by way of a second ranking and continuing charge by way of registered mortgage on the;

(a) immovable secured properties i.e rights in relation to;

(i) piece and parcel of garden land at Sonamukhi (District: Bankura) together with all buildings, constructions and plant and machinery erected thereon, both present and future.

(ii) piece and parcel of land at Bolpur (District: Birbhum) together with all buildings, constructions and plant and machinery erected thereon, both present and future.

(iii) piece and parcel of land at Behrampore (District: Murshidabad) together with all buildings, constructions and plant and machinery erected thereon, both present and future.

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(iv) rooftop of one-storied building, ground floor stalls and rear vacant land at Dubrajpur (District: Birbhum) together with all buildings, constructions and plant and machinery erected thereon, both present and future

(v) office space together with all constructions and plant and machinery erected thereon at Ecospace, New Town Rajarhat (Kolkata)

(b) movable assets in relation to hospitals at Sonamukhi (District: Bankura), Dubrajpur (District: Birbhum), Behrampur (District: Bankura), Bolpur (District: Birbhum) and head office at Ecospace, New Town Rajarhat (Kolkata).

(b) Term loans from Allahabad Bank

(i) Term loan from Allahabad Bank is secured by.

(a) For term loan I and II: First and exclusive charge by way of equitable mortgage on freehold land of Sonamukhi Unit, Bolpur Unit and Berhampore Unit and leasehold land of Dubrajpur Unit and construction thereon including hospital building, staff quarters etc (both present and future). Further, first and exclusive charge by way of hypothecation of plant and machineries, furniture and fixtures, entire computer systems, software packages, hardware, vehicles and other fixed assets both moveable and immovable of the respective five units and administrative office of the Company (both present and future). Second charge on the entire current assets of the five units and administrative office of the Company (both present and future).

(b) For term loan III,IV & V: 1. First Charge by way of Equitable Mortgage on land and building for the proposed 10 hospitals under LLPs i.e. Amroha Unit, Krishnanagar Unit, Jeypore Unit,, Muzzafarpur Unit, Bhagalpur Unit, Medinipur Unit, Malda Unit, Fatehpur Unit, Basti Unit and Bhangar Unit and construction thereon including hospital building, staff quarters, offices etc. (both present and future)

2. First Charge by way of Hypothecation of plant and machineries, furniture and fixtures, entire computer systems, software packages, hardware, vehicles, hospital equipments and other fixed assets both moveable and immovable of the proposed 10 hospitals under LLPs (both present and future)

3. Assignment of free cash-flows available to the Company as its share in the LLPs Second charge on the entire current assets of the 10 hospitals operated by LLPs (Both present and future)

(c) Personal guarantee of two Directors, Dr. Syed Sabahat Azim and Mrs. Richa Sana Azim.

(ii) Interest on the above Term Loan-I, II & III carries an interest of 1 year MCLR plus 3.10% p.a. at monthly rests and is payable as and when due. And Term Loan IV and V carries an interest of 1 year MCLR plus 4.10% p.a. at monthly rests and is payable as and when due.

(iii) The Company has been disputing the EMIs being deducted by Allahabad bank since 2017 in respect to hospital projects that have not achieved COD especially as the disbursal also started late. The Bank and the Company are entering into a restructuring proposal to resolve this issue. The Techno Economic viability report with positive recommendation has been submitted by Dun & Bradstreet which was appointed by bank to examine and report on the viability and Independent Credit Rating has been given by the approved rating agency. It is expected that the restructuring process will be completed in 2021. During this time the loan has been classified by the Bank as technical npa pending closure of restructuring process.

(c) Term loan from Small Industries Development Bank of India (SIDBI)

(i) Term loan from SIDBI is secured by :

(a) First charge by way of mortgage of leasehold rights of the borrower in favour of SIDBI over immovable properties and measuring 34.188 decimal and situated at Thana no.557, Tauji no.827,3665,3666 Khata no,134,1 & 5, Khasra no,912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar together with building & structure thereon, both present and future owned by the LLP.

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(b) Hypothecation of all the movables acquired / to be acquired under the project including the movables, plant, machinery, spares, tools & accessories, office equipments, computers, furniture and fixtures situated at 34.188 decimal situated at Thana no.557, Tauji no.827,3665,3666 Khata no,134,1 & 5, Khasra no, 912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar.

(c) Personal guarantee of Dr. Syed Sabahat Azim and corporate guarantee of Glocal Healthcare Systems Private Limited (partner in the LLP).

(ii) The term loan have been sanctioned for INR 66,500,000 (USD 882,841) for setting up of hospital and purchase of medical instruments and surgical equipments at Beguasarai, Bihar and is repayable in 96 monthly instalments after a moratorium of 2 years from the date of first disbursement of loan. Tentative start date is 10 April 2017 and tentative last instalment date is 10 March 2025.

(iii) Above term loan carries an interest of SIDBI’s Prime Lending Rate (PLR) plus 1.50%, at monthly rests and is payable as and when applied.

(d) Term loan from National Skill Development Corporation

(i) Term loan from National Skill Development Corporation is secured by:

(a) Charge on the movable, immovable acquired assets and receivables including revenue from franchisee arrangements, earnings from training programs.

(b) ) Deeds of hypothecation to be executed as and when assets are acquired and intimation forwarded to NSDC.

The term loan has been sanctioned for INR 189,000,000 (USD 2,500,000) and is to be disbursed in five instalments. The period of loan is ten years with two years moratorium on interest and principal from the date of first disbursement of the loan, final repayment by Q4 of the year

2021-22.

The loan is repayable on quarterly basis, after moratorium period, as per the repayment schedule given in the loan agreement. The Company has not repaid of principal and interest as per the repayment schedule. Principal and interest is outstanding from fourth quarter of the financial year ended 31 March 2017 till date. The current skilling structure has resulted in pendencies for the Company and hence the Company has approached NSDC for changes in the structure. The rate of interest being charged is simple interest of 6% p.a. payable on a quarterly basis after the interest-free moratorium period of two years from the date of first disbursement of the loan.

(ii) The rate of interest being charged is simple interest of 6% p.a. payable on a quarterly basis after the interest-free moratorium period of two years from the date of first disbursement of the loan .

(iii) The principal and interest is overdue as on 30th December 2020.

(e) Term loan from Caspian Impact Investments Pvt. Ltd.

(i) Term loan from Caspian Impact Investments Pvt. Ltd. is unsecured and other terms are:

(a) Carries an interest rate of 15% p.a.

(b) ) Purpose is to finance working capital.

(c) At the end of the tenor of the credit facility or upon prepayment of credit facility, whichever is earlier the borrower shall pay such additional interest that resulting in the overall XIRR of 18% on the entire credit facility from the First Disbursement date untill the repayment date.

(d) Additionally the lender shall have the option but not an obligation to convert whole or part of the unpaid amount under the Credit Facility and/or invest additional amount cumulatively upto a maximum of INR 100,000,000 (USD 1,327,580) at the share price of the next round of equity investment immediately after the execution date for subscription of shares whether equity or preference.

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(e) As per revised schedule dt. April 24, 2020 entire loan will be repaid on December 31, 2020 and interest will be charged on monthly rest.

(f) Term loan from Blacksoil Capital Private Limited

Term loan from Black Soil Private Limited is unsecured and other terms are:

(a) Carries an interest rate of 16.25% p.a.

(b) The loan of INR 75,000,000 (USD 995,685) has been sanctioned for business purpose.

(c) The facility is secured by way of hypothecation created in favour of Black Soil Private Limited over following:

(i) a first & exclusive charge over inventory.

(ii) a first & exclusive charge on the Identified Receivables accuring to the borrowers, both present & future.

(iii) if the DSRA in the form of fixed deposit, then first & exclusive charge on DSRA.

(d) Loan is to be repaid in 22 equated monthly installment of INR 3,409,091 (USD 45,258) starting from 30th November, 2018 till 31st August, 2020.

(e) In light of the stress in the financial sector caused by the

COVID-19

pandemic, the Tenure shall stand extended by 12 (twelve) months starting from December 2020.

(g) Loan from Hero Fincorp

(i) Term loan amounting to Nil (previous year Nil) is secured by:

(a) Exclusive charge over land & building and entire equipment of Begusarai Hospital immovable properties and measuring 34.188

decimal and situated at Thana no.557, Tauji no. 827, 3665, 3666 Khata no,134,1 & 5, Khasra no,912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar together with building & structure thereon, both present and future owned by the LLP.

(b) Exclusive charge on cash flow of the company.

(c) Escrow of routing of receivables from digital dispensaries openend in Odisha.

(d) Personal guarantee of Dr. Syed Sabahat Azim, Richa Sana Azim and corporate guarantee of Glocal Healthcare Systems Private Limited (partner in the LLP).

(ii) The term loan has been sanctioned for INR 70,000,000 (USD 929,306) as working capital loan & INR 60,000,000 (USD 796,548) as term loan for capex requirements- production & expansion of digital dispensary business and takeover of existing term loan from SIDBI & IIFL respectively.

(iii) Above term loan carries an interest of Hero Fincorp Prime Lending Rate @ 13% p.a. at monthly rests.

(h) Overdue payment of loan

The company has not clear its dues towards bank & financial institutions. Hence, the principal and interest is overdue on the loan.

As per circular

DOR.No.BP.BC.47/21.04.048/2019-20

dated March 27, 2020 regulatory measures were announced by RBI to mitigate the burden of debt servicing brought about by disruptions on account of

COVID-19

pandemic by granting a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020. Further, this relief was extended till August 31, 2020 and this pacakage has been taken up the company and installments has been rescheduled accordingly.

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5   Provisions Amount in USD

	Long-term				Short-term
	25 March 2021		31 March 2020		25 March 2021		31 March 2020
Provision for employee benefits
Gratuity		100,060		78,161		3,608		3,322
Compensated absences		67,479		51,524		2,716		2,471
		167,539		129,685		6,324		5,793
Other provisions
Provision for Income Tax		—		—		1,928		1,859
		—		—		1,928		1,859
		167,539		129,685		8,252		7,651

6 Short-term borrowings

	25 March 2021		31 March 2020
Cash credit facilities from bank (secured)		974,865		1,117,699
Unsecured loan
- loan from Hero Fincorp Ltd		964,008		929,306
- loan from related party		378,104		373,962
- loan from directors		21,070		20,312
- loan from others		1,515,451		1,451,329
		3,853,498		3,892,608

6.1 Cash credit facilities from Allahabad Bank has been sanctioned with a limit of INR 50,000,000 (USD 663,790) for working capital requirement of the five existing operational hospitals of the Company with a margin of 25% and is secured by first and exclusive charge of hypothecation of all the current assets of the five units and administrative office of the Company (both present and future), further, secured by (along with bank guarantee) second charge on land and building, plant and machineries and other fixed assets of the five existing operational hospitals under the Company’s direct ownership (both present and future). The cash credit facilities carry an interest rate of one-year MCLR plus 3.10% p.a. computed on a monthly basis on the actual amount utilized and are repayable as and when due.

The Group has availed cash credit facilities from Allahabad Bank for Amroha, Krishnanagar, Jeypore, Begusarai, Bhagalpur, Medinapur, Malda, Bhangar, Basti and Muzafarpur LLP’s. Cash Credit from Allahabad Bank has been sanctioned with a limit of INR 30,000,000 (USD 398,287.15) and is secured by stock (margin of 25% on stocks and 40% on book debts upto 90 days old). The cash credit facilities carry an interest rate of 1 year Allahabad Bank MCLR + 4.10% p.a. computed on a monthly basis on the actual amount utilised and are repayable on demand.

The company has been disputing the EMIs being deducted by Allahabad bank since 2017 in respect to hospital projects that have not achieved COD especially as the disbursal also started late. The Bank and the company are entering into a restructuring proposal to resolve this issue. The Techno Economic viability report with positive recommendation has been submitted by Dun & Bradstreet which was appointed by bank to examine and report on the viability and Independent Credit Rating has been given by the approved rating agency. It is expected that the restructuring process will be completed in 2021. During this time the loan has been classified by the Bank as Technical NPA pending closure of restructuring process.

6.2 Interest free loan taken from directors and related parties are repayable on demand.

6.3 a. Loan taken from others is repayable on demand.

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b. Loan taken from others carries an interest rate of 12% to 15% p.a. (except for three parties)

6.4 Loan from Hero Fincorp

(i) Term loan is secured by:

(a) Exclusive charge over land & building and entire equipment of Begusarai Hospital immovable properties and measuring 34.188 decimal and situated at Thana no.557, Tauji no.827,3665,3666 Khata no,134,1 & 5, Khasra no,912,914 and 913, Mauza Keshave, Anchal Barauni, Begusarai, Bihar together with building & structure thereon, both present and future owned by the LLP.

(b) Exclusive charge on cash flow of the company

(c) ) Escrow of routing of receivables from digital dispensaries openend in Odisha

(d) Personal guarantee of Dr. Syed Sabahat Azim, Richa Sana Azim and corporate guarantee of Glocal Healthcare Systems Private Limited (partner in the LLP).

(ii) The term loan has been sanctioned for INR 70,000,000 (USD 929,306) as working capital loan & INR 60,000,000 (USD 862,678) as term loan for capex requirements- production & expansion of digital dispensary business and takeover of existing term loan from SIDBI & IIFL respectively. The term loan facility for takeover of loan from SIDBI & IIFL has not been availed and hence got expired. So the charge created against immovable property is still lying with SIDBI.

(iii) Above term loan carries an interest of Hero Fincorp Prime Lending Rate @ 13% p.a. at monthly rests

(iv) As per circular DOR.No.BP.BC.47/21.04.048/2019-20 dated March 27, 2020 regulatory measures were announced by RBI to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic by granting a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020. Further, this relief was extended till August 31, 2020 and this pacakage has been taken up the company and installments has been rescheduled accordingly.

7 Trade payables

	25 March 2021		31 March 2020
Total outstanding dues of micro enterprises and small enterprises		—		—
Total outstanding dues of creditors other than micro enterprises and small enterprises		578,719		1,471,145
		578,719		1,471,145

Trade Payables as on 25 March 2021 is net of advances

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8 Other current liabilities

	25 March 2021		31 March 2020
Current maturities of long-term debts (refer note 4)		16,579,512		18,776,995
Interest accrued and due on term loans		4,713,386		2,275,228
Interest accrued but not due on loan		—
Interest accrued and due on cash credit		258,722		145,101
Interest accrued and due on equipment loan		47,112		32,465
Interest accrued but not due on equipment loan		131,217
Interest accrued and due on other loan		181,638		118,523
Interest accrued but not due on debentures		—		—
Interest accrued and due on debentures		—		182,050
Creditors for capital goods		234,384		178,446
Employee benefits payable		628,395		539,903
Temporary Book Overdraft		1,073
Advance from TPA & Customers		443,408		431,960
Partner’s Current A/c		17,903		17,259
Statutory dues payable
Provident fund		317,412		274,585
Professional tax		14,034		12,484
Employee state insurance payable		193,258		166,695
Tax deducted at source payable		442,830		327,555
Goods and services tax payable		40,539		88,504
Unearned revenue		136,332		131,424
Advance from patients and others		241,012		7,220
Other liabilities/ payables		92,232		128,565
		24,714,399		23,834,963

8.1 i. Major clients of the company are ESIC, PSU’s and various other government departments. There has been major delay in receipt of payment from their side which is creating challenges for the company to meet its operational expenses which includes statutory obligations also.

Due to this financial crunch there has been continuing delay in payment of statutory dues on the part of the company.

ii. As per Income Tax Act tax is to be deducted on payment or credit whichever is earlier, ignoring the fact whether payment has been made or not. Hence, TDS liability is deposited in respect of those to whom payment has been made.

8.2 Advance receipt of INR 30 mm from S.S Earth Moving Mining was for setup of dispensary setup in their mining area. But no space was allocated to us by them, hence setup is not done.

8.3 Advance include amount received from African medical supply for supply of DD setup but due to COVID outbreakup same couldnot be fulfilled.

8.4 Regarding interest accrued and due with respect to the term loan taken from Allahabad bank, the company has been disputing the EMIs being deducted by the bank since 2017 in respect to hospital projects, that have not achieved COD especially as the disbursal also started late. The Bank and the company are entering into a restructuring proposal to resolve this issue. The Techno Economic viability report with positive recommendation has been submitted by Dun & Bradstreet which was appointed by bank to examine and report on the viability and Independent Credit Rating has been given by the approved rating agency. It is expected that the restructuring process will be completed in 2021. During this time the loan has been classified by the Bank as technical NPA pending closure of restructuring process. As the account has been declared technical NPA by the bank so no interest has been charged by the bank but following the concept of mercantile system of accounting interest on term loan from Allahabad Bank and interest on cash credit

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limit has been calculated and charged in expenses. This interest has been classified as Interest accured and due under other current liabilities.

9 Goodwill

	25 March 2021			31 March 2020
Opening balance		459,982			598,136
Amortisation of Goodwill		(93,867	)		(95,982	)
Forex Adjustment		16,890			(42,172	)
Closing balance		383,005			459,982

10 Property, Plant & Equipment

Particulars	WDV as on 25.03.2021		WDV as on 31.03.2020
Freehold land		5,426,965		5,231,609
Leasehold land		22,636		22,837
Buildings		16,212,476		15,892,417
Electrical equipment		393,532		450,247
Medical & surgical equipment’s		2,302,417		2,408,992
Furniture and fixtures		236,768		273,870
Vehicles		3,091		3,828
Office equipment		63,692		67,280
Computers and accessories		16,494		27,336
Total		24,678,070		24,378,417

11 Intangible Assets

Particulars	WDV as on 25.03.2021		WDV as on 31.03.2020
Computer software (internally generated platform/applications)		2,581,839		2,541,433
Computer software		57,752		166,246
Trademark		—		74
Content development		26,230		158,137
Total		2,665,821		2,865,890

12 Long-term loans and advances

	25 March 2021		31 March 2020
(Unsecured and considered good)
To parties other than related parties
(a) ) Capital advances		411,027		544,996
(b) Security deposits		53,574		166,558
		464,602		711,553
(c) ) Other loans and advances
TDS receivables		460,919		413,507
		460,919		413,507
		925,521		1,125,061

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13 Other non-current assets

	25 March 2021		31 March 2020
(Unsecured and considered good)
Bank deposits (due to mature after 12 months from the reporting date) [refer note 16]*		42,968		19,289
Balance with government authorities		686		661
Interest accrued on bank deposits		—		41
Interest accrued on electricity deposits		659		636
		44,313		20,626

14 Inventories

(Valued at lower of cost and net realisable value)
Stock of digital dispensary, medicine and medical consumables	322,309	265,330
Stores and spares	3,263	3,966
	325,572	269,296

15 Trade receivables

(a) Unsecured and considered good	6,460,982		1,520,746
(b) Doubtful	451,181		434,940
Less: Provision for doubtful receivables	(451,181	)	(434,940	)
	6,460,982		1,520,746
Other receivables
(a) Unsecured, considered good	—		3,199,210
	—
	6,460,982		4,719,956

16 Cash and bank balances

	25 March 2021		31 March 2020
Cash and cash equivalents
Cash on hand		322,476		32,084
Balance with banks:		—
On current accounts		—		71,853
On deposit accounts (with original maturity of 3 months or less)		1,377		7,965
		323,854		111,902
Other bank balances:
Deposits in banks with maturity of more than 3 months but less than 12 months*		46,131		59,965
		369,984		171,867

* Bank deposits of USD 13,772 as on 25 March 2021 (31 March 2020—USD 13,276) have been pledged with Black Soil as security for term loan

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* Bank deposits of USD 31,557 as on 25 March 2021 (31 March 2020- USD 30,421) have been given as cash margin to banks for issuing bank guarantees to government authorities.

17 Short-term loans and advances

	25 March 2021		31 March 2020
(Unsecured and considered good)
To parties other than related parties
Security deposits		157,975		37,376
Prepaid expenses		409		2,652
Advance for supply of goods and services		25,152		493,214
Advance to doctors		—		26,339
Advances to employees		537,319		396,399
Advances to others		47,634		52,262
		768,489		1,008,242

18 Other current assets

	25 March 2021		31 March 2020
(Unsecured and considered good)
Interest accrued on bank deposits		16,910		16,261
Government grant receivable		708,823		492,567
Unbilled revenue		3,927		3,786
		729,660		512,613

19 Revenue from operations

			Amount in USD
	01 April 2020-25 March 2021		01 April 2019-31 March 2020
Sale of services:
Income from hospital services		5,486,607		4,534,912
Income from digital dispensary consultancy		1,375,651		1,226,063
Sale of goods:
Sale of pharmacy/ medicines		787,575		746,317
Sale of digital dispensary				2,191,804
Other operating revenue:
Income from government grant*		270,680		256,771
Miscellaneous income		92,991		101,477
		8,013,504		9,057,344

19.1 The company has entered into revenue sharing arrangement, the contractual arrangement is on principal-to-principal basis for hospital at Bolpur, Sonamukhi, Malda, Jeypore & Mednipore. These hospitals were earlier operated by Company itself.

Revenue sharing arrangement is included within Income from Hospital Services.

19.2 Income from government grant represents interest and tax subsidy from government of Bihar under Bihar Industrial Investment Promotion Act, 2016. Interest subsidy is available to GHSPL Muzafarpur Healthcare LLP, GHSPL Bhaglpur Healtcare LLP & GHSPL Begusari Healthcare LLP on the term loan availed by the LLP from Allahabad Bank & State Industrial Development Bank of India.

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20 Other Income

	01 April 2020-25 March 2021		01 April 2019-31 March 2020
Interest on bank deposits				6,994
Interest on income tax refund		—		18,521
Provision/ liability no longer required written back (Net)		3,009,179		2,109,763
Miscellaneous income		553		868
		3,009,732		2,136,145

20.1 On March 19, 2016 company has issued 13.55% Non-convertible Debentures worth INR 204,540,000 (USD 2,715,433) to Essential Consortium Capital but in view of the contribution of company in the field of medicine, especially during the COVID situation, USAID has decided to approve grants by paying off its debts towards Essential Capital Consortium (ECC). Hence, provision /liability no longer required includes writte off Debentures, Interest thereon and liability towards ECC worth INR 223,673,406 (USD 3,014,824) as on December 31, 2020

21 Purchases

	01 April 2020-25 March 2021		01 April 2019-31 March 2020
Medicines and medical consumables		936,094		898,589
Purchase of digital dispensary		22,353		63,122
		958,447		961,711

22 Course operating expenses

			Amount in USD
	01 April 2020-25 March 2021		01 April 2019-31 March 2020
Training cost/ professional fees		—		—
Fooding and lodging		—		—
Externship expenses		—		—
		—		—

23 Changes in inventories

Inventory at the beginning of the year	269,385		237,285
Inventory at the end of the year	325,572		275,905
	(56,187	)	(38,620	)

24 Employee benefits expense

Salaries, wages, and bonus	1,023,923	1,291,639
Contribution to provident and other funds	107,513	110,974
Staff welfare expenses	17,672	35,132
	1,149,108	1,437,745

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25 Finance costs

Interest expense on:
- debenture	—		38,743
- term loan	2,294,906		1,574,394
- Cash credit	111,076		144,621
Unsecured loan	576,098		624,970
Other borrowing costs	80
	2,982,160		2,382,728
Less: Borrowing costs capitalized to qualifying assets	(670,837	)	(232,554	)
	2,311,323		2,150,174

25.1 Interest expenses as been calculated as per contractual term mentioned in sanction letter of Banks/ Financial Institutions. The company is in discussion with Allahabad Bank for restructuring and other financial institutions for rescheduling of the repayment terms. The management beliefs that no penal interest will be charged by the banks & financial institution and hence no provision has been recognized in the statement of profit & loss.

26 Depreciation and amortization

Depreciation of property, plant and equipment (PPE)	671,000	752,899
Amortization of Goodwill	92,559	95,982
Amortization of intangible assets	639,159	555,920
	1,402,718	1,404,801

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27 Other expenses

				Amount in USD
	01 April 2020-25 March 2021			01 April 2019-31 March 2020
Consumption of stores and spares		13,115			6,445
Share of O&M Partner		430,138
Housekeeping expenses		85,730			95,406
Assets/Receivable written off					7,015
Power and fuel		124,768			176,237
Rates and taxes		18,029			30,818
Rent (refer note 36)		—
- equipment’s		4,542			3,918
- others		71,720			94,755
Patient food expenses		57,918			68,707
Professional fees:		—
- to doctors		1,594,604			1,579,504
- to others		18,629			13,482
Repairs to building		61,905			72,581
Repairs to surgical/medical equipment’s/machinery		37,632			47,845
Repairs to others		6,590			8,222
Payment to auditors		25,337			26,329
Travelling and conveyance expenses		126,097			168,930
Advertisement and sales promotion		140,919			231,583
Testing expenses		95,343			60,538
Printing and stationery		25,505			30,137
Telephone and communication expenses		30,612			60,786
Miscellaneous expenses		126,379			87,675
Less: Capitalisation for internally generated software		(91,860	)
		3,003,651			2,870,913

28 Extra-ordinary expenses

Equity Transaction Related expenses	—
Statutory Dues Expenses	—

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29 Earnings/ (loss) per share

	Amount in USD
Particular’s	25 March 2021		31 March 2020
Profit/(Loss) attributable to equity shareholders (a)		2,190,558		2,383,964
Less: Dividend on cumulative compulsorily convertible preference shares and tax thereon (b)		2,049,910		1,976,118
Net profit/(loss) adjusted for the effects of dilutive potential equity shares for calculation of diluted EPS [(c) = (a)—(b)]		140,648		407,846
Weighted average number of equity shares of face value of INR 10 each outstanding during the year (used for calculating Basic EPS) (d)		492,904		492,904
Add: Effect of potential equity shares to be issued under Compulsory Convertible Preference Shares (e)*		4,152,535		4,152,535
Weighted average number of equity shares of face value of INR 10 each outstanding during the year (used for calculating Diluted EPS) [(f) = (d) + (e)]		4,645,439		4,645,439
Basic earnings per share of INR 10 each [(g)= (a)/(d)] (not annualized)		4.44		4.84
Diluted earnings per share of INR 10 each [(h) = (c)/(f)] (not annualized)**		0.47		0.51

30 Minority interest

The following table summarizes the information relating to Group’s subsidiaries and the carrying value of minority interests:

									Amount in USD
Name of the LLPs	Minority% 25 March 2021			Minority% 31 March 2020			25 March 2021		31 March 2020
GHSPL BEGUSARAI Healthcare LLP		5	%		5	%		51,503		30,168
GHSPL BGLP Super Speciality Healthcare LLP		35	%		35	%		333,922		344,304
GHSPL FATEHPUR Super Speciality Healthcare LLP		35	%		35	%		37,148		37,148
GHSPL JEYPORE Healthcare LLP		35	%		35	%		284,806		396,836
GHSPL SAMBHAV KNJ Healthcare LLP		35	%		35	%		154,908		75,317
GHSPL MLD Super Speciality Healthcare LLP		22	%		22	%		164,918		90,740
GHSPL MUZF Super Speciality Healthcare LLP		38	%		38	%		521,942		453,144
GHSPL MDPR Super Speciality Healthcare LLP		2	%		2	%		61,420		58,753
GHSPL PRN Super Speciality Healthcare LLP		24	%		24	%		190,007		190,007
GHSPL BHNGAR Super Speciality Healthcare LLP		11	%		11	%		52,008		52,008
								1,852,582		1,728,427

31 On October 22, 2020, the Company has entered into a business combination agreement with Uphealth Holdings, Inc. The transaction is agreed at a purchase consideration of $171 million. Post the consummation of transaction, Uphealth Holdings, Inc.. will hold 100% shares in the Company.

32. This note presents the reconciliation of (i) the unaudited interim consolidated balance sheets & audited consolidated balance sheets, unaudited interim consolidated statement of profit and loss & audited consolidated statement of profit and loss and unaudited interim consolidated statement of cash flows & audited consolidated statement of cash flow of Glocal Healthcare Systems Private Limited (“Glocal” or the “Company”) as derived from the unaudited interim consolidated financial statements of the Company for the period from 01 April 2020 to 25 March 2021 and from the audited consolidated financial statement of the company from 01 April 2019 to 31 March 2020 prepared in accordance with the accounting principles generally accepted in India (“Indian GAAP”),incorporated above in this document, to (ii) the unaudited interim consolidated balance sheets & audited consolidated balance sheet , unaudited interim consolidated statements of operations and unaudited statement of comprehensive income and loss & audited consolidated

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statement of operations and audited statement of comprehensive income and unaudited consolidated statement of cash flows of the Company & audited consolidated cash flows of the Company prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the U.S. GAAP accounting policies as set out below.

32.1 Accounting Policies

(a) Revenue Recognition

The Group derives its revenue primarily from rendering medical and healthcare services. Income from medical and healthcare services comprise income from hospital services and sale of pharma products.

Revenue from hospital and digital consultancy services to patients is recognized as revenue when the related services are rendered unless significant future uncertainties exist. Revenue is also recognised in relation to the services rendered to the patients who are undergoing treatment/observation on the Statement of Financial Position date to the extent of services rendered.

Revenue from sale of medicine and medical consumables within hospital premises is recognized on sale of medicines and similar products to the buyer. The amount of revenue recognized is net of sales returns and trade discounts.

Revenue from digital dispensary is recognized when risk and reward of ownership have been transferred to the customer and accepted by the customer, the sale price is fixed or determinable and collectability is reasonably assured.

Unbilled revenue represents value of medical and healthcare services rendered to the patients but not invoiced as at the Statement of Financial Position date.

(b) Liabilities written back

The group assesses its payment of its liabilities at reporting date and write back liabilities that is no longer required and same is recorded in other income.

(c) Research and Development Expenses

The group capitalizes the internal and external cost incurred after technological feasibility for application development. Other costs including research phase are expensed as incurred by the group.

(d) Employee Benefit

The costs of the defined benefit plans granted to employees charged to the income statement are determined by actuarial calculation.

(e) Preference Shares

8% Compulsorily Convertible Cumulative Preference Shares is classified Mezzanine as they are redeemable at the option of the holder in absence of an IPO event/strategic sale not under the control of the Company. Subsequent to the balance sheet date, the investor have waived the redemption rights.

Other preference shares are classified as equity as there is no contractual obligation to deliver cash or any other financial asset and will or may be settled in its own equity instruments. Transaction costs are deducted from equity, net of associated income tax.

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(f) Business Combination

In accordance with ASC Topic 805, “Business combination”, the Company uses the acquisition method of accounting for all business combinations. The acquisition method of accounting requires, among other things, that the assets acquired, and liabilities assumed in a business combination be measured at their fair values as of the closing date of the acquisition. The Company measures the fair values of the acquired assets and liabilities assumed on the closing date which is the date on which the Company transfers the purchase consideration or definitive control agreement is signed and achieves the control of the acquiree. Intangible assets acquired in a business combination are recognized and reported apart from goodwill if they meet the criteria specified in ASC Topic 805.

Acquisition-related costs are recognized as period costs, as incurred, except the costs to issue debt or equity securities which are reduced from the fair value of instruments issued.

Transaction that results in increase or decrease in a group’s/parent’s ownership interest in a subsidiary without the loss of control are accounted as equity transaction.

(g) Income Taxes

The Company accounts for income taxes in accordance with the asset and liability approach. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized.

The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to uncertain tax positions in the provision for income taxes in the consolidated statements of operations.

(h) Foreign Currency Translation

The functional currency of the Company’s is the INR.

Accordingly, the subsidiaries remeasure monetary assets and liabilities at

period-end

exchange rates, while

non-monetary

items are remeasured at historical rates. Revenue and expense accounts are remeasured at the average exchange rate in effect during the year. Remeasurement adjustments are recognized in the consolidated statements of operations as other income or expense in the year of occurrence. Foreign currency transaction gains and losses were insignificant for all periods presented.

For subsidiaries where the functional currency is a foreign currency, adjustments resulting from translating the financial statements into INR are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Monetary assets and liabilities denominated in a foreign currency are translated into INR at the exchange rate on the balance sheet date. Revenue and expenses are translated at the weighted average exchange rates during the period. Equity transactions are translated using historical exchange rates. Foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations.

(i) Comprehensive Income (Loss)

Comprehensive income (loss) refers to net income (loss) and other revenue, expenses, gains and losses that, under generally accepted accounting principles, are recorded as an element of stockholders’ equity but are excluded from the calculation of net income (loss).

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(j) Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

As at 25 March 2021 restricted cash includes deposits restricted as to usage under lien to banks for guarantees given by the Company amounting to USD 31,557 (31 March, 2020: USD 30,421) and USD 13,772 (31 March 2020 USD 13,276) lien with banks for bank guarantee to governement autorities & Black Soil respectively. As per Accounting Standards Update

No. 2016-18

(ASU

2016-18)

“Restricted Cash—Statement of Cash Flows (Topic 230)”, the restricted cash and restricted cash equivalents is included within cash and cash equivalents when reconciling the begining of period and end of period total amounts shown on the statement of cash flows.

(k) Accounts Receivable and Allowance for Doubtful

Accounts receivable are recorded net of the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on the Company’s assessment of its ability to collect on customer accounts receivable. The Company regularly reviews the allowance by considering certain factors such as historical experience, credit quality, age of accounts receivable balances and other known conditions that may affect a customer’s ability to pay. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet their financial obligations, a specific allowance is recorded against amounts due from the customer which reduces the net recognized receivable to the amount the Company reasonably believe will be collected. The Company

writes-off

accounts receivable against the allowance when a determination is made that the balance is uncollectible, and collection of the receivable is no longer being actively pursued.

(l) Property and Equipment, net

Property and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation is computed using the straight-line method over the estimated useful life of the related asset. Maintenance and repairs are charged to expenses as incurred.

(m) Impairment or disposal of long-lived assets

The Company accounts for impairment losses on long-lived asset in accordance with ASC

360-“Property,

plant and equipment”. The Company reviews long-lived asset for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company measures recoverability of assets to be held and used by a comparison of the carrying value of an asset to undiscounted future net cash flows the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Fair value of long-lived assets, including identifiable intangible assets, is determined either by using the discounted cash flow method or for assets to be disposed of at their net realizable value which includes an estimate for any potential costs to dispose.

(n) Fair Value of Financial Instruments

The Company applies fair value accounting for all financial instruments on a recurring basis. The Company’s financial instruments, which include cash, cash equivalents, accounts receivable and accounts payable are recorded at their carrying amounts, which approximate their fair values due to their short-term nature. Restricted cash is long-term in nature and consists of cash in a savings account, hence its carrying amount approximates its fair value. All marketable securities are considered to be

available-for-sale

and recorded at their estimated fair values. Unrealized gains and losses for

available-for-sale

securities are

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recorded in other comprehensive income (loss). In valuing these items, the Company uses inputs and assumptions that market participants would use to determine their fair value, utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the security will be sold before the recovery of its cost basis. Realized gains and losses and declines in value deemed to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net.

The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

• Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Indian GAAP versus U.S. GAAP Reconciliation tables

The following tables set forth the reconciliation of (i) the unaudited interim consolidated balance sheet, unaudited interim consolidated statement of operations and unaudited interim consolidated statement of cash flows of the group for the period ended 31 December 2019 and the period ended 25 March 2021 prepared in accordance with Indian GAAP and reclassified based on the classification format adopted by Uphealth for the U.S. GAAP Financial Statements to (ii) the unaudited interim consolidated balance sheets, unaudited interim consolidated statements of operations and unaudited interim consolidated statement of cash flows of the Company prepared in accordance with U.S. GAAP.

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Unaudited Consolidated Balance Sheet as at 25 March 2021

Amount in USD

Particulars	25 March 2021 Indian GAAP			Revaluation Reserve			Deferred Tax		Goodwill			Classification of Mezzanine Equity			Others*			25 March 2021 US GAAP
Assets
Current Assets
Cash and cash equivalents		369,984			—			—		—			—			(45,328	)		324,656
Restricted cash		—			—			—		—			—			45,328			45,328
Accounts Receivables, net of allowance		6,460,982			—			—		—			—			—			6,460,982
Inventories		3,25,572			—			—		—			—			—			325,572
Other current assets		1,498,149			—			—		—			—			22,636			1,520,784
		8,654,687			—			—		—			—			22,636			8,677,323
Property, Plant & Equipment (Net)		24,678,070			(12,159,329	)		—		—						(22,636	)		12,496,106
Goodwill		383,005			—			—		(383,005	)		—			—			—
Other Intangible Assets (Net)		2,665,821			—			—		—			—			—			2,665,821
Capital work in progress		5,462,687			—			—		—			—			—			5,462,687
Restricted cash		—			—			—		—			—			—			—
Deferred Tax Assets		—			—			3,755,307		—			—			—			3,755,307
Other assets		969,834			—			—		—			—			—			969,834
		34,159,417			(12,159,329	)		3,755,307		(383,005	)		—			(22,636	)		25,349,755
Total Assets		42,814,104			(12,159,329	)		3,755,307		(383,005	)		—			—			34,027,078
Liabilities and Stockholders Equity
Current Liabilities
Accounts payables		578,719			—			—		—			—			—			578,719
Accrued Liabilities		8,134,887			—			—		—			—			129,468			8,264,355
Short-term borrowings		3,853,498			—			—		—			—			—			3,853,498
Current portion of long-term borrowings		16,579,512			—			—		—			—			—			16,579,512
Short-term provisions		8,252			—			—		—			—			—			8,252
		29,154,868			—			—		—			—			129,468			29,284,336
Long-term borrowings		1,611,624			—			—		—			—			—			1,611,624
Long-term provisions		167,539			—			—		—			—			—			167,539
Total liabilities		30,934,031			—			—		—			—			1,29,468			31,063,499
Mezzanine Equity
Series A preferred shares		—			—			—		—			2,463,470			—			2,463,470
Stockholders Equity
Common Stock		104,371			—			—		—			—			—			104,371
Money received against share warrant		—			—			—		—			—			—			—
Preferred Stock		6,708,281			—			—		—			(508,086	)		—			6,200,194
Additional paid-in-capital		8,320,698			—			—		(98,306	)		(1,955,383	)		—			6,267,009
Revaluation Surplus		10,128,170			(10,128,170	)		—		—			—			—			—
Retained Earnings		(12,967,885	)		—			3,580,711		(301,589	)		—			(132,299	)		(9,821,062	)
Foreign Currency Translation Reserve		(2,266,144	)		—			—		16,890			—			2,831			(2,246,423	)
Total shareholders’ equity attributable to the Group		10,027,490			(10,128,170	)		3,580,711		(383,005	)		(0	)		(129,468	)		2,967,558
Non-Controlling Interest		1,852,582			(2,031,159	)		174,596		—			—			—			(3,981	)
Total Stockholders’ Equity		11,880,073			(12,159,329	)		3,755,307		(383,005	)		(0	)		(129,468	)		2,963,578
Total liabilities and stockholders’ equity		42,814,104			(12,159,329	)		3,755,307		(383,005	)		(0	)		—			34,027,078

* Others include Lease classification and interest expense.

F-237

Unaudited Consolidated Income Statement for period ended 01 April 2020 to 25 March 2021

Amount in USD

Particulars	25 March 2021 Indian GAAP			Deferred Tax			Goodwill			Others			25 March 2021 US GAAP
Revenue		8,013,504			—			—			—			8,013,504
Cost of revenues		3,290,932			—			—			—			3,290,932
Gross Profit		4,722,572			—			—			—			4,722,572
Operating expenses
Selling & Distribution expense		140,919			—			—			—			140,919
General & Administrative expense		474,060			—			—			—			474,060
Employee benefits expense		1,149,108			—			—			—			1,149,108
Depreciation and amortisation		1,402,718			—			(92,559	)		—			1,310,159
Total Operating Expenses		3,166,805			—			(92,559	)		—			3,074,246
Operating Income		1,555,767			—			92,559			—			1,648,325
Other income		3,009,732			—			—			—			3,009,732
Interest expense		2,311,323			—						39,968			2,351,291
Income before income tax		2,254,175			—			92,559			(39,968	)		2,306,766
Income tax expense		—			(695,686	)		—			—			(695,686	)
														—
Net Income		2,254,175			695,686			92,559			(39,968	)		3,002,452
Net income attributable to non controlling interest		63,618			37,778			—			—			101,395
Net income available to the owners of the parent		2,190,558			657,908			92,559			(39,968	)		2,901,057
Net Income		2,190,558			657,908			92,559			(39,968	)		2,901,057
Other Comprehensive Income/(loss), net of tax
Translation adjustments		(310,450	)								2,831			(307,619	)
Total other comprehensive income/(loss)		(310,450	)		—			—			2,831			(307,619	)
Comprehensive Income		1,880,107			657,908			92,559			(37,137	)		2,593,437
Comprehensive Income (loss) attributable to the non-controlling interest		—			—			—			—			—
Comprehensive Income attributable to the owners of the parent		1,880,107			657,908			92,559			(37,137	)		2,593,437

Unaudited Consolidated Cash Flow Statement for period ended 25 March 2021

Amount in USD

Particulars	25 March 2021 Indian GAAP			Others		25 March 2021 US GAAP
Net cash (used in) operating activities (A)		1,264,906			—		1,264,906
Net cash (used in) investing activities (B)		(416,699	)		—		(416,699	)
Net cash provided by financing activities (C)		(636,256	)		—		(636,256	)
Net (decrease) in cash and cash equivalent (A+B+C)		211,951			—		211,951
Cash and cash equivalents at the beginning of the year		111,902			—		111,902
Cash and cash equivalents at the end of the year		323,854			—		323,854

F-238

Consolidated Balance Sheet as at 31 March 2020

Amount in USD

Particulars	31 March 2020 Indian GAAP			Revaluation Reserve			Deferred Tax		Goodwill			Classification of Mezzanine Equity			Others*			31 March 2020 US GAAP
Assets
Current Assets
Cash and cash equivalents		171,867			—			—		—			—			(43,697	)		128,170
Restricted cash		—			—			—		—			—			43,697			43,697
Accounts Receivables, net of allowance		4,719,956			—			—		—			—			—			4,719,956
Inventories		269,296			—			—		—			—			—			269,296
Other current assets		1,520,855			—			—		—			—			22,837			1,543,692
		6,681,974			—			—		—			—			22,837			6,704,810
Property, Plant & Equipment (Net)		24,378,417			(12,159,329	)		—		—						(22,837	)		12,196,252
Goodwill		459,982			—			—		(459,982	)		—			—			—
Other Intangible Assets (Net)		2,865,890			—			—		—			—			—			2,865,890
Capital work in progress		4,637,925			—			—		—			—			—			4,637,925
Restricted cash		—			—			—		—			—			—			—
Deferred Tax Assets		—			—			3,036,053		—			—			—			3,036,053
Other assets		1,145,687			—			—		—			—			—			1,145,687
		33,487,901			-12,159,329			3,036,053		-459,982			—			-22,837			23,881,806
Total Assets		40,169,875			-12,159,329			3,036,053		-459,982			—			—			30,586,617
Liabilities and Stockholders Equity
Current Liabilities
Accounts payables		1,471,145			—			—		—			—			—			1,471,145
Accrued Liabilities		5,057,967			—			—		—			—			85,742			5,143,709
Short-term borrowings		3,892,608			—			—		—			—			—			3,892,608
Current portion of long-term borrowings		18,776,995			—			—		—			—			—			18,776,995
Short-term provisions		7,651			—			—		—			—			—			7,651
		29,206,367			—			—		—			—			85,742			29,292,109
Long-term borrowings		1,578,912			—			—		—			—			—			1,578,912
Long-term provisions		129,685			—			—		—			—			—			129,685
Total liabilities		30,914,964			—			—		—			—			85,742			31,000,706
Mezzanine Equity
Series A preferred shares		—			—			—		—			2,463,470			—			2,463,470
Stockholders Equity
Common Stock		104,371			—			—		—			—			—			104,371
Preferred Stock		6,708,281			—			—		—			-508,086			—			6,200,194
Additional paid-in-capital		8,320,698			—			—		(105,118	)		(1,955,383	)		—			6,260,197
Revaluation Surplus		10,128,170			-10,128,170			—		—			—			—			—
Retained Earnings		(15,158,441	)		—			2,912,325		-354,865			—			-92,331			(12,693,312	)
Foreign Currency Translation Reserve		(2,576,594	)		—			—		—			—			6,589			(2,570,005	)
Total shareholders equity attributable to the Group		7,526,484			(10,128,170	)		2,912,325		(459,982	)		(0	)		(85,742	)		(235,085	)
Non Controling Interest		1,728,427			(2,031,159	)		123,728		—			—			—			(179,005	)
Total Stockholders Equity		9,254,911			-12,159,329			3,036,053		-459,982			-0			-85,742			-414,089
Total liabilities and stockholders equity		40,169,875			-12,159,329			3,036,053		-459,982			-0			—			30,586,617

* Others include Lease classification and interest expense.

F-239

Consolidated Income Statement for the year ended 31 March 2020

Amount in USD

Particulars	31 March 2020 Indian GAAP			Deferred Tax			Goodwill			Others			31 March 2020 US GAAP
Revenue		9,057,344			—			—			—			9,057,344
Cost of revenues		2,956,059			—			—			—			2,956,059
Gross Profit		6,101,285			—			—			—			6,101,285
Operating expenses
Selling & Distribution expense		231,583			—			—			—			231,583
General & Administrative expense		837,945			—			—			—			837,945
Employee benefits expense		1,437,745			—			—			—			1,437,745
Depreciation and amortisation		1,404,801			—			(95,982	)		—			1,308,820
Total Operating Expenses		3,912,074			—			(95,982	)		—			3,816,092
Operating Income		2,189,211			—			95,982			—			2,285,193
Other income		2,136,145			—			—			—			2,136,145
Interest expense		2,150,174			—						47,631			2,197,805
Income before income tax		2,175,182			—			95,982			(47,631	)		2,223,533
Income tax expense		—			1,468,328			—			—			1,468,328
Net Income		2,175,182			(1,468,328	)		95,982			(47,631	)		755,205
Net income attributable to non controlling interest		22,802			(25,339	)		—			—			(2,536	)
Net income available to the owners of the parent		2,152,380			(1,442,990	)		95,982			(47,631	)		757,741
Net Income		2,152,380			(1,442,990	)		95,982			(47,631	)		757,741
Other Comprehensive Income/(loss), net of tax
Translation adjustments with no tax impact		(668,436	)								6,589			(661,846	)
Total other comprehensive income/(loss)		(668,436	)		—			—			6,589			(661,846	)
Comprehensive Income		1,483,944			(1,442,990	)		95,982			(41,042	)		95,895
Comprehensive Income (loss) attributable to the non-controlling interest		—			—			—			—			—
Comprehensive Income attributable to the owners of the parent		1,483,944			(1,442,990	)		95,982			(41,042	)		95,895

Consolidated Cash Flow Statement for the year ended 31 March 2020

Amount in USD

Particulars	31 March 2020 Indian GAAP			Others		31 March 2020 US GAAP
Net cash (used in) operating activities (A)		1,373,293			—		1,373,293
Net cash (used in) investing activities (B)		(1,004,711	)		—		(1,004,711	)
Net cash provided by financing activities (C)		(849,365	)		—		(849,365	)
Net (decrease) in cash and cash equivalent (A+B+C)		(480,782	)		—		(480,782	)
Cash and cash equivalents at the beginning of the year		592,684			—		592,684
Cash and cash equivalents at the end of the year		111,902			—		111,902

F-240

Disclosure Notes:

A. Revaluation Reserve

Under Indian GAAP, Revaluation of asset is permitted, an increase in revaluation is recognised directly to owners interest (under the heading Revaluation Reserve). Under US GAAP property, plant and equipment is carried at historical cost, revaluation is not permitted. Therefore, the revaluation amount has been reduced from the property, plant and equipment amounting to USD 12,159,329 as on 25 March 2021 and as on 31 March 2020 with a corresponding effect to the revaluation reserve, foreign currency translation reserve and

non-controling

interest.

B. Recognition of Deferred Taxes

Under US GAAP Deferred tax is recognised in full and a valuation allowance is provided to reduce the deferred tax assets to an amount that is more likely than not to be realised. Under IGAAP, virtual certainty is required for recognising the deferred tax asset on carry forward losses.

The deferred tax income of USD 695686 for the period 01 April to 25 March 2021 and deferred tax expense of USD 1468328 is recognised for year ended 31 March 2020. The effect on profit pertaining to entities with

non-controlling

interest (NCI) is recognised in NCI.

C. Goodwill

The Goodwill amount of USD 383,005 and USD 459,982 for period 01 January 2021 to 25 March 2021 and for year ended 31 March 2020 respectively under IGAAP pertains to the acquisition of shares from minority shareholders without change in control, under USGAAP transaction that results in increase in a group’s/parents ownership interest in a subsidiary without the change of control are accounted as equity transction. The Goodwill amount is reversed with a corresponding effect to additional paid in capital. The Group also has a goodwill pertaining to a subsidiary in IGAAP, the goodwill does not meet the recognition condition as per Business Combination and hence have been written off under USGAAP.

D. Classification of Prefernce Shares

Series A preferece shares is classified Mezzanine equity, as they are redeemable at the option of the holder in absence of an IPO event/strategic sale not under the control of the Company. Subsequent to the balance sheet date, the investor has waived the redemption rights.

E. Lease classification

In Indian GAAP—Land Leases taken for 33 years are shown under Property, Plant & Equipment and amortized over the lease period. Under US GAAP, the condition for finance lease is not satisfied, hence the carrying balance of upfront payment is reclassified to other assets as prepayments and amortized over the lease term.

F. Restricted cash classification

As at 25 March 2021 restricted cash includes deposits restricted as to usage under lien to banks for guarantees given by the Company amounting to USD 31,557 (31 March, 2020: USD 30,421) and USD 13,772 (31 March 2020 USD 13,276) lien with banks for bank guarantee to governement autorities & Black Soil respectively. As per Accounting Standards Update

No. 2016-18

(ASU

2016-18)

“Restricted Cash—Statement of Cash Flows (Topic 230)”, the restricted cash and restricted cash equivalents is included within cash and cash equivalents when reconciling the begining of period and end of period total amounts shown on the statement of cash flows.

F-241

G. Interest Expense

Terms loan from Caspian has interest rate of 15% p.a., the arrangement also requires an IRR of 18% at the end of tenor of the credit facility or prepayment of loan, Under IGAAP interest is accounted at 15%, the differential interest of 3% is accounted for amortised cost accounting of loan under USGAAP. The group has accounted differential interest for the period 01 April 2020 to 25 March 2021 of USD 39,968 (31 March 2020: USD 47,631 ) with a corresponding effect to accrued interest.

33 The Company has considered the possible effects that may result from the pandemic relating to COVID-19 on the carrying amounts of receivables and investment in subsidiaries. In

34 Previous year’s figures have been regrouped/ reclassified wherever necessary to conform to current year’s classification/ disclosure.

For and on behalf of the Board of Directors of

Glocal Healthcare Systems Private Limited

Dr. Syed Sabahat Azim Director	Richa Sana Azim Director
DIN: 03122895	DIN: 02609003

F-242

TTC Healthcare, Inc.

and Subsidiaries (Successor)

Transformations Treatment Center, Inc.

and Affiliates (Predecessor)

Consolidated Financial Statements and

Independent Auditors’ Report

December 31, 2020 and 2019

F-243

CONTENTS

	Page
INDEPENDENT AUDITORS’ REPORT		F-245 -F-246
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets		F-248 -F-249
Consolidated Statements of Operations		F-250
Consolidated Statements of Changes in Stockholders’ Equity		F-251 - F-252
Consolidated Statements of Cash Flows		F-253 - F-255
Notes to Consolidated Financial Statements		F-256 - F-276

F-244

Plante & Moran, LLC Suite 600 8181 E. Tufts Avenue Denver, CO 80237 Tel: 303.740.9400 Fax: 303.740.9009 plantemoran.com

Independent Auditor’s Report

To the Board of Directors and Stockholders

TTC Healthcare, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of TTC Healthcare, Inc. and Subsidiaries (the “Company”) as of December 31, 2020 and 2019; the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 2020 and the period from September 5, 2019 to December 31, 2019 (successor); and the related notes to the consolidated financial statements.

We have also audited the related consolidated statements of operations, changes in stockholders’ equity, and cash flows of Transformations Treatment Center, Inc. and Affiliates for the period from January 1, 2019 to September 4, 2019 (predecessor); and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

F-245

To the Board of Directors and Stockholders

TTC Healthcare, Inc. and Subsidiaries

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TTC Healthcare, Inc. and Subsidiaries as of December 31, 2020 and 2019 and the results of their operations and their cash flows for the year ended December 31, 2020 and the period from September 5, 2019 to December 31, 2019 (successor) and the results of Transformations Treatment Center, Inc. and Affiliates’ operations and cash flows for the period from January 1, 2019 to September 4, 2019 (predecessor) in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As described in Note A to the consolidated financial statements, the Company adopted the provisions of Accounting Standards Update (ASU) 2014-09,

Revenue from Contracts with Customers (Topic 606)

, as of January 1, 2020. Our opinion is not modified with respect to this matter.

March 15, 2021

F-246

CONSOLIDATED FINANCIAL STATEMENTS

F-247

TTC Healthcare, Inc. and Subsidiaries (Successor)

CONSOLIDATED BALANCE SHEETS

December

 31, 2020, and 2019

	Successor
	December 31, 2020		December 31, 2019
ASSETS
CURRENT ASSETS
Cash	$	2,426,780	$	549,669
Restricted cash		1,332,600		—
Accounts receivable, net		1,554,378		3,163,975
Prepaid expenses and other current assets		241,304		80,096
Total current assets		5,555,062		3,793,740
PROPERTY AND EQUIPMENT, net		520,907		420,957
OTHER ASSETS
Security deposits		271,070		265,734
Goodwill		13,299,090		13,299,090
		13,570,160		13,564,824
	$	19,646,129		$17,779,521

The accompanying notes are an integral part of these consolidated statements.

F-248

TTC Healthcare, Inc. and Subsidiaries (Successor)

CONSOLIDATED BALANCE SHEETS (Continued)

December

 31, 2020, and 2019

	Successor
	December 31, 2020			December 31, 2019
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Revolving line of credit	$	1,750,000		$	250,000
Current maturities of long-term debt, net of unamortized debt issuance costs		957,813			957,813
Current maturities of paycheck protection program loans		850,135			—
Current portion of contingent consideration due to seller (Note B)		28,667			631,604
Current portion of due to related parties		1,393,258			—
Accounts payable		860,794			483,668
Income taxes payable		29,058			89,058
Accrued payroll and other		562,263			109,385
Total current liabilities		6,431,988			2,521,528
LONG-TERM LIABILITIES
Long-term debt, less current maturities, net of unamortized debt issuance costs		8,433,987			9,391,800
Deferred income taxes		420,056			718,787
Contingent consideration due to seller (Note B), less current portion		—			421,944
Due to related parties, less current portion		—			25,000
Paycheck protection program loans, less current portion		433,366			—
		9,287,409			10,557,531
MEZZANINE EQUITY - REDEEMABLE PREFERRED UNITS
2,000,000 shares authorized, $.0001 par value; 2,000,000 shares issued and outstanding at December 31, 2020 and 2019 (See Note H and Note I)		1,920,403			1,829,431
STOCKHOLDERS’ EQUITY
TTC Healthcare, Inc. stockholders’ equity		2,033,736			2,871,031
Noncontrolling interest		(27,407	)		—
Total stockholders’ equity		2,006,329			2,871,031
	$	19,646,129		$	17,779,521

The accompanying notes are an integral part of these consolidated statements.

F-249

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December

 31, 2019, and January

 1, 2019 through September

 4, 2019

	Successor						Predecessor
	January 1, 2020 through December 31, 2020			September 5, 2019 through December 31, 2019			January 1, 2019 through September 4, 2019
Revenues, net
Inpatient and outpatient treatment related services	$	14,839,751		$	5,056,558		$	14,602,429
Detoxification related services		2,028,532			900,152			1,662,656
Diagnostic laboratory related services		1,700,370			772,400			1,678,613
Ancillary medical services		798,146			—			—
		19,366,799			6,729,110			17,943,698
Cost of service		9,030,391			2,964,587			6,326,657
Gross profit		10,336,408			3,764,523			11,617,041
Operating expenses
Selling, general, and administrative		10,926,543			3,193,312			8,173,090
Depreciation		121,469			50,952			110,741
Transaction expenses		—			366,825			—
		11,048,012			3,611,089			8,283,831
Operating (expense) income		(711,604	)		153,434			3,333,210
Other income (expenses)
Interest expense		(879,366	)		(222,618	)		—
Gain on extinguishment of debt - paycheck protection program loans		660,851			—			—
Other income (expense)		(2,342	)		121,325			18,790
		(220,857	)		(101,293	)		18,790
(Loss) income before income tax expense		(932,461	)		52,141			3,352,000
Income tax benefit (expense)		298,731			(106,385	)		—
NET (LOSS) INCOME		(633,730	)		(54,244	)		3,352,000
Less net loss attributable to noncontrolling interest		27,407			—			—
Net (loss) income attributable to TTC Healthcare Inc. (successor) Transformations Treatment Center, Inc. and Affiliates (predecessor)	$	(606,323	)	$	(54,244	)	$	3,352,000

The accompanying notes are an integral part of these consolidated statements.

F-250

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

	Predecessor
	Common Stock				Additional Paid-in Capital		Retained Earnings		Total Equity
	Shares		Amount
Balance, January 1, 2019		—		—		—		7,843,908		7,843,908
Contributions		—		—		—		1,186,374		1,186,374
Distributions		—		—		—		(8,369,388)		(8,369,388)
Net income		—		—		—		3,352,000		3,352,000
Balance, September 4, 2019		—	$	—		$—		$4,012,894		$4,012,894

The accompanying notes are an integral part of these consolidated statements.

F-251

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

	Successor
	TTC Healthcare, Inc. Stockholders’												Noncontrolling Interest			Total Equity
	Common Stock				Additional Paid-in Capital		Accumulated Deficit			Stockholders’ Equity
	Shares		Amount
Balance, September 5, 2019 (Inception)		—	$	—	$	—	$	—		$	—		$	—		$	—
Issuance of common stock		8,000,000		800		2,999,200		—			3,000,000			—			3,000,000
Preferred stock dividends		—		—		—		(45,294	)		(45,294	)		—			(45,294	)
Accretion of preferred stock discount		—		—		—		(29,431	)		(29,431	)		—			(29,431	)
Net loss		—		—		—		(54,244	)		(54,244	)		—			(54,244	)
Balance, December 31, 2019		8,000,000		800		2,999,200		(128,969	)		2,871,031			—			2,871,031
Preferred stock dividends		—		—		—		(140,000	)		(140,000	)		—			(140,000	)
Accretion of preferred stock discount		—		—		—		(90,972	)		(90,972	)		—			(90,972	)
Net loss		—		—		—		(606,323	)		(606,323	)		(27,407	)		(633,730	)
Balance, December 31, 2020		8,000,000	$	800	$	2,999,200	$	(966,264	)	$	2,033,736		$	(27,407	)	$	2,006,329

The accompanying notes are an integral part of these consolidated statements.

F-252

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

	Successor						Predecessor
	January 1, 2020 through December 31, 2020			September 5, 2019 through December 31, 2019			January 1, 2019 through September 4, 2019
Cash flows from operating activities
Net (loss) income	$	(633,730	)	$	(54,244	)	$	3,352,000
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Depreciation		121,469			50,952			110,741
Amortization of debt issuance costs		42,187			10,547			—
Deferred income tax (benefit) expense		(298,731	)		17,327			—
Gain on extinguishment of debt - paycheck protection program loans		(660,851	)		—			—
Accretion of contingent consideration due to seller discount		271,846			—			—
(Increase) decrease in assets
Accounts receivable		1,609,597			(104,167	)		549,447
Prepaid expenses and other current assets		(161,208	)		221,867			(55,451	)
Security deposits		(5,336	)		(95,331	)		(52,700	)
Increase (decrease) in liabilities
Accounts payable		377,126			(68,590	)		129,140
Income taxes payable		(60,000	)		89,058			—
Accrued payroll and other		452,878			109,385			(38,732	)
Payment of contingent consideration due to seller		(68,469	)		(3,082	)		—
Net cash provided by operating activities		986,778			173,722			3,994,445
Cash flows from investing activities
Net assets acquired, net of cash		—			(13,192,825	)		—
Purchase of property and equipment		(221,419	)		—			(6,000	)
Net cash used in investing activities		(221,419	)		(13,192,825	)		(6,000	)

(Continued)

The accompanying notes are an integral part of these consolidated statements.

F-253

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

	Successor						Predecessor
	January 1, 2020 through December 31, 2020			September 5, 2019 through December 31, 2019			January 1, 2019 through September 4, 2019
Cash flows from financing activities
Proceeds from revolving line of credit	$	1,500,000		$	500,000		$	—
Payments on revolving line of credit		—			(250,000	)		—
Proceeds from long-term debt		—			10,800,000			—
Payments on long-term debt		(1,000,000	)		(250,000	)		—
Debt issuance costs		—			(210,934	)		—
Advances from a related party		—			25,000			—
Issuance of common stock		—			3,000,000			—
Preferred stock dividends		—			(45,294	)		—
Proceeds from paycheck protection program loans		1,944,352			—			—
Distributions		—			—			(8,369,388	)
Contributions		—			—			1,186,374
Net cash provided by (used in) financing activities		2,444,352			13,568,772			(7,183,014	)
INCREASE (DECREASE) IN CASH		3,209,711			549,669			(3,194,569	)
Cash and restricted cash, beginning of year/period		549,669			—			3,689,559
Cash and restricted cash, end of year/period	$	3,759,380		$	549,669		$	494,990
Supplemental disclosure of cash flow information
Cash paid for interest	$	568,073		$	168,015		$	—
Cash paid for income taxes	$	60,000		$	—		$	—
Supplemental disclosure of reconciliation of cash and restricted cash
Cash	$	2,426,780		$	549,669		$	494,990
Restricted cash		1,332,600			—			—
Cash and restricted cash, end of year/period	$	3,759,380		$	549,669		$	494,990

(Continued)

The accompanying notes are an integral part of these consolidated statements.

F-254

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

	Successor					Predecessor
	January 1, 2020 through December 31, 2020		September 5, 2019 through December 31, 2019			January 1, 2019 through September 4, 2019
Supplemental schedule of noncash activities
Total identifiable net assets acquired net of cash acquired (see Note B)
Accounts receivable	$	—	$	3,059,808		$	—
Prepaid expenses and other current assets		—		301,963			—
Property and equipment		—		471,909			—
Security deposits		—		170,403			—
Accounts payable and accrued expenses		—		(552,258	)		—
Deferred tax liability		—		(701,460	)		—
		—		2,750,365			—
Goodwill		—		13,299,090			—
		—		16,049,455			—
Less redeemable preferred stock		—		(1,800,000	)		—
Less non-cash consideration - contingent consideration due to seller		—		(1,056,630	)		—
Cash considerations	$	—	$	13,192,825		$	—
Contingent consideration earned by seller reported as to due to related parties	$	1,228,258	$	—		$	—
Accrued unpaid preferred dividends reported as to due to related parties	$	140,000	$	—		$	—

The accompanying notes are an integral part of these consolidated statements.

F-255

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Nature of Business

TTC Healthcare, Inc. and Subsidiaries (the “Successor”) and Transformations Treatment Center, Inc. and Affiliates (the “Predecessor”) provide inpatient and outpatient substance abuse and mental health treatment services for individuals with drug and alcohol addiction. In addition to the Successor’s and Predecessor’s inpatient and outpatient substance abuse treatment services, the Successor and Predecessor perform screenings, urinalysis, diagnostic laboratory services, and provides physician services to Patients. The Successor and Predecessor operate numerous facilities located in Delray Beach, Florida, including inpatient substance abuse treatment facilities, standalone outpatient centers and sober living facilities focused on delivering effective clinical care and treatment solutions. The Successor was organized on June 5, 2019. On September 5, 2019, the Successor entered into an equity purchase agreement to acquire 100% of the outstanding shares of Transformations Treatment Center, Inc.; Integrity Way, Inc.; Pinnacle Testings, Inc.; Summit Detox, Inc.; Freedom Now, Inc.; and Supportive Healthcare, Inc. (Note B). As the effective dates of the equity purchase agreement and the related credit agreements (Notes E and F) are September 5, 2019, the initial date of the successor’s consolidated financial statements is reflected as of September 5, 2019, and is considered the date of inception. The Successor’s and Predecessor’s fiscal year is the calendar year.

References to the “consolidated financial statements” refer to both the Successor and Predecessor, unless otherwise noted. References in the notes to the consolidated financial statements to “the Company” refer to both the Successor and Predecessor, unless otherwise noted.

2. Basis of Consolidation

The accompanying consolidated financial statements include the accounts of the Successor as of December 31, 2020 and December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2020 and for the period ended September 5, 2019 through December 31, 2019. The consolidated financial statements also include the accounts of the Predecessor as of September 4, 2019 and the results of its operations and its cash flows for the period ended from January 1, 2019 through September 4, 2019. All significant intercompany balances and transactions have been eliminated in consolidation.

Predecessor

The consolidated Predecessor financial statements include the accounts of Transformations Treatment Center, Inc. and Affiliates; Integrity Way, Inc.; Pinnacle Testings, Inc.; Summit Detox Inc.; and Supportive Healthcare, Inc., which were affiliated through common management and ownership.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, clarifies the identification of a variable interest entity and determines under what circumstances a variable interest entity should be consolidated with its primary beneficiary. The Predecessor adopted the requirements of FASB ASC 810 for Integrity Way, Inc.; Pinnacle Testings, Inc.; Summit Detox Inc.; and Supportive Healthcare, Inc. The Predecessor determined that these entities met the criteria of a variable interest entity under FASB ASC 810 and that consolidation is required due to Transformation Treatment Center, Inc. being the primary beneficiary of the affiliates.

F-256

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2. Basis of Consolidation (Continued)

Successor

The consolidated Successor financial statements include the accounts of TTC Healthcare, Inc. and its subsidiaries: Transformations Treatment Center, Inc.; Integrity Way, Inc.; Pinnacle Testings, Inc.; Summit Detox Inc.; Freedom Now, Inc.; Wrigley Healthcare Services, Inc.; and Supportive Healthcare, Inc., which are 100% wholly owned.

During 2020, the Company formed Transformations Mending Fences, LLC to provide mental health and substance abuse disorder treatment, including equine therapy, to patients. TTC Healthcare Inc. has an 80% controlling interest in the entity with the remaining 20% interest owned by an unrelated party. Transformations Mending Fences, LLC began operations in December 2020, with the admission of the first patient occurring in January 2021.

Noncontrolling interests on the consolidated balance sheets represent the portions of Transformations Mending Fences, LLC’s equity not directly owned by the Company. Additionally, the net income or loss allocated to the noncontrolling interests has been reported as such on the consolidated statements of operations.

3. Reclassification

The Company previously classified expenses as selling, general, and administrative in the amounts of $2,964,587 and $6,326,57, within the statement of operations for the periods ending September 5, 2019 through December 31, 2019 and January 1, 2019 through September 4, 2019. These amounts have been reclassified to cost of services to conform to the 2020 presentation. The reclassification did not change the Company’s operating income for the periods ending September 5, 2019 through December 31, 2019 and January 1, 2019 through September 4, 2019, as previously presented.

4. Restricted Cash

Restricted cash represents an escrow balance held in a separate cash account per the Forbearance Agreement discussed in Note E.

The Company follows the accounting principals outlined in FASB Accounting Standards Update (ASU) 2016 18,

Restricted Cash

. The ASU requires that a statement of cash flows explain the change during the year and period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.

5. New Accounting Pronouncement

The FASB issued Accounting Standards Update (ASU)

2014-09,

Revenue from Contracts with Customers

(Topic 606), in May 2014. Topic 606 sets forth a new five-step revenue recognition model that will require the use of more estimates and judgment. Topic 606 replaces current revenue recognition requirements in Topic 605,

Revenue Recognition

, in its entirety. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in prior accounting

F-257

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

5. New Accounting Pronouncement (Continued)

guidance. Topic 606 is effective for annual financial statements of private companies issued for fiscal years beginning after December 15, 2019, and should be applied retrospectively in the year Topic 606 is first applied using one of two allowable application methods with early adoption permitted. The Company adopted Topic 606 as of January 1, 2020, using a modified retrospective approach and did not record a cumulative

catch-up

adjustment as the timing and measurement of revenue for the Company’s customers is similar to its prior revenue recognition model.

At December 31, 2019, the Company recorded approximately $6,060,000 as a direct reduction of accounts receivable that would have been reflected as an allowance for doubtful accounts prior to the adoption of

ASU 2014-09.

The adoption of ASU

2014-09

also resulted in changes to the Company’s presentation and disclosure of customer contract assets and liabilities and the assessment of variable consideration under customer contracts.

6. Revenue Recognition

Contracts with Patients

The Company generates revenue primarily through services provided to patients in both inpatient and outpatient treatment settings. The Company bills third-party payors weekly or monthly for the services provided in the prior week. Patient related services, such as inpatient and outpatient programs, are generally recognized over time as the performance obligation is satisfied at the estimated net realizable value amount from patients, third-party payors and others for services provided. The Company receives the majority of payments from commercial payors at

out-of-network

rates. Patient service revenue is based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to

self-pay

patients. Estimates for explicit price concessions are based on provider contracts and historical experience, adjusted for economic conditions and other trends affecting the Company’s ability to collect outstanding items.

The Company also provides diagnostic laboratory services for their patients which are recognized over time as the performance obligation is satisfied at the estimated net realizable value amount from patients, third-party payors and others for services provided. Diagnostic laboratory service revenue is based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to

self-pay

patients. Estimates for explicit price concessions are based on provider contracts and historical experience, adjusted for economic conditions and other trends affecting the Company’s ability to collect outstanding items.

Prior to admission, insurance coverage, as applicable, is verified and the patient

self-pay

amount is determined. The Company records implicit price concessions in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible. In some instances, patients will make a deposit for the services to be rendered. These prepaid payments (contract liabilities) are included in accrued payroll and other in the accompanying consolidated balance sheets and revenue related to these payments is deferred and recognized over the period services are provided. The Company does not recognize revenue for any amounts not collected from the patient.

F-258

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

6. Revenue Recognition (Continued)

Performance obligation

The Company has six entities that produce third party revenues:

a. Transformations Treatment Center, Inc. and Transformations Mending Fences, LLC

The Company provides

all-inclusive

Partial Hospitalization Programs, Outpatient Programs, and Stabilization and Outpatient Programs. Services related to these programs include psychiatric and psychotherapy services and procedures. The Company has determined that the services performed in relation to the program represent a single performance obligation. The Company satisfies its performance obligation over time as the program is administered, and recognizes patient service revenue accordingly. The Company generally bills on a weekly basis. Revenues are generally collected within 30 to 90 days subsequent to providing services.

b. Summit Detox, Inc.

The Company provides

all-inclusive

Partial Hospitalization Programs, Outpatient Programs, and Stabilization and Outpatient Programs. Services related to these programs include psychiatric and psychotherapy services and procedures. The Company has determined that the services performed in relation to the program represent a single performance obligation. The Company satisfies its performance obligation over time as the program is administered, and recognizes patient service revenue accordingly. The Company generally bills on a weekly basis. Revenues are generally collected within 30 to 90 days subsequent to providing services.

c. Pinnacle Testings, Inc.

The Company provides diagnostic laboratory services. Services include urinalysis and other drug testing procedures. The Company satisfies its performance obligation over time as the program is administered, and recognizes patient service revenue accordingly. The Company generally bills on a weekly basis. Revenues are generally collected within 30 to 90 days subsequent to providing services.

d. Wrigley Healthcare Services, Inc.

The Company provides ancillary medical services. Services include sick and psychiatric visits, dietician, chiropractic and other ancillary medical services to Transformation Treatment Center, Inc. and Summit Detox, Inc. patients. The Company defines each session as the performance obligation that is satisfied over time as the program is administered. The Company generally bills on a weekly basis. Revenues are generally collected within 30 to 90 days subsequent to providing services.

e. Freedom Now, Inc.

The Company provides ancillary medical services. Services include psychiatric, clinical, and other ancillary medical services to Transformation Treatment Center, Inc. and Summit Detox, Inc. patients. The Company defines each session as the performance obligation that is satisfied over time as the program is administered. The Company generally bills on a weekly basis. Revenues are generally collected within 30 to 90 days subsequent to providing services.

F-259

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

6. Revenue Recognition (Continued)

Significant Judgment - Determination of Transaction Price

The Company recognizes revenue from third-party payors as services are provided based on our estimate of the amount that third-party payors will pay for the services performed. The Company estimates the net realizable value of revenue by adjusting gross client charges using an expected realization and applying that discount to gross patient charges. A significant or sustained decrease in reimbursement rates could have a material adverse effect on the Company’s operating results. There is no assurance that the Company will be able to maintain or improve historical reimbursement rates in future reporting periods.

Estimates of net realizable value are subject to significant judgment and approximation by management. It is possible that actual results could differ from the historical estimates management has used to help determine the net realizable value of revenue. If actual reimbursements either exceed or are less than the net realizable value estimates, the Company records a revenue adjustment, either positive or negative, for the difference between the estimate of the receivable and the amount actually reimbursed in the reporting period in which the reimbursement occurred.

In the event that there is a difference in the recognized revenue from third-party payors due to material errors, management may be required to restate prior period financial results. Subsequent to the transaction described in Note B, Management identified a potential overpayment from a third-party payor. Management engaged a third-party financial analysis firm to quantify the estimated overpayment, which may be material, and notified the third-party payor. The Successor received indication from the third-party payor that they do not believe an overpayment error was made, however the issue has not been formally resolved with the payor. In the event that the matter is settled, as the majority of the period in question is prior to the acquisition, the Successor has recourse to withhold payment of contingent consideration, withhold payment of cumulative preferred return, redeem outstanding preferred stock, and pursue cash collection, as defined in the Purchase Agreement (See Note B).

In the following table, revenue is disaggregated by significant service provided, all of which are recognized over time for the year ended December 31, 2020 and periods ending December 31, 2019, and September 4, 2019:

	Successor				Predecessor
	December 31, 2020		December 31, 2019		September 4, 2019
Inpatient and outpatient treatment related services	$	14,839,751	$	5,056,558	$	14,602,429
Detoxification related services		2,028,532		900,152		1,662,656
Diagnostic laboratory related services		1,700,370		772,400		1,678,613
Ancillary medical services		798,146		—		—
	$	19,366,799	$	6,729,110	$	17,943,698

F-260

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

7. Accounts Receivable

Accounts receivable represent receivables primarily from third-party payors for services provided. In those instances when payment is not received at the time of service, the Company records receivables from their patients, most of whom are insured under third-party payor agreements. Accounts receivable is based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to

self-pay

patients. Estimates for explicit price concessions are based on provider contracts and historical experience, adjusted for economic conditions and other trends affecting the Company’s ability to collect outstanding items. Payments of accounts receivable are allocated to the specific invoices identified on the client’s remittance advice or third party payor explanation of benefits or, if unspecified, are applied to the oldest unpaid invoices.

For receivables associated with

self-pay

patients, the Company records implicit price concessions in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible.

8. Property and Equipment

Property and equipment are recorded at cost (Predecessor). Property and equipment was initially recorded at fair value of acquired assets at the time of the acquisition. Subsequent to the acquisition, property and equipment are recorded at cost for new additions (Successor). Depreciation is provided using the straight-line method based on the following estimated useful lives of the assets:

	Years
Office equipment		5
Furnitures and fixtures		7
Vehicles		5
Software		3

Leasehold improvements are amortized over the lesser of the remaining lease term or the estimated useful life of the asset.

9. Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired (See Note B). Goodwill and intangible assets with indefinite lives are not amortized, but instead assessed for potential impairment if events occur or circumstances change that indicate the fair value of the Company may be less than its carrying value. The Company has elected to test goodwill for impairment at the entity-wide level. The Successor has no intangible assets with indefinite useful lives other than goodwill. The Successor assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Successor considers the following to be important factors that could trigger an impairment review: significant underperformance relative to historical or projected future operating results; identification of other impaired assets within a reporting unit; significant adverse changes in business

F-261

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

9. Goodwill (Continued)

climate or regulations; significant changes in the manner of use of the acquired assets or the strategy for our overall business; and significant negative industry or economic trends.

In assessing the recoverability of goodwill, the Successor considers historical results, current operating trends and results, and makes estimates and assumptions about revenue, margins and discount rates based on budgets, business plans, economic projections and anticipated future cash flows. Each of these factors contains inherent uncertainties, and management exercises substantial judgment and discretion in evaluating and applying these factors.

No indications of impairment were noted for the year ended December 31, 2020 and the period ended September 5, 2019 through December 31, 2019.

10. Business Combinations

Business combinations are based on the Company’s best estimates of the fair values of assets acquired and liabilities assumed at the date of acquisition. Goodwill is not amortized, but rather assessed, at least annually, for impairment.

11. Debt Issuance Costs

Debt issuance costs are included as a direct deduction from the carrying amount of the debt liability, consistent with debt premiums and discounts, and is included in interest expense as debt payments are made.

12. Income Taxes

The Predecessor, with the consent of its stockholder, elected to be taxed as an S Corporation under provisions of the Internal Revenue Code. In lieu of corporate income taxes, the stockholders of an S corporation are taxed on their proportionate shares of the Predecessor’s taxable income. Therefore, no liability or provision for federal income taxes has been included in these consolidated financial statements. The Predecessor was subject to certain state taxes in jurisdictions where taxes were assessed.

The Successor has elected to be treated as a C Corporation and files federal and state income tax returns. Deferred taxes are provided on the liability method whereby deferred income tax assets are recognized for deductible temporary differences, operating loss, tax credit carryforwards, and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Transformations Mending Fences, LLC was formed as a limited liability company. Accordingly, federal income taxes are not payable by the subsidiary. Income (or loss) is allocated to the subsidiary’s members and is included in the members’ income tax returns. Therefore, no liability or provision for income taxes

F-262

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

12. Income Taxes (Continued)

relating to the subsidiary is included in the consolidated financial statements. The subsidiary may be subject to certain state taxes.

The Successor recognizes tax liabilities when the Successor believes that certain positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The current portion of tax liabilities is included in other liabilities. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.

The Successor files income tax returns in the U.S. federal jurisdiction and the State of Florida.

13. Use of Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

14. Fair Value of Financial Instruments

The carrying amounts of financial instruments, including accounts receivable, accounts payable, accrued payroll and other, and current maturities of long-term debt approximate fair value due to the short maturity of these instruments. The carrying amounts of long-term debt approximates fair value because the interest rates fluctuate with market interest rates or the fixed rates are based on current rates offered to the Company for debt with similar terms and maturities.

It is the Company’s policy, in general, to measure nonfinancial assets and liabilities at fair value on a nonrecurring basis. These items are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (such as evidence of impairment) which, if material, are disclosed in the accompanying notes to these consolidated financial statements.

15. Marketing and Promotion Costs

The Company expenses marketing and promotion costs as incurred. Marketing and promotion expense for the year ended December 31, 2020 and periods ending September 5, 2019 through December 31, 2019 and January 1, 2019 through September 4, 2019, were approximately $1,720,000, $521,000, and $1,257,000, respectively.

F-263

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

16. Significant Accounting Standards Applicable In A Future Year

a. Leases

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update

(ASU) 2016-02,

Leases

, (Topic 842), in February 2016. Under ASU

2016-02,

lessees will be required to recognize, at commencement date, a lease liability representing the lessee’s obligation to make payments arising from the lease and a

right-of-use

asset representing the lessee’s right to use or control the use of a specific asset for the lease term. Under this new guidance, lessor accounting is largely unchanged. ASU

2016-02

was to be effective for annual financial statements of private companies issued for fiscal years beginning after December 15, 2019, however the implementation date has been deferred. The new guidance is now effective for annual financial statements of private companies issued for fiscal years beginning after December 15, 2021. Management is currently evaluating the effect that ASU

2016-02

will have on the Company’s consolidated financial statements. The Company expects to record total

right-of-use

assets and related operating lease obligations based on the present value of future payments as disclosed in Note J on the consolidated balance sheet upon adoption, with no material impact to the consolidated statement of operations.

NOTE B

-

BUSINESS COMBINATION

On September 5, 2019, the Successor entered into an Equity Purchase Agreement (“Purchase Agreement”) to acquire 100% of the outstanding shares of Transformations Treatment Center, Inc.; Integrity Way, Inc.; Pinnacle Testings, Inc.; Summit Detox, Inc.; Freedom Now, Inc.; and Supportive Healthcare, Inc. The acquisition was completed so that the Successor could enter the inpatient and outpatient substance abuse and mental health treatment services industry and the synergies and economies of scale expected from the combination of the Predecessor and Successor.

The following table summarizes the consideration given and the estimated fair values of the assets acquired and liabilities assumed at the date of the transaction:

Consideration
Consideration, net of cash acquired of $495,014	$	13,192,825
Non-cash consideration - preferred stock		1,800,000
Contingent consideration due to seller		1,056,630
	$	16,049,455

F-264

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE B

-

BUSINESS COMBINATION (Continued)

The purchase price was allocated to the consolidated balance sheet as follows:

Accounts receivable	$	3,059,808
Prepaid expenses and other current assets		301,963
Property and equipment		471,909
Security deposits		170,403
Goodwill		13,299,090
Accounts payable and accrued expenses		(552,258	)
Deferred tax liability		(701,460	)
	$	16,049,455

Accounts receivable, net consisted of the following at the transaction date:

Amounts billed for services provided	$	16,003,541
Less implicit or explicit price concessions		(12,943,733	)
	$	3,059,808

Goodwill arising from this acquisition consists largely from the synergies and economies of scale expected from the combination of the Predecessor and Successor.

Transaction expenses of $366,825, relating to aforementioned acquisition, were expensed as incurred and are included in operating expenses on the accompanying consolidated statement of operations.

Per the terms of the acquisition agreement, the seller is eligible to receive additional consideration equal to one half of the difference between actual daily per client United States Department of Veterans Affairs (VA) receipts less $1,175 per patient per day for a thirty month period beginning on the date of closing (September 5, 2019).

Total consideration due to the seller at December 31, 2020 and December 31, 2019 are as follows:

	Successor
	December 31, 2020			December 31, 2019
Total contingent consideration due to seller	$	28,667		$	1,053,548
Less current portion of contingent consideration due to seller		(28,667	)		(631,604	)
Contingent consideration due to seller, less current portion	$	—		$	421,944

Per the terms of the Forbearance Agreement (see Note F), the Successor was required to suspend the payment of

earn-out

payments. The funds payable to the seller were deposited into an escrow account and are held throughout the forbearance period. On a monthly basis, the Successor calculated the amount earned by the seller

F-265

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE B

-

BUSINESS COMBINATION (Continued)

and transferred the funds to the escrow account and recorded the liability to due to related party on the consolidated balance sheets (See Note

L-2).

Prior to the Forbearance Agreement, the Successor made payments of the contingent consideration totaling $68,469 and $3,082 to the Seller for the year ended December 31, 2020 and the period ended September 5, 2019 through December 31, 2019. The measurement period for the additional consideration is

on-going

and concludes in March 2022.

As a component of the Purchase Agreement the seller provided the Company with certain indemnifications. The Company may pursue indemnification claims for matters related to inaccuracies, breach or violation of any representations, covenants, and any third-party payer claim, subject to the limitations, as defined in the Purchase Agreement. In the event that indemnifications were pursued and matters were settled, the Company has recourse to withhold payment of contingent consideration, withhold payment of cumulative preferred return, redeem outstanding preferred stock, and pursue cash collection, as defined in the Purchase Agreement.

NOTE C

-

NET PATIENT REVENUE

The approximate mix of net receivables as of December 31, 2020 and 2019, and net revenues for the year ended December 31, 2020 and periods ending September 5, 2019 through December 31, 2019, and January 1, 2019 through September 4, 2019 consisted of the following:

	Successor Net Receivables
	December 31, 2020			December 31, 2019
Third-party payors		100.00	%		100.00	%
Patient		0.00	%		0.00	%
		100.00	%		100.00	%

	Successor Net Revenues						Predecessor Net Revenues
	January 1, 2020 through December 31, 2020			September 5, 2019 through December 31, 2019			January 1, 2019 through September 4, 2019
Third-party payors		94.12	%		97.80	%		95.24	%
Patient		5.88	%		2.20	%		4.76	%
		100.00	%		100.00	%		100.00	%

F-266

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE D

-

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2020 and December 31, 2019:

	Successor
	December 31, 2020		December 31, 2019
Office equipment	$	44,776	$	23,871
Furnitures and fixtures		58,400		21,556
Leasehold improvements		409,891		311,428
Vehicles		134,433		110,726
Software		44,307		4,328
		691,807		471,909
Less accumulated depreciation		170,900		50,952
	$	520,907	$	420,957

NOTE E

-

REVOLVING LINE OF CREDIT

In September 2019, the Successor entered into a loan and security agreement (the “Agreement”) with a bank that allowed for maximum borrowings of $1,750,000 on a revolving line of credit and a $10,800,000 term loan. The revolving line of credit expires in September 2022, with the option to extend for a total of two years by two separate one year extensions. The revolving line of credit and term loan are subject to certain restrictive covenants and are collateralized by substantially all the assets of the Successor, as defined in the Agreement. At December 31, 2020, the Successor was not in compliance with the restrictive covenants. All instruments under the Agreement bear interest at a floating per annum rate equal to the London Interbank Offered Rate (LIBOR) (0.34% and 1.76% at December 31, 2020 and 2019, respectively), plus an applicable margin of 3.50% - 4.00%, as defined in the agreement. Interest payments are required monthly. The outstanding balance on the revolving line of credit as of December 31, 2020 and 2019 was $1,750,000 and $250,000, respectively.

On November 23, 2020, the Company entered into a forbearance agreement (the “Forbearance Agreement”) with the bank. Under the terms of the agreement, the bank agrees to forbear from the exercise of the bank’s remedies of existing events of default, upon certain conditions being met. The forbearance period is effective until July 31, 2021. The agreement also modified the interest rate to be a floating per annum rate of interest equal to LIBOR plus 4.00%. Additionally, the agreement requires that certain minimum census, revenue and liquidity requirements be met. Lastly, as required by the Forbearance Agreement, the Company executed a Capital Call Agreement which provides for a maximum capital contribution of $2,431,000 to meet certain restrictive covenants. As of the report date, no capital contribution was required. The funds contributed shall be considered equity investments in the Company. Additionally, the agreement requires the suspension of payments under subordination agreements, including payment of management fees,

earn-out

payments, and preference payments. The payments under the subordination agreements are to be deposited to an escrow account held at the bank throughout the forbearance period. The amount of escrowed payments held in escrow shall be included when calculating liquidity requirements.

F-267

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE E

-

REVOLVING LINE OF CREDIT (Continued)

Subsequent to year end, on January 25, 2021, the forbearance agreement was modified to add additional guarantors and waived restrictive covenants in place as of December 31, 2020 (See Note P). All other terms remain substantially the same.

NOTE F

-

LONG-TERM DEBT

Long-term debt consists of the following:

	Successor
	December 31, 2020		December 31, 2019
As defined in the Agreement described in Note E, the term loan bears interest at the same rate of the revolving line of credit. Principal payments of $83,333 are required monthly for the first forty eight months and $125,000 for the final twelve months, a balloon payment of all outstanding principal and accrued interest due on the maturity date in September 2024	$	9,550,000	$	10,550,000
Less unamortized debt issuance costs		158,200		200,387
		9,391,800		10,349,613
Less current maturities		957,813		957,813
	$	8,433,987	$	9,391,800

The Successor incurred debt issuance costs of $210,934 during the period ended September 5, 2019 through December 31, 2019, which were recorded as a reduction to the carrying value of the term loan described above. The reduction is recognized over the term of the respective loan. The charge to interest expense was $42,187 and $10,547 for the year ended December 31, 2020 and the period ended September 5, 2019 through December 31, 2019, respectively.

The total future maturities of long-term debt consist of the following at December 31, 2020:

	Principal		Unamortized Debt Issuance Costs		Net Outstanding Long-Term Debt
2021	$	1,000,000	$	42,187	$	957,813
2022		1,000,000		42,187		957,813
2023		1,125,000		42,187		1,082,813
2024		6,425,000		31,639		6,393,361
Total	$	9,550,000	$	158,200	$	9,391,800

NOTE G

-

PAYCHECK PROTECTION PROGRAM LOANS AND SUBSEQUENT EVENT

On April 16, 2020, the Company entered into five Paycheck Protection Program (PPP) loan agreements that totaled $1,944,352, bore interest at 1.00%, is set to mature in April 2022, is not collateralized, and is eligible for

F-268

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE G

-

PAYCHECK PROTECTION PROGRAM LOANS AND SUBSEQUENT EVENT (Continued)

forgiveness subject to provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The Company applied for forgiveness during 2020. During the year ended December 31, 2020, three of the loans, totaling $660,851, were forgiven in full by the SBA and the Company was legally released from repaying the loan. The full forgiveness of those loans has been included as “gain on extinguishment of debt - paycheck protection program loans” on the consolidated statement of income during the year ended December 31, 2020. As of December 31, 2020, the Company has applied for forgiveness on the remaining two loans, totaling $1,283,501. Subsequent to year end, $935,987 was forgiven by the SBA and the Company was legally released from repaying the loan. The Company has not yet received a decision from the Small Business Administration on the remaining $347,514. The Company does not anticipate making any principal payments, but in the event that the lender and the SBA determine that all or a portion of the PPP loans are not forgivable, the Company will be required to remit payments of $850,135 in 2021 and $433,366 in 2022.

As part of the PPP, the Company is required to retain all records relating to the loan for six years from the date the loan was forgiven and permit authorized representatives of the SBA to access such records upon request. Although forgiveness for three loans has been granted, the SBA may undertake a review at any time at the SBA’s discretion.

NOTE H

-

REDEEMABLE PREFERRED STOCK

In accordance with the terms of the Purchase Agreement discussed in Note B, the Successor issued 2,000,000 shares of redeemable preferred stock at $.0001 par value, with an original issue price of $1.00 per share. As of December 31, 2020, 2,000,000 shares are issued and outstanding. The holder of redeemable preferred stock is entitled to preferences in certain cases with respect to dividends, dissolution, conversion and other matters. The holder of outstanding shares of redeemable preferred stock is not entitled to any voting rights on matters presented to, voted upon or consented to by the stockholders of the Successor.

The redeemable preferred stock has put rights that may be exercised on the 5th day of the last month of each calendar quarter, beginning in December 2020. The Successor may be required to purchase the outstanding shares in increments of $250,000 of the original issue price. The redemption is not mandatory and requires written request. Under the Forbearance Agreement, no redemptions are permitted, therefore, no redemptions were made in 2020. The Successor also has a call option and may redeem the outstanding redeemable preferred shares at any time. The fair value is $1,800,000 with a discount of $200,000 that will be accreted to the redemption value. The $200,000, which represents the difference between the initial value of $2,000,000 and the fair value of $1,800,000, will be accreted over the period from the date of issuance of September 5, 2019 through September 2022, which is the final anticipated redemption date, assuming all redemptions are made.

Dividends on outstanding shares of redeemable preferred stock shall accrue at the rate per quarter of 1.75% of the original issue price of such shares. The dividend accrued on shares of redeemable preferred stock shall be prorated for fractional shares and to the extent that such shares were not outstanding every day of such quarter. The Successor shall pay accrued but unpaid dividends on the last day of each quarter. If any amounts accrued are not paid on the dividend due date, the Successor shall pay interest on such unpaid dividend amounts at an aggregate per annum rate equal to 10.0% until such unpaid dividend amounts are paid in full. Interest shall accrue daily in arrears and be compounded annually.

F-269

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE H

-

REDEEMABLE PREFERRED STOCK (Continued)

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Successor, or deemed liquidation event, as defined in the Certificate, the holder of preferred stock outstanding shall be entitled to be paid out of the assets of the Successor available for distribution to its stockholders before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share equal to the original issue price, plus any dividends declared but unpaid thereon.

Each outstanding share of preferred stock shall be redeemed by the Successor at a price equal to the original issue price per share, plus all declared but unpaid dividends thereon. The carrying value of the redeemable preferred stock was $1,920,403 and $1,829,431 at December 31, 2020 and December 31, 2019, respectively. Due to the redeemable nature of the preferred stock by the shareholder, the carrying value is not presented as a component of stockholders’ equity.

NOTE I

-

STOCKHOLDER’S EQUITY AND RIGHTS

The Successor is authorized to issue 10,000,000 shares of common stock at $.0001 par value. As of December 31, 2020, 8,000,000 shares are issued and outstanding. All common stock shall comprise a single class. The number of authorized shares of common stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of shares of capital stock of the Successor representing a majority of the votes. The holders of common stock are entitled to one vote for each share of common stock. The Successor may pay dividends and other distributions on the common stock from time to time as declared by the Board of Directors. The Successor shall not pay or set aside any dividends on common stock unless the holders of the preferred stock then outstanding shall have first received, or simultaneously received, all amounts then accrued or due under any provisions of the certificate of incorporation (“Certificate”).

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Successor, or deemed liquidation event, as defined in the Certificate, after the payment of all preferential amounts required to be paid to the holders of preferred stock, the remaining assets of the Successor available for distribution to its stockholders shall be distributed among the holders of shares of common stock, pro rata based on the number of shares held by each such holder.

NOTE J

-

OPERATING LEASES

The Company leases various facilities in accordance with the terms of operating lease agreements requiring monthly payments ranging from $1,568 to $67,954. The leases expire at various dates through November 2026. For financial reporting purposes, lease expense is recognized on a straight-line basis over the term of the lease. The excess straight-line expense over cash paid aggregated approximately $40,500 and $4,700 and is included in accrued payroll and other in the accompanying balance sheet as of December 31, 2020 and December 31, 2019, respectively. There were no amounts at September 4, 2019.

In accordance with the lease terms, the Company may be required to deposit funds to the lessor in the form of a security deposit. The Company may receive the deposits back if certain conditions are met, as stated in the lease agreements. Security deposits totaled approximately $271,000 and $266,000, as of December 31, 2020 and 2019, respectively.

F-270

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE J

-

OPERATING LEASES (Continued)

The Company leases three of the facilities described above from related parties (seller of the Predecessor). Rent expense incurred on these related-party leases totaled approximately $923,000, $291,000, and $528,000 for the year ended December 31, 2020 and for the periods ending September 5, 2019 through December and January 1, 2019 through September 4, 2019, respectively.

Rent expense totaled approximately $1,642,000, $555,000, and $1,018,000, including related party leases, for the year ended December 31, 2020 and for the periods ending September 5, 2019 through December 31, 2019 and January 1, 2019 through September 4, 2019, respectively.

As of December 31, 2020, future minimum lease payments under

non-cancelable

operating leases are as follows:

	Related Party		Non-Related Party		Total
2021	$	887,339	$	833,303	$	1,720,642
2022		900,757		953,424		1,854,181
2023		914,175		934,270		1,848,445
2024		927,592		815,002		1,742,594
2025		686,716		427,028		1,113,744
Thereafter		—		383,415		383,415
	$	4,316,579	$	4,346,442	$	8,663,021

NOTE K

-

INCOME TAXES

As indicated in Note

A-12,

the Predecessor has elected to be taxed as an S Corporation. Therefore, no liability or provision for federal income taxes has been included in these consolidated financial statements for the periods ending prior to September 5, 2019.

Deferred income taxes consist of the following at December 31, 2020 and December 31, 2019:

	Successor
	December 31, 2020		December 31, 2019
Deferred tax assets before valuation allowance	$	192,590	$	—
Valuation allowance		—		—
Deferred tax assets after valuation allowance		192,590		—
Deferred tax liabilities		612,646		718,787
Net deferred tax assets and liabilities	$	420,056	$	718,787

Deferred income taxes result primarily from significant temporary differences between income for financial reporting purposes and taxable income. These differences arose principally from the use of accelerated tax depreciation, timing on the recognition of revenues and expenses, and net operating losses.

F-271

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE K

-

INCOME TAXES (Continued)

The income tax (benefit) expense for year ended December 31, 2020 and the period ended September 5, 2019 through December 31, 2019 consist of the following:

	Successor
	January 1, 2020 through December 31, 2020			September 5, 2019 through December 31, 2019
Current expense	$	—		$	89,058
Deferred (benefit) expense		(298,731	)		17,327
Total income tax (benefit) expense	$	(298,731	)	$	106,385

The Company’s effective tax rate on continuing operations differs from the statuary rate due to the following:

	Successor
	January 1, 2020 through December 31, 2020			September 5, 2019 through December 31, 2019
Income tax (benefit) expense at federal statutory rate	$	(195,817	)	$	10,950
State and local income taxes net of federal tax benefit		(44,867	)		1,836
Nontaxable Paycheck Protection Program loan forgiveness		(138,779	)		—
Nondeductible contingent consideration		57,088			—
Nondeductible transaction expenses		—			89,058
Other permanent differences		23,644			4,541
Total income tax (benefit) expense	$	(298,731	)	$	106,385

At December 31, 2020, the Company had Federal and state net operating loss carryforwards approximating $270,000 and interest expense deduction limitation carryforwards approximating $475,000, both of which do not expire.

During the period ended December 31, 2019, the Company recorded $89,058 of income taxes payable for deducting transaction related expenses on the tax returns that should not have been deducted. The amount is recorded as an uncertain tax position net of refundable tax payments made and is reflected as income taxes payable on the consolidated balance sheets at December 31, 2020.

NOTE L

-

RELATED-PARTY TRANSACTIONS

1. Management Fees

The Company has a management agreement with a related party (a member of the Successor’s parent company). Management fee expenses paid were approximately $200,000 and $275,000 for the year ended December 31, 2020 and period ending September 5, 2019 through December 31, 2019, respectively. At

F-272

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE L

-

RELATED-PARTY TRANSACTIONS (Continued)

1. Management Fees (Continued)

December 31, 2020, the Company had $188,333 of unpaid management fees. There were no unpaid management fees at December 31, 2019. There were no management fees for the period ending January 1, 2019 through September 4, 2019.

2. Due to Related Parties

Amounts due to related parties consists of a $25,000 advance received in 2019 from a member of the Successor’s parent company, which is non interest bearing. In addition, due to related parties also consists of amounts due to the seller of the Predecessor representing contingent consideration, accrued interest, and accrued preferred dividends, aggregating $1,368,258, which have each been earned in 2020 but are unpaid due to the terms of the Forbearance Agreement (see Note F). The Company has restricted cash on the consolidated balance sheets aggregating $1,332,600 related to the unpaid balances to the seller of the Predecessor. At December 31, 2020 and 2019, the aggregate amount due to related parties was $1,393,258 and $25,000, respectively.

NOTE M

-

EMPLOYEE BENEFIT PLAN

Effective April 1, 2020, the Company adopted a 401(k) plan that covers substantially all employees who meet certain eligibility requirements. Participants may contribute amounts in accordance with the limits established by the Internal Revenue Code. The Plan allows for discretionary matching contributions and profit sharing contributions. No discretionary contributions were made for the year ended December 31, 2020 and period ended December 31, 2019.

NOTE N

-

RISKS AND UNCERTAINTIES

1. Uninsured Cash

The Company maintains its cash balances at two financial institutions in Florida. These cash balances are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. The Company may, from time to time, have balances in excess of FDIC insured deposit limits.

2. Significant Third-Party Payors

Certain payors may account for a significant portion of the Company’s revenue on an annual basis. These more significant payors can also change from year to year. If any of these or other third-party payors reduce their reimbursement rates for the services the Company provides or otherwise implement measures, such as specialized networks, it is likely that the payments received, revenue, profitability and cash flows could be materially adversely affected. For the year ended December 31, 2020, the Company had two significant third- party payors who accounted for approximately 63% of total net revenues for 2020. Accounts receivable associated with these third-party payors was approximately $285,000 as of December 31, 2020. For the period ended December 31, 2019, the Company had two significant third-party payors who accounted for approximately 52% of total net revenues for 2019. Accounts receivable associated with these third-party payors was approximately $1,749,000 as of December 31, 2019. For the period ended September 4, 2019, the Company had two significant third-party payors who accounted for approximately

F-273

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE N

-

RISKS AND UNCERTAINTIES (Continued)

2. Significant Third-Party Payors (Continued)

52% of total net revenues for the period ended September 4, 2019. Accounts receivable associated with these third-party payors was approximately $793,000 as of September 4, 2019.

One of the payors uses a third party administrator (“TPA”) to process and pay its claims. In 2020, the payor changed their TPA in certain regions of the country, which will require the Company to be credentialed in- network with the new TPA. If the Company is unable to be credentialed, the Company will not be able to accept Patients from this payor, which could have a material adverse effect on the Company’s revenue. At this time, the Company is not able to determine the ultimate outcome of the credentialing process on the Company’s financial position, results of operations, and cash flows.

3. Contingencies

From time to time, the Company may also be subjected to claims or lawsuits which arise in the ordinary course of business. Management believes that the disposition of these matters will not have a material effect on the Company’s financial position or results of operations. No liability related to these matters has been recorded at December 31, 2020 or December 31, 2019.

On December 17, 2020, a former employee filed an Equal Employment Opportunity Commission (EEOC) claim against the Company alleging discrimination based on disability. The former employee cannot file a suit under the federal law until the EEOC issues a notice of right to sue but can file suit under Florida law if the investigating agency has not rendered a decision within 180 days of the date the charge was filed. As of the report date, no lawsuit has been filed. The Company plans to vigorously defend the case and does not believe that there is any reasonably estimable loss. However, the Company does have insurance coverage, which could mitigate some or all of the financial effects of potential settlements or judgements. In the event that future settlements or judgements, if any, exceed insurance coverages, the Company would be required to fund the difference. No provision has been made in the accompanying consolidated financial statements for any potential settlement or judgment costs at December 31, 2020. The maximum exposure as it relates to claims made is approximately $363,000.

4. COVID-19

The direct and indirect impacts of the current

COVID-19

outbreak on the Successor’s customers, vendors, operations, and financing arrangements are currently unknown, as is the duration and severity of any impacts that the Successor may experience. The Company has experienced a reduction in census partially due to certain states imposing travel bans and quarantines. Management is currently unable to quantify the effects that this situation will have on its operations and financial position; however, they may be significant.

NOTE O

-

MANAGEMENT’S PLANS AND SUBSEQUENT EVENT

The Company has experienced losses and did not meet certain restrictive covenants related to the bank debt at December 31, 2020. As a result, the Company has entered in a forbearance agreement with the bank (See Note E). Management has developed a business and financial plan for 2021 and beyond to mitigate these adverse conditions mentioned.

F-274

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE O

-

MANAGEMENT’S PLANS AND SUBSEQUENT EVENT (Continued)

Management’s plan includes several ongoing initiatives aimed at increasing revenues for both existing and new Patients, including a new entity, Transformations Mending Fences, LLC (see Note

A-2),

and starting a

PHP-In

Network offering, reducing and monitoring discretionary expenses, and improving operations. Additionally, the Company received $1,944,352 in Paycheck Protection Program loans (see Note G) and borrowed on their existing line of credit. Management has expended the funds from the Paycheck Protection Program loan and applied for loan forgiveness. During the year ended December 31, 2020, three of the loans, totaling $660,851, were forgiven in full by the SBA and the Company was legally released from repaying the loan. As of December 31, 2020, the Company has applied for forgiveness on the remaining two loans, totaling $1,283,501. Subsequent to year end, $935,987 was forgiven by the SBA and the Company was legally released from repaying the loan. The Company has not yet received a decision from the Small Business Administration on the remaining $347,514.The Company also executed a Capital Call Agreement which provides for a maximum capital contribution of $2,431,000 to meet certain restrictive covenants set forth in the Forbearance agreement (See Note E). Finally, in October 2020, the Company entered into an Agreement and Plan of Merger, which was subsequently consummated on January 25, 2021 (See Note P), and will result in sufficient funding becoming available to alleviate and repay in full all outstanding debt obligation. Based on the results in 2020, the cash on hand, Payroll Protection Program loan, Capital Call Agreement, and Agreement and Plan of Merger, management believes their efforts will be sufficient to meet the Company’s operational needs.

Based on the above plan, management believes that they have alleviated substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date that the financial statements are available to be issued. While the Company believes in the viability of management’s plans, there can be no assurance to that effect, and actual results may differ from management’s plan.

NOTE P

-

SUBSEQUENT EVENTS

Management has evaluated subsequent events through March 15, 2021, the date that these consolidated financial statements were available to be issued. Management has determined that no events or transactions, other than that noted in Note E, Note O, and below, have occurred subsequent to the consolidated balance sheet date that require disclosure in the consolidated financial statements.

1. Merger

On January 25, 2021, the Company entered into a merger agreement with UpHealth Holdings, Inc. (“Holdings”) and UpHealth TTC Merger Sub, Inc., Inc (“Merger Sub”), a wholly owned subsidiary of Holdings, which calls for the Company to merge with the Merger Sub in exchange for 3.237% of the fully-diluted stock of Holdings. As discussed in Note E, Holdings was added as a guarantor to the debt agreements. Interested parties should refer to the Agreement and Plan of Merger for further information.

2. Provider Relief Fund

In January 2021, the Company received proceeds aggregating $505,810 from the U.S. Department of Health and Human Services (HHS) available as part of a $100 billion appropriation as part of the CARES Act Provider Relief Fund (PFR). The payments will not require repayment as long as the Company complies with certain terms and conditions outlined by HHS. The terms and conditions first require the Company to identify health care-related expenses attributed to coronavirus that another source has not reimbursed or is

F-275

TTC Healthcare, Inc. and Subsidiaries (Successor)

Transformations Treatment Center, Inc. and Affiliates (Predecessor)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020 and for the periods ending September 5, 2019 through

December 31, 2019, and January 1, 2019 through September 4, 2019

NOTE P

-

SUBSEQUENT EVENTS (Continued)

2. Provider Relief Fund (Continued)

obligated to reimburse. If those expenses do not exceed the funding received, the Company then applies the funds to patient care lost revenue. On January 15, 2021 the HHS released a “Post-Payment Notice of Reporting Requirements Notice” that provides healthcare providers three options to calculate patient care lost revenue.

F-276

TTC Healthcare, Inc.

and Subsidiaries

Consolidated Financial Statements

January 24, 2021 and December 31, 2020

F-277

CONTENTS

	Page
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets		F-279 - F-280
Consolidated Statements of Operations		F-281
Consolidated Statements of Changes in Stockholders’ Equity		F-282
Consolidated Statements of Cash Flows		F-283 - F-284
Notes to Consolidated Financial Statements		F-285 - F-300

F-278

TTC Healthcare, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS (Unaudited)

January

 24, 2021 and December

 31, 2020

	January 24, 2021		December 31, 2020
ASSETS
CURRENT ASSETS
Cash	$	1,023,945	$	2,426,780
Restricted cash		1,332,532		1,332,600
Accounts receivable, net		1,714,612		1,554,378
Prepaid expenses and other current assets		245,332		241,304
Total current assets		4,316,421		5,555,062
PROPERTY AND EQUIPMENT, net		530,719		520,907
OTHER ASSETS
Security deposits		281,070		271,070
Goodwill		13,299,090		13,299,090
		13,580,160		13,570,160
	$	18,427,300	$	19,646,129

(Continued)

The accompanying notes are an integral part of these consolidated statements.

F-279

TTC Healthcare, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS (Continued) (Unaudited)

January 24, 2021 and December 31, 2020

	January 24, 2021			December 31, 2020
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Revolving line of credit	$	1,750,000		$	1,750,000
Current maturities of long-term debt, net of unamortized debt issuance costs		874,480			957,813
Current maturities of paycheck protection program loans		850,135			850,135
Current portion of contingent consideration due to seller		28,667			28,667
Current portion of due to related parties		1,393,258			1,393,258
Accounts payable		595,626			860,794
Income taxes payable		29,058			29,058
Accrued payroll and other		592,773			562,263
Total current liabilities		6,133,997			6,431,988
LONG-TERM LIABILITIES
Long-term debt, less current maturities, net of unamortized debt issuance costs		8,433,987			8,433,987
Deferred income taxes		197,801			420,056
Paycheck protection program loans, less current portion		433,366			433,366
		9,065,154			9,287,409
MEZZANINE EQUITY—REDEEMABLE PREFERRED UNITS
2,000,000 shares authorized, $.0001 par value; 2,000,000 shares issued and outstanding at January 24, 2021 and December 31, 2020 (See Note G)		1,929,435			1,920,403
STOCKHOLDERS’ EQUITY
TTC Healthcare, Inc. stockholders’ equity		1,339,081			2,033,736
Noncontrolling interest		(20,367	)		(27,407	)
Total stockholders’ equity		1,318,714			2,006,329
	$	18,427,300		$	19,646,129

The accompanying notes are an integral part of these consolidated statements.

F-280

TTC Healthcare, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the period January 1, 2021 through January 24, 2021

and for the period from January

 1, 2020 through March

 31, 2020

	January 1, 2021 through January 24, 2021			January 1, 2020 through March 31, 2020
Revenues, net
Inpatient and outpatient treatment related services	$	357,465		$	4,397,157
Detoxification related services		109,802			509,947
Diagnostic laboratory related services		11,073			397,591
Ancillary medical services		81,043			29,329
		559,383			5,334,024
Cost of service		724,299			3,006,242
Gross profit		(164,916	)		2,327,782
Operating expenses
General and administrative		431,330			921,336
Selling and marketing		264,434			1,077,169
Depreciation and amortization		8,323			35,267
		704,087			2,033,772
Operating (expense) income		(869,003	)		294,010
Other income (expenses)
Interest expense		(31,834	)		(184,923	)
Other income		—			8,931
		(31,834	)		(175,992	)
(Loss) income before income tax expense		(900,837	)		118,018
Income tax benefit (expense)		222,255			(36,380	)
NET (LOSS) INCOME		(678,582	)		81,638
Less net income attributable to noncontrolling interest		7,040			—
Net (loss) income attributable to TTC Healthcare Inc.	$	(685,622	)	$	81,638

The accompanying notes are an integral part of these consolidated statements.

F-281

TTC Healthcare, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

For the period January 1, 2021 through January 24, 2021

and for the period from January

 1, 2020 through March

 31, 2020

	Common Stock				Additional Paid-in Capital		Accumulated Deficit			Stockholders’ Equity			Noncontrolling Interest			Total Equity
	Shares		Amount
Balance, January 1, 2021		8,000,000	$	800	$	2,999,200	$	(966,264	)	$	2,033,736		$	(27,407	)	$	2,006,329
Accretion of preferred stock discount		—		—		—		(9,033	)		(9,033	)		—			(9,033	)
Net (loss) income		—		—		—		(685,622	)		(685,622	)		7,040			(678,582	)
Balance, January 24, 2021		8,000,000	$	800	$	2,999,200	$	(1,660,919	)	$	1,339,081		$	(20,367	)	$	1,318,714
Balance, January 1, 2020		8,000,000	$	800	$	2,999,200	$	(128,969	)	$	2,871,031		$	—		$	2,871,031
Preferred stock dividends		—		—		—		(35,000	)		(35,000	)		—			(35,000	)
Accretion of preferred stock discount		—		—		—		(22,743	)		(22,743	)		—			(22,743	)
Net income		—		—		—		81,638			81,638			—			81,638
Balance, March 31, 2020		8,000,000	$	800	$	2,999,200	$	(105,074	)	$	2,894,926		$	—		$	2,894,926

The accompanying notes are an integral part of these consolidated statements.

F-282

TTC Healthcare, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the period January 1, 2021 through January 24, 2021

and for the period from January

 1, 2020 through March

 31, 2020

	January 1, 2021 through January 24, 2021			January 1, 2020 through March 31, 2020
Cash flows from operating activities
Net (loss) income	$	(678,582	)	$	81,638
Adjustments to reconcile net (loss) income to net cash used in operating activities
Depreciation		8,323			35,267
Amortization of debt issuance costs		—			10,547
Deferred income tax benefit		(222,255	)		(164,810	)
(Increase) decrease in assets
Accounts receivable		(160,234	)		(921,334	)
Prepaid expenses and other current assets		(4,028	)		4,253
Security deposits		(10,000	)		(17,826	)
Increase (decrease) in liabilities
Accounts payable		(265,168	)		4,950
Income taxes payable		—			201,190
Accrued payroll and other		30,510			556,588
Payment of contingent consideration due to seller		—			(68,469	)
Net cash used in operating activities		(1,301,434	)		(278,006	)
Cash flows from investing activities
Purchase of property and equipment		(18,136	)		(3,745	)

(Continued)

The accompanying notes are an integral part of these consolidated statements.

F-283

TTC Healthcare, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)

For the period January 1, 2021 through January 24, 2021

and for the period from January

 1, 2020 through March

 31, 2020

	January 1, 2021 through January 24, 2021			January 1, 2020 through March 31, 2020
Cash flows from financing activities
Proceeds from revolving line of credit	$	—		$	1,500,000
Payments on long-term debt		(83,333	)		(250,000	)
Preferred stock dividends		—			(35,000	)
Net cash (used in) provided by financing activities		(83,333	)		1,215,000
(Decrease) increase in cash		(1,402,903	)		933,249
Cash, beginning of period		3,759,380			549,669
Cash, end of period	$	2,356,477		$	1,482,918
Supplemental disclosure of cash flow information
Cash paid for interest	$	32,284		$	133,982
Supplemental disclosure of reconciliation of cash and restricted cash
Cash	$	1,023,945		$	1,482,918
Restricted cash		1,332,532			—
Cash and restricted cash, end of period	$	2,356,477		$	1,482,918

The accompanying notes are an integral part of these consolidated statements.

F-284

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Nature of Business and Subsequent Event

TTC Healthcare, Inc. and Subsidiaries (the “Company”) provide inpatient and outpatient substance abuse and mental health treatment services for individuals with drug and alcohol addiction. In addition to the Company’s inpatient and outpatient substance abuse treatment services, the Company performs screenings, urinalysis, diagnostic laboratory services, and provides physician services to Patients. The Company operates numerous facilities primarily located in Delray Beach, Florida, including inpatient substance abuse treatment facilities, standalone outpatient centers and sober living facilities focused on delivering effective clinical care and treatment solutions.

Effective January 25, 2021, the Company became a fully owned subsidiary of UpHealth Holdings, Inc. (“UpHealth”). As a result, the financial statements are reflected as of January 24, 2021 and for the period January 1, 2021 to January 24, 2021.

2. Basis of Consolidation

The accompanying consolidated financial statements include the accounts of TTC Healthcare, Inc. and its subsidiaries: Transformations Treatment Center, Inc.; Integrity Way, Inc.; Pinnacle Testings, Inc.; Summit Detox Inc.; Freedom Now, Inc.; Wrigley Healthcare Services, Inc.; and Supportive Healthcare, Inc., which are 100% wholly owned. TTC Healthcare Inc. also has an 80% controlling interest in Transformations Mending Fences, LLC (formed in late 2020) with the remaining 20% interest owned by an unrelated party.

Noncontrolling interests on the consolidated balance sheets represent the portions of Transformations Mending Fences, LLC’s equity not directly owned by the Company. Additionally, the net income or loss allocated to the noncontrolling interests has been reported as such on the consolidated statement of operations.

All significant intercompany balances and transactions have been eliminated in consolidation.

3. Restricted Cash

Restricted cash represents an escrow balance held in a separate cash account per the Forbearance Agreement discussed in Note E.

The Company follows the accounting principles outlined in FASB Accounting Standards Update (ASU) 2016 18,

Restricted Cash.

The ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.

4. New Accounting Pronouncement

The FASB issued Accounting Standards Update (ASU)

2014-09,

Revenue from Contracts with Customers

(Topic 606), in May 2014. Topic 606 sets forth a new five-step revenue recognition model that will require the use of more estimates and judgment. Topic 606 replaces current revenue recognition requirements in Topic 605,

Revenue Recognition,

in its entirety. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in prior accounting guidance. Topic 606 is effective for annual financial statements of private companies issued for fiscal years

F-285

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

4. New Accounting Pronouncement (continued)

beginning after December 15, 2019 and should be applied retrospectively in the year Topic 606 is first applied using one of two allowable application methods with early adoption permitted. The Company adopted Topic 606 as of January 1, 2020, using a modified retrospective approach and did not record a cumulative

catch-up

adjustment as the timing and measurement of revenue for the Company’s customers is similar to its prior revenue recognition model.

At December 31, 2019, the Company recorded approximately $6,060,000 as a direct reduction of accounts receivable that would have been reflected as an allowance for doubtful accounts prior to the adoption of ASU

2014-09.

The adoption of ASU

2014-09

also resulted in changes to the Company’s presentation and disclosure of customer contract assets and liabilities and the assessment of variable consideration under customer contracts.

5. Revenue Recognition

Contracts with Patients

The Company generates revenue primarily through services provided to patients in both inpatient and outpatient treatment settings. The Company bills third-party payors weekly or monthly for the services provided in the prior week. Patient related services, such as inpatient and outpatient programs, are generally recognized over time as the performance obligation is satisfied at the estimated net realizable value amount from patients, third-party payors and others for services provided. The Company receives the majority of payments from commercial payors at

out-of-network

rates. Patient service revenue is based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to

self-pay

patients. Estimates for explicit price concessions are based on provider contracts and historical experience, adjusted for economic conditions and other trends affecting the Company’s ability to collect outstanding items.

The Company also provides diagnostic laboratory services for their patients which are recognized over time as the performance obligation is satisfied at the estimated net realizable value amount from patients, third-party payors and others for services provided. Diagnostic laboratory service revenue is based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to

self-pay

patients. Estimates for explicit price concessions are based on provider contracts and historical experience, adjusted for economic conditions and other trends affecting the Company’s ability to collect outstanding items.

Prior to admission, insurance coverage, as applicable, is verified and the patient

self-pay

amount is determined. The Company records implicit price concessions in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible. In some instances, patients will make a deposit for the services to be rendered. These prepaid payments (contract liabilities) are included in accrued payroll and other in the accompanying consolidated balance sheets and revenue related to these payments is deferred and recognized over the period services are provided. The Company does not recognize revenue for any amounts not collected from the patient.

F-286

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

5. Revenue Recognition (continued)

Performance obligation

The Company has six entities that produce third party revenues:

a. Transformations Treatment Center, Inc. and Transformations Mending Fences, LLC

The Company provides

all-inclusive

Residential Programs, Partial Hospitalization Programs, Outpatient Programs, and Stabilization and Outpatient Programs. Services related to these programs include psychiatric and psychotherapy services and procedures. The Company has determined that the services performed in relation to the program represent a single performance obligation. The Company satisfies its performance obligation over time as the program is administered and recognizes patient service revenue accordingly. The Company generally bills on a weekly basis. Revenues are generally collected within 30 to 90 days subsequent to providing services.

b. Summit Detox, Inc.

The Company provides patient substance detoxification services. The Company has determined that the services performed in relation to the program represent a single performance obligation. The Company satisfies its performance obligation over time as the program is administered, and recognizes patient service revenue accordingly. The Company generally bills on a weekly basis. Revenues are generally collected within 30 to 90 days subsequent to providing services.

c. Pinnacle Testings, Inc.

The Company provides diagnostic laboratory services. Services include urinalysis and other drug testing procedures. The Company satisfies its performance obligation over time as the program is administered and recognizes patient service revenue accordingly. The Company generally bills on a weekly basis. Revenues are generally collected within 30 to 90 days subsequent to providing services.

d. Wrigley Healthcare Services, Inc.

The Company provides ancillary medical services. Services include sick and psychiatric visits, dietician, chiropractic and other ancillary medical services to Transformation Treatment Center, Inc. and Summit Detox, Inc. patients. The Company defines each session as the performance obligation that is satisfied over time as the program is administered. The Company generally bills on a weekly basis. Revenues are generally collected within 30 to 90 days subsequent to providing services.

e. Freedom Now, Inc.

The Company provides ancillary medical services. Services include psychiatric, clinical, and other ancillary medical services to patients. The Company defines each session as the performance obligation that is satisfied over time as the program is administered. The Company generally bills on a weekly basis. Revenues are generally collected within 30 to 90 days subsequent to providing services.

Significant Judgment - Determination of Transaction Price

The Company recognizes revenue from third-party payors as services are provided based on our estimate of the amount that third-party payors will pay for the services performed. The Company estimates the net

F-287

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

5. Revenue Recognition (continued)

Significant Judgment - Determination of Transaction Price 

(continued)

realizable value of revenue by adjusting gross client charges using an expected realization and applying that discount to gross patient charges. A significant or sustained decrease in reimbursement rates could have a material adverse effect on the Company’s operating results. There is no assurance that the Company will be able to maintain or improve historical reimbursement rates in future reporting periods.

Estimates of net realizable value are subject to significant judgment and approximation by management. It is possible that actual results could differ from the historical estimates management has used to help determine the net realizable value of revenue. If actual reimbursements either exceed or are less than the net realizable value estimates, the Company records a revenue adjustment, either positive or negative, for the difference between the estimate of the receivable and the amount actually reimbursed in the reporting period in which the reimbursement occurred.

In the event that there is a difference in the recognized revenue from third-party payors due to material errors, management may be required to restate prior period financial results. Subsequent to the transaction described in Note B, Management identified a potential overpayment from a third-party payor. Management engaged a third-party financial analysis firm to quantify the estimated overpayment, which may be material, and notified the third-party payor. The Company received indication from the third-party payor that they do not believe an overpayment error was made, however the issue has not been formally resolved with the payor. In the event that the matter is settled, as the majority of the period in question is prior to the acquisition, the Company has recourse to withhold payment of contingent consideration, withhold payment of cumulative preferred return, redeem outstanding preferred stock, and pursue cash collection, as defined in the Purchase Agreement.

In the following table, revenue is disaggregated by significant service provided, all of which are recognized over time for the periods from January 1, 2021 through January 24, 2021 and January 1, 2020 through March 31, 2020:

	January 24, 2021		March 31, 2020
Inpatient and outpatient treatment related services	$	357,465	$	4,397,157
Detoxification related services		109,802		509,947
Diagnostic laboratory related services		11,073		397,591
Ancillary medical services		81,043		29,329
	$	559,383	$	5,334,024

6. Accounts Receivable

Accounts receivable represent receivables primarily from third-party payors for services provided. In those instances when payment is not received at the time of service, the Company records receivables from their patients, most of whom are insured under third-party payor agreements. Accounts receivable is based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price

F-288

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

6. Accounts Receivable (continued)

concessions provided primarily to

self-pay

patients. Estimates for explicit price concessions are based on provider contracts and historical experience, adjusted for economic conditions and other trends affecting the Company’s ability to collect outstanding items. Payments of accounts receivable are allocated to the specific invoices identified on the client’s remittance advice or third-party payor explanation of benefits or, if unspecified, are applied to the oldest unpaid invoices.

For receivables associated with

self-pay

patients, the Company records implicit price concessions in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible.

7. Property and Equipment

Property and equipment was initially recorded at fair value of acquired assets at the time of the acquisition. Subsequent to the acquisition, property and equipment are recorded at cost for new additions. Depreciation is provided using the straight-line method based on the following estimated useful lives of the assets:

	Years
Office equipment		5
Furnitures and fixtures		7
Vehicles		5
Software		3

Leasehold improvements are amortized over the lesser of the remaining lease term or the estimated useful life of the asset.

8. Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired. Goodwill and intangible assets with indefinite lives are not amortized, but instead assessed for potential impairment if events occur or circumstances change that indicate the fair value of the Company may be less than its carrying value. The Company has elected to test goodwill for impairment at the entity-wide level. The Company assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company considers the following to be important factors that could trigger an impairment review: significant underperformance relative to historical or projected future operating results; identification of other impaired assets within a reporting unit; significant adverse changes in business climate or regulations; significant changes in the manner of use of the acquired assets or the strategy for our overall business; and significant negative industry or economic trends.

In assessing the recoverability of goodwill, the Company considers historical results, current operating trends and results, and makes estimates and assumptions about revenue, margins and discount rates based on budgets, business plans, economic projections and anticipated future cash flows. Each of these factors contains inherent uncertainties, and management exercises substantial judgment and discretion in evaluating and applying these factors.

F-289

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

8. Goodwill (continued)

No indications of impairment were noted for the period from January 1, 2021 through January 24, 2021 or from January 1, 2020 through March 31, 2020.

9. Debt Issuance Costs

Debt issuance costs are included as a direct deduction from the carrying amount of the debt liability, consistent with debt premiums and discounts, and is included in interest expense as debt payments are made.

10. Income Taxes

The Company is a C Corporation and files federal and state income tax returns. Deferred taxes are provided on the liability method whereby deferred income tax assets are recognized for deductible temporary differences, operating loss, tax credit carryforwards, and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Transformations Mending Fences, LLC was formed as a limited liability company. Accordingly, federal income taxes are not payable by the subsidiary. Income (or loss) is allocated to the subsidiary’s members and is included in the members’ income tax returns. Therefore, no liability or provision for income taxes relating to the subsidiary is included in the consolidated financial statements. The subsidiary may be subject to certain state taxes.

The Company recognizes tax liabilities when the Company believes that certain positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The current portion of tax liabilities is included in other liabilities. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.

The Company files income tax returns in the U.S. federal jurisdiction and the State of Florida.

11. Use of Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-290

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

12. Fair Value of Financial Instruments

The carrying amounts of financial instruments, including accounts receivable, accounts payable, accrued payroll and other, and current maturities of long-term debt approximate fair value due to the short maturity of these instruments. The carrying amounts of long-term debt approximates fair value because the interest rates fluctuate with market interest rates or the fixed rates are based on current rates offered to the Company for debt with similar terms and maturities.

It is the Company’s policy, in general, to measure nonfinancial assets and liabilities at fair value on a nonrecurring basis. These items are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (such as evidence of impairment) which, if material, are disclosed in the accompanying notes to these consolidated financial statements.

13. Marketing and Promotion Costs

The Company expenses marketing and promotion costs as incurred. Marketing and promotion expense for the periods from January 1, 2021 through January 24, 2021 and January 1, 2020 through March 31, 2020 were approximately $95,000, and $458,000, respectively.

14. Significant Accounting Standard Applicable In A Future Year

a. Leases

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016- 02,

Leases,

(Topic 842), in February 2016. Under ASU

2016-02,

lessees will be required to recognize, at commencement date, a lease liability representing the lessee’s obligation to make payments arising from the lease and a

right-of-use

asset representing the lessee’s right to use or control the use of a specific asset for the lease term. Under this new guidance, lessor accounting is largely unchanged. ASU

2016-02

was to be effective for annual financial statements of private companies issued for fiscal years beginning after December 15, 2019, however the implementation date has been deferred. The new guidance is now effective for annual financial statements of private companies issued for fiscal years beginning after December 15, 2021. Management is currently evaluating the effect that ASU

2016-02

will have on the Company’s consolidated financial statements. The Company expects to record total

right-of-use

assets and related operating lease obligations based on the present value of future payments as disclosed in Note I on the consolidated balance sheet upon adoption, with no material impact to the consolidated statement of operations.

F-291

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE B

-

NET PATIENT REVENUE

The approximate mix of net receivables as of January 24, 2021 and December 31, 2020, and net revenues for the period from January 1, 2021 through January 24, 2021 and January 1, 2020 through March 31, 2020 consisted of the following:

	Net Receivables						Net Revenues
	January 24, 2021			December 31, 2020			January 1, 2021 through January 24, 2021			January 1, 2020 through March 31, 2020
Third-party payors		100.00	%		100.00	%		81.30	%		95.00	%
Patient		0.00	%		0.00	%		18.70	%		5.00	%
		100.00	%		100.00	%		100.00	%		100.00	%

NOTE C

-

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at January 24, 2021 and December 31, 2020:

	January 24, 2021		December 31, 2020
Office equipment	$	61,527	$	44,776
Furnitures and fixtures		58,400		58,400
Leasehold improvements		411,275		409,891
Vehicles		134,433		134,433
Software		44,307		44,307
		709,942		691,807
Less accumulated depreciation		179,223		170,900
	$	530,719	$	520,907

NOTE D

-

REVOLVING LINE OF CREDIT

The Company has a loan and security agreement (the “Agreement”) with a bank that allows for maximum borrowings of $1,750,000 on a revolving line of credit and a $10,800,000 term loan. The revolving line of credit expires in September 2022, with the option to extend for a total of two years by two separate one year extensions. The revolving line of credit and term loan are subject to certain restrictive covenants and are collateralized by substantially all the assets of the Company, as defined in the Agreement. All instruments under the Agreement bear interest at a floating per annum rate equal to the London Interbank Offered Rate (LIBOR) (0.13% at January 24, 2021), plus an applicable margin of 3.50% - 4.00%, as defined in the agreement. Interest payments are required monthly. The outstanding balance on the revolving line of credit as of January 24, 2021 and December 31, 2020 was $1,750,000.

On November 23, 2020, the Company entered into a forbearance agreement (the “Forbearance Agreement”) with the bank. Under the terms of the agreement, the bank agrees to forbear from the exercise of the bank’s remedies of existing events of default, upon certain conditions being met. The forbearance period is effective until July 31, 2021. The agreement also modified the interest rate to be a floating per annum rate of interest equal to LIBOR

F-292

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE D

-

REVOLVING LINE OF CREDIT (continued)

plus 4.00%. Additionally, the agreement requires that certain minimum census, revenue and liquidity requirements be met. Lastly, as required by the Forbearance Agreement, the Company executed a Capital Call Agreement which provides for a maximum capital contribution of $2,431,000 to meet certain restrictive covenants. As of the report date, no capital contribution was required. The funds contributed shall be considered equity investments in the Company. Additionally, the agreement requires the suspension of payments under subordination agreements, including payment of management fees,

earn-out

payments, and preference payments. The payments under the subordination agreements are to be deposited to an escrow account held at the bank throughout the forbearance period. The amount of escrowed payments held in escrow shall be included when calculating liquidity requirements.

Subsequent to year end, on January 25, 2021, the forbearance agreement was modified to add additional guarantors and waived restrictive covenants in place as of December 31, 2020 (See Note N). All other terms remain substantially the same.

NOTE E

-

LONG-TERM DEBT

Long-term debt consists of the following:

	January 24, 2021		December 31, 2020
As defined in the Agreement described in Note D, the term loan bears interest at the same rate of the revolving line of credit. Principal payments of $83,333 are required monthly for the first forty-eight months and $125,000 for the final twelve months, a balloon payment of all outstanding principal and accrued interest due on the maturity date in September 2024.	$	9,466,667	$	9,550,000
Less unamortized debt issuance costs		158,200		158,200
		9,308,467		9,391,800
Less current maturities		874,480		957,813
	$	8,433,987	$	8,433,987

The Company incurred debt issuance costs of $210,934, which were recorded as a reduction to the carrying value of the term loan described above. The reduction is recognized over the term of the respective loan.

The total future maturities of long-term debt consist of the following at January 24, 2021:

Year	Principal		Unamortized Debt Issuance Costs		Net Outstanding Long-term debt
Remaining 2021	$	916,667	$	42,187	$	874,480
2022		1,000,000		42,187		957,813
2023		1,125,000		42,187		1,082,813
2024		6,425,000		31,639		6,393,361
Total	$	9,466,667	$	158,200	$	9,308,467

F-293

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE F

-

PAYCHECK PROTECTION PROGRAM LOANS AND SUBSEQUENT EVENTS

On April 16, 2020, the Company entered into five Paycheck Protection Program (PPP) loan agreements that totaled $1,944,352, bore interest at 1.00%, were set to mature in April 2022, were not collateralized, and were eligible for forgiveness subject to provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The Company applied for forgiveness during 2020. During 2020, three of the loans, totaling $660,851, were forgiven in full by the SBA and the Company was legally released from repaying the loan. As of January 24, 2021, the Company has not received forgiveness on the remaining two loans, totaling $1,283,501. Subsequent to period end, on February 22, 2021 and March 25, 2021, the remaining two loans of $935,987 and $347,514, respectively, were forgiven by the SBA and the Company was legally released from repaying the loans. Prior to the notification of forgiveness, the Company has reported $850,135 as short term which was to be due in 2021 and $433,366 as long-term for the amount that would have been due in 2022.

As part of the PPP, the Company is required to retain all records relating to the loan for six years from the date the loan was forgiven and permit authorized representatives of the SBA to access such records upon request. Although forgiveness for three loans has been granted, the SBA may undertake a review at any time at the SBA’s discretion.

NOTE G

-

REDEEMABLE PREFERRED STOCK

The Company has previously issued 2,000,000 shares of redeemable preferred stock at $.0001 par value, with an original issue price of $1.00 per share. As of January 24, 2021, and December 31, 2020, 2,000,000 shares are issued and outstanding. The holder of redeemable preferred stock is entitled to preferences in certain cases with respect to dividends, dissolution, conversion and other matters. The holder of outstanding shares of redeemable preferred stock is not entitled to any voting rights on matters presented to, voted upon or consented to by the stockholders of the Company.

The redeemable preferred stock has put rights that may be exercised on the 5th day of the last month of each calendar quarter, beginning in December 2020. The Company may be required to purchase the outstanding shares in increments of $250,000 of the original issue price. The redemption is not mandatory and requires written request. Under the Forbearance Agreement, no redemptions are permitted, therefore, no redemptions were made in 2020. The Company also has a call option and may redeem the outstanding redeemable preferred shares at any time. The fair value is $1,800,000 with a discount of $200,000 that will be accreted to the redemption value. The $200,000, which represents the difference between the initial value of $2,000,000 and the fair value of $1,800,000, will be accreted over the period from the date of issuance of September 5, 2019 through September 2022, which is the final anticipated redemption date, assuming all redemptions are made.

Dividends on outstanding shares of redeemable preferred stock shall accrue at the rate per quarter of 1.75% of the original issue price of such shares. The dividend accrued on shares of redeemable preferred stock shall be prorated for fractional shares and to the extent that such shares were not outstanding every day of such quarter. The Company shall pay accrued but unpaid dividends on the last day of each quarter. If any amounts accrued are not paid on the dividend due date, the Company shall pay interest on such unpaid dividend amounts at an aggregate per annum rate equal to 10.0% until such unpaid dividend amounts are paid in full. Interest shall accrue daily in arrears and be compounded annually.

Each outstanding share of preferred stock shall be redeemed by the Company at a price equal to the original issue price per share, plus all declared but unpaid dividends thereon. The carrying value of the redeemable preferred

F-294

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE G

-

REDEEMABLE PREFERRED STOCK (continued)

stock was $1,920,403 at January 24, 2021 and December 31, 2020. Due to the redeemable nature of the preferred stock by the shareholder, the carrying value is not presented as a component of stockholders’ equity.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or deemed liquidation event, as defined in the Certificate, the holder of preferred stock outstanding was entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share equal to the original issue price, plus any dividends declared but unpaid thereon. As part of the business combination (Note

A-1)

the preferred stock was fully redeemed for the full redemption value of $2,000,000 in exchange for a portion of the seller note.

NOTE H

-

STOCKHOLDER’S EQUITY AND RIGHTS

The Company’s authorized to issue 10,000,000 shares of common stock at $.0001 par value. As of January 24, 2021, and December 31, 2020, 8,000,000 shares are issued and outstanding. All common stock shall comprise a single class. The number of authorized shares of common stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of shares of capital stock of the Company representing a majority of the votes. The holders of common stock are entitled to one vote for each share of common stock. The Company may pay dividends and other distributions on the common stock from time to time as declared by the Board of Directors. The Company shall not pay or set aside any dividends on common stock unless the holders of the preferred stock then outstanding shall have first received, or simultaneously received, all amounts then accrued or due under any provisions of the certificate of incorporation (“Certificate”).

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or deemed liquidation event, as defined in the Certificate, after the payment of all preferential amounts required to be paid to the holders of preferred stock, the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of shares of common stock, pro rata based on the number of shares held by each such holder.

NOTE I

-

OPERATING LEASES

The Company leases various facilities in accordance with the terms of operating lease agreements requiring monthly payments ranging from $1,568 to $67,954. The leases expire at various dates through November 2026. For financial reporting purposes, lease expense is recognized on a straight-line basis over the term of the lease. The excess straight-line expense over cash paid aggregated approximately $66,300 and $40,500 and is included in accrued payroll and other in the accompanying balance sheet as of January 24, 2021 and December 31, 2020, respectively.

In accordance with the lease terms, the Company may be required to deposit funds to the lessor in the form of a security deposit. The Company may receive the deposits back if certain conditions are met, as stated in the lease agreements. Security deposits totaled approximately $281,000 and $271,000 as of January 24, 2021 and December 31, 2020, respectively.

F-295

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE I

-

OPERATING LEASES (continued)

The Company leases three of the facilities described above from related parties (preferred stockholder). Rent expense incurred on these related-party leases totaled approximately $76,000 and $230,000 for the period from January 1, 2021 through January 24, 2021 and January 1, 2020 through March 31, 2020, respectively.

Rent expense totaled approximately $151,000 and $441,500, including related party leases, for the periods from January 1, 2021 through January 24, 2021 and January 1, 2020 through March 31, 2020, respectively.

As of January 24, 2021, future minimum lease payments under

non-cancelable

operating leases are as follows:

	Related Party		Non-Related Party		Total
Remaining 2021	$	813,689	$	789,007	$	1,602,696
2022		900,757		953,424		1,854,181
2023		914,175		934,270		1,848,445
2024		927,592		815,002		1,742,594
2025		686,716		427,028		1,113,744
Thereafter		—		383,415		383,415
	$	4,242,929	$	4,302,146	$	8,545,075

NOTE J

-

INCOME TAXES

Deferred income taxes consist of the following at January 24, 2021 and December 31, 2020:

	January 24, 2021		December 31, 2020
Deferred tax assets before valuation allowance	$	243,200	$	192,590
Valuation allowance		—		—
Deferred tax assets after valuation allowance		243,200		192,590
Deferred tax liabilities		441,001		612,646
Net deferred tax assets and liabilities	$	197,801	$	420,056

Deferred income taxes result primarily from significant temporary differences between income for financial reporting purposes and taxable income. These differences arose principally from the use of accelerated tax depreciation, timing on the recognition of revenues and expenses, and net operating losses.

The income tax (benefit) expense for the periods from January 1, 2021 through January 24, 2021 and January 1, 2020 through March 31, 2020 consist of the following:

	January 1, 2021 through January 24, 2021			January 1, 2020 through March 31, 2020
Current expense	$	—		$	201,190
Deferred benefit		(222,255	)		(164,810	)
Total income tax (benefit) expense	$	(222,255	)	$	36,380

F-296

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE J

-

INCOME TAXES (continued)

The Company’s effective tax rate on continuing operations differs from the statuary rate due to the following:

	January 1, 2021 through January 24, 2021			January 1, 2020 through March 31, 2020
Income tax (benefit) expense at federal statutory rate	$	(189,176	)	$	24,784
State and local income taxes net of federal tax (benefit) expense		(31,920	)		3,262
Nondeductible contingent consideration		—			(7,350	)
Other permanent (benefit) expense		(1,159	)		15,684
Total income tax (benefit) expense	$	(222,255	)	$	36,380

At January 24, 2021 the Company had Federal and state net operating loss carryforwards approximating $450,000 and interest expense deduction limitation carryforwards approximating $475,000, both of which do not expire.

The Company has recorded $89,058 of income taxes payable for deducting transaction related expenses on the tax returns that should not have been deducted. The amount is recorded as an uncertain tax position net of refundable tax payments made and is reflected as income taxes payable on the consolidated balance sheets at January 24, 2021 and December 31, 2020.

NOTE K

-

RELATED-PARTY TRANSACTIONS

1. Management Fees

The Company has a management agreement with a related party (member of the Company’s parent company). Management fee expenses incurred were approximately $17,000 and $50,000 for the period from January 1, 2021 through January 24, 2021 and January 1, 2020 through March 31, 2020, respectively. Unpaid management fees were $204,999 and $188,333 at January 24, 2021 and December 31, 2020, respectively.

2. Due to Related Parties

Amounts due to related parties consists of a $25,000 advance received in 2019 from a member of the Predecessor’s parent company, which is non-interest bearing. In addition, due to related parties also consists of amounts due to the preferred stockholder (Note G) representing contingent consideration, accrued interest, and accrued preferred dividends, aggregating $1,373,802, which have each been earned in 2020 and 2021, but are unpaid due to the terms of the Forbearance Agreement (see Note D). At January 24, 2021 and December 31, 2020, the aggregate amount due to related parties was $1,393,258.

NOTE L

-

EMPLOYEE BENEFIT PLAN

Effective April 1, 2020, the Company adopted a 401(k) plan that covers substantially all employees who meet certain eligibility requirements. Participants may contribute amounts in accordance with the limits established by

F-297

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE L

-

EMPLOYEE BENEFIT PLAN (continued)

the Internal Revenue Code. The Plan allows for discretionary matching contributions and profit sharing contributions. No discretionary contributions were made for the period from January 1, 2021 through January 24, 2021.

NOTE M

-

RISKS AND UNCERTAINTIES

1. Uninsured Cash

The Company maintains its cash balances at two financial institutions in Florida. These cash balances are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. The Company may, from time to time, have balances in excess of FDIC insured deposit limits.

2. Significant Third-Party Payors

Certain payors may account for a significant portion of the Company’s revenue on an annual basis. These more significant payors can also change from year to year. If any of these or other third-party payors reduce their reimbursement rates for the services the Company provides or otherwise implement measures, such as specialized networks, it is likely that the payments received, revenue, profitability and cash flows could be materially adversely affected. For the period ended January 24, 2021, the Company had one significant third- party payor who accounted for approximately 13% of total net revenues for the period ended January 24, 2021. Accounts receivable associated with the third-party payor was approximately $366,000 and $285,000 as of January 24, 2021 and December 31, 2020, respectively.

One of the payors uses a third-party administrator (“TPA”) to process and pay its claims. In 2020, the payor changed their TPA in certain regions of the country, which will require the Company to be credentialed

in-

network with the new TPA. If the Company is unable to be credentialed, the Company will not be able to accept Patients from this payor, which could have a material adverse effect on the Company’s revenue. At this time, the Company is not able to determine the ultimate outcome of the credentialing process on the Company’s financial position, results of operations, and cash flows.

3. Contingencies

From time to time, the Company may also be subjected to claims or lawsuits which arise in the ordinary course of business. Management believes that the disposition of these matters will not have a material effect on the Company’s financial position or results of operations. No liability related to these matters has been recorded at January 24, 2021 or December 31, 2020.

On December 17, 2020, a former employee filed an Equal Employment Opportunity Commission (EEOC) claim against the Company alleging discrimination based on disability. The former employee cannot file a suit under the federal law until the EEOC issues a notice of right to sue but can file suit under Florida law if the investigating agency has not rendered a decision within 180 days of the date the charge was filed. As of the report date, no lawsuit has been filed. The Company plans to vigorously defend the case and does not believe that there is any reasonably estimable loss. However, the Company does have insurance coverage, which could mitigate some or all of the financial effects of potential settlements or judgements. In the event that future settlements or judgements, if any, exceed insurance coverages, the Company would be required

F-298

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE M

-

RISKS AND UNCERTAINTIES (continued)

3. Contingencies (continued)

to fund the difference. No provision has been made in the accompanying consolidated financial statements for any potential settlement or judgment costs at January 24, 2021 or December 31, 2020. The maximum exposure as it relates to claims made is approximately $363,000.

4. COVID-19

The direct and indirect impacts of the current

COVID-19

outbreak on the Company’s customers, vendors, operations, and financing arrangements are currently unknown, as is the duration and severity of any impacts that the Company may experience. The Company has experienced a reduction in census partially due to certain states imposing travel bans and quarantines. Management is currently unable to quantify the effects that this situation will have on its operations and financial position; however, they may be significant.

NOTE N

-

MANAGEMENT’S PLANS AND SUBSEQUENT EVENT

The Company has experienced losses and did not meet certain restrictive covenants related to the bank debt at December 31, 2020. As a result, the Company has entered in a forbearance agreement with the bank (See Note D). Management has developed a business and financial plan for 2021 and beyond to mitigate these adverse conditions mentioned.

Management’s plan includes several ongoing initiatives aimed at increasing revenues for both existing and new Patients, including a new entity, Transformations Mending Fences, LLC (see Note

A-2),

and starting a

PHP-In

Network offering, reducing and monitoring discretionary expenses, and improving operations. The Company also executed a Capital Call Agreement which provides for a maximum capital contribution of $2,431,000 to meet certain restrictive covenants set forth in the Forbearance agreement (See Note E). Finally, as noted in Note

A-1,

the Company entered into an Agreement and Plan of Merger, which was consummated on January 25, 2021, and will result in sufficient funding becoming available to alleviate and repay in full all outstanding debt obligation. Based on the results in 2021, the cash on hand, Paycheck Protection Program loan, Capital Call Agreement, and the Merger, management believes their efforts will be sufficient to meet the Company’s operational needs.

Based on the above plan, management believes that they have alleviated substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date that the financial statements are available to be issued. While the Company believes in the viability of management’s plans, there can be no assurance to that effect, and actual results may differ from management’s plan.

NOTE O

-

SUBSEQUENT EVENTS

Management has evaluated subsequent events through May 19, 2021, the date that these consolidated financial statements were available to be issued. Management has determined that no events or transactions, other than the PPP merger noted in Note

A-1

and N, the PPP loan forgiveness noted in Note F, and below, have occurred subsequent to the consolidated balance sheet date that require disclosure in the consolidated financial statements.

F-299

TTC Healthcare, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period January 1, 2021 through January 24, 2021

and for the period from January 1, 2020 through March 31, 2020

NOTE O

-

SUBSEQUENT EVENTS (continued)

Provider Relief Funds

On January 29, 2021, the Company received proceeds aggregating $505,810 from the U.S. Department of Health and Human Services (HHS) available as part of a $100 billion appropriation as part of the CARES Act Provider Relief Fund (PFR). The payments will not require repayment as long as the Company complies with certain terms and conditions outlined by HHS. The terms and conditions first require the Company to identify health care-related expenses attributed to coronavirus that another source has not reimbursed or is obligated to reimburse. If those expenses do not exceed the funding received, the Company then applies the funds to patient care lost revenue. The HHS released a “Post-Payment Notice of Reporting Requirements Notice” that provides healthcare providers three options to calculate patient care lost revenue that the Company will follow.

F-300

Innovations Group, Inc.

Consolidated Financial Statements

December 31, 2020 and 2019

F-301

Innovations Group, Inc.,

Table of Contents

Independent Auditor’s Report	F-303
Consolidated Balance Sheets	F-304
Consolidated Statements of Operations	F-305
Consolidated Statements of Shareholders’ Equity	F-306
Consolidated Statements of Cash Flows	F-307
Notes to Consolidated Financial Statements	F-308

F-302

Independent Auditor’s Report

To the Board of Directors

    and Shareholders

Innovations Group, Inc.

We have audited the accompanying consolidated financial statements of Innovations Group, Inc. and its subsidiaries (the “Partnership”), which comprise the consolidated balance sheet as of December 31, 2020 and 2019 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Innovations Group, Inc. and its subsidiaries as of December 31, 2020 and 2019 and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As described in Note 2 to the consolidated financial statements, the Company adopted the provisions of ASU

No. 2014-09,

Revenue from Contracts with Customers (Topic 606),

as of January 1, 2020. Our opinion is not modified with respect to this matter.

March 12, 2021

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Innovations Group, Inc.

Consolidated Balance Sheets

Years Ended December 31, 2020 and 2019

	December 31
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	3,319,074	$	2,199,018
Accounts receivable, net		36,024		11,710
Other receivables		30,613		93,162
Inventory		2,467,216		1,990,744
Prepaid expenses and other current assets		587,647		419,761
Total current assets		6,440,574		4,714,395
Property and Equipment, net of accumulated depreciation		8,068,620		8,193,587
Other assets		22,805		15,063
Total Assets	$	14,531,999	$	12,923,045
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	408,738	$	739,929
Accrued expenses		541,098		315,709
Accrued compensation and related taxes		611,068		612,620
Unearned revenue		86,224		189,847
Notes payable, current portion		540,327		212,761
Total current liabilities		2,187,455		2,070,866
Long-term liabilities:
Notes payable, net of current portion		5,384,819		4,473,679
Total liabilities		7,572,274		6,544,545
Shareholders’ equity:
Common stock, no par value, 1,000,000 shares authorized 475,000 shares issued and outstanding as of December 31, 2020 and 2019		5,080		5,080
Retained earnings		6,250,843		5,747,432
Non-controlling interest		703,802		625,988
		6,959,725		6,378,500
Total Liabilities and Shareholders’ Equity	$	14,531,999	$	12,923,045

See Notes to Consolidated Financial Statements

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Innovations Group, Inc.

Consolidated Statements of Operations

Years Ending December 31, 2020 and 2019

	2020			2019
Revenue, net of returns and allowances	$	28,335,405		$	28,829,841
Cost of sales		13,226,492			14,297,936
Gross profit		15,108,913			14,531,905
Operating expenses		12,484,392			11,192,295
Operating income		2,624,521			3,339,610
Nonoperating income and (expense):
Interest expense		(269,382	)		(183,269	)
Other expense		(38,914	)		(103,578	)
Total nonoperating other income and (expense)		(308,296	)		(286,847	)
Net income	$	2,316,225		$	3,052,763
Less: Income attributable to non-controlling interest		77,814			48,430
Net income attributable to Innovations Group, Inc.		2,238,411			3,004,333
Net income per share	$	4.71		$	6.33
Weighted average number of shares outstanding		475,000			475,000

See Notes to Consolidated Financial Statements

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Innovations Group, Inc.

Consolidated Statements of Shareholders’ Equity

Years Ended December 31, 2020 and 2019

	Common Stock				Retained Earnings			Total Shareholders’ Equity			Non-controlling Interest			Total
	Shares		Amount
Balance at December 31, 2018		475,000	$	5,080	$	4,222,099		$	4,227,179		$	791,927		$	5,019,106
Distributions		—		—		(1,479,000	)		(1,479,000	)		(214,369	)		(1,693,369	)
Net income		—		—		3,004,333			3,004,333			48,430			3,052,763
Balance at December 31, 2019		475,000		5,080		5,747,432			5,752,512			625,988			6,378,500
Distributions		—		—		(1,735,000	)		(1,735,000	)		—			(1,735,000	)
Net income		—		—		2,238,411			2,238,411			77,814			2,316,225
Balance at December 31, 2020		475,000	$	5,080	$	6,250,843		$	6,255,923		$	703,802		$	6,959,725

See Notes to Consolidated Financial Statements

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Innovations Group, Inc.

Consolidated Statements of Cash Flows

Years Ending December 31, 2020 and 2019

	December 31
	2020			2019
Cash flows from operating activities:
Net income	$	2,316,225		$	3,052,763
Adjustments to reconcile net income to net cash provided by operating activities;
Depreciation and Amortization		522,075			318,629
Loss (gain) on disposal of assets		4,676			62,513
Changes in operating assets and liabilities:
Accounts receivable		(24,314	)		10,308
Other receivables		62,549			48,841
Inventory		(476,472	)		221,117
Prepaid expenses and other current assets		(167,886	)		48,028
Accounts payable		(331,191	)		239,365
Accrued Expenses		225,389			(26,819	)
Accrued compensation and related taxes		(1,552	)		(10,803	)
Unearned revenue		(103,623	)		(81,917	)
Net cash provided by operating activities		2,025,876			3,882,025
Cash flows from investing activities
Proceeds from sale of fixed assets		2,870			—
Purchases of property and equipment		(412,396	)		(3,809,455	)
Net cash used in investing activities		(409,526	)		(3,809,455	)
Cash flows from financing activities
Distributions		(1,735,000	)		(1,693,369	)
Repayment of debt		(835,294	)		(72,293	)
Proceeds from borrowing from bank		2,074,000			1,379,418
Net cash used in financing activities		(496,294	)		(386,244	)
Net increase decrease in cash		1,120,056			(313,674	)
Cash and cash equivalents — beginning		2,199,018			2,512,692
Cash and cash equivalents — ending	$	3,319,074		$	2,199,018
Supplemental disclosures:
Interest paid	$	269,382		$	183,269

See Notes to Consolidated Financial Statements

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Innovations Group, Inc

Notes to Consolidated Financial Statements

Note 1 - Business Organization and Nature of Operations

Innovations Group, Inc. (“IGI” or “Company”) was organized in 1997 under the laws of the State of Utah and is the parent company to the following wholly owned operating subsidiaries: MedQuest Pharmacy, Inc. (“MedQuest”), Medical Horizons, Inc. (“Medical Horizons”), Pinnacle Labs, Inc. (doing business as MedQuest Testing Services or “MTS”), and WorldLink Medical, Inc (“WorldLink”).

IGI is the parent company and provides management oversight and services to the subsidiaries.

MedQuest prepares custom compounded medications for the unique needs of every patient and prescriber. While specializing in bioidentical hormones and hormone optimization, MedQuest is a full-service pharmacy filling prescription from its inventory of compounded medications as well as drugs purchased from manufacturers. MedQuest also provides additional services such as electronic prescribing, fulfillment of prescription and

non-prescription

products, and other tools to fully integrate the patient, provider, and pharmacy triad relationship. MedQuest is one of a select group of United States compounding pharmacies providing state of the art customized pharmaceutical preparations. MedQuest is licensed in all 50 states and adheres to the highest standards and quality control guidelines that enable the entity to service patients throughout United States. Medquest blends time-honored, individual formulation techniques with modern medical knowledge to produce a preparation developed especially for patients. MedQuest also offers a variety of services to enhance an

age-management

practice.

Medical Horizons is a direct seller or distributor of its branded products NUTRA

scriptives

. In addition, Medical Horizons will private-label supplements with a physician’s brand that are then sold in the physician’s office.

MTS brokers lab testing and facilitates scheduling between outside lab companies and physicians in providing testing for their patients.

WorldLink provides educational seminars and monthly training webinars and materials to providers and other trained medical personnel.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The consolidated financial statements include the results of Innovations Group, Inc., its four wholly owned subsidiaries as mentioned above, and a variable interest real estate entity,

B-17

Partners, LLC

(“B-17”)

in which the Company has a controlling financial interest. The Company’s major shareholder owns

B-17

, which owns the building leased by the Company for its corporate headquarters. In accordance with

Accounting Standard Update

2015-02,

Consolidation (Topic 810) Amendments to the Consolidation Analysis

,

B-17

is considered a variable interest entity. All material intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The Company prepares the financial statements in accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of expenses during the reported period. These assumptions and estimates could have a material effect on the financial statements. Actual results may differ materially from those estimates. The Company’s management periodically reviews estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause the Company to revise these estimates.

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Cash and Cash Equivalents

Cash and cash equivalents include all cash on hand, demand deposits and short-term investments with original maturities of three months or less when purchased. From

time-to-time,

balances in demand deposit accounts or short-term money market accounts with banks or investment institutions exceed the federally insured limits. Management regularly reviews the banks and investment institution’s performance and evaluates the investment risk.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at net invoice amounts. Substantially all accounts receivable are paid by credit card at the time of shipment. As a result, the Company did not experience any accounts receivable write offs during 2020 or 2019 and management believed an allowance for doubtful accounts is not needed as of December 31, 2020 and 2019.

Inventory

Inventory is measured at the lower of cost or net realizable value; where net realizable value is considered to be the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and shipping. For inventory, cost is determined on a standard cost basis that approximates the

first-in,

first-out

(FIFO) method. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors (such as expiration dates) in evaluating net realizable value.

Property and Equipment

Property and equipment are recorded at cost and are depreciated over the asset’s estimated useful life using the straight-line method. Ordinary repair and maintenance costs are charged to operations as incurred. However, expenditures for additions or improvements that significantly extend the useful life of the asset are capitalized in the period incurred. At the time assets are sold or disposed of, the cost and accumulated depreciation are removed from their respective accounts and the related gains or losses are reflected in income.

The Company periodically evaluates the appropriateness of remaining depreciable lives assigned to property and equipment. Generally, we assign the following estimated useful lives to these categories:

Category	Estimated Useful Life
Furniture and Fixtures	5 – 10 years
Office Equipment and Software	3 – 7 years
Compounding and Lab Equipment	5 – 10 years
Building and building improvements	5 – 39 years

Property and equipment are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount might not be fully recoverable. The factors considered by management in performing this assessment include current operating results, trends and prospects, the way the property is used, and the effects of obsolescence, demand, competition, and other economic factors. The Company did not record any impairment losses related to property and equipment during 2020 and 2019.

Revenue

The Company adopted the provisions of the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU)

No. 2014-09,

Revenue from Contracts with Customers (Topic 606), effective on January 1, 2020. This new accounting standard outlines a single comprehensive model used in accounting for revenue arising from contracts with customers. This standard supersedes existing revenue recognition requirements and eliminates most industry-specific guidance from GAAP. The core principle of the new

F-309

accounting standard is to recognize revenue to depict the transfer of promised products or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those products or services. In addition, the adoption of this new accounting standard resulted in increased disclosure relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company used the modified retrospective approach in adopting this new guidance. Results for the reporting period beginning on January 1, 2020 are presented under the new guidance, while prior period amounts are not adjusted. The new guidance did not materially change the Company’s revenue recognition patterns.

All the Company’s recorded revenue is recognized from contracts with customers. The Company did not recognize any impairment losses on trade receivables or contract assets as of December 31, 2020.

The Company is in the business of providing prescribed medications and supplements. The Company also provides educational services and trainings to individual customers located throughout the United States. Prescription medications account for the majority of revenue and are generally transferred at a point in time. These contracts generally consist of a single order from the prescriber on behalf of the customer/patient, in the case of medications, or directly from the customer/patient, in the case of supplements. Services, which are generally provided and completed on the same day, are based on specific contract terms based on events and are also transferred to customers at a point in time.

For the year ended 2020, the beginning balances of the Company’s receivables, contract assets, and contract liabilities from contracts with customers were approximately $11,710, $0, and $189,800 respectively. The closing balances were approximately $36,020, $0, and $86,200 respectively.

The Company typically satisfies its performance obligations as products are shipped and as services are rendered. Products that are shipped to customers are typically shipped “FOB Shipping Point.” As such, ownership of products passes to the customer upon shipment. Payment for products and services sold by the Company is typically due prior to delivery. Substantially all payments from customers are from credit cards and all funds are approved and secured from the customer prior to shipment of the order. Products that the Company contracts to transfer to customers are either compounded from raw materials or purchased by the Company for resale. Also, in most cases, educational services that the Company contracts to transfer to customers are performed by the Company. Generally, the Company does not act as an agent.

Only certain products that customers purchase from the Company may be returned within 30 days of delivery. Any consideration paid for those products, whether before or after delivery, is refundable in full to customers until the return period expires. At the time revenue is recognized, the Company estimates expected returns and excludes those amounts from revenue. The Company also maintains appropriate accounts to reflect the effects of expected returns on the Company’s financial position and periodically adjusts those accounts to reflect its actual return experience. In most cases, consideration paid for educational services that customers purchase from the Company is refundable up to the point prior to when the service is provided. The revenue for these services is recognized once the services are performed. The Company records all receipts for services as deferred income until the service is performed and therefore does not estimate expected refunds for services, nor does the Company exclude any such amounts from revenue since the revenue is recorded after the service is performed.

The Company’s warranties provide customers with assurance that purchased products comply with published specifications. At the time revenue is recognized, the Company estimates the cost of expected future warranty claims but does not exclude any amounts from revenue. The Company maintains appropriate accounts to reflect the effects of expected future warranty claims on the Company’s financial position and periodically adjusts those accounts to reflect its actual warranty claim experience.

The transaction price of a contract is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised products or services to a customer. Transaction prices do not include amounts

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collected on behalf of third parties (e.g., sales taxes). To determine the transaction price of a contract, the Company considers its customary business practices and the terms of the contract. For the purpose of determining transaction prices, the Company assumes that the products or services will be transferred to the customer as promised in accordance with existing contracts and that the contracts will not be canceled, renewed, or modified. Most of the Company’s contracts with customers have fixed transaction prices that are denominated in U.S. dollars and payable in cash.

The Company charges and collects sales tax, when applicable, and records the sales tax as an accrued liability due to the taxing authority.

Shipping and Handling

In addition to our principal business activities, we provide shipping of final product to our customers. Shipping and handling costs are recorded in cost of sales as they are incurred. Total shipping and handling costs were approximately $2,015,000 and $1,962,000, for the years ended December 31, 2020 and 2019, respectively.

Advertising costs

The Company expenses advertising costs when incurred. Advertising expense included in operating expenses were $7,700 and $25,000, for the years ended December 31, 2020 and 2019, respectively.

Income Taxes

The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay federal or state income taxes as the income tax liability is passed directly to the Company’s shareholders.

Upcoming Accounting Pronouncements

Leases

In the normal course of operations, the Company leases equipment under long-term, non- cancelable operating lease agreements. In February 2016, the Financial Accounting Standards Board (“FASB”) issued

Accounting Standards Update (“ASU”)

2016-02,

Leases (“Topic 842”) (“ASU

2016-02”)

. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record

right-of-use

assets and corresponding lease liabilities on the balance sheet, except for leases with a term of 12 months or less, which permits a lessee to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities.

At inception, lessees must classify leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the classification of cash flows within the statement of cash flows, differs depending on the lease classification. Also, certain qualitative and quantitative disclosures are required to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Topic 842 is effective for annual reporting periods beginning after December 15, 2021.

Originally, Topic 842 required all entities to use a modified retrospective transition approach that is intended to maximize comparability and be less complex than a full retrospective approach. Under the modified retrospective approach, Topic 842 is effectively implemented as of the beginning of the earliest comparative period presented in an entity’s financial statements. ASU

2018-11

amended Topic 842 so that entities may elect not to recast their comparative periods in transition and allows entities to change their date of initial application to the beginning of the period of adoption. In doing so, the entity would (1) apply Topic 840 in the comparative periods; (2) provide the disclosures required by Topic 840 for all periods that continue to be presented in accordance with Topic 840;

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and (3) recognize the effects of applying Topic 842 as a cumulative-effect adjustment to retained earnings as of January 1, 2022. Subsequent ASU’s were issued that provided additional clarification and guidance on the application of Topic 842.

We expect to use the package of practical expedients that will allow us to not reassess: (1) whether any expired or existing contracts are or contain leases; (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We also will use the practical expedient as described above to reflect the adoption of Topic 842 as of January 1, 2022, without recasting prior periods. We do not expect to recognize a material adjustment to retained earnings upon adoption. The new lease standard is expected to have a significant effect on the Company’s financial statements as a result of the Company’s operating leases, as disclosed in Note 6, that will be reported on the balance sheet at adoption. Upon adoption, the Company will recognize a lease liability and corresponding

right-to-use

asset based on the present value of the minimum lease payments. The effects on the results of operations are not expected to be significant, as recognition and measurement of expenses and cash flows for leases will be substantially the same under the new standard.

Note 2 - Inventory

As of December 31, 2020, and 2019, inventory consisted of the following:

	2020			2019
Raw materials	$	1,300,615		$	1,136,848
Work in process		11,723			30,319
Finished goods		1,172,561			886,258
		2,484,899			2,053,425
Inventory allowance		(17,683	)		(62,681	)
Total net inventory	$	2,467,216		$	1,990,744

Note 3 - Property and Equipment

As of December 31, 2020 and 2019, property and equipment consisted of the following:

	2020			2019
Furniture and fixtures	$	366,397		$	316,384
Office equipment and software		866,428			837,537
Compounding and lab equipment		746,437			653,355
Building and building improvements		7,289,708			7,079,748
Land		811,103			811,103
		10,083,073			9,698,127
Accumulated Depreciation		(2,014,453	)		(1,504,540	)
Total net fixed assets	$	8,068,620		$	8,193,587

Depreciation expense for the years ended December 31, 2020 and 2019, was approximately $522,000 and $319,000, respectively. As of December 31, 2019, there were capitalized building improvements with a costs of approximately $2,243,000 and equipment with a cost of approximately $328,000 that were completed but had not been placed in service as of December 31, 2019 and were therefore not being depreciated. These assets were place into service during 2020.

Note 4 - Notes Payable

In March 2019, the Company entered into a $1,500,000 equipment line of credit with a financial institution. As of December 31, 2019, the total outstanding balance on the line of credit was $1,379,418. Interest was payable

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monthly at a fixed rate of 5.00 percent. In March 2020, the entire balance outstanding on the line of credit converted to a seven-year fixed rate note. The note is payable in monthly principal installments of $19,478 plus interest at 4.09 percent through maturity in February 2027. The outstanding balance as of December 31, 2020 was $644,376. The note is secured by specific equipment. The balance sheet classification of this obligation includes the March 2020 conversion.

In March 2019, the Company also entered a $500,000 operating line of credit with a financial institution. The line of credit requires interest payments monthly at a rate of 5.00 percent and is secured by substantially all assets of the Company. There was no outstanding balance on this obligation as of December 31, 2020 or 2019. The line expired in March 2020 and was renewed with substantially the same terms through March 2021.

In March 2018,

B-17

entered into a fifteen-year, 5.12 percent real estate loan. The loan proceeds of $3,432,000 were used to purchase the building used for the Company’s headquarters. Monthly principal and interest payments are $20,344 plus an estimated lump sum payment of approximately $1,926,000 due at maturity on March 23, 2033. The balance due as of December 31, 2020 and 2019 was $3,231,409 and $3,307,200, respectively.

In March 2020,

B-17

entered into a ten year, 3.091% real estate loan secured by a second trust deed on the real estate. The loan proceeds of $900,000 were used for the purpose of financing the additions to the building during 2019. Monthly payments of principal and interest are $5,053 plus an estimated lump sum payment of approximately $525,000 at maturity on March 11, 2030. The balance due as of December 31, 2020 was $875,360.

On May 9, 2020 the Company received a Paycheck Protection Program (PPP) term note through a bank totaling $1,174,000. The note was pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s Paycheck Protection Program. The note structure required company officials to certify certain statements that permitted the Company to qualify for the loan and provides loan forgiveness for a portion up to all of the borrowed amount if the Company uses the loan proceeds for the permitted loan purposes described in the note agreement. On November 30, 2020 the bank processed and approved the forgiveness application. On March 11, 2021 the SBA approved the loan for forgiveness in full, including all accrued interest. The forgiveness will result in cancellation of debt income in 2021.

Maturities of the Company’s notes payable, which include the PPP loan and original terms, are due as follows for the years ending December 31:

2021	$	540,327
2022		612,851
2023		619,909
2024		418,742
2025		255,559
Thereafter		3,477,758
Total future payments	$	5,925,146

The Company’s borrowings are subject to a credit agreement that, among other things, contains certain restrictive covenants and requires the Company to maintain certain financial ratios relating to cash flows and debt to equity.

During 2020 and 2019, the Company recorded approximately $269,000 and $183,000, respectively, in interest expense.

Note 5 - Benefit Plan

The Company sponsors a Basic Savings 401(k) plan (“Plan”) that qualifies as a deferred compensation arrangement under Section 401 of the Internal Revenue Code (“IRS”). In order to participate, employees must meet certain age and service requirements. Participating employees may defer a percentage of

pre-tax

earnings or

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after-tax

earnings, subject to the IRS elective deferral limits. The Company may, at its discretion, match a portion of the employees’ contributions. In addition to the employer match, the Company may make additional discretionary and qualified nonelective contributions.

While employees are 100 percent vested in the elective, qualified nonelective and rollover contributions, the vesting rules for all other contributions are as follows: (1) On or after the date an employee reaches normal retirement age (age 65), (2) On or after the date an employee reaches early retirement age (age 55), (3) On the date an employee becomes totally disabled, or (4) On the date an employee dies. Before that date, the following schedule determines an employee’s vesting schedule:

Years of Vesting Service	Vesting Percentage
Less than 1	0%
1	25%
2	50%
3 or more	100%

During 2020 and 2019, the Company matched contributions equal to 100% of the employee’s deferral contribution, not to exceed 3% of the employee’s total compensation. The Company contributed approximately $157,000 and $126,000 to the Plan for the years ended December 31, 2020 and 2019, respectively. The Company also made additional discretionary contributions of approximately $139,000 and $126,000, for the years ended December 31, 2020 and 2019, respectively.

Note 6 - Lease Commitments

In the normal course of business, the Company leases equipment under long-term,

non-cancelable

operating lease agreements As of December 31, 2020, the future minimum lease payment under

non-cancelable

operating leases are as follows:

2021		60,480
2022		60,480
2023		60,480
2024		60,480
Total minimum lease payments	$	241,920

Lease expense for each of the years ending December 31, 2020, and 2019, was approximately $60,500 and $43,000, respectively.

Note 7 - Accrued Expenses

As of December 31, 2020 and 2019, accrued expenses consisted of the following:

	2020		2019
Operating expenses	$	260,381	$	116,058
Profit sharing contributions		138,845		125,995
Credit cards		80,675		20,573
Sale tax		61,197		53,083
Total	$	541,098	$	315,709

Note 8 - Variable Interest Entity

The Company is the primary beneficiary of

B-17,

which qualifies as a variable interest entity (VIE). This determination was based on the fact that the Company absorbs a majority of the VIE’s expected losses and

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receives a majority of its expected residual returns. The VIE was formed for the purpose of acquiring and holding real estate. The VIE’s sole activity is to lease the real estate to the Company.

The assets, liabilities, and expenses of

B-17

have been included in the accompanying consolidated financial statements. As of December 31, 2020 and 2019, respectively, approximate amounts included in consolidated assets were cash ($453,000 and $88,000), property and equipment ($4,341,000 and $4,484,000) and other assets ($23,000 and $15,000). Consolidated liabilities included notes payable (approximately $4,113,000 and $3,307,000). Consolidated expenses included primarily interest and depreciation (approximately $316,000 and $236,000). Revenues of approximately $419,000 in 2020 and $364,000 in 2019 were eliminated in consolidation. The Company guarantees the notes payable of

B-17.

Apart from that amount, creditors and beneficial holders of

B-17

have no recourse to the assets or general credit of the Company.

Note 9 - Impact of World Events

On March 11, 2020, the World Health Organization declared the outbreak of a respiratory disease caused by a new coronavirus a pandemic. First identified in late 2019 and now known as COVID- 19, the outbreak has impacted hundreds of thousands of individuals worldwide. In response, many countries have implemented measures to combat the outbreak that have impacted global business operations. As of the date of issuance of the financial statements, the Company’s operations have not been significantly impacted, but the Company continues to monitor the situation. No impairments were recorded as of the consolidated balance sheet date; however, due to significant uncertainty surrounding the situation, management’s judgment regarding this could change in the future. In addition, while the Company’s results of operations, cash flows, and financial condition could be negatively impacted, the extent of the impact cannot be reasonably estimated at this time.

Note 10 - Subsequent Events

The Company has entered into a preliminary agreement to merge with UpHealth Holdings, Inc. , one of the largest national and international digital healthcare providers. The merger is expected to close in 2021 and will include five other healthcare companies as well as with GigCapital2, a Technology, Media and Telecom (TMT)

Private-to-Public

Equity (PPE) corporation. Upon closing of the transaction, the combined company will be named UpHealth, Inc. and will continue to be listed on the NYSE under the new ticker symbol “UPH.”

Following the combination, UpHealth will be a leading global digital healthcare company serving an entire spectrum of healthcare needs and will be established in fast growing sectors of the digital health industry. With these combinations, UpHealth is positioned to reshape healthcare across the continuum of care by providing a single, integrated platform of

best-in-class

technologies and tech-enabled services essential to personalized, affordable, and effective care. UpHealth’s multifaceted and integrated platform provides health systems, payors, and patients with a frictionless digital front door that connects evidence-based care, workflows, and services. Upon closing the pending mergers and the combinations, UpHealth will be organized across four capabilities at the intersection of population health management and telehealth: Integrated Care Management, Global Telehealth, Digital Pharmacy, and Tech-enabled Behavioral Health.

F-315

Innovations Group, Inc.

Consolidated Financial Statements

April 26, 2021 and December 31, 2020

F-316

Innovations Group, Inc.,

Table of Contents

Consolidated Balance Sheets	F-318
Consolidated Statements of Operations	F-319
Consolidated Statements of Shareholders’ Equity	F-320
Consolidated Statements of Cash Flows	F-321
Notes to Consolidated Financial Statements	F-322

F-317

Innovations Group, Inc.

Consolidated Balance Sheets

As of April 26, 2021 (unaudited) and December 31, 2020

	As of
	April 26, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	554,776	$	3,319,074
Accounts receivable, net		18,204		36,024
Other receivables		29,190		30,613
Inventory		2,692,768		2,467,216
Prepaid expenses and other current assets		529,925		587,647
Total current assets		3,824,863		6,440,574
Property and equipment, net of accumulated depreciation		7,936,504		8,068,620
Other assets		22,124		22,805
Total Assets	$	11,783,491	$	14,531,999
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	472,088	$	408,738
Accrued expenses		268,330		541,098
Accrued compensation and related taxes		511,708		611,068
Unearned revenue		301,737		86,224
Notes payable, current portion		116,480		540,327
Total current liabilities		1,670,343		2,187,455
Long-term liabilities:
Notes payable, net of current portion		3,952,595		5,384,819
Total liabilities		5,622,938		7,572,274
Shareholders’ equity:
Common stock, no par value, 1,000,000 shares authorized 475,000 shares issued and outstanding as of April 26, 2021 and December 31, 2020		2,555,080		5,080
Retained earnings		3,071,792		6,250,843
Non-controlling interest		533,681		703,802
		6,160,553		6,959,725
Total Liabilities and Shareholders’ Equity	$	11,783,491	$	14,531,999

See Notes to Consolidated Financial Statements

F-318

Innovations Group, Inc.

Consolidated Statements of Operations

Periods Ended April 26, 2021 and June 30, 2021 (unaudited)

	April 1, 2021 to April 26, 2021			April 1, 2020 to June 30, 2020		January 1, 2021 to April 26, 2021			January 1, 2020 to June 30, 2020
Revenue, net	$	1,896,154		$	6,756,820	$	8,920,349		$	14,321,409
Cost of sales		1,145,615			3,050,649		5,597,688			6,699,405
Gross profit		750,539			3,706,171		3,322,661			7,622,004
Operating expenses		(5,163,334	)		3,064,327		7,254,978			5,997,004
Operating income (loss)		(4,412,795	)		641,844		(3,932,317	)		1,625,000
Nonoperating other income (expense)
Forgiveness of debt income		—			—		1,174,000			—
Other income (expense)		(20,232	)		14,463		(79,855	)		(65,193	)
Total nonoperating other income (expense)		(20,232	)		14,463		1,094,145			(65,193	)
Net income (loss)		(4,433,027	)		656,307		(2,838,172	)		1,559,807
Less: Income attributable to non-controling interest		6,874			21,289		29,879			40,369
Net income (loss) attributable to Innovations Group, Inc.	$	(4,439,901	)	$	635,018	$	(2,868,051	)	$	1,519,438
Net income (loss) per share	$	(9.35	)	$	1.34	$	(6.04	)	$	3.20
Weighted average number of shares outstanding		475,000			475,000		475,000			475,000

See Notes to Consolidated Financial Statements

F-319

Innovations Group, Inc.

Consolidated Statements of Shareholders’ Equity

Periods Ended April 26, 2021 and June 30, 2020 (unaudited)

		Common Stock				Retained Earnings			Total Shareholders’ Equity			Non-controlling Interest			Total
		Shares		Amount
Balance at December 31, 2019			475,000	$	5,080	$	5,747,432		$	5,752,512		$	625,988		$	6,378,500
Distributions			—		—		(267,000	)		(267,000	)		—			(267,000	)
Net income			—		—		884,420			884,420			19,080			903,500
Balance at March 31, 2020 (unaudited)			475,000		5,080		6,364,852			6,369,932			645,068			7,015,000
Distributions			—		—		(579,000	)		(579,000	)		—			(579,000	)
Net income			—		—		635,018			635,018			21,289			656,307
Balance at June 30, 2020 (unaudited)			475,000	$	5,080	$	6,420,870		$	6,425,950		$	666,357		$	7,092,307
Balance at December 31, 2020			475,000	$	5,080	$	6,250,843		$	6,255,923		$	703,802		$	6,959,725
Distributions			—		—		(111,000	)		(111,000	)		(200,000	)		(311,000	)
Net income			—		—		1,571,850			1,571,850			23,005			1,594,855
Balance at March 31, 2021 (unaudited)	��		475,000		5,080		7,711,693			7,716,773			526,807			8,243,580
Distributions			—		—		(200,000	)		(200,000	)		—			(200,000	)
Stock contribution					2,550,000					2,550,000						2,550,000
Net income (loss)			—		—		(4,439,901	)		(4,439,901	)		6,874			(4,433,027	)
Balance at April 26, 2021 (unaudited)			475,000	$	2,555,080	$	3,071,792		$	5,626,872		$	533,681		$	6,160,553

See Notes to Consolidated Financial Statements

F-320

Innovations Group, Inc.

Consolidated Statements of Cash Flows

Periods Ended April 26, 2021 and June 30, 2020 (unaudited)

	January 1 to April 26, 2021			January 1 to June 30 2020
Cash flows from operating activities:
Net income (loss)	$	(2,838,172	)	$	1,559,807
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		170,115			255,450
Forgiveness of debt income		(1,174,000	)		—
Stock contribution		2,550,000			—
Changes in operating assets and liabilities:
Accounts receivable		17,820			—
Other receivables		1,423			(145,145	)
Inventory		(225,551	)		(144,547	)
Prepaid expenses and other current assets		57,722			(44,711	)
Accounts payable		63,350			(135,106	)
Accrued expenses		(272,268	)		101,484
Accrued compensation and related taxes		(99,360	)		22,721
Unearned revenue		215,513			(30,892	)
Net cash (used in) provided by operating activities		(1,533,408	)		1,439,061
Cash flows from investing activities
Purchases of property and equipment		(37,819	)		(326,738	)
Net cash (used in) investing activities		(37,819	)		(326,738	)
Cash flows from financing activities
Distributions		(511,000	)		(579,000	)
Repayment of debt		(682,071	)		(101,041	)
Proceeds from borrowing from bank		—			900,000
Net cash provided by financing activities		(1,193,071	)		219,959
Net (decrease) increase in cash		(2,764,298	)		1,332,282
Cash and cash equivalents — beginning		3,319,074			2,199,018
Cash and cash equivalents — ending	$	554,776		$	3,531,300
Supplemental disclosures:
Interest paid	$	79,177		$	127,817

See Notes to Consolidated Financial Statements

F-321

Innovations Group, Inc

Notes to Consolidated Financial Statements

Note 1

-

Business Organization and Nature of Operations

Innovations Group, Inc. (“IGI” or “Company”) was organized in 1997 under the laws of the State of Utah and is the parent company to the following wholly owned operating subsidiaries: MedQuest Pharmacy, Inc. (“MedQuest”), Medical Horizons, Inc. (“Medical Horizons”), Pinnacle Labs, Inc. (doing business as MedQuest Testing Services or “MTS”) and WorldLink Medical, Inc (“WorldLink”).

IGI is the parent company and provides management oversight and services to the subsidiaries.

MedQuest prepares custom compounded medications for the unique needs of every patient and prescriber. While specializing in bioidentical hormones and hormone optimization, MedQuest is a full-service pharmacy filling prescription from its inventory of compounded medications as well as drugs purchased from manufacturers. MedQuest also provides additional services such as electronic prescribing, fulfillment of prescription and

non-prescription

products and other tools to fully integrate the patient, provider and pharmacy triad relationship. MedQuest is one of a select group of United States compounding pharmacies providing state of the art customized pharmaceutical preparations. MedQuest is licensed in all 50 states and adheres to the highest standards and quality control guidelines that enable the entity to service patients throughout United States. MedQuest blends time-honored, individual formulation techniques with modern medical knowledge to produce a preparation developed especially for patients. MedQuest also offers a variety of services to enhance an

age-management

practice.

Medical Horizons is a direct seller or distributor of its branded products NUTRA

scriptives

. In addition, Medical Horizons will private-label supplements with a physician’s brand that are then sold in the physician’s office.

MTS brokers lab testing and facilitates scheduling between outside lab companies and physicians in providing testing for their patients.

WorldLink provides educational seminars and monthly training webinars and materials to providers and other trained medical personnel.

Effective April 27, 2021, the Company became a fully owned subsidiary of UpHealth, Inc. (“UpHealth”). As a result, the financial statements are reflected as of April 26, 2021 and for the period January 1, 2021 to April 26, 2021.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The consolidated financial statements include the results of Innovations Group, Inc., its four wholly owned subsidiaries as mentioned above and a variable interest real estate entity,

B-17

Partners, LLC

(“B-17”)

in which the Company has a controlling financial interest. The Company’s major shareholder owns

B-17

, which owns the building leased by the Company for its corporate headquarters. In accordance with Accounting Standard Update

2015-02,

Consolidation (Topic 810) Amendments to the Consolidation Analysis,

B-17

is considered a variable interest entity. All material intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The Company prepares the financial statements in accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and

F-322

assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of expenses during the reported period. These assumptions and estimates could have a material effect on the financial statements. Actual results may differ materially from those estimates. The Company’s management periodically reviews estimates on an ongoing basis based on information currently available and changes in facts and circumstances may cause the Company to revise these estimates.

Cash and Cash Equivalents

Cash and cash equivalents include all cash on hand, demand deposits and short-term investments with original maturities of three months or less when purchased. From

time-to-time,

balances in demand deposit accounts or short-term money market accounts with banks or investment institutions exceed the federally insured limits. Management regularly reviews the banks and investment institution’s performance and evaluates the investment risk.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at net invoice amounts. Substantially all accounts receivable are paid by credit card at the time of shipment. As a result, the Company did not experience any accounts receivable write offs during the periods from January 1 to April 26, 2021 and January 1, 2020 to June 30, 2020 and management believed an allowance for doubtful accounts is not needed as of April 26, 2021 and December 31, 2020.

Inventory

Inventory is measured at the lower of cost or net realizable value; where net realizable value is considered to be the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and shipping. For inventory, cost is determined on a standard cost basis that approximates the

first-in,

first-out

(FIFO) method. Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors (such as expiration dates) in evaluating net realizable value.

Property and Equipment

Property and equipment are recorded at cost and are depreciated over the asset’s estimated useful life using the straight-line method. Ordinary repair and maintenance costs are charged to operations as incurred. However, expenditures for additions or improvements that significantly extend the useful life of the asset are capitalized in the period incurred. At the time assets are sold or disposed of, the cost and accumulated depreciation are removed from their respective accounts and the related gains or losses are reflected in income.

The Company periodically evaluates the appropriateness of remaining depreciable lives assigned to property and equipment. Generally, we assign the following estimated useful lives to these categories:

Category	Estimated Useful Life
Furniture and Fixtures	5 – 10 years
Office Equipment and Software	3 – 7 years
Compounding and Lab Equipment	5 –  10 years
Building and building improvements	5 –  39 years

Property and equipment are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount might not be fully recoverable. The factors considered by management in performing this assessment include current operating results, trends and prospects, the way the property is used and the effects of obsolescence, demand, competition and other economic factors. The Company did not record any impairment losses related to property and equipment during the periods from January 1 to April 26, 2021 and January 1, 2020 to June 30, 2020.

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Stockholder’s Equity

During April 2021, non-Company stock with a value of $2,550,000 was contributed to the Company, and subsequently distributed to certain employees in lieu of paying a cash bonus.

Revenue

The Company adopted the provisions of the

Financial Accounting Standards Board’s

(FASB)

Accounting Standards Update (ASU)

No. 2014-09,

Revenue from Contracts with Customers (Topic 606), effective on January 1, 2020. This new accounting standard outlines a single comprehensive model used in accounting for revenue arising from contracts with customers. This standard supersedes existing revenue recognition requirements and eliminates most industry-specific guidance from GAAP. The core principle of the new accounting standard is to recognize revenue to depict the transfer of promised products or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those products or services. In addition, the adoption of this new accounting standard resulted in increased disclosure relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company used the modified retrospective approach in adopting this new guidance. Results for the reporting period beginning on January 1, 2020 are presented under the new guidance, while prior period amounts are not adjusted. The new guidance did not materially change the Company’s revenue recognition patterns.

All the Company’s recorded revenue is recognized from contracts with customers. The Company did not recognize any impairment losses on trade receivables or contract assets for the periods from January 1, 2021 to April 26, 2021 and January 1, 2020 to June 30, 2020.

The Company is in the business of providing prescribed medications and supplements. The Company also provides educational services and trainings to individual customers located throughout the United States. Prescription medications account for the majority of revenue and are generally transferred at a point in time. These contracts generally consist of a single order from the prescriber on behalf of the customer/patient, in the case of medications, or directly from the customer/patient, in the case of supplements. Services, which are generally provided and completed on the same day, are based on specific contract terms based on events and are also transferred to customers at a point in time.

For the period from January 1, 2021 to April 26, 2021, the beginning balances of the Company’s receivables, contract assets and contract liabilities from contracts with customers were approximately $36,000, $0 and $86,200 respectively. The closing balances were approximately $18,000, $0 and $301,000 respectively.

The Company typically satisfies its performance obligations as products are shipped and as services are rendered. Products that are shipped to customers are typically shipped “FOB Shipping Point.” As such, ownership of products passes to the customer upon shipment. Payment for products and services sold by the Company is typically due prior to delivery. Substantially all payments from customers are from credit cards and all funds are approved and secured from the customer prior to shipment of the order. Products that the Company contracts to transfer to customers are either compounded from raw materials or purchased by the Company for resale. Also, in most cases, educational services that the Company contracts to transfer to customers are performed by the Company. Generally, the Company does not act as an agent.

Only certain products that customers purchase from the Company may be returned within 30 days of delivery. Any consideration paid for those products, whether before or after delivery, is refundable in full to customers until the return period expires. At the time revenue is recognized, the Company estimates expected returns and excludes those amounts from revenue. The Company also maintains appropriate accounts to reflect the effects of expected returns on the Company’s financial position and periodically adjusts those accounts to reflect its actual return experience. In most cases, consideration paid for educational services that customers purchase from the Company is refundable up to the point prior to when the service is provided. The revenue for these services is recognized once the services are performed. The Company records all receipts for services as deferred income

F-324

until the service is performed and therefore does not estimate expected refunds for services, nor does the Company exclude any such amounts from revenue since the revenue is recorded after the service is performed.

The Company’s warranties provide customers with assurance that purchased products comply with published specifications. At the time revenue is recognized, the Company estimates the cost of expected future warranty claims but does not exclude any amounts from revenue. The Company maintains appropriate accounts to reflect the effects of expected future warranty claims on the Company’s financial position and periodically adjusts those accounts to reflect its actual warranty claim experience.

The transaction price of a contract is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised products or services to a customer. Transaction prices do not include amounts collected on behalf of third parties (e.g., sales taxes). To determine the transaction price of a contract, the Company considers its customary business practices and the terms of the contract. For the purpose of determining transaction prices, the Company assumes that the products or services will be transferred to the customer as promised in accordance with existing contracts and that the contracts will not be canceled, renewed, or modified. Most of the Company’s contracts with customers have fixed transaction prices that are denominated in U.S. dollars and payable in cash.

The Company charges and collects sales tax, when applicable, and records the sales tax as an accrued liability due to the taxing authority.

Shipping and Handling

In addition to our principal business activities, we provide shipping of final product to our customers. Shipping and handling costs are recorded in cost of sales as they are incurred. Total shipping and handling costs were approximately $163,000, $651,000, $669,000 and $1,012,000, respectively, for the periods from April 1 to April 26, 2021, April 1 to June 30, 2020, January 1, 2021 to April 26, 2021 and January 1 to June 30, 2020.

Advertising costs

The Company expenses advertising costs when incurred. Advertising expense included in operating expenses were $500, $2,400, $1,900 and $4,900, respectively, for the periods from April 1 to April 26, 2021, April 1 to June 30, 2020, January 1, 2021 to April 26, 2021 and January 1 to June 30, 2020.

Income Taxes

The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay federal or state income taxes as the income tax liability is passed directly to the Company’s shareholders.

Upcoming Accounting Pronouncements

Leases

In the normal course of operations, the Company leases equipment under long-term,

non-cancelable

operating lease agreements. In February 2016, the FASB issued ASU

2016-02

, Leases (“Topic 842”) (“ASU

2016-02”)

. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record

right-of-use

assets and corresponding lease liabilities on the balance sheet, except for leases with a term of 12 months or less, which permits a lessee to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities.

At inception, lessees must classify leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the classification of cash flows within the statement of cash flows, differs depending on the lease classification. Also, certain qualitative and quantitative disclosures are required to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Topic 842 is effective for annual reporting periods beginning after December 15, 2021.

F-325

Originally, Topic 842 required all entities to use a modified retrospective transition approach that is intended to maximize comparability and be less complex than a full retrospective approach. Under the modified retrospective approach, Topic 842 is effectively implemented as of the beginning of the earliest comparative period presented in an entity’s financial statements. ASU

2018-11

amended Topic 842 so that entities may elect not to recast their comparative periods in transition and allows entities to change their date of initial application to the beginning of the period of adoption. In doing so, the entity would (1) apply Topic 840 in the comparative periods; (2) provide the disclosures required by Topic 840 for all periods that continue to be presented in accordance with Topic 840; and (3) recognize the effects of applying Topic 842 as a cumulative-effect adjustment to retained earnings as of January 1, 2022. Subsequent ASU’s were issued that provided additional clarification and guidance on the application of Topic 842.

We expect to use the package of practical expedients that will allow us to not reassess: (1) whether any expired or existing contracts are or contain leases; (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We also will use the practical expedient as described above to reflect the adoption of Topic 842 as of January 1, 2022, without recasting prior periods. We do not expect to recognize a material adjustment to retained earnings upon adoption. The new lease standard is expected to have a significant effect on the Company’s financial statements as a result of the Company’s operating leases, as disclosed in Note 6, that will be reported on the balance sheet at adoption. Upon adoption, the Company will recognize a lease liability and corresponding

right-to-use

asset based on the present value of the minimum lease payments. The effects on the results of operations are not expected to be significant, as recognition and measurement of expenses and cash flows for leases will be substantially the same under the new standard.

Note 2 - Inventory

As of April 26, 2021 and December 31, 2020, inventory consisted of the following:

	2021			2020
Raw materials	$	1,386,560		$	1,300,615
Work in process		1,463			11,723
Finished goods		1,324,535			1,172,561
		2,712,558			2,484,899
Inventory allowance		(19,790	)		(17,683	)
Total net inventory	$	2,692,768		$	2,467,216

Note 3 - Property and Equipment

As of April 26, 2021 and December 31, 2020, property and equipment consisted of the following:

	2021			2020
Furniture and fixtures	$	371,102		$	366,397
Office equipment and software		711,258			869,428
Compounding and lab equipment		746,437			746,437
Building and building improvements		7,289,708			7,289,708
Land		811,103			811,103
		9,929,608			10,083,073
Accumulated Depreciation		(1,993,104	)		(2,014,453	)
Total net fixed assets	$	7,936,504		$	8,068,620

Depreciation expense for the periods from April 1 to April 26, 2021, April 1 to June 30, 2020, January 1, 2021 to April 26, 2021 and January 1 to June 30, 2020, were approximately $37,000, $136,000, $170,000 and $255,000, respectively.

F-326

Note 4 - Notes Payable

In March 2019, the Company entered into a $1,500,000 equipment line of credit with a financial institution. Interest was payable monthly at a fixed rate of 5.00 percent. In March 2020, the entire balance outstanding on the line of credit converted to a seven-year fixed rate note. The note was payable in monthly principal installments of $19,478 plus interest at 4.09 percent through maturity in February 2027. During March, 2021 the note was paid in full and there was no remaining balance due. As of December 31, 2020 the outstanding balance was $644,376. The note was secured by specific equipment. The balance sheet classification of this obligation includes the March 2020 conversion.

In March 2019, the Company also entered a $500,000 operating line of credit with a financial institution. The line of credit requires interest payments monthly at a rate of 5.00 percent and is secured by substantially all assets of the Company. There was no outstanding balance on this obligation as of April 26, 2021 or December 31, 2020. The line was renewed in March 2020 and expired in March 2021. It was then increased to $1,000,000 in April 2021 with substantially the same terms through April 2022.

In March 2018,

B-17

entered into a fifteen-year, 5.12 percent real estate loan. The loan proceeds of $3,432,000 were used to purchase the building used for the Company’s headquarters. Monthly principal and interest payments are $20,344 plus an estimated lump sum payment of approximately $1,926,000 due at maturity on March 23, 2033. The balance due as of April 26, 2021 and December 31, 2020 was $3,204,876 and $3,231,409, respectively.

In March 2020,

B-17

entered into a ten year, 3.091 percent real estate loan secured by a second trust deed on the real estate. The loan proceeds of $900,000 were used for the purpose of financing the additions to the building during 2019. Monthly payments of principal and interest are $5,053 plus an estimated lump sum payment of approximately $525,000 at maturity on March 11, 2030. The balance due as of April 26, 2021 and December 31, 2020 was $864,198 and $875,360 respectively.

On May 9, 2020 the Company received a Paycheck Protection Program (PPP) term note through a bank totaling $1,174,000. The note was pursuant to the Coronavirus Aid, Relief and Economic Security (CARES) Act’s Paycheck Protection Program. The note structure required company officials to certify certain statements that permitted the Company to qualify for the loan and provides loan forgiveness for a portion up to all of the borrowed amount if the Company uses the loan proceeds for the permitted loan purposes described in the note agreement. On November 30, 2020 the bank processed and approved the forgiveness application. On March 11, 2021 the Small Business Administration approved the loan for forgiveness in full, including all accrued interest. Loan forgiveness in the amount of $1,174,000 has been recorded as cancellation of debt income in nonoperating income (expense) on the consolidated statement of operations.

Maturities of the Company’s notes payable outstanding are due as follows as of April 26, 2021:

Remaining 2021	$	77,071
2022		120,016
2023		125,535
2024		131,320
2025		137,384
Thereafter		3,477,749
Total future payments	$	4,069,075

The Company’s borrowings are subject to a credit agreement that, among other things, contains certain restrictive covenants and requires the Company to maintain certain financial ratios relating to cash flows and debt to equity.

The Company recorded approximately $25,000, $54,000, $79,000 and $78,000, respectively, in interest expense. for the periods from April 1 to April 26, 2021, April 1 to June 30, 2021, January 1, 2021 to April 26, 2021 and January 1 to June 30, 2020.

F-327

Note 5 - Benefit Plan

The Company sponsors a Basic Savings 401(k) plan (“Plan”) that qualifies as a deferred compensation arrangement under Section 401 of the Internal Revenue Code (“IRS”). In order to participate, employees must meet certain age and service requirements. Participating employees may defer a percentage of

pre-tax

earnings or

after-tax

earnings, subject to the IRS elective deferral limits. The Company may, at its discretion, match a portion of the employees’ contributions. In addition to the employer match, the Company may make additional discretionary and qualified nonelective contributions.

While employees are 100 percent vested in the elective, qualified nonelective and rollover contributions, the vesting rules for all other contributions are as follows: (1) On or after the date an employee reaches normal retirement age (age 65), (2) On or after the date an employee reaches early retirement age (age 55), (3) On the date an employee becomes totally disabled, or (4) On the date an employee dies. Before that date, the following schedule determines an employee’s vesting schedule:

Years of Vesting Service	Vesting Percentage
Less than 1	0%
1	25%
2	50%
3 or more	100%

The Company matched contributions equal to 100% of the employee’s deferral contribution, not to exceed 3% of the employee’s total compensation. The Company contributed approximately $12,000, $45,000, $57,000 and $76,000 to the Plan for the periods from April 1 to April 26, 2021, April 1 to June 30, 2020, January 1, 2021 to April 26, 2021 and January 1 to June 30, 2020, respectively.

Note 6 - Lease Commitments

In the normal course of business, the Company leases equipment under long-term,

non-cancelable

operating lease agreements As of April 26, 2021, the future minimum lease payment under

non-cancelable

operating leases are as follows:

Remaining 2021		40,320
2022		60,480
2023		60,480
2024		60,480
Total minimum lease payments	$	221,760

Lease expense was approximately $5,000, $15,000, $21,000 and $31,500, respectively, for the periods from April 1 to April 26, 2021, April 1 to June 30, 2020, January 1, 2021 to April 26, 2021 and January 1 to June 30, 2020.

Note 7 - Variable Interest Entity

The Company is the primary beneficiary of

B-17,

which qualifies as a variable interest entity (VIE). This determination was based on the fact that the Company absorbs a majority of the VIE’s expected losses and receives a majority of its expected residual returns. The VIE was formed for the purpose of acquiring and holding real estate. Currently the VIE’s sole activity is to lease the real estate to the Company.

The assets, liabilities and expenses of

B-17

have been included in the accompanying consolidated financial statements. As of April 26, 2021 and December 31, 2020, respectively, approximate amounts included in

F-328

consolidated assets were cash ($294,000 and $453,000), property and equipment ($4,295,000 and $4,341,000) and other assets ($22,000 and $23,000). Consolidated liabilities included notes payable (approximately $4,069,000 and $4,113,000). Consolidated expenses for the for the periods from April 1 to April 26, 2021, April 1 to June 30, 2020, January 1, 2021 to April 26, 2021 and January 1 to June 30, 2020, respectively, included primarily interest and depreciation (approximately $23,000, $84,000, $107,000 and $164,000). Revenues of approximately $29,000, $110,000, $136,000 and $204,000, respectively, for the for the periods from April 1 to April 26, 2021, April 1 to June 30, 2020, January 1, 2021 to April 26, 2021 and January 1 to June 30, 2020 were eliminated in consolidation. The Company guaranteed the notes payable of

B-17

up through April 2021, at which time the guarantees by the Company were terminated. Apart from that amount, creditors and beneficial holders of

B-17

have no recourse to the assets or general credit of the Company.

Note 8 - Impact of World Events

On March 11, 2020, the World Health Organization declared the outbreak of a respiratory disease caused by a new coronavirus a pandemic. First identified in late 2019 and now known as

COVID-19,

the outbreak has impacted hundreds of thousands of individuals worldwide. In response, many countries have implemented measures to combat the outbreak that have impacted global business operations. As of the date of issuance of the financial statements, the Company’s operations have not been significantly impacted, but the Company continues to monitor the situation. No impairments were recorded as of the consolidated balance sheet date; however, due to significant uncertainty surrounding the situation, management’s judgment regarding this could change in the future. In addition, while the Company’s results of operations, cash flows and financial condition could be negatively impacted, the extent of the impact cannot be reasonably estimated at this time.

Note 9 - Subsequent Events

The Company evaluated events subsequent to April 26, 2021 for their potential impact on the financial statements and disclosures through September 1, 2021, which is the date the financial statements were available to be issued. The Company believes there are no additional subsequent events to disclose.

F-329

Behavioral Health Services, LLC

and Subsidiaries

Consolidated Financial Statements and

Independent Auditors’ Report

November 20, 2020 and December 31, 2019

F-330

CONTENTS

	Page
INDEPENDENT AUDITORS’ REPORT		F-332
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets		F-334
Consolidated Statements of Operations		F-335
Consolidated Statement of Changes in Members’ Equity		F-336
Consolidated Statements of Cash Flows		F-337
Notes to Consolidated Financial Statements		F-338-F-347

F-331

Independent Auditor’s Report

To the Board of Directors and Members

Behavioral Health Services, LLC and Subsidiaries

We have audited the accompanying consolidated balance sheets of Behavioral Health Services, LLC and Subsidiaries (the “Company”) as of November 20, 2020 and December 31, 2019, the related consolidated statements of operations, members’ equity, and cash flows for the period from January 1, 2020 to November 20, 2020 and the year ended December 31, 2019, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Behavioral Health Services, LLC and Subsidiaries as of November 20, 2020 and December 31, 2019 and the results of their operations and their cash flows for the period from January 1, 2020 to November 20, 2020 and for the year ended December 31, 2019 in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As described in Note A to the consolidated financial statements, the Company adopted the provisions of Accounting Standards Update No. 2014-09,

Revenue from Contracts with Customers (Topic 606)

, as of January 1, 2020 using the modified retrospective adoption method. Our opinion is not modified with respect to this matter.

March 12, 2021

F-332

CONSOLIDATED FINANCIAL STATEMENTS

F-333

Behavioral Health Services, LLC and Subsidiaries

CONSOLIDATED BALANCE SHEETS

November 20, 2020 and December 31, 2019

	November 20, 2020		December 31, 2019
ASSETS
CURRENT ASSETS
Cash	$	1,024,485	$	111,346
Accounts receivable
Patient receivables, net		1,239,075		882,925
Other accounts receivable		18,379		25,278
Inventories		99,583		158,357
Prepaid expenses		39,806		18,568
Due from related parties		327,061		27,936
Total current assets		2,748,389		1,224,410
PROPERTY AND EQUIPMENT, net		52,568		61,812
SECURITY DEPOSITS		4,375		4,375
	$	2,805,332	$	1,290,597
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	261,706	$	577,725
Accounts payable, related party		42,826		—
Due to member		70,000		—
Accrued payroll and related liabilities		425,790		93,896
Paycheck protection program loan		1,004,900		—
Provider relief funds		228,794		—
Total current liabilities		2,034,016		671,621
MEMBERS’ EQUITY		771,316		618,976
	$	2,805,332	$	1,290,597

The accompanying notes are an integral part of these consolidated statements.

F-334

Behavioral Health Services, LLC and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

	January 1, 2020 through November 20, 2020		January 1, 2019 through December 31, 2019
Revenues, net	$	11,842,219	$	12,528,464
Cost of goods sold		3,151,603		3,384,859
Gross profit		8,690,616		9,143,605
Operating expenses
Provider compensation		5,261,139		5,436,758
Selling, general, and administrative		3,219,247		3,485,518
Depreciation and amortization		17,890		18,205
		8,498,276		8,940,481
NET INCOME	$	192,340	$	203,124

The accompanying notes are an integral part of these consolidated statements.

F-335

Behavioral Health Services, LLC and Subsidiaries

CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITY

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

	Members’ Capital			Members’ Retained Earnings			Total Members’ Equity
Balance, January 1, 2019	$	20,000		$	395,852		$	415,852
Net income		—			203,124			203,124
Balance, December 31, 2019		20,000			598,976			618,976
Capital contribution		40,000			—			40,000
Member redemptions		(20,000	)		(60,000	)		(80,000	)
Net income		—			192,340			192,340
Balance, November 20, 2020	$	40,000		$	731,316		$	771,316

The accompanying notes are an integral part of these consolidated statements.

F-336

Behavioral Health Services, LLC and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

	January 1, 2020 through November 20, 2020			January 1, 2019 through December 31, 2019
Cash flows from operating activities
Net income	$	192,340		$	203,124
Adjustments to reconcile net income to net cash used in operating activities
Depreciation		17,890			18,205
(Increase) decrease in assets
Patient receivables		(356,150	)		(38,522	)
Other accounts receivable		6,899			517
Inventories		58,774			14,043
Prepaid expenses		(21,238	)		(3,402	)
Increase (decrease) in liabilities
Accounts payable		(316,019	)		(225,505	)
Accounts payable, related party		42,826			—
Accrued payroll and related liabilities		331,894			6,081
Proceeds from provider relief funds		228,794			—
Net provided by (used in) operating activities		186,010			(25,459	)
Cash flows from investing activities
Purchase of property and equipment		(8,646	)		(3,198	)
Due from related parties		(299,125	)		(22,477	)
Net cash used in investing activities		(307,771	)		(25,675	)
Cash flows from financing activities
Member contributions		40,000			—
Member redemptions		(10,000	)		—
Proceeds from paycheck protection program loan		1,004,900			—
Net cash provided by financing activities		1,034,900			—
INCREASE (DECREASE) IN CASH		913,139			(51,134	)
Cash, beginning of period		111,346			162,480
Cash, end of period	$	1,024,485		$	111,346
Supplemental schedule of noncash financing activities
Redemption proceeds due to member	$	70,000		$	—

The accompanying notes are an integral part of these consolidated statements.

F-337

Behavioral Health Services, LLC and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Nature of Business and Subsequent Event

Behavioral Health Services, LLC and Subsidiaries provide medical, retail pharmacy and billing services. Psych Care Consultants, LLC, BHS Pharmacy, LLC and Reimbursement Solutions, LLC are wholly owned subsidiaries of Behavioral Health Services, LLC (a holding company). Psych Care Consultants, LLC is a medical group that has four medical offices located in Missouri and provides psychiatric and mental health services. BHS Pharmacy, LLC provides retail pharmacy services specializing in behavioral health through services such as medication management, screenings, online portals, and delivery. Reimbursement Solutions, LLC provides billing services for Psych Care Consultants, LLC and third party customers. Services include billings, collections, verification of benefits, authorization, and credentialing.

On November 20, 2020 the Company entered into a merger agreement with a wholly-owned subsidiary of UpHealth Holdings, Inc. to purchase all of the outstanding membership interests of Behavioral Health Services, LLC. As such, the consolidated financial statements present the activity of the Company from January 1, 2020 through November 20, 2020, prior to the change in control, as well as the comparative period from January 1, 2019 through December 31, 2019. The activity for the period from November 21, 2020 through December 31, 2020 will be included in the financial reporting of UpHealth Holdings, Inc (the successor).

2. Basis of Consolidation

The accompanying consolidated financial statements include the accounts of Behavioral Health Services, LLC and its subsidiaries: Psych Care Consultants, LLC; BHS Pharmacy, LLC; and Reimbursement Solutions, LLC which are 100% wholly owned (collectively, hereafter referred to as the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

3. New Accounting Pronouncement

The FASB issued Accounting Standards Update (ASU) 2014-09,

Revenue from Contracts with Customers

(Topic 606), in May 2014. Topic 606 sets forth a new five-step revenue recognition model that will require the use of more estimates and judgment. Topic 606 replaces current revenue recognition requirements in Topic 605,

Revenue Recognition

, in its entirety. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in prior accounting guidance. Topic 606 is effective for annual financial statements of private companies issued for fiscal years beginning after December 15, 2019, and should be applied retrospectively in the year Topic 606 is first applied using one of two allowable application methods with early adoption permitted. The Company adopted Topic 606 as of January 1, 2020, using a modified retrospective approach and did not record a cumulative catch-up adjustment as the timing and measurement of revenue for the Company’s customers is similar to its prior revenue recognition model.

At December 31, 2019, the Company recorded approximately $883,608 as a direct reduction of accounts receivable that would have been reflected as an allowance for doubtful accounts prior to the adoption of ASU 2014-09. The adoption of ASU 2014-09 also resulted in changes to the Company’s presentation and disclosure of customer contract assets and liabilities and the assessment of variable consideration under customer contracts.

F-338

Behavioral Health Services, LLC and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

4. Revenue Recognition

Contracts with Patients

Revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing services. The Company’s revenue includes psychiatric and mental health services, retail pharmacy services, and billing services. A significant amount of the Company’s patients are insured under third-party payor agreements. Patient psychiatric and mental health services and retail pharmacy services are generally recognized when services are provided. Revenue is based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to self-pay patients. Estimates for explicit price concessions are based on provider contracts and historical experience, adjusted for economic conditions and other trends affecting the Company’s ability to collect outstanding items. Billing service revenues are recognized monthly based upon the services provided.

Performance Obligations

The Company has three entities that produce third party revenues:

a.

Psych Care Consultants, LLC

The performance obligations related to psychiatric and mental health services are satisfied over- time as services are provided and revenue is recognized accordingly. The Company generally bills its patients immediately upon providing services as the performance obligations are deemed complete. Revenues are generally collected within 30 to 180 days subsequent to providing services.

b.

BHS Pharmacy, LLC

The performance obligations related to retail pharmacy services are satisfied at a point-in-time as patients assume control of the medications. The Company generally bills its patients immediately upon providing services as the performance obligations are deemed complete. Revenues are generally collected within 30 days subsequent to providing services.

c.

Reimbursement Solutions, LLC

The performance obligations related to billing services are recognized over-time as contracted billing services are provided. Billing services are generally billed monthly. Revenues are generally collected within 30 to 60 days subsequent to providing services.

Significant Judgment—Determination of Transaction Price

The Company determines the transaction price based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to self- pay patients. Substantially all of the Company’s patients are insured under third-party payor agreements. For billing services, the transaction price is based upon a contractual amount for services provided. Discounts and other concessions are not provided on these services.

F-339

Behavioral Health Services, LLC and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

4. Revenue Recognition (Continued)

Significant Judgment—Determination of Transaction Price (Continued)

Generally, patients who are covered by third-party payors are responsible for related deductibles and coinsurance, which may vary in amount. The Company also provides services to uninsured patients and may offer those uninsured patients a discount from standard charges. The Company estimates the transaction price for patients with deductibles and coinsurance and from those who are uninsured based on historical experience and market conditions. The Company has determined that the nature, amount, timing, and uncertainty of revenue and cash flows are affected by payors having different reimbursement and payment methodologies, length of the patient’s service, and method of reimbursement.

Estimates of net realizable value are subject to significant judgment and approximation by management. It is possible that actual results could differ from the historical estimates management has used to help determine the net realizable value of revenue. If actual collections either exceed or are less than the net realizable value estimates, the Company records a revenue adjustment, either positive or negative, for the difference between the estimate of the receivable and the amount actually collected in the reporting period in which the collection occurred. No significant adjustments were recorded for the period ending November 20, 2020.

Disaggregation of revenue by significant services provided is disclosed in Note B.

5. Accounts Receivable

The Company records receivables without collateral from its patients, most of whom are local residents and are insured under third-party payor agreements. Accounts receivable are based on gross charges, reduced by explicit price concessions provided to third-party payors and implicit price concessions provided primarily to self-pay patients. Estimates for explicit price concessions are based on provider contracts and historical experience adjusted for economic conditions and other trends affecting the Company’s ability to collect outstanding amounts.

For receivables associated with self-pay patients, the Company records implicit price concessions in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible.

6. Inventories

Inventories consist of pharmaceuticals and are stated at the lower of cost or net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.

F-340

Behavioral Health Services, LLC and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

7. Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided using the straight-line method based on the following estimated useful lives of the assets:

	Years
Office equipment	5 - 7
Office furniture	7
Medical equipment	7

The cost of leasehold improvements is amortized over the lessor of the length of the related leases or the estimated useful lives of the asset.

8. Income Taxes

The Company operates as a Limited Liability Company (LLC) and is treated as a partnership for federal and state income tax purposes. Accordingly, federal and state income taxes are not payable or provided by the Company. Members are taxed individually on their shares of respective earnings.

The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.

9. Use of Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

10. Fair Value of Financial Instruments

The carrying amounts of financial instruments, including accounts receivable, accounts payable, and accrued payroll and related liabilities approximate fair value due to the short maturity of these instruments.

11. Significant Accounting Standards Applicable In A Future Year

Leases

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02,

Leases

, (Topic 842), in February 2016. Under ASU 2016-02, lessees will be required to recognize, at commencement date, a lease liability representing the lessee’s obligation to make payments arising from the lease and a right-of-use asset representing the lessee’s right to use or control the use of a specific asset for the lease term. Under this new guidance, lessor accounting is largely unchanged. ASU 2016-02 was to be effective for annual financial statements of private companies issued for fiscal years beginning after December 15, 2019, however the implementation date has been deferred. The new guidance is now effective

F-341

Behavioral Health Services, LLC and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

NOTE A

-

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

11. Significant Accounting Standards Applicable In A Future Year (Continued)

Leases (Continued)

for annual financial statements of private companies issued for fiscal years beginning after December 15, 2021. Management is currently evaluating the effect that ASU 2016-02 will have on the Company’s consolidated financial statements. The Company expects to record total right-of-use assets and related operating lease obligations based on the present value of future payments as disclosed in Note H on the consolidated balance sheet upon adoption, with no material impact to the consolidated statements of operations.

NOTE B

-

REVENUE

In the following table, revenue is disaggregated by significant service provided, for the periods from January 1, 2020 through November 20, 2020, and January 1 2019 through December 31, 2019:

	January 1, 2020 Through November 20, 2020		January 1, 2019 Through December 31, 2019
Revenue recognized over-time
Psychiatric and mental health services	$	7,992,540	$	8,447,041
Billing services		319,891		307,910
		8,312,431		8,754,951
Revenue recognized at a point-in-time
Retail pharmacy services		3,529,788		3,773,513
	$	11,842,219	$	12,528,464

Patient service revenue by payor consisted of the following for the periods January 1, 2020 through November 20, 2020, and January 1, 2019 through December 31, 2019:

	January 1, 2020 through November 20, 2020		January 1, 2019 through December 31, 2019
Third-party payors	$	9,815,871	$	10,320,044
Patient self-pays		1,706,457		1,900,510
Billing service customers		319,891		307,910
	$	11,842,219	$	12,528,464

F-342

Behavioral Health Services, LLC and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

NOTE B

-

REVENUE (Continued)

The approximate mix of net receivables as of November 20, 2020 and December 31, 2019, and net revenues from third party payors, patients, and billing service customers for the periods January 1, 2020 through November 20, 2020, and January 1, 2019 through December 31, 2019 consisted of the following:

	Net Receivables
	November 20, 2020			December 31, 2019
Commercial and other third party payors		90.6	%		90.3	%
Patient self-pays		2.8	%		2.8	%
Billing service customers		6.6	%		6.9	%
		100.0	%		100.0	%
	Revenue
	January 1, 2020 through November 20, 2020			January 1, 2019 through December 31, 2019
Commercial and other third party payors		82.9	%		82.3	%
Patient self-pays		14.4	%		15.2	%
Billing service customers		2.7	%		2.5	%
		100.0	%		100.0	%

NOTE C

-

PROPERTY AND EQUIPMENT

	December 31, 2020		December 31, 2019
Office equipment	$	103,088	$	103,088
Office furniture		12,010		3,364
Medical equipment		1,839		1,839
		116,937		108,291
Less accumulated depreciation		64,369		46,479
	$	52,568	$	61,812

NOTE D

-

RELATED PARTY TRANSACTIONS

1. Due From Related Parties

The Company’s advances to related parties are unsecured, due on demand, and are noninterest- bearing. Amounts due from related parties aggregated $327,061 and $27,936 at November 20, 2020 and December 31, 2019, respectively.

2. Membership Redemptions and Due to Member

In November 2020, the Company entered into two redemption agreements with members for $10,000 and $70,000, respectively. The Company agreed to pay cash of $10,000 to one member, and entered into a note

F-343

Behavioral Health Services, LLC and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

NOTE D

-

RELATED PARTY TRANSACTIONS (Continued)

2. Membership Redemptions and Due to Member (Continued)

payable agreement with the other member. The note is non-interest bearing, is non- collateralized, and due upon demand. The amount due to the member was $70,000 at November 20, 2020.

3. Payments To Related Parties

The Company makes guaranteed payments to related parties. Guaranteed payments aggregated $5,261,139 and $5,436,758 for the periods January 1, 2020 through November 20, 2020, and January 1, 2019 through December 31, 2019, respectively. These amounts are presented under provider compensation in the consolidated statements of operations. The Company has unpaid guaranteed payments of $288,557 as of November 20, 2020, which is included in accrued payroll and related liabilities on the consolidated balance sheets. There were no unpaid guaranteed payments at December 31, 2019.

NOTE E

-

PROVIDER RELIEF FUNDS

In April and July 2020, the Company received proceeds aggregating $228,794 from the U.S. Department of Health and Human Services (HHS) available as part of a $100 billion appropriation as part of the CARES Act Provider Relief Fund (PRF). The payments will not require repayment as long as the Company complies with certain terms and conditions outlined by HHS. The Company relied upon guidance issued by HHS through March 12, 2021. The terms and conditions first require the Company to identify health care-related expenses attributed to the coronavirus that another source has not reimbursed or is obligated to reimburse. If those expenses do not exceed the funding received, the Company then applies the funds to patient care lost revenue. On January 15, 2021 the HHS released a “Post-Payment Notice of Reporting Requirements Notice” that provides healthcare providers three options to calculate patient care lost revenue.

As of November 20, 2020, the Company has recognized no revenue on the consolidated statements of operations. The Company has $228,794 recorded within current liabilities on the consolidated balance sheets as the Company has asserted it has not yet met all of the terms and conditions and restrictions for the CARES Act relative to these funds as of November 20, 2020. The Company has until June 30, 2021 in which to use amounts remaining toward expenses attributable to coronavirus but not reimbursed by other sources and/or lost patient care revenue. HHS is entitled to recoup PRF amounts received by the Company that are unused as for the purposes disclosed above.

NOTE F

-

PAYCHECK PROTECTION PROGRAM LOAN

In April 2020, the Company received proceeds from a term note from the United States Small Business Administration (“SBA”) under the Paycheck Protection Program (“PPP”) available as part of the Coronavirus Aid, Relief, and Economic Securities Act (“CARES Act”). The proceeds received by the Company were $1,004,900, which were be used to pay for certain payroll and operating expenses of the Company. The note carries an interest rate of 1%, is unsecured, and is required to be repaid in full by April 2022. For any amounts that are not forgiven, principal and interest payments will begin after a deferral period, which is the earlier of Small Business Administration (SBA) determination of forgiveness (including denial of forgiveness or partial forgiveness) or 10 months after the end of the covered period as defined in the CARES Act.

F-344

Behavioral Health Services, LLC and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

NOTE F

-

PAYCHECK PROTECTION PROGRAM LOAN (Continued)

Any request for forgiveness is subject to review and approval by the lender and the SBA, including review of qualifying expenditures and staffing and salary levels. The Company has not submitted a request for forgiveness as of the date the financial statements were available to be issued but the Company expects to submit a request for forgiveness for the entire loan balance in 2021. There can be no assurance that any portion of the PPP Loan will be forgiven. In the event that the lender and SBA determine that all or a portion of the PPP loan is not forgivable, the Company will be required to remit payments of $558,439 in 2021 and $446,461 in 2022. Included in the loan are borrowings related to the operations of various related parties aggregating $278,306, which were transferred to the related parties. These amounts have been included as due from related parties at November 20, 2020 (Note D). The balance is classified as a current liability due to uncertainty regarding the Company’s eligibility for the loan.

NOTE G

-

EMPLOYEE BENEFIT PLAN

The Company has a defined contribution plan, qualified under Section 401(k) of the Internal Revenue Code, that covers substantially all employees with the exception of union employees and employees acquired under a section 401(b)(6)(C) transaction. The Company may, at its discretion, elect to match a percentage of employees’ elective deferrals. Employees must meet a minimum service requirement to be eligible for a percentage of employer matching contributions. In addition, the Company may make discretionary profit sharing contributions to the plan. For the periods January 1, 2020 through November 20, 2020, and January 1, 2019 through December 31, 2019, there were no employer matching or employer profit sharing contributions to the plan.

NOTE H

-

OPERATING LEASES

The Company leases various facilities with related parties in accordance with the terms of operating lease agreements that expire at various dates through December 2021. Upon expiration, certain of these leases were maintained on a month to month basis. The total aforementioned leases require monthly payments ranging from $3,234 to $13,362. Total rent expense under related party agreements was approximately $282,000, and $305,000 for the or the period from January 1, 2020 through November 20, 2020, and January 1, 2019 through December 31, 2019, respectively.

The Company leases various facilities from third parties in accordance with the terms of operating lease agreements requiring monthly payments ranging from $447 to $14,387. The leases expire in December 2021. Total rent expense under third party agreements was approximately $156,000 and $170,000 for the for the period from January 1, 2020 through November 20, 2020, and January 1, 2019 through December 31, 2019, respectively.

The Company also has various operating leases for office equipment which require monthly payments ranging from $239 to $1,499 through November 2025. Lease expense of approximately $32,000, and $18,000 was charged to operations for the period from January 1, 2020 through November 20, 2020, and January 1, 2019 through December 31, 2019, respectively, which is included in operating expenses on the

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Behavioral Health Services, LLC and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

NOTE H

-

OPERATING LEASES (Continued)

consolidated statements of operations. As of November 20, 2020, future minimum lease payments under non-cancelable operating leases are as follows:

Year	Related Party		Third Party		Total
2020	$	4,900	$	17,250	$	22,150
2021		58,800		206,998		265,798
2022		—		28,764		28,764
2023		—		10,776		10,776
2024		—		10,776		10,776
2025		—		9,878		9,878
	$	63,700	$	284,442	$	348,142

NOTE I

-

RISKS AND UNCERTAINTIES

1. Uninsured Cash

The Company maintains its cash balances at one financial institution in Missouri. The cash balances are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. The Company may, from time to time, have balances in excess of FDIC insured deposit limits.

2. Contingencies

From time to time, the Company may be subjected to claims or lawsuits which arise in the ordinary course of business. There are currently two medical malpractice suits against the individual providers, other third parties, and the Company as a whole. The medical malpractice suits assert that there is negligence by the providers in treating the patients named in the suits. One of the malpractice suits is seeking damages of approximately $3,656,000 from all defendants, including the Company. The second malpractice suit has not specified monetary damages, however, in the event of an unfavorable outcome, the Company’s legal counsel estimates maximum damages of approximately $2,267,000. The Company is vigorously defending the malpractice suits and was named as a secondary party in each suit. Although the outcome of these malpractice suits is not presently determinable, it is reasonably possible that that an unfavorable outcome, for the aforementioned damages sought, could occur. However, the Company, and the individual providers, do have insurance coverage (the Company carries a $1,000,000 per occurrence insurance policy), which could mitigate some or all of the financial effects of potential settlements or judgements. In the event that future settlements or judgements, if any, exceed insurance coverages, the Company may be required to fund a portion of the difference. No provision has been made in the accompanying consolidated financial statements for any potential settlement or judgement costs at November 20, 2020 and December 31, 2019, as an unfavorable outcome is not probable at this time.

3. COVID-19

The entire direct and indirect impacts of the current COVID-19 outbreak on the Company’s customers, vendors, operations, and financing arrangements are currently unknown, as is the duration and severity of

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Behavioral Health Services, LLC and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the periods ending January 1, 2020 through November 20, 2020, and

January 1, 2019 through December 31, 2019

NOTE I

-

RISKS AND UNCERTAINTIES (Continued)

3. COVID-19 (Continued)

any impacts that the Company may experience. The Company has been able to remain operational. Certain additional costs have been incurred to procure personal protective equipment and to enhance sanitation of facilities. The Company has converted a significant portion of the business to a telemedicine format. Management does not believe that the effects of the pandemic have had a significant negative impact the Company’s operations.

NOTE J

-

SUBSEQUENT EVENTS

Management has evaluated subsequent events through March 12, 2021, the date that these consolidated financial statements were available to be issued. Management has determined that no events or transactions, other than the merger noted in Note A-1, have occurred subsequent to the consolidated balance sheet date that require disclosure in the consolidated financial statements.

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Cloudbreak Health, LLC and Subsidiaries

Consolidated Financial Statements

December 31, 2020 and 2019

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Report of Independent Registered Public Accounting Firm

Board of Directors and Members

Cloudbreak Health, LLC and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Cloudbreak Health, LLC and Subsidiaries (the “Company”) as of December 31, 2020, and the related consolidated statements of operations, mezzanine equity and members’ interests and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 1 to the financial statements, the entity has suffered recurring losses from operations and has a net working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/  Macias Gini & O’Connell

LLP

We have served as the Company’s auditor since 2020

Irvine, CA

March 19, 2021

F-349

Report of Independent Registered Public Accounting Firm

Board of Directors and Members

Cloudbreak Health, LLC and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cloudbreak Health, LLC and Subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, mezzanine equity and members’ interests and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/  Hall & Company Certified Public Accountants and Consultants, Inc.

We have served as the Company’s auditor since 2020

Irvine, CA

December 24, 2020

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	2020			2019
ASSETS
Current Assets
Cash and cash equivalents	$	1,517,400		$	290,185
Accounts receivable, net		4,876,281			3,668,418
Inventory		—			42,306
Prepaid expenses and other current assets		822,669			773,286
Total current assets		7,216,350			4,774,195
Noncurrent Assets
Property and equipment, net		2,353,205			1,249,719
Software and website development costs, net		4,902,369			4,969,846
Operating lease right of use asset		4,829,292			5,695,961
Finance lease right of use asset		2,966,970			3,726,657
Other noncurrent assets		1,050,858			1,063,556
Total noncurrent assets		16,102,694			16,705,739
Total assets	$	23,319,044		$	21,479,934
LIABILITIES, MEZZANINE EQUITY, AND MEMBERS’ INTERESTS
Current Liabilities
Accounts payable	$	2,827,911		$	2,906,247
Accrued expenses		977,446			953,492
Deferred revenue		45,644			82,463
Line of credit		7,253,325			—
Convertible note payable to related party, net		10,000,000			—
Term credit facility, net of debt issuance costs and debt discount		9,911,193			—
Interest payable, current portion		7,221,990			—
Operating lease liability, current portion		1,041,754			911,424
Paycheck protection program loan		1,798,733			—
Finance lease liability, current portion		1,821,725			1,875,630
Total current liabilities		42,899,721			6,729,256
Operating lease liability, net of current portion		4,492,728			5,525,947
Finance lease liability, net of current portion		1,073,410			1,855,306
Paycheck protection program loan		899,367			—
Line of credit		—			9,699,505
Convertible note payable to related party, net of debt issuance costs and debt discount, non-current		—			9,666,462
Convertible note payable, non-current, net		200,000			200,000
Dividends payable – Series A preferred units		6,631,233			5,431,233
Interest payable, net of current portion		—			3,955,028
Total noncurrent liabilities		13,296,738			36,333,481
Total liabilities		56,196,459			43,062,737
Mezzanine Equity – Redeemable Series A Preferred Units
Series A preferred units, 3,000,000 issued and outstanding at December 31, 2020 and 2019 (Aggregate liquidation preference $15,000,000)		15,000,000			15,000,000
Members’ Interests
Common units, 5,034,700 issued and outstanding at December 31, 2020 and 2019		11,593,120			10,149,803
Loans to officers		(450,000	)		(450,000	)
Accumulated deficit		(59,020,535	)		(46,282,606	)
Total members’ interests		(47,877,415	)		(36,582,803	)
Total liabilities, mezzanine equity, and members’ interests	$	23,319,044		$	21,479,934

F-351

	2020			2019
Net Sales	$	28,089,434		$	30,129,803
Cost Of Sales		14,342,965			16,868,951
Gross Profit		13,746,469			13,260,852
Operating Expenses
Depreciation and amortization		4,041,318			3,155,410
Salaries and wages		5,901,060			5,919,129
General and administrative expenses		9,188,703			9,582,808
Total operating expenses		19,131,081			18,657,347
Loss From Operations		(5,384,612	)		(5,396,495	)
Other Income (Expense)
Interest expense		(6,638,524	)		(4,777,972	)
Other income (expense), net		62,872			79,632
Rental income		422,335			339,895
Total other expense, net		(6,153,317	)		(4,358,445	)
Net Loss	($	11,537,929	)	($	9,754,940	)
Net Loss Per Common Unit		($2.29	)		($1.94	)
Weighted Average Units Outstanding – Basic And Diluted		5,034,700			5,034,700

F-352

	Redeemable Series A Preferred Units				Members’				Loans to Officer			Accumulated Members’ Deficit			Total Members’ Interests
	Units		Amount		Units		Amount
Mezzanine Equity and Members’ Interests, December 31, 2018		3,000,000	$	15,000,000		5,034,700	$	10,057,771	($	450,000	)		($35,327,666	)		($25,719,895	)
Net loss		—		—		—		—		—			(9,754,940	)		(9,754,940	)
Unit-based compensation		—		—		—		92,032		—			—			92,032
Accrued dividends		—		—		—		—		—			(1,200,000	)		(1,200,000	)
Mezzanine Equity and Members’ Interests, December 31, 2019		3,000,000	$	15,000,000		5,034,700		10,149,803	($	450,000	)		($46,282,606	)		($36,582,803	)
Net loss		—		—		—		—		—			(11,537,929	)		(11,537,929	)
Issuance of warrant to purchase common units		—		—		—		1,304,013		—			—			1,304,013
Unit-based compensation		—		—		—		139,304		—			—			139,304
Accrued dividends		—		—		—		—		—			(1,200,000	)		(1,200,000	)
Mezzanine Equity and Members’ Interests, December 31, 2020		3,000,000	$	15,000,000		5,034,700	$	11,593,120	($	450,000	)		($59,020,535	)		($47,877,415	)

F-353

	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	($	11,537,929	)	($	9,754,940	)
Adjustments to reconcile net loss to net cash used in operating activities:
Employee unit-based compensation		139,304			92,032
Paid in kind interest		994,425			—
Amortization of debt discount and issuance costs		815,690			709,610
Forgiveness on paycheck protection program loan		(202,176	)		—
Depreciation and amortization		4,041,318			3,155,410
Noncash lease expense		866,669			899,673
Gain from fixed asset reimbursement		—			(79,632	)
Bad debt expense		138,611			360,205
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable		(1,346,474	)		(47,392	)
Inventory		42,306			—
Prepaid expenses and other current assets		(49,383	)		(88,864	)
Other noncurrent assets		12,698			(217,827	)
Increase (decrease) in liabilities:
Accounts payable		(55,457	)		4,798
Accrued expenses		23,954			66,617
Deferred revenues		(36,819	)		(8,777	)
Operating lease liability		(902,889	)		(562,489	)
Interest payable		3,266,962			3,070,017
Net cash used in operating activities		(3,789,190	)		(2,401,557	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(2,687,034	)		(1,694,895	)
Net cash used in investing activities		(2,687,034	)		(1,694,895	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of finance lease obligations		(2,489,286	)		(2,416,107	)
Net borrowings (payments) on line of credit		(2,446,180	)		939,505
Paycheck protection program loan		2,900,276			0
Borrowings on note payable		9,738,629			5,000,000
Net cash provided by financing activities		7,703,439			3,523,398
NET DECREASE IN CASH AND CASH EQUIVALENTS	$	1,227,215		($	573,054	)

CASH AND CASH EQUIVALENTS – beginning of year	$	290,185	$	863,262
CASH AND CASH EQUIVALENTS – end of year	$	1,517,400	$	290,185
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	1,580,180	$	2,194,234
Taxes paid	$	201,336	$	209,616
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Debt discount related to warrants	$	1,304,013	$	—
Preferred dividends declared and accrued	$	1,200,000	$	1,200,000

F-354

1. ORGANIZATION AND NATURE OF OPERATIONS

Cloudbreak Health, LLC (“Cloudbreak” or “the Company”), a Delaware limited liability company, was formed on May 26, 2015 and is headquartered in Columbus, Ohio. On June 19, 2015, the Company acquired all of the assets of Language Access Network, LLC (“LAN”) and Carenection, LLC (“Carenection”), in exchange for a 100% member interest in LAN and Carenection. The transfer of all assets, and the conversion and settlement of all obligations occurred on June 19, 2015 and was recorded at the historical basis of the assets and obligations as the entities were under common control.

Cloudbreak wholly owns two subsidiaries: (i) LAN, a remote language interpretation company that provides

on-demand

interpretation services for limited English proficient, deaf, and hard of hearing patients in the healthcare industry and (ii) Carenection, LLC, a healthcare technology company that provides a HIPAA compliant private broadband network for the telehealth industry.

Going Concern and Management’s Liquidity Plans

The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Over its history, the Company has primarily funded itself from revenue from customers who purchase access to its telemedicine platform and interpretive services, through its working capital line of credit and the issuance of debt and equity securities. At December 31, 2020, the Company had a significant accumulated deficit of $59,020,535 and negative working capital of approximately $36,000,000. For the year ended December 31, 2020, the Company had a net loss of $11,537,929 and negative cash flows from operations of approximately $3,800,000. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Additionally, in March 2020, the World Health Organization declared the outbreak of a novel coronavirus

(COVID-19)

as a pandemic, which continues to spread throughout the United States. As a result, significant volatility has occurred in both the United States and International markets. While the disruption is currently expected to be temporary, there is uncertainty around the duration. Management expects this matter to continue to impact its business, clients, results of operations, and financial position, but the ultimate financial impact of the pandemic on the Company’s business, results of operations, financial position, liquidity or capital resources cannot be reasonably estimated at this time.

On November 20, 2020, the Company entered into a business combination agreement with GIGCAPITAL2, INC; a publicly traded special purpose acquisition company. As a result of this merger, Cloudbreak would become part of a public company with more than $100 million (estimated) in capital to fund operations after the acquisition. The merger is expected to be completed in the second quarter of 2021. While this merger would eliminate any near term access to capital concerns, the Company cannot be certain that the merger will close or that it will be able to obtain such funds required for operations at terms acceptable to it or at all.

In the event the Company does not complete the business combination or it is significantly delayed, the Company will need to seek additional funding through private equity financings and/or debt financings to maintain its operations as a going concern. While the Company has historically been successful in obtaining these types of financing from both existing and new investors, there can be no assurance that such additional financing, if necessary, will be available or, if available, that such financings can be obtained on satisfactory terms.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements

F-355

are presented on the accrual basis of accounting (the “financial statements”). The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity.

Principles of Consolidation

The consolidated financial statements include the accounts of Cloudbreak Health LLC and its wholly-owned subsidiaries, LAN and Carenection. All significant intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

On an ongoing basis, management evaluates its estimates, including those related to the collectability of customer accounts receivable, revenue recognition, the estimated useful lives of long-lived assets, when technological feasibility is achieved for our products, unit-based compensation, and warrant discount and conversion features associated with convertible notes. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Cash and Cash Equivalents

Cash and cash equivalents include cash in banks and cash equivalents with original maturities of 90 days or less. All cash equivalents are carried at cost, which approximates fair value. At times, such amounts may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit.

Accounts Receivable

Accounts receivable is stated at the amount management expects to collect from outstanding balances after discounts, bad debts, and sales allowance taking into account credit worthiness of customers and history of collection. Management provides for probable uncollectible amounts through a charge to earnings and an increase to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a reduction of trade accounts receivable. The allowance for doubtful accounts was $673,088 and $534,477 at December 31, 2020 and 2019, respectively.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost is determined using the

first-in,

first-out

(FIFO) method. As of December 31, 2020 and 2019, inventory consists of MARTTI (My Accessible Real Time Trusted Interpreter) devices, additional batteries, and carts for the MARTTI’s. For units in inventory, the MARTTI’s are purchased from two vendors and shipped to the Company in Columbus, Ohio, where the units are imaged, then shipped to end users. MARTTI’s are only purchased when ordered by customers, typically at the inception of a new interpretation service contract. Provisions for slow moving or obsolete inventory are charged to other expense and are permanent reductions to the carrying value of inventory.

F-356

Property and Equipment

Property and equipment are stated at historical cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are five years for computer and related equipment, and seven years for furniture and fixtures. Expenditures for major renewals and betterments are capitalized, while minor replacements, maintenance and repairs, which do not extend the asset lives, are charged to operations as incurred. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income.

Software and Website Development Costs

In accordance with Accounting Standards Codificiation (“ASC”) 985,

Software

, software development costs related to software to be sold, leased, or marketed as part of a product or process are capitalized subsequent to the establishment of technological feasibility, which is demonstrated by the completion of a detailed program design or working model, if no program design is completed. The useful life of software development costs related to the Company’s current software was determined to be five years from the date the software was placed in service. Costs associated with maintenance and minor enhancements to the features and functionality of the Company’s software are expensed as incurred. GAAP requires that annual amortization expense of the capitalized software development costs be the greater of the amounts computed using the ratio of gross revenue to a product’s total current and anticipated revenues, or the straight-line method over the product’s estimated economic life.

In accordance with ASC 350,

Intangibles – Goodwill and Other

, the Company also capitalizes eligible website development costs incurred during the application development stage. Costs associated with maintenance and minor enhancements to the features and functionality of the Company’s website are expensed as incurred. The useful life of website development costs was determined to be three years from the date the website was placed in service.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, primarily consisting of property and equipment, and software and website development costs, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted cash flows attributable to such assets including any cash flowsupon their eventual disposition to their carrying value. If the carrying value of the assets exceeds the forecasted undiscounted cash flows, then the assets are written down to their fair value. For the years ended December 31, 2020 and 2019, there has been no such impairment.

Net Loss per Common Unit

The Company reports basic loss per unit in accordance with Financial Accounting Standards Board (“FASB”) ASC 260,

Earnings Per Share

. Basic loss per unit is computed using the weighted average number of common units outstanding during the reporting period. Diluted earnings per unit is computed using the weighted average number of common units outstanding plus the effect of dilutive securities during the reporting period. Any potentially dilutive securities that have an anti-dilutive impact on the per unit calculation are excluded. During periods in which the Company reports a net loss, diluted weighted average units outstanding are equal to basic weighted average units outstanding because the effect of the inclusion of all potentially dilutive securities would be anti-dilutive. As of December 31, 2020 and 2019, there were no potentially dilutive securities excluded from

F-357

the calculation of diluted loss per common unit due to a loss for those periods. The table below reflects potentially dilutive securities for the years ended December 31, 2020 and 2019:

	2020		2019
Unit options outstanding		1,933,303		1,941,150
Warrants		741,135		526,312
Total		2,674,438		2,467,462

Fair Value of Financial Instruments

The Company follows the guidance of FASB ASC

820-10,

with respect to financial assets and liabilities that are measured at fair value. ASC

820-10

establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

• Level  1 inputs: Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

• Level  2 inputs: Level 2 inputs are from other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level  3 inputs: Level 3 inputs are unobservable and should be used to measure fair value to the extent that observable inputs are not available.

Trade accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses are reported on the balance sheet at carrying value, which approximates fair value due to the short-term maturities of these instruments. Management believes that that the carrying value of debt instruments, other than related party notes payable and loans to officers, also approximates fair value based on current market indicators, such as prevailing market rates and short-term maturities of certain financial instruments.

Management believes it is not practical to estimate the fair value of related party notes payable and loans to officers because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market terms, there are no quoted values available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar instruments, if any, and the associated potential costs.

The common unit warrant issued with a convertible note was valued using the Black Scholes valuation model (see Note 13). The conversion feature in convertible notes payable which required bifurcation as a derivative liability was valued using the Monte Carlo valuation model and had a fair value of $0 on the issuance date and each subsequent reporting date (see Note 14). Management believes these models are the best available techniques for valuing these instruments. Aside from the conversion feature in convertible notes payable, the Company had no other recurring or nonrecurring fair value measurements for assets and liabilities at December 31, 2020 and 2019.

Convertible Notes Payable and Derivative Instruments

The Company has adopted the provisions of Accounting Standards Update (“ASU”)

2017-11

to account for the down round features of warrants issued with private placements effective as of January 1, 2018. In doing so, warrants with a down round feature previously treated as derivative liabilities in the consolidated balance sheet and measured at fair value are henceforth treated as equity, with no adjustment for changes in fair value at each reporting period.

The Company accounts for conversion options embedded in convertible notes in accordance with ASC 815, which generally requires companies to bifurcate conversion options embedded in convertible notes from their

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host instruments and to account for them as free-standing derivative financial instruments. Derivative financial instruments, as defined in the FASB ASC 815, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC

815-40.

The Company accounts for conversion options embedded in

non-conventional

convertible notes, which qualify as equity under ASC 815, in accordance with the provisions of ASC

470-20,

which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.

Derivative financial instruments may be free-standing or embedded in other financial instruments. Based on this guidance, the Company determined that the convertible feature in its note payable disclosed in Note 14 did not meet the criteria for classification as equity. Accordingly, the Company bifurcated the conversion feature and recorded it in liabilities at its estimated fair value. Derivative financial instruments, such as the conversion feature, are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets, with any change in fair value recognized as a component of other income (expense), net in the statements of operations. The Company did not record a derivative liability for the optional convertible feature in convertible notes payable as the fair value was $0 on the issuance date and each subsequent reporting date (see Note 14). The Company estimated the fair value of the conversion feature upon grant, at December 31, 2020 and 2019 using the Monte Carlo valuation model.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and accounts receivable.

The Company performs ongoing credit evaluations of its customers’ financial performance and generally requires no collateral from customers. No individual customer accounted for more than 10% of the Company’s accounts receivable balance as of the years ended December 31, 2020 and 2019. No individual customer accounted for more than 10% of the Company’s gross revenues for the years ended December 31, 2020 and 2019.

The Company purchases its products on credit terms from vendors across the United States. For the years ended December 31, 2020 and 2019, there were no significant supplier concentrations.

Revenue Recognition

The Company derives the majority of its revenues from the sale of subscription-based fixed monthly minute and variable rate per unit of service medical language interpretation services. The Company also records ancillary revenue from the sale or lease of MARTTI devices and from the provision of information technology services that include connectivity and ongoing support of the MARTTI software platform. The Company accounts for revenue from contracts with customers, which comprises 100% of its revenue, through the following steps:

1. Identification of the contract with a customer

2. Identification of the performance obligations in the contract

3. Determination of the transaction price

4. Allocation of the transaction price to the performance obligations in the contract

5. Recognition of revenue when, or as, the Company satisfies a performance obligation

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Generally, the Company’s medical language interpretation and information technology services are invoiced monthly. Fixed monthly minute medical language interpretation subscription and information technology services fees are invoiced in advance in the period preceding the service. Variable rate per unit medical language interpretation and information technology services fees (including overage fees related to minutes used by the customer in excess of the fixed monthly minute subscription) are invoiced monthly in arrears. Sale of MARTTI devices are generally invoiced at contract execution (50%) and upon the delivery of the devices to the customer (50%). MARTTI device leases are invoiced monthly in advance in the period preceding the usage. Invoiced amounts are typically due within 30 days of the invoice date.

The Company has selected the Output Method for recognizing revenues related to fixed medical language interpretation and information technology services fees. Due to the stand-ready nature of the services provided, the Company recognizes these fees monthly on a straight-line basis over the term of the contract.

Variable consideration received for medical language interpretation services, information technology services and for the lease of MARTTI devices is based on a fixed per item charge applied to a variable quantity. Variable consideration for the Company’s services is recognized over time in accordance with the “right to invoice” practical expedient and therefore is not subject to revenue constraint evaluation.

Revenue related to the sale of MARTTI devices is recognized at a point in time upon delivery of the devices to the customer. The Company may enter into multiple component services arrangements that bundle the pricing for the lease of MARTTI devices with information technology services. Often, the pricing bundle may also include medical language interpretation services. When an equipment lease is bundled with services, allocation of the transaction price consideration between the lease and nonlease components of the lease is required. The Company has determined that the consideration allocated to the lease components in its bundled multiple component services arrangements is not material to the financial statements.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. Revenue is recognized when the Company satisfies its performance obligations under the contract by transferring the promised product or service to its customer. The Company’s contracts generally do not include any significant financing components.

The Company typically satisfies its performance obligations when the products are transferred and services are provided to its customers. The majority of the Company’s performance obligations are satisfied over time. The Company typically satisfies its performance obligations as the customer receives and consumes the benefits of the medical language interpretation services, information technology services and the use of the MARTTI devices. Performance obligations for the sale of the MARTTI devices are satisfied when control of the devices is transferred to the Company’s customers.

The Company has established a contract liability for billings or payments received in advance of when revenue recognition criteria are met. This contract liability is classified as deferred revenue in the consolidated balance sheets. Additions to deferred revenue, amortization of deferred revenue and prior year deferred revenue recognized in the current year were not significant for the years ended December 31, 2020 and 2019.

As part of the adoption of Topic 606, the Company elected the following practical expedients provided for in the standard.

1. The Company elected to not adjust the promised amount of consideration for the effect of a significant financing component if it expects, at contract inception, that the period between the Company’s transfer of a promised good or service to a customer and the customer’s payment for that good or service will be one year or less.

2. The Company is excluding from its transaction price all sales and similar taxes collected from its customers.

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3. The Company elected to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.

4. The Company elected to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations.

5. The portfolio approach has been elected by the Company as it expects any effects of adoption would not be materially different in application at the portfolio level compared with the application at an individual contract level.

6. The Company elected the “right to invoice” expedient which states that for performance obligations satisfied over time, if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, the entity may recognize revenue in the amount to which the entity has a right to invoice.

7. The Company elected not to disclose information about its remaining performance obligations for any contract that has an original expected duration of one year or less.

8. The Company elected not to disclose information about its remaining performance obligations when it recognizes revenue from the satisfaction of performance obligations in accordance with the “right to invoice” practical expedient.

9. The Company elected all transition-related practical expedients available under the full retrospective transition method of adoption.

Neither the type of service sold nor the location of sale significantly impacts the nature, amount, timing, or uncertainty of revenue and cash flows.

Cost of Revenue

Cost of revenue primarily consists of costs related to supporting and hosting the Company’s product offerings and delivering services. These costs include salaries, benefits, incentive compensation and unit-based compensation. Costs of revenue include the cost of maintaining the Company’s data centers, customer support team and the Company’s professional services staff, in addition to third-party service provider costs such as data center and networking expenses, allocated overhead, amortization of capitalized

internal-use

software development costs and intangible assets and depreciation expense. In addition to the costs associated with delivering services, costs of revenue also include the cost of purchased equipment inventory sold to customers.

Advertising and Marketing Expense

Advertising and marketing expenses are included in general and administrative expenses within the consolidated statements of operations and are expensed when incurred. Costs associated with advertising and marketing expense were $169,021 and $138,524 for the years ended December 31, 2020 and 2019, respectively, and is included in general and administrative expenses on the consolidated statements of operations.

Income Taxes

The Company has been established as a limited liability company. All income or losses of the Company and income tax consequences related thereto are passed through its members. Accordingly, the Company does not record any provision for income taxes or deferred income taxes in its financial statements.

Unit-Based Compensation

The Company maintains performance incentive plans under which incentive and nonqualified member unit options are granted primarily to employees and nonemployee consultants. The Company accounts for unit-based

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awards to both employees and nonemployees under ASC Topic 718,

Stock-Based Compensation

, and requires the recognition of compensation expense, using a fair-value based method, for costs related to all unit-based payments including member unit options. ASC Topic 718 requires companies to estimate the fair value of unit-based payment awards on the date of grant using an option-pricing model.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief executive officer view the Company’s operations and manage its business as one reportable segment with different operating segments.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU

2016-13,

Financial Instruments-Credit Losses (Topic 326), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU

2016-13

replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to

available-for-sale

debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes may result in more timely recognition of credit losses. ASU

2019-10

amended the effective date for ASU

2016-13

for smaller reporting companies to be annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact of adopting this guidance.

In December 2019, the FASB issued ASU

2019-12,

“Simplifying the Accounting for Income Taxes”. The pronouncement simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, “Income Taxes”. The pronouncement also improves consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This standard is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is still evaluating the impact this guidance will have on its consolidated financial statements.

In January 2020, the FASB issued ASU

No. 2020-01,

“Investments — Equity Securities: Clarifying the Interactions between Topic 321, Topic 323, and Topic 815” (“ASU

No. 2020-01”).

ASU

No. 2020-01

clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with ASC 321, “Investments — Equity Securities” immediately before applying or upon discontinuing the equity method of accounting in ASC 323, “Investments—Equity Method and Joint Ventures.” The provisions of ASU

No. 2020-01

are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years with early adoption permitted, including early adoption in an interim period for public business entities for periods for which financial statements have not yet been issued. The Company is still evaluating the impact this guidance will have on its consolidated financial statements.

In August 2020, the FASB issued ASU

2020-06,

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments. ASU

2020-06

eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the

if-converted

method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is effective for the Company beginning in the first quarter of 2022 and must be applied using either a modified or full retrospective approach. Early adoption is permitted, but no earlier than annual periods beginning after December 15, 2020. The Company is currently evaluating the impact of adopting this guidance.

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3. PROPERTY AND EQUIPMENT, NET

Property and equipment, as of December 31, 2020 and 2019 consists of the following:

	Useful Life (Years)		2020			2019
Furniture and fixtures		7	$	480,515		$	470,945
Computer and related equipment		5		3,490,045			2,000,103
Vehicle		5		10,500			—
				3,981,060			2,471,048
Less accumulated depreciation				(1,627,855	)		(1,221,329	)
Property and equipment, net			$	2,353,205		$	1,249,719

Depreciation and amortization expense for the years ended December 31, 2020 and 2019 amounted to $509,488 and $242,356, respectively, and is included on the accompanying consolidated statement of operations.

4. SOFTWARE AND WEBSITE DEVELOPMENT COSTS, NET

Software and website development costs as of December 31, 2020 and 2019 consists of the following:

	Useful Life (Years)		2020			2019
IT Infrastructure – software development costs		5	$	5,335,022		$	3,286,318
Software and website development costs		3		1,026,913			1,037,855
Work in Progress Assets		—		272,230			654,670
				6,634,165			9,969,827
Less accumulated depreciation				(1,731,796	)		(4,999,981	)
Software and website development costs, net			$	4,902,369		$	4,969,846

Amortization expense related to capitalized software costs and website development costs for the years ended December 31, 2020 and 2019 were $1,244,299 and $1,037,855, respectively, and is included on the accompanying consolidated statement of operations. IT Infrastructure for Old Platform was disposed of in 2020 totaling gross assets of $4,512,484 as well as the related accumulated depreciation of $4,512,484.

5. LOANS TO OFFICERS

Loans to officers bear an interest rate of 1.75% per annum and are due in 2025. The loans are secured the officers’ membership interest units. At both December 31, 2020 and 2019, the total loans outstanding to officers were $450,000. In 2021, the Company plans to distribute these loans to officers to settle the balance. Accordingly, it has been classified as contra-equity on the consolidated balance sheets.

6. ACCRUED EXPENSES

Accrued expenses as of December 31, 2020 and 2019 consists of the following:

	2020		2019
Payroll and related expenses	$	231,576	$	385,201
Other (including accrued outsourced labor)		745,870		568,291
	$	977,446	$	953,492

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7. RELATED PARTY TRANSACTIONS

The Company engages in significant transactions with various related parties summarized below. The Company and these other related entities have a commonality of ownership and/or management control, and as a result, the reported operating results and/or financial position of the Company could significantly differ from what would have been obtained if such entities were autonomous.

The Company has four loans totaling $450,000 outstanding to officers (see Note 5).

The Company entered into two convertible notes payable agreements totaling $10,000,000 with the preferred unit investor (see Note 13).

The Company has one agreement with Pacific Healthworks, which has common ownership and/or management control. This agreement is an agreement to sublease space in the El Segundo, California office space. The rates are market rates according to the building landlord and not considered significant to operations.

8. MEMBERS’ INTERESTS

Common Units

On May 26, 2015, Cloudbreak Health, LLC, was formed as a holding company to own 100% of LAN and Carenection, and to facilitate the sale of preferred membership interests in the Company to Martti in the USA, LLC (the “Investor”).

On June 19, 2015 the Company entered into a contribution agreement with the Members of LAN and Carenection (the “Contributors”), whereas the Contributors contributed their membership interests in LAN and/or Carenection, in exchange for membership interests in the Company, pursuant to the terms of the agreement. The exchange granted 5,034,700 common member units to the Contributors. No cash was exchanged as a result of this contribution agreement.

Redeemable Series A Preferred Units

On June 19, 2015 the Company entered into a Series A Preferred Unit Purchase Agreement (“Preferred UPA”) with the Investor, whereas the Investor purchased from the Company 3,000,000 Series A Preferred Units, which represents 30% ownership of the Company’s equity interests on a diluted basis, in exchange for $15,000,000.

Redeemable Series A Preferred Units – liquidation preference

Upon a deemed liquidation event, the Investor will receive all accrued but unpaid series A accruing dividends, the liquidation preference of $15 million (subject to the “melt-away” provision described in the next sentence) and its common equivalent ownership, on a fully diluted basis. Upon a deemed liquidation event, if the Company equity value exceeds $100 million, the liquidation preference shall “melt away” in a proportionate ratio until the Company equity value reaches $150 million, after which the liquidation preference shall be zero.

Redeemable Series A Preferred Units – voting rights

The board shall consist of up to five directors. The investor (series A preferred unit holders) may select one director, up to three directors shall be designated by the members holding a majority of the voting interest of the then outstanding, and one additional director who shall be mutually agreed upon by the investor and the member directors. The Board is responsible for running the business of the LLC.

The member directors may be removed or replaced by holders of a majority of the common units and the series A preferred units voting together as a single class in their sole and absolute discretion.

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Unless otherwise required by the act or specified elsewhere in the agreement, all actions, approvals and consents to be taken or given by the members under the act, the agreement or otherwise, require the affirmative vote or the written consent of a majority interest.

Redeemable Series A Preferred Units – redemption rights

The investor may sell any or all of its series A preferred units at any time after the date of the Preferred UPA. If the investor finds a bona fide third-party that offers to purchase any or all of its series A preferred units, the Company shall have a right of first refusal to purchase all, but not less than all of the offered series A preferred units if the Company elects to purchase such series A preferred units within thirty days of receipt of notice of such offer pursuant to the same terms of sale offered by the bona fide third-party.

In the event the Company does not purchase the series A preferred units within such thirty day period, the investor will have thirty days to complete the proposed sale with the bona fide third-party.

In the event that the investor desires to sell any or all of its series A preferred units and cannot find a buyer prior to fifth anniversary from the closing date (and notifies the Company thereof), the investor may require the Company to purchase or redeem the series A preferred units. In such event, the Company and the investor shall mutually engage an independent valuation firm mutually agreeable to the parties, to prepare a binding valuation of the series A preferred units (the “redemption price”) plus any series A preferred unit accrued dividends. There has been no request for redemption at December 31, 2020 and 2019.

Redeemable Series A Preferred Units – accruing dividends

The Preferred UPA grants the series A preferred unit holders the right to receive

cash-pay

dividends on a quarterly basis at a simple,

non-compounding

rate of 8.0% per annum of the investment amount. Per the agreement, the series A accruing dividends shall only accrue and not be required to be paid to the investor on a current basis until the Company achieves a trailing twelve month earnings before interest, taxes, depreciation, and amortization (“TTM EBITDA”) of $2.5 million or upon a change of control or redemption.

As the Company has not achieved the TTM EBITDA target as of December 31, 2020 and 2019, the calculated Series A Accruing Dividend amount of $6,631,233 and $5,431,233 has been accrued for, but not paid as of December 31, 2020 and 2019, as agreeed between the Company and the holders.

Mezzanine Equity

Since the redeemable preferred units may be redeemed at the option of the holder, but is not mandatorily redeemable, the redeemable preferred units of $15,000,000 has been classified as mezzanine equity. There were 3,000,000 shares of redeemable preferred units classified as mezzanine equity as of both December 31, 2020 and 2019.

9. OPTIONS TO PURCHASE MEMBER UNIT

The Company accounts for member unit-based compensation under ASC Topic 718,

Compensation—Stock Compensation

(“ASC 718”). In accordance with ASC 718, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

On June 19, 2015, Cloudbreak Health, LLC created the 2015 Unit Incentive Plan (the “Plan”), which subject to the provisions of the Plan, has a maximum aggregate number of Units subject to the Plan of 2,200,000 common units.

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The following table summarizes unit option activity for the years ended December 31, 2020 and 2019:

	Number of Shares			Weighted-Average Exercise Price
Outstanding, December 31, 2018		1,941,150			5.70
Granted		—			—
Exercised		—			—
Canceled and forfeited		—			—
Outstanding, December 31, 2019		1,941,150			5.70
Granted		192,153			6.99
Exercised		—			—
Canceled and forfeited		(200,000	)		12.50
Outstanding, December 31, 2020		1,933,303			4.91
Exercisable, December 31, 2019		1,799,255			5.19
Exercisable, December 31, 2020		1,725,650			4.51

The following table summarizes additional information on the Company’s unit options outstanding at December 31, 2020:

	Options Outstanding		Options Exercisable
Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life (Years)	Number Exercisable
0.23	155,100	4.48	155,100
1.55	336,050	4.48	336,050
5.00	1,075,000	4.53	1,075,000
6.99	242,153	9.50	67,885
15.00	125,000	1.50	91,615
	1,933,303		1,725,650

Weighted-Average Exercisable Remaining Contractual Life (Years): 4.94

The following table summarizes additional information on the Company’s unit options outstanding at December 31, 2019:

	Options Outstanding		Options Exercisable
Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life (Years)	Number Exercisable
0.23	155,100	5.48	155,100
1.55	336,050	5.48	336,050
5.00	1,075,000	5.53	1,075,000
12.50	200,000	7.11	116,279
15.00	175,000	8.00	116,826
	1,941,150		1,799,255

Weighted-Average Exercisable Remaining Contractual Life (Years): 5.79

The fair value of options granted to employees is estimated on the grant date using the Black-Scholes option valuation model. This valuation model for stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation including the expected term (weighted-average period of time that the options granted are expected to be outstanding), volatility of the Company’s common stock, a risk-free interest rate, expected dividends, and the forfeitures of unvested stock options as they

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occur. The Company uses the simplified method for calculation of expected life, and volatility is based on an average of the historical volatilities of the common stock of a group of entities with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The Company currently has no history or expectation of paying cash dividends on common stock.For the year ended December 31, 2019, no options were granted. For the year ended December 31, 2020, the Company granted options to three employees and two contractors to purchase a total of 192,153 common member units. The fair value of options granted to employees during the year ended December 31, 2020 was determined using the Black-Scholes option valuation model with the following assumptions:

	Year Ended December 31, 2020
Expected term (years)	6.25
Volatility	34.00%
Risk-free interest rate	2.38 – 2.47%
Dividend yield	—
Weighted-average fair value	$2.49

For the years ended December 31, 2020 and 2019, total expense for unit-based compensation awards granted to employees was $139,304 and $92,032, respectively. As of December 31, 2020 and 2019, there was $403,092 and $64,211, respectively, of total unrecognized compensation expense related to unvested stock options.

The intrinsic value of options exercisable as of December 31, 2020 and 2019 was determined to be approximately $5,000,000.

10. PERFORMANCE UNIT PLAN

On June 19, 2015, LAN and Carenection each established their own Performance Unit Plans (“PUP”). Each PUP provides a means whereby designated employees of LAN or Carenection, respectively, may be granted the opportunity to share in a portion of the value of LAN or Carenection, respectively, in connection with certain liquidity events in accordance with the terms and conditions (including vesting terms) of each specific PUP.

Pursuant to LAN’s PUP, a performance unit is a contractual right to receive the difference between the fair market value of one performance unit on the grant date and on the settlement date. LAN’s PUP includes a total of 100 performance units available to be awarded. In total, the 100 performance units shall be equal in value to ten percent of the Membership interest percentage of LAN. As of December 31, 2020, LAN’s PUP has not awarded any performance units.Pursuant to Carenection’s PUP, a performance unit is a contractual right to receive the difference between the fair market value of one performance unit on the grant date and on the settlement date. Carenection’s PUP includes a total of ten performance units available to be awarded. In total, the ten performance units shall be equal in value to ten percent of the Membership interest percentage of Carenection.

On June 19, 2015, Carenection entered into an exchange agreement with six employees who, as of June 19, 2015, held options to purchase membership units of Carenection. The exchange agreement stipulated that the option holders exchange their options for certain performance units in Carenection. The exchange agreement awarded a total of 5.4 performance units in exchange for the membership unit options held by the six employees. In May 2018, 2.1 units related to three employees were retired. As of December 31, 2020 and 2019, there were a total of 3.3 performance units outstanding. No specific vesting requirements were mentioned in the award agreements signed by each employee, therefore, pursuant to Carenection’s PUP, the performance units vested upon grant.

The PUP agreement states that each PUP award shall become payable upon the Settlement Date, which is defined as the closing or consummation of a Liquidity Event, and not sooner. A Liquidity Event as defined by the agreement means any of the following: (i) an initial public offering (“IPO”); (ii) dissolution, liquidation or sale of

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all or substantially all of the business, properties, and assets of the Company; or (iii) an event in which the Company effects a transactions or series of related transactions in which more than 75% of the voting power of the Company’s ownership is disposed of or otherwise transferred. Accordingly, the Company has not recorded any impact as of December 31, 2020 and 2019. If the business combination agreement (see Note 18) was consumated at December 31, 2020, the value of the outstanding awards would be $0.

11. EMPLOYEE BENEFIT PLAN

During January 2016, the Company sponsored, and began offering its employees the opportunity to participate in, a 401(k) retirement savings plan. All employees who have completed at least nine months of service are eligible to participate in the plan. Eligible employees may elect to contribute any percentage of their eligible compensation, pursuant to IRS regulations. The Company’s matching contributions are made at the discretion of the Company. The Company made matching contributions for the years ended December 31, 2020 and 2019 of $12,563 and $13,599, respectively.

12. REVOLVING LINE OF CREDIT

In November 2018, the Company entered into a line of credit agreement with a financial institution to borrow up to $12,000,000 (the “LOC”). The LOC is available to be drawn down on until November 21, 2021. As of December 31, 2020 and 2019, the LOC had an outstanding balance of $7,253,325 and $9,699,505, respectively. The LOC accrues interest at a rate equal to the greater of 5.25% or the Prime Referenced Rate (4.75% and 5.50% as of December 31, 2020 and 2019, respectively) plus the applicable margin. The applicable margin is 1.25% per annum. As of December 31, 2020 and 2019, the applicable interest rate is 6.50% and 6.75%, respectively.

The LOC is secured by all real, personal, and intellectual property of the Company and guaranteed by all outstanding equity interest in the Company. The LOC contains certain financial covenants of which the Company was not in compliance at December 31, 2020 and 2019; however, the Company obtained an agreement from the bank which waived the event of default. The Company modified this line of credit agreement subsequent to year end (see Note 18).

13. CONVERTIBLE NOTES PAYABLE TO RELATED PARTY

In June 2017, the Company entered into a convertible note payable agreement with the preferred unit investor in the amount of $5,000,000. The note accrues interest at a rate of 8.0% per annum and is due on February 15, 2023, as amended on January 23, 2020. The note is collateralized by all assets of the Company and subordinated to the Company’s LOC.

The note was issued with a warrant agreement to purchase 526,312 shares of common units of the Company at a price of $0.01 per share. The warrant is exercisable from the date of issuance and there is no expiry. As of December 31, 2020 and 2019, this warrant has not been exercised and remains outstanding. If the entire note is converted, the warrant is automatically cancelled. The warrant includes certain anti-dilution provisions to adjust the number of warrant units to protect the purchase rights granted under the warrant, as well as price protection provisions to adjust the exercise price for certain equity issuances. A debt discount related to this note in the amount of $1,939,552 was recognized upon grant. The discount was amortized over the life of the note. Amortization expense related to the debt discount on this note was $303,275 and $643,579 for the years ended December 31, 2020 and 2019, respectively and was included in interest expense on the consolidated statements of operations.

The Company incurred debt issuance costs of $198,091 during the year ended December 31, 2017 related to this note; of which $30,974 and $66,031 was amortized during the years ended December 31, 2020 and 2019, respectively.

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In April 2019, the Company entered into another convertible note payable agreement with the preferred unit investor in the amount of $5,000,000. $2,000,000 of this note was borrowed at initial closing in April 2019 and $3,000,000 was subsequently borrowed in September 2019. The note accrues interest at a rate of 8.0% per annum and is due on February 15, 2023. The note is collateralized by all assets of the Company and subordinated to the Company’s LOC. This note also includes a mandatory fee upon repayment as described: on any date of any full or partial repayment of the Note(s), in addition to the repayment of the then outstanding principal and accrued interest, the Company will also pay: (i) on or before the date that is 90 days after the Closing Date, defined as the date after purchase and sale of the initial note is closed, (the “First Period”), a repayment fee in an amount equal to the product of: (y) .25 multiplied by (z) the then outstanding principal balance of the Notes, (ii) after the First Period but on or before December 31, 2019 (the “Second Period”), a repayment fee in an amount equal to the product of: (y) .50 multiplied by (z) the then outstanding principal balance of the Notes, and (iii) at any time after the Second Period, a repayment fee in an amount equal to the product of: (y) 1.00 multiplied by (z) the then outstanding principal balance of the Notes. As a result of this provision, the Company recorded $2,500,000 and $2,500,000 of additional interest expense for the year ended December 31, 2020 and 2019, respectively.

Both convertible notes contain an optional conversion feature upon a Qualified Financing, which is defined as the closing of the sale of equity securities of the Company in which the Company receives aggregate gross sale proceeds of not less than $5,000,000. Upon the closing of a Qualified Financing, provided that such closing date occurs prior to (i) the Maturity Date and (ii) the prepayment in full of the outstanding balance under this Note, Noteholder may, in its sole discretion (the “Conversion Option”), convert all or any portion of the outstanding balance, including the principal amount then outstanding and all accrued but unpaid interest thereon (the “Convertible Balance”), into the number of Conversion Securities, defined as new securities in the Qualified Financing, obtained by dividing (i) the amount of the Convertible Balance which the Noteholder has elected to convert pursuant to the Conversion Option by (ii) the product of (a) the price per share paid by the purchasers of the New Securities, defined as the series or class of securities issued in connection with a Qualified Financing, sold in such Qualified Financing and (b) eighty percent (80%). The Company determined that these contingent conversion features were not considered derivative liabilities and did not require bifurcation.

14. CONVERTIBLE NOTES PAYABLE

In August 2017, the Company entered into a convertible note purchase agreement in the amount of $200,000. The note is payable on the earlier of the 5th anniversary of issue date (August 30, 2022) or occurrence of Event of Default, as defined in the agreement. The note contains two contingent conversion features.

The first conversion feature is a mandatory conversion upon Qualified Financing, which is defined as the closing of the sale of equity securities of the Company in which the Company receives aggregate gross sale proceeds of not less than $500,000. If there is a Qualified Financing prior to the Maturity Date, the entire Principal Amount of Note hereunder shall be automatically converted, effective as of the date of closing of the Qualified Financing, into membership units issued in the Qualified Financing (the “QualifiedFinancing Units”) at a conversion price in an amount equal to eighty percent (80%) of the price per Unit of the Qualified Financing Units sold by the Company in the Qualified Financing.

The second conversion feature is an optional conversion upon (i) the Maturity Date, (ii) any Event of Default or (iii) a Liquidity Event before the Maturity Date and prior to a Qualified Financing. If not previously repaid or converted, the entire outstanding Principal Amount, at the option of the Holder, can be converted into Common Units at a price per unit equal to the lowest cash price per unit for which such Capital Stock has been issued. The number of shares of Capital Stock to be issued upon such conversion shall be equal to the quotient obtained by dividing (i) the entire Principal Amount of this Note by (ii) the lowest cash price per share for which such Capital Stock has been issued.

Due to the adjustable nature of the conversion feature, the Company recorded this as a derivative liability. However, the Company determined the fair value of the conversion feature on the issuance date, and each

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subsequent reporting date, was $0, so there was no discount or derivative liability recorded. The convertible note was amended subsequent to year end to extend the maturity date (see Note 18).

15. DEBT

In January 2020, the Company entered into a credit agreement with a third party lender for a term credit facility in the amount of $10,000,000. The note accrues interest at a rate ranging from 12.00% - 13.25% dependent on the Company’s eligibility in any given quarter. Interest is either payable in cash quarterly with all unpaid interest and principal due upon any of the following dates: (i) maturity date in January 2023; (ii) a Liquidity Event, defined as a change of control or an initial public offering; (iii) the date of any prepayment; or (iv) such other time when amount becomes due and payable based on the agreement, or payable in kind, whereby the interest shall automatically be added to the principal balance of the loan and the sum will continue to accrue interest at the specified interest rate. During the year ended December 31, 2020, the Company has incurred $994,425 of

paid-in-kind

interest.

The credit agreement was also issued with a warrant entitling the Lender to purchase 2% of all issued and outstanding units of the Company’s common units on a fully diluted basis at the date of issuance (214,823 shares), all fully vested, at an exercise price of $0.01 per share. The warrant is exercisable from the date of issuance and there is no expiry. The warrant also allows the Lender to purchase 2% of any units issued in connection with the conversion of the notes to the preferred unit investor.

The warrant agreement was valued in 2020 using the Black-Scholes model using the following assumptions:

Expected term (in years)	3 years
Risk-free interest rate	1.48	%
Volatility	33.07	%

As of December 31, 2020, this warrant has not been exercised and remains outstanding. A debt discount related to this note in the amount of $1,304,013 was recognized upon grant based on the relative fair value of the warrant. The discount is amortized over the life of the note. Amortization expense related to the debt discount on this note was $406,909 for the year ended December 31, 2020 and was included in interest expense on the consolidated statements of operations. The Company also incurred debt issuance costs of $241,130 related to this note; of which approximately $50,000 was amortized during the year ended December 31, 2020.

The credit agreement contains certain financial covenants, of which the Company was not in compliance as of December 31, 2020. Accordingly, it was classified as current on the accompanying audited consolidated balance sheets. There were no penalties incurred as a result of this event of

non-compliance.

In May 2020, the Company was granted loans in the aggregate amount of $2,900,276, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The loan accrues interest at a rate of 1% per annum. Equal principal and interest payments are due monthly beginning seven months from disbursement until maturity in May 2022. As these funds will be mainly utilized for payroll within the established limits, the Company expects a significant portion, if not all, of the loan to be forgiven, but there can be no assurance with respect to this matter. Two of the loans were forgiven as of December 31, 2020 and the related gain of $202,176 was included in “Other income (expense), net” in the accompanying statement of operations.

16. OPERATING AND FINANCE LEASE RIGHT OF USE ASSETS

Leasing Transactions

The Company has operating leases for its corporate offices and field offices. The Company recognized a

right-of-use

asset and lease liability for operating leases based on the net present value of future minimum lease

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payments. Lease expense is recognized on a straight-line basis over the

non-cancelable

lease term and renewal periods that are considered reasonably certain. The Company has finance leases for certain computer devices and network equipment. In addition to purchasing MARTTI units for use as inventory, the Company also leases units through an arrangement with a third-party lessor to be used as equipment. Leased units are used as part of the Company’s promotional program whereby the Company loans out MARTTI units for trial purposes to various customers. These units are part of the Company’s finance lease right of use assets at

year-end,

but are in the possession of customers. The Company recognized a

right-of-use

asset and lease liability for finance leases based on the net present value of future minimum lease payments. Lease expense for the Company’s finance leases is comprised of the amortization of the

right-of-use

asset and interest expense recognized based on the effective interest method. The Company has elected to use hindsight in determining the lease term (that is, when considering lessee options to extend or terminate the lease or to purchase the underlying asset) and in assessing impairment of the entity’s

right-of

use assets. Accordingly, management’s decisions regarding lease renewals that are reasonably certain to be exercised have been incorporated as part of the lease term in

right-of-use

asset and lease liability calculations. To support these determinations, the Company evaluated each active lease at transition that included a renewal option (or options) to assess whether or not the future renewal options were reasonably certain to be exercised. The periods related to any renewal options deemed not reasonably certain to be exercised were excluded from the lease term for the

right-of-use

asset and lease liability calculations.

Lease Expense

The components of lease expense were as follows for the years ended:

	December 31, 2020			December 31, 2019
Amortization of finance ROU assets	$	1,857,607		$	2,322,673
Interest on finance lease liabilities		281,174			284,096
Finance lease expense	$	2,138,781		$	2,606,769
Operating lease expense		1,315,440			1,340,321
Variable lease expense		0			1,507
Sublease income		(422,335	)		(339,895	)
Total lease expense	$	3,031,886		$	3,608,702

Supplemental Cash Flow

Supplemental cash flow information related to leases was as follows for the years ended:

	December 31, 2020		December 31, 2019
Operating cash flows from operating leases	$	1,315,440	$	1,000,802
Operating cash flows from finance leases		281,174		284,096
Financing cash flows from finance leases		2,623,157		2,416,108
Cash paid for amounts included in the measurement of lease liabilities	$	4,219,771	$	3,701,006

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Supplemental information

Supplemental information related to leases was as follows for the years ended:

	December 31, 2020			December 31, 2019
Weighted average remaining lease term (months)
Operating leases		74			79
Finance leases		20			23
Weighted average discount rate
Operating leases		6.7	%		6.7	%
Finance leases		8.1	%		9.8	%

Maturities

As of December 31, 2020, future minimum lease payments required under leases are as follows:

	Operating leases			Finance leases			Total
Years Ending December 31
2021	$	1,381,229		$	1,965,509		$	3,346,738
2022		1,374,443			886,663			2,261,106
2023		1,037,855			218,119			1,255,974
Thereafter		2,950,392			0			2,950,392
Undiscounted cash flows		6,743,919			3,070,292			9,814,211
Less: imputed interest		(1,209,437	)		(175,157	)		(1,384,594	)
Total	$	5,534,482		$	2,895,135		$	8,429,617
Reconciliation to lease liabilities:
Lease liabilities – current	$	1,041,754		$	1,821,725		$	2,863479
Lease liabilities – non-current		4,492,728			1,073,410			5,566,138
Total lease liabilities	$	5,534,482		$	2,895,135		$	8,429,619

17. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is subject to various other claims arising in the ordinary course of its business. In the opinion of management, based in part on discussions with legal counsel, the ultimate outcome of these matters is not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

18. SUBSEQUENT EVENTS

In February 2021, the Company modified the LOC with the senior lender, which waived an event of default based on the Company’s

non-compliance

with certain financial and

non-financial

covenants, and amended certain existing financial and

non-financial

covenants (See Note 12). The amendment included a modification to the covenants including allowing the company to increase the debt under Note 15 by an additional $3 million, the removal of both the EBITDA and Revenue covenants, the introduction of a minimum monthly net cash flow measurement, minimum cash balance of $1,750,000 at the end of each calendar month and the completion of the GIGCAPITAL transaction by June 30, 2021 when the Notes are then due in full.

In February 2021, the Company amended a credit agreement with a third party lender increasing the amount from $10,000,000 to $13,000,000 (See Note 15). No additional warrants were issued and all terms and the covenants were modified to reflect the changes in the LOC. The Company evaluated events subsequent to December 31, 2020 for their potential impact on the financial statements and disclosures through February 28, 2021, which is the date the financial statements were available to be issued.

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Cloudbreak Health, LLC and Subsidiaries

Consolidated Financial Statements

Year To Date June 8, 2021 and December 31, 2020

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Condensed Consolidated Balance Sheets as of June 8, 2021 (unaudited) and December 31, 2020

	June 8, 2021			December 31, 2020
ASSETS
Current Assets
Cash and cash equivalents	$	3,735,307		$	1,517,400
Accounts receivable, net		4,592,383			4,876,281
Prepaid expenses and other current assets		959,879			822,669
Total current assets		9,287,569			7,216,350
Noncurrent Assets
Property and equipment, net		1,944,666			2,353,205
Software and website development costs, net		4,601,375			4,902,369
Operating lease right of use asset		4,349,873			4,829,292
Finance lease right of use asset		3,855,292			2,966,970
Other noncurrent assets		1,046,395			1,050,858
Total noncurrent assets		15,797,601			16,102,694
Total assets	$	25,085,170		$	23,319,044
LIABILITIES, MEZZANINE EQUITY, AND MEMBERS’ INTERESTS
Current Liabilities
Accounts payable	$	3,015,684		$	2,827,911
Accrued expenses		903,357			977,446
Deferred revenue		16,474			45,644
Line of credit		7,253,325			7,253,325
Convertible note payable to related party, net		10,000,000			10,000,000
Term credit facility, net of debt issuance costs and debt discount		13,709,341			9,911,193
Interest payable, current portion		7,611,700			7,221,990
Operating lease liability, current portion		1,041,754			1,041,754
Paycheck protection program loan		2,394,419			1,798,733
Finance lease liability, current portion		2,358,123			1,821,725
Total current liabilities		48,304,177			42,899,721
Operating lease liability, net of current portion		3,993,421			4,492,728
Finance lease liability, net of current portion		1,394,050			1,073,410
Paycheck protection program loan		303,681			899,367
Convertible note payable, non-current, net		200,000			200,000
Dividends payable – Series A preferred units		7,131,233			6,631,233
Total noncurrent liabilities		13,022,385			13,296,738
Total liabilities	$	61,326,562		$	56,196,459
Mezzanine Equity – Redeemable Series A Preferred Units
Series A preferred units, 3,000,000 issued and outstanding at June 8, 2021 and December 31, 2020 (Aggregate liquidation preference $22,131,233 and $21,631,233 at June 8, 2021 and December 31, 2020 respectively)		15,000,000			15,000,000
Members’ Interests
Common units, 5,034,700 issued and outstanding at June 8, 2021 and December 31, 2020		11,641,012			11,593,120
Loans to officers		—			(450,000	)
Accumulated deficit		(62,882,404	)		(59,020,535	)
Total members’ interests	($	51,241,392	)	($	47,877,415	)
Total liabilities, mezzanine equity, and members’ interests	$	25,085,170		$	23,319,044

F-374

Condensed Consolidated Statements of Operations for the Periods Ended June 8, 2021 and June 30, 2020 (unaudited)

	April 1, 2021 to June 8, 2021			April 1, 2020 to June 30, 2020			January 1, 2021 to June 8, 2021			January 1, 2020 to June 30, 2020
Net Sales	$	5,394,615		$	6,504,089		$	13,347,488		$	13,275,361
Cost Of Sales		2,504,907			3,356,364			5,884,520			7,089,465
Gross Profit		2,889,708			3,147,725			7,462,968			6,185,896
Depreciation and amortization
Operating Expenses
Depreciation and amortization		835,102			726,647			2,144,136			1,705,021
Salaries and wages		987,213			1,433,771			2,697,534			2,756,157
General and administrative expenses		1,841,163			1,742,099			4,388,010			3,889,839
Total operating expenses		3,663,478			3,902,517			9,229,680			8,351,017
Loss From Operations		(773,770	)		(754,792	)		(1,766,712	)		(2,165,121	)
Other Income (Expense)
Interest expense		(739,152	)		(1,568,148	)		(1,644,245	)		(5,164,483	)
Other income (expense), net		(31,377	)		(37,251	)		251,041			(91,204	)
Rental income		144,192			111,138			248,046			214,276
Total other expense, net		(626,337	)		(1,494,261	)		(1,145,158	)		(5,041,411	)
Net Income (Loss)	($	1,400,107	)	($	2,249,053	)	($	2,911,870	)	($	7,206,532	)
Net Loss Per Common Unit	($	0.28	)	($	0.45	)	($	0.58	)	($	1.43	)
Weighted Average Units Outstanding – Basic And Diluted		5,034,700			5,034,700			5,034,700			5,034,700

F-375

Condensed Consolidated Statements of Mezzanine Equity and Members’ Interests for the Periods Ended June 8, 2021 and June 30, 2020 (unaudited)

	Redeemable Series A Preferred Units				Members’				Loans to Officer			Accumulated Members’ Deficit			Total Members’ Interests
	Units		Amount		Units		Amount
Mezzanine Equity and Members’ Interests, December 31, 2019		3,000,000	$	15,000,000		5,034,700	$	10,149,803	($	450,000	)	($	46,282,606	)	($	36,582,803	)
Net loss		—		—		—		—		—			(4,957,480	)		(4,957,480	)
Issuance of warrant to purchase common units		—		—		—		1,304,013		—			—			1,304,013
Unit-based compensation		—		—		—		8,047		—			—			8,047
Accrued dividends		—		—		—		—		—			(300,000	)		(300,000	)
Mezzanine Equity and Members’ Interests, March 31, 2020		3,000,000		15,000,000		5,034,700		11,461,863		(450,000	)		(51,540,086	)		(40,528,223	)
Net loss		—		—		—		—		—			(2,249,053	)		(2,249,053	)
Accrued dividends		—		—		—		—		—			(300,000	)		(300,000	)
Mezzanine Equity and Members’ Interests, June 30, 2020		3,000,000	$	15,000,000		5,034,700	$	11,461,863	($	450,000	)	($	54,089,139	)	($	43,085,323	)
Mezzanine Equity and Members’ Interests, December 31, 2020		3,000,000	$	15,000,000		5,034,700	$	11,593,120	($	450,000	)	($	59,020,535	)	($	47,877,415	)
Net loss		—		—		—		—		—			(1,511,762	)		(1,511,762	)
Unit-based compensation		—		—		—		47,892		—			—			47,892
Distributions to members		—		—		—		—		450,000			(450,000	)		—
Accrued dividends		—		—		—		—		—			(300,000	)		(300,000	)
Mezzanine Equity and Members’ Interests, March 31, 2021		3,000,000		15,000,000		5,034,700		11,641,012	$	—			(61,282,297	)		(49,641,285	)
Net loss		—		—		—		—		—			(1,400,107	)		(1,400,107	)
Accrued dividends		—		—		—		—		—			(200,000	)		(200,000	)
Mezzanine Equity and Members’ Interests, June 8, 2021		3,000,000	$	15,000,000		5,034,700	$	11,641,012	$	—		($	62,882,404	)	($	51,241,392	)

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Condensed Consolidated Statements of Cash Flows for the Periods Ended June 8, 2021 and June 30, 2020 (unaudited)

	January 1, 2021 to June 8, 2021			January 1, 2020 to June 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	($	2,911,870	)	($	7,206,532	)
Adjustments to reconcile net loss to net cash used in operating activities:
Employee unit-based compensation		47,892			8,047
Paid in kind interest		474,366			451,902
Amortization of debt discount and issuance costs		323,781			1,027,970
Depreciation and amortization		2,144,136			1,705,021
Noncash lease expense		(19,887	)		9,928
Bad debt expense		(335,681	)		—
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable		578,259			(487,517	)
Prepaid expenses and other current assets		463,535			(1,058,622	)
Other noncurrent assets		8,528			12,629
Increase (decrease) in liabilities:
Accounts payable		(163,804	)		(734,936	)
Accrued expenses		(11,520	)		(271,210	)
Deferred revenues		(19,500	)		67,906
Operating lease liability		—			—
Interest payable		403,151			2,988,221
Net cash used in operating activities		981,386			(3,487,193	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(285,310	)		(1,254,563	)
Net cash used in investing activities		(285,310	)		(1,254,563	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments of finance lease obligations		(1,428,169	)		(1,334,369	)
Net borrowings (payments) on line of credit		0			(2,446,180	)
Borrowings on note payable, net		2,950,000			10,000,000
Net cash provided by financing activities		1,521,831			6,219,451
NET DECREASE IN CASH AND CASH EQUIVALENTS	$	2,217,907		$	1,477,695
CASH AND CASH EQUIVALENTS – beginning	$	1,517,400		$	290,185
CASH AND CASH EQUIVALENTS – end	$	3,735,307		$	1,767,880
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	545,603		$	2,515,046
Taxes paid	$	104,446		$	91,203
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Debt discount related to warrants	$	203,454		$	203,454
Preferred dividends declared and accrued	$	500,000		$	600,000
Distribution to members	$	450,000		$	—

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Notes to Condensed Consolidated Financial Statements (Unaudited)

1.    ORGANIZATION AND NATURE OF OPERATIONS

Cloudbreak Health, LLC (“Cloudbreak” or “the Company”), a Delaware limited liability company, was formed on May 26, 2015 and is headquartered in Columbus, Ohio. On June 19, 2015, the Company acquired all of the assets of Language Access Network, LLC (“LAN”) and Carenection, LLC (“Carenection”), in exchange for a 100% member interest in LAN and Carenection. The transfer of all assets, and the conversion and settlement of all obligations occurred on June 19, 2015 and was recorded at the historical basis of the assets and obligations as the entities were under common control.

Cloudbreak wholly owns two subsidiaries: (i) LAN, a remote language interpretation company that provides

on-demand

interpretation services for limited English proficient, deaf, and hard of hearing patients in the healthcare industry and (ii) Carenection, LLC, a healthcare technology company that provides a HIPAA compliant private broadband network for the telehealth industry.

Effective June 9, 2021, the Company became a fully owned subsidiary of UpHealth, Inc. (“UpHealth”). As a result, the financial statements are reflected as of June 8, 2021 and for the period January 1, 2021 to June 8, 2021.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements are presented on the accrual basis of accounting (the “financial statements”). The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity.

Principles of Consolidation

The consolidated financial statements include the accounts of Cloudbreak Health LLC and its wholly-owned subsidiaries, LAN and Carenection. All significant intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

On an ongoing basis, management evaluates its estimates, including those related to the collectability of customer accounts receivable, revenue recognition, the estimated useful lives of long-lived assets, when technological feasibility is achieved for our products, unit-based compensation, and warrant discount and conversion features associated with convertible notes. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Accounts Receivable

Accounts receivable is stated at the amount management expects to collect from outstanding balances after discounts, bad debts, and sales allowance taking into account credit worthiness of customers and history of

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collection. Management provides for probable uncollectible amounts through a charge to earnings and an increase to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a reduction of trade accounts receivable. The allowance for doubtful accounts was $32,569 and $673,088 at June 8, 2021 and December 31, 2020, respectively.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost is determined using the

first-in,

first-out

(FIFO) method. As of June 8, 2021 and December 31, 2020, inventory consists of MARTTI (My Accessible Real Time Trusted Interpreter) devices, additional batteries, and carts for the MARTTI’s. For units in inventory, the MARTTI’s are purchased from two vendors and shipped to the Company in Columbus, Ohio, where the units are imaged, then shipped to end users. MARTTI’s are only purchased when ordered by customers, typically at the inception of a new interpretation service contract. Provisions for slow moving or obsolete inventory are charged to other expense and are permanent reductions to the carrying value of inventory.

Net Loss per Common Unit

The Company reports basic loss per unit in accordance with Financial Accounting Standards Board (“FASB”) ASC 260,

Earnings Per Share

. Basic loss per unit is computed using the weighted average number of common units outstanding during the reporting period. Diluted earnings per unit is computed using the weighted average number of common units outstanding plus the effect of dilutive securities during the reporting period. Any potentially dilutive securities that have an anti-dilutive impact on the per unit calculation are excluded. During periods in which the Company reports a net loss, diluted weighted average units outstanding are equal to basic weighted average units outstanding because the effect of the inclusion of all potentially dilutive securities would be anti-dilutive. The table below reflects potentially dilutive securities for the quarters ended June 8, 2021 and June 30, 2020:

	June 8, 2021		December 31, 2020
Unit options outstanding		1,808,303		1,933,303
Warrants		741,135		741,135
Total		2,549,438		2,674,438

Fair Value of Financial Instruments

The Company follows the guidance of FASB ASC

820-10,

with respect to financial assets and liabilities that are measured at fair value. ASC

820-10

establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

• Level  1 inputs: Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

• Level  2 inputs: Level 2 inputs are from other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level  3 inputs: Level 3 inputs are unobservable and should be used to measure fair value to the extent that observable inputs are not available.

Trade accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses are reported on the balance sheet at carrying value, which approximates fair value due to the short-term maturities of these instruments. Management believes that that the carrying value of debt instruments, other than related party notes payable and loans to officers, also approximates fair value based on current market indicators, such as prevailing market rates and short-term maturities of certain financial instruments.

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Management believes it is not practical to estimate the fair value of related party notes payable and loans to officers because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market terms, there are no quoted values available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar instruments, if any, and the associated potential costs.

The common unit warrant issued with a convertible note was valued using the Black Scholes valuation model (see Note 12). The conversion feature in convertible notes payable which required bifurcation as a derivative liability was valued using the Monte Carlo valuation model and had a fair value of $0 on the issuance date and each subsequent reporting date (see Note 13). Management believes these models are the best available techniques for valuing these instruments. Aside from the conversion feature in convertible notes payable, the Company had no other recurring or nonrecurring fair value measurements for assets and liabilities at June 8, 2021 and December 31, 2020.

Convertible Notes Payable and Derivative Instruments

The Company has adopted the provisions of Accounting Standards Update (“ASU”)

2017-11

to account for the down round features of warrants issued with private placements effective as of January 1, 2018. In doing so, warrants with a down round feature previously treated as derivative liabilities in the consolidated balance sheet and measured at fair value are henceforth treated as equity, with no adjustment for changes in fair value at each reporting period.

The Company accounts for conversion options embedded in convertible notes in accordance with ASC 815, which generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free-standing derivative financial instruments. Derivative financial instruments, as defined in the FASB ASC 815, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC

815-40.

The Company accounts for conversion options embedded in

non-conventional

convertible notes, which qualify as equity under ASC 815, in accordance with the provisions of ASC

470-20,

which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.

Derivative financial instruments may be free-standing or embedded in other financial instruments. Based on this guidance, the Company determined that the convertible feature in its note payable disclosed in Note 13 did not meet the criteria for classification as equity. Accordingly, the Company bifurcated the conversion feature and recorded it in liabilities at its estimated fair value. Derivative financial instruments, such as the conversion feature, are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets, with any change in fair value recognized as a component of other income (expense), net in the statements of operations. The Company did not record a derivative liability for the optional convertible feature in convertible notes payable as the fair value was $0 on the issuance date and each subsequent reporting date (see Note 13). The Company estimated the fair value of the conversion feature upon grant, at June 8, 2021 and June 30, 2020 using the Monte Carlo valuation model.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and accounts receivable.

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The Company performs ongoing credit evaluations of its customers’ financial performance and generally requires no collateral from customers. No individual customer accounted for more than 10% of the Company’s accounts receivable balance as of June 8, 2021 and December 31, 2020. No individual customer accounted for more than 10% of the Company’s gross revenues for the periods from April 1, 2021 to June 8, 2021 and April 1, 2020 to June 30, 2020, and the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020.

The Company purchases its products on credit terms from vendors across the United States. For the periods from April 1, 2021 to June 8, 2021 and April 1, 2020 to June 30, 2020, and the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020, there were no significant supplier concentrations.

Revenue Recognition

The Company derives the majority of its revenues from the sale of subscription-based fixed monthly minute and variable rate per unit of service medical language interpretation services. The Company also records ancillary revenue from the sale or lease of MARTTI (My Accessible Real Time Trusted Interpreter) devices and from the provision of information technology services that include connectivity and ongoing support of the MARTTI software platform. The Company’s revenues are derived entirely from U.S.-based customers in the healthcare industry. The Company accounts for revenue from contracts with customers, which comprises 100% of its revenue, through the following steps:

1. Identification of the contract with a customer

2. Identification of the performance obligations in the contract

3. Determination of the transaction price

4. Allocation of the transaction price to the performance obligations in the contract

5. Recognition of revenue when, or as, the Company satisfies a performance obligation

Generally, the Company’s medical language interpretation and information technology services are invoiced monthly. Fixed monthly minute medical language interpretation subscription and information technology services fees are invoiced in advance in the period preceding the service. Variable rate per unit medical language interpretation and information technology services fees (including overage fees related to minutes used by the customer in excess of the fixed monthly minute subscription) are invoiced monthly in arrears. Sale of MARTTI devices are generally invoiced at contract execution (50%) and upon the delivery of the devices to the customer (50%). MARTTI device leases are invoiced monthly in advance in the period preceding the usage. Invoiced amounts are typically due within 30 days of the invoice date.

The Company has selected the Output Method for recognizing revenues related to fixed medical language interpretation and information technology services fees. Due to the stand-ready nature of the services provided, the Company recognizes these fees monthly on a straight-line basis over the term of the contract.

Variable consideration received for medical language interpretation services, information technology services and for the lease of MARTTI devices is based on a fixed per item charge applied to a variable quantity. Variable consideration for the Company’s services is recognized over time in accordance with the “right to invoice” practical expedient and therefore is not subject to revenue constraint evaluation.

Revenue related to the sale of MARTTI devices is recognized at a point in time upon delivery of the devices to the customer. The Company may enter into multiple component services arrangements that bundle the pricing for the lease of MARTTI devices with information technology services. Often, the pricing bundle may also include medical language interpretation services. When an equipment lease is bundled with services, allocation of the transaction price consideration between the lease and nonlease components of the lease is required. The Company has determined that the consideration allocated to the lease components in its bundled multiple component services arrangements is not material to the financial statements.

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Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. Revenue is recognized when the Company satisfies its performance obligations under the contract by transferring the promised product or service to its customer. The Company’s contracts generally do not include any significant financing components.

The Company typically satisfies its performance obligations when the products are transferred and services are provided to its customers. Substantially all of the Company’s performance obligations are satisfied over time. The Company typically satisfies its performance obligations as the customer receives and consumes the benefits of the medical language interpretation services, information technology services and the use of the MARTTI devices. Performance obligations for the sale of the MARTTI devices are satisfied when control of the devices is transferred to the Company’s customers.

The Company has established a contract liability for billings or payments received in advance of when revenue recognition criteria are met. This contract liability is classified as deferred revenue in the consolidated balance sheets. Additions to deferred revenue, amortization of deferred revenue and prior year deferred revenue recognized in the current year were not significant for the periods from April 1, 2021 to June 8, 2021 and April 1, 2020 to June 30, 2020, and the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020.

For the period ended June 30, 2020, the beginning balances of the Company’s accounts receivable and deferred revenue were $3,668,418 and $82,463, respectively.

As part of the adoption of Topic 606, the Company elected the following practical expedients provided for in the standard.

1. The Company is excluding from its transaction price all sales and similar taxes collected from its customers.

2. The Company elected to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.

3. The Company elected to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations.

4. The portfolio approach has been elected by the Company as it expects any effects of adoption would not be materially different in application at the portfolio level compared with the application at an individual contract level.

5. The Company elected the “right to invoice” expedient which states that for performance obligations satisfied over time, if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, the entity may recognize revenue in the amount to which the entity has a right to invoice.

6. The Company elected not to disclose information about its remaining performance obligations for any contract that has an original expected duration of one year or less.

7. The Company elected not to disclose information about its remaining performance obligations when it recognizes revenue from the satisfaction of performance obligations in accordance with the “right to invoice” practical expedient.

8. The Company elected all transition-related practical expedients available under the full retrospective transition method of adoption.

Neither the type of service sold nor the location of sale significantly impacts the nature, amount, timing, or uncertainty of revenue and cash flows.

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Advertising and Marketing Expense

Advertising and marketing expenses are included in general and administrative expenses within the consolidated statements of operations and are expensed when incurred. Costs associated with advertising and marketing expense were $251,810 and $57,040 for the periods from April 1, 2021 to June 8, 2021 and April 1, 2020 to June 30, 2020, respectively, and $359,431 and $185,267 for the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020, respectively, and are included in general and administrative expenses on the consolidated statements of operations.

Recently Issued Accounting Standards

In August 2020, the FASB issued ASU

2020-06,

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments. ASU

2020-06

eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the

if-converted

method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is effective for the Company beginning in the first quarter of 2022 and must be applied using either a modified or full retrospective approach. Early adoption is permitted, but no earlier than annual periods beginning after December 15, 2020. The Company is currently evaluating the impact of adopting this guidance.

3. PROPERTY AND EQUIPMENT, NET

Property and equipment, as of June 8, 2021 and December 31, 2020 consists of the following:

	Useful Life (Years)		June 8, 2021			December,31 2020
Furniture and fixtures		7	$	480,515		$	480,515
Computer and related equipment		5		3,266,897			3,490,045
Vehicle		5		10,500			10,500
				3,757,912			3,981,060
Less accumulated depreciation				(1,813,246	)		(1,627,855	)
Property and equipment, net			$	1,944,666		$	2,353,205

Depreciation and amortization expense for the periods from April 1, 2021 to June 8, 2021 and April 1, 2020 to June 30, 2020 amounted to $100,093 and $44,238, respectively, and for the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020 amounted to $243,443 and $88,476, respectively, and are included on the accompanying consolidated statement of operations

4. SOFTWARE AND WEBSITE DEVELOPMENT COSTS, NET

Software and website development costs as of June 8, 2021 and December 31, 2020 consists of the following:

	Useful Life (Years)		June 8, 2021			December,31 2020
IT Infrastructure—software development costs		5	$	5,335,022		$	5,335,022
Software and website development costs		3		1,026,913			1,026,913
Work in Progress Assets		—		414,530			272,230
				6,776,465			6,634,165
Less accumulated depreciation				(2,175,090	)		(1,731,796	)
Software and website development costs, net			$	4,601,375		$	4,902,369

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Amortization expense related to capitalized software costs and website development costs for the periods from April 1, 2021 to June 8, 2021 and April 1, 2020 to June 30, 2020 were $208,095 and $161,909, respectively, and for the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020 were $522,619 and $575,544 respectively, and are included on the accompanying consolidated statement of operations.

5. LOANS TO OFFICERS

Loans to officers bear an interest rate of 1.75% per annum and are due in 2025. The loans are secured with the officers’ membership interest units. At December 31, 2020, the total loans outstanding to officers were $450,000. In 2021, by unanimous Board consent, the Company distributed these loans to officers to settle the balance. Accordingly in 2021, it has been classified as distributions in the financial statements.

6. RELATED PARTY TRANSACTIONS

The Company engages in significant transactions with various related parties summarized below. The Company and these other related entities have a commonality of ownership and/or management control, and as a result, the reported operating results and/or financial position of the Company could significantly differ from what would have been obtained if such entities were autonomous.

In 2021, the Company approved the distribution of four loans totaling $450,000 to officers (see Note 5).

The Company entered into two convertible notes payable agreements totaling $10,000,000 with the preferred unit investor (see Note 12).

The Company has one agreement with Pacific Healthworks, which has common ownership and/or management control. This agreement is an agreement to sublease space in the El Segundo, California office space. The rates are market rates according to the building landlord and not considered significant to operations.

7. MEMBERS’ INTERESTS

Common Units

On May 26, 2015, Cloudbreak Health, LLC, was formed as a holding company to own 100% of LAN and Carenection, and to facilitate the sale of preferred membership interests in the Company to Martti in the USA, LLC (the “Investor”).

On June 19, 2015 the Company entered into a contribution agreement with the Members of LAN and Carenection (the “Contributors”), whereas the Contributors contributed their membership interests in LAN and/or Carenection, in exchange for membership interests in the Company, pursuant to the terms of the agreement. The exchange granted 5,034,700 common member units to the Contributors. No cash was exchanged as a result of this contribution agreement.

Redeemable Series A Preferred Units

On June 19, 2015 the Company entered into a Series A Preferred Unit Purchase Agreement (“Preferred UPA”) with the Investor, whereas the Investor purchased from the Company 3,000,000 Series A Preferred Units, which represents 30% ownership of the Company’s equity interests on a diluted basis, in exchange for $15,000,000.

Redeemable Series A Preferred Units—liquidation preference

Upon a deemed liquidation event, the Investor will receive all accrued but unpaid series A accruing dividends and the Preferred UPA purchase price of $15 million (subject to the “melt-away” provision described in the next

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sentence) and its common equivalent ownership, on a fully diluted basis. Upon a deemed liquidation event, if the Company equity value exceeds $100 million, the liquidation preference shall “melt away” in a proportionate ratio until the Company equity value reaches $150 million, after which the liquidation preference shall be zero.

Redeemable Series A Preferred Units – voting rights

The board shall consist of up to five directors. The investor (series A preferred unit holders) may select one director, up to three directors shall be designated by the members holding a majority of the voting interest of the then outstanding, and one additional director who shall be mutually agreed upon by the investor and the member directors.

The member directors may be removed or replaced by holders of a majority of the common units and the series A preferred units voting together as a single class in their sole and absolute discretion.

Unless otherwise required by the act or specified elsewhere in the agreement, all actions, approvals and consents to be taken or given by the members under the act, the agreement or otherwise, require the affirmative vote or the written consent of a majority interest.

Redeemable Series A Preferred Units – redemption rights

The investor may sell any or all of its series A preferred units at any time after the date of the Preferred UPA. If the investor finds a bona fide third-party that offers to purchase any or all of its series A preferred units, the Company shall have a right of first refusal to purchase all, but not less than all of the offered series A preferred units if the Company elects to purchase such series A preferred units within thirty days of receipt of notice of such offer pursuant to the same terms of sale offered by the bona fide third-party.

In the event the Company does not purchase the series A preferred units within such thirty day period, the investor will have thirty days to complete the proposed sale with the bona fide third-party.

In the event that the investor desires to sell any or all of its series A preferred units and cannot find a buyer prior to fifth anniversary from the closing date (and notifies the Company thereof), the investor may require the Company to purchase or redeem the series A preferred units. In such event, the Company and the investor shall mutually engage an independent valuation firm mutually agreeable to the parties, to prepare a binding valuation of the series A preferred units (the “redemption price”) plus any series A preferred unit accrued dividends. There has been no request for redemption as of June 8, 2021 and December 31, 2020.

Redeemable Series A Preferred Units – accruing dividends

The Preferred UPA grants the series A preferred unit holders the right to receive

cash-pay

dividends on a quarterly basis at a simple,

non-compounding

rate of 8.0% per annum of the investment amount. Per the agreement, the series A accruing dividends shall only accrue and not be required to be paid to the investor on a current basis until the Company achieves a trailing twelve month earnings before interest, taxes, depreciation, and amortization (“TTM EBITDA”) of $2.5 million or upon a change of control or redemption.

As the Company has not achieved the TTM EBITDA target as of June 8, 2021 and December 31, 2020, the calculated Series A Accruing Dividend amount of $7,131,233 and $6,631,233 has been accrued for, but not paid as of June 8, 2021 and December 31, 2020, as agreed between the Company and the holders.

Mezzanine Equity

Since the redeemable preferred units may be redeemed at the option of the holder, but is not mandatorily redeemable, the redeemable preferred units of $15,000,000 has been classified as mezzanine equity. There were 3,000,000 shares of redeemable preferred units classified as mezzanine equity as of both June 8, 2021 and December 31, 2020.

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8. OPTIONS TO PURCHASE MEMBER UNIT

The Company accounts for member unit-based compensation under ASC Topic 718,

Compensation—Stock Compensation

(“ASC 718”). In accordance with ASC 718, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

On June 19, 2015, Cloudbreak Health, LLC created the 2015 Unit Incentive Plan (the “Plan”), which subject to the provisions of the Plan, has a maximum aggregate number of Units subject to the Plan of 2,200,000 common units.

The following table summarizes unit option activity for the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020:

	Number of Shares			Weighted-Average Exercise Price
Outstanding, January 1, 2020		1,941,150			5.70
Granted		132,153			6.99
Exercised		—			—
Canceled and forfeited		—			—
Outstanding, June 30, 2020		2,073,303			5.78
Outstanding, January 1, 2021		1,933,303			4.91
Granted		—			—
Exercised		—			—
Canceled and forfeited		(125,000	)		15.00
Outstanding, June 30, 2021		1,808,303			4.21
Exercisable, June 30, 2020		1,856,699			4.52
Exercisable, June 30, 2021		1,665,734			3.98

The following table summarizes additional information on the Company’s unit options outstanding at June 8, 2021:

	Options Outstanding		Options Exercisable
Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life (Years)	Number Exercisable
0.23	155,100	4.31	155,100
1.55	336,050	4.31	336,050
5	1,075,000	4.36	1,075,000
6.99	242,153	9.33	99,584
	1,808,303		1,665,734

Weighted-Average Remaining Contractual Life (Years): 4.38

The fair value of options granted to employees is estimated on the grant date using the Black-Scholes option pricing model. This valuation model for stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation including the expected term (weighted-average period of time that the options granted are expected to be outstanding), volatility of the Company’s common stock, a risk-free interest rate, expected dividends, and the forfeitures of unvested stock options as they

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occur. The Company uses the simplified method for calculation of expected life, and volatility is based on an average of the historical volatilities of the common stock of a group of entities with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The Company currently has no history or expectation of paying cash dividends on common stock.

For the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020, respectively, no options were granted.

For the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020, total expense for unit-based compensation awards granted to employees was $47,892 and $8,047, respectively. As of June 8, 2021 and December 31, 2020, there was $177,916 and $403,092, respectively, of total unrecognized compensation expense related to unvested stock options.

The intrinsic value of options exercisable as of June 8, 2021 and December 31, 2020 was estimated to be approximately $5,000,000.

9. PERFORMANCE UNIT PLAN

On June 19, 2015, LAN and Carenection each established their own Performance Unit Plans (“PUP”). Each PUP provides a means whereby designated employees of LAN or Carenection, respectively, may be granted the opportunity to share in a portion of the value of LAN or Carenection, respectively, in connection with certain liquidity events in accordance with the terms and conditions (including vesting terms) of each specific PUP.

Pursuant to LAN’s PUP, a performance unit is a contractual right to receive the difference between the fair market value of one performance unit on the grant date and on the settlement date. LAN’s PUP includes a total of 100 performance units available to be awarded. In total, the 100 performance units shall be equal in value to ten percent of the Membership interest percentage of LAN. As of June 8, 2021, LAN’s PUP has not awarded any performance units.

Pursuant to Carenection’s PUP, a performance unit is a contractual right to receive the difference between the fair market value of one performance unit on the grant date and on the settlement date. Carenection’s PUP includes a total of ten performance units available to be awarded. In total, the ten performance units shall be equal in value to ten percent of the Membership interest percentage of Carenection.

On June 19, 2015, Carenection entered into an exchange agreement with six employees who, as of June 19, 2015, held options to purchase membership units of Carenection. The exchange agreement stipulated that the option holders exchange their options for certain performance units in Carenection. The exchange agreement awarded a total of 5.4 performance units in exchange for the membership unit options held by the six employees. In May 2018, 2.1 units related to three employees were retired. As of June 8, 2021 and June 30, 2020, there were a total of 3.3 performance units outstanding. No specific vesting requirements were mentioned in the award agreements signed by each employee, therefore, pursuant to Carenection’s PUP, the performance units vested upon grant.

The PUP agreement states that each PUP award shall become payable upon the Settlement Date, which is defined as the closing or consummation of a Liquidity Event, and not sooner. A Liquidity Event as defined by the agreement means any of the following: (i) an initial public offering (“IPO”); (ii) dissolution, liquidation or sale of all or substantially all of the business, properties, and assets of the Company; or (iii) an event in which the Company effects a transactions or series of related transactions in which more than 75% of the voting power of the Company’s ownership is disposed of or otherwise transferred. Accordingly, the Company has not recorded any impact as of June 8, 2021 and December 31, 2020.

10. EMPLOYEE BENEFIT PLAN

During January 2016, the Company sponsored, and began offering its employees the opportunity to participate in, a 401(k) retirement savings plan. All employees who have completed at least nine months of service are

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eligible to participate in the plan. Eligible employees may elect to contribute any percentage of their eligible compensation, pursuant to IRS regulations. The Company made matching contributions for the periods from April 1, 2021 to June 8, 2021 and April 1, 2020 to June 30, 2020 of $2,643 and $3,165 respectively, and for the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020 of $5,423 and $15,728 respectively.

11. REVOLVING LINE OF CREDIT

In November 2018, the Company entered into a line of credit agreement with a financial institution to borrow up to $15,000,000 (the “LOC”). The LOC is available to be drawn down on until November 21, 2021. As of June 8, 2021, the LOC had an outstanding balance of $7,253,325. The LOC accrues interest at a rate equal to the greater of 5.25% or the Prime Referenced Rate (4.75% as of June 8, 2021) plus the applicable margin. The applicable margin is 1.25% per annum. As of June 8, 2021, the applicable interest rate is 6.50%.

The LOC is secured by all real, personal, and intellectual property of the Company and guaranteed by all outstanding equity interest in the Company. The LOC contains certain financial covenants of which the Company was not in compliance at June 8, 2021 and December 31, 2020; however, the Company obtained an agreement from the bank which waived the event of default.

In February 2021, the Company modified the LOC with the senior lender, which waived an event of default based on the Company’s

non-compliance

with certain financial and

non-financial

covenants, and amended certain existing financial and

non-financial

covenants. The amendment included a modification to the covenants including allowing the company to increase the debt under Note 14 by an additional $3 million, the removal of both the EBITDA and Revenue covenants, the introduction of a minimum monthly net cash flow measurement, minimum cash balance of $1,750,000 at the end of each calendar month and the completion of the GigCapital2, Inc. transaction by June 30, 2021 when the Notes are then due in full.

12. CONVERTIBLE NOTES PAYABLE TO RELATED PARTY

In June 2017, the Company entered into a convertible note payable agreement with the preferred unit investor in the amount of $5,000,000. The note accrues interest at a rate of 8.0% per annum and is due on February 15, 2023, as amended on January 23, 2020. The note is collateralized by all assets of the Company and subordinated to the Company’s LOC.

The note was issued with a warrant agreement to purchase 526,312 shares of common units of the Company at a price of $0.01 per share. The warrant is exercisable from the date of issuance and there is no expiry. As of June 8, 2021 and December 31, 2020, this warrant has not been exercised and remains outstanding. If the entire note is converted, the warrant is automatically cancelled. The warrant includes certain anti-dilution provisions to adjust the number of warrant units to protect the purchase rights granted under the warrant, as well as price protection provisions to adjust the exercise price for certain equity issuances. A debt discount related to this note in the amount of $1,939,552 was recognized upon grant. The discount was amortized over the life of the note. Amortization expense related to the debt discount on this note was $0 and $142,822 for the periods from April 1, 2021 to June 8, 2021 and April 1, 2020 to June 30, 2020, respectively, and $0 and $303,275 for the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020, respectively, and were included in interest expense on the consolidated statements of operations.

The Company incurred debt issuance costs of $198,091 during the year ended December 31, 2017 related to this note, of which $0 and $14,587 was amortized during the periods from April 1, 2021 to June 8, 2021 and April 1, 2020 to June 30, 2020, respectively, and $0 and $30,974 was amortized during the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020, respectively.

In April 2019, the Company entered into another convertible note payable agreement with the preferred unit investor in the amount of $5,000,000. $2,000,000 of this note was borrowed at initial closing in April 2019 and

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$3,000,000 was subsequently borrowed in September 2019. However, the Company and the investor have agreed that the notes will be due and payable during 2021. The note accrues interest at a rate of 8.0% per annum and is due on February 15, 2023. The note is collateralized by all assets of the Company and subordinated to the Company’s LOC. This note also includes a mandatory fee upon repayment as described: on any date of any full or partial repayment of the Note(s), in addition to the repayment of the then outstanding principal and accrued interest, the Company will also pay: (i) on or before the date that is 90 days after the Closing Date, defined as the date after purchase and sale of the initial note is closed, (the “First Period”), a repayment fee in an amount equal to the product of: (y) .25 multiplied by (z) the then outstanding principal balance of the Notes, (ii) after the First Period but on or before December 31, 2019 (the “Second Period”), a repayment fee in an amount equal to the product of: (y) .50 multiplied by (z) the then outstanding principal balance of the Notes, and (iii) at any time after the Second Period, a repayment fee in an amount equal to the product of: (y) 1.00 multiplied by (z) the then outstanding principal balance of the Notes. As a result of this provision, the Company recorded $2,500,000 of additional interest expense for the year ended December 31, 2020 and no additional interest expense for the period ended June 8, 2021.

Both convertible notes contain an optional conversion feature upon a Qualified Financing, which is defined as the closing of the sale of equity securities of the Company in which the Company receives aggregate gross sale proceeds of not less than $5,000,000. Upon the closing of a Qualified Financing, provided that such closing date occurs prior to (i) the Maturity Date and (ii) the prepayment in full of the outstanding balance under this Note, Noteholder may, in its sole discretion (the “Conversion Option”), convert all or any portion of the outstanding balance, including the principal amount then outstanding and all accrued but unpaid interest thereon (the “Convertible Balance”), into the number of Conversion Securities, defined as new securities in the Qualified Financing, obtained by dividing (i) the amount of the Convertible Balance which the Noteholder has elected to convert pursuant to the Conversion Option by (ii) the product of (a) the price per share paid by the purchasers of the New Securities, defined as the series or class of securities issued in connection with a Qualified Financing, sold in such Qualified Financing and (b) eighty percent (80%). The Company determined that these contingent conversion features were not considered derivative liabilities and did not require bifurcation.

13. CONVERTIBLE NOTES PAYABLE

In August 2017, the Company entered into a convertible note purchase agreement in the amount of $200,000. The note is payable on the earlier of the 5th anniversary of issue date (August 30, 2022) or occurrence of Event of Default, as defined in the agreement. The note contains two contingent conversion features.

The first conversion feature is a mandatory conversion upon Qualified Financing, which is defined as the closing of the sale of equity securities of the Company in which the Company receives aggregate gross sale proceeds of not less than $500,000. If there is a Qualified Financing prior to the Maturity Date, the entire Principal Amount of Note hereunder shall be automatically converted, effective as of the date of closing of the Qualified Financing, into membership units issued in the Qualified Financing (the “QualifiedFinancing Units”) at a conversion price in an amount equal to eighty percent (80%) of the price per Unit of the Qualified Financing Units sold by the Company in the Qualified Financing.

The second conversion feature is an optional conversion upon (i) the Maturity Date, (ii) any Event of Default or (iii) a Liquidity Event before the Maturity Date and prior to a Qualified Financing. If not previously repaid or converted, the entire outstanding Principal Amount, at the option of the Holder, can be converted into Common Units at a price per unit equal to the lowest cash price per unit for which such Capital Stock has been issued. The number of shares of Capital Stock to be issued upon such conversion shall be equal to the quotient obtained by dividing (i) the entire Principal Amount of this Note by (ii) the lowest cash price per share for which such Capital Stock has been issued.

Due to the adjustable nature of the conversion feature, the Company recorded this as a derivative liability. However, the Company determined the fair value of the conversion feature on the issuance date, and each subsequent reporting date, was $0, so there was no discount or derivative liability recorded.

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14. DEBT

In January 2020, the Company entered into a credit agreement with a third party lender for a term credit facility in the amount of $10,000,000. The note accrues interest at a rate ranging from 12.00%—13.25% dependent on the Company’s eligibility in any given quarter. Interest is either payable in cash quarterly with all unpaid interest and principal due upon any of the following dates: (i) maturity date in January 2023; (ii) a Liquidity Event, defined as a change of control or an initial public offering; (iii) the date of any prepayment; or (iv) such other time when amount becomes due and payable based on the agreement, or payable in kind, whereby the interest shall automatically be added to the principal balance of the loan and the sum will continue to accrue interest at the specified interest rate. During the periods from April 1, 2021 to June 8, 2021 and January 1, 2021 to June 8, 2021, the Company has incurred $227,022, and $504,002 respectively, of

paid-in-kind

interest. During the periods from April 1, 2020 to June 30, 2020 and January 1, 2020 to June 30, 2020, the Company has incurred $261,138, and $451,902 respectively, of

paid-in-kind

interest.

The credit agreement was also issued with a warrant entitling the Lender to purchase 2% of all issued and outstanding units of the Company’s common units on a fully diluted basis at the date of issuance (214,823 shares), all fully vested, at an exercise price of $0.01 per share. The warrant is exercisable from the date of issuance and there is no expiry. The warrant also allows the Lender to purchase 2% of any units issued in connection with the conversion of the notes to the preferred unit investor.

The warrant agreement was valued in 2020 using the Black-Scholes model using the following assumptions:

Expected term (in years)	3 years
Risk-free interest rate	1.48	%
Volatility	33.07	%

As of June 8, 2021, this warrant has not been exercised and remains outstanding. A debt discount related to this note in the amount of $1,304,013 was recognized upon grant based on the relative fair value of the warrant. The discount is amortized over the life of the note. Amortization expense related to the debt discount on this note was $84,912 and $194,086 for the periods from April 1, 2021 to June 8, 2021 and January 1, 2021 to June 8, 2021, respectively, and was included in interest expense on the consolidated statements of operations. The Company also incurred debt issuance costs of $241,130 related to this note; of which approximately $19,801 and $39,822 was amortized during the periods from April 1, 2021 to June 8, 2021 and January 1, 2021 to June 8, 2021, respectively.

The credit agreement contains certain financial covenants, of which the Company was not in compliance as of June 8, 2021. Accordingly, it was classified as current on the accompanying audited consolidated balance sheets. There were no penalties incurred as a result of this event of

non-compliance.

In February 2021, the Company amended the credit agreement increasing the amount from $10,000,000 to $13,000,000. No additional warrants were issued and all terms and the covenants were modified to reflect the changes in the LOC (see Note 11).

In May 2020, the Company was granted loans in the aggregate amount of $2,900,276, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The loan accrues interest at a rate of 1% per annum. Equal principal and interest payments are due monthly beginning seven months from disbursement until maturity in May 2022. The loan may be fully or partially forgiven if the loan proceeds are spent on qualifying expenses and if staffing level and salary maintenance requirements are met. The Company applied for forgiveness for all loans during 2020. During 2020, the Company received notification from the Small Business Administration (“SBA”) for forgiveness of two of the loans totaling $202,176. On June 11, 2021, the Company received notification form the SBA for forgiveness of the remaining loan totaling $2,698,100.

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15. OPERATING AND FINANCE LEASE RIGHT OF USE ASSETS

Leasing Transactions

The Company has operating leases for its corporate offices and field offices. The Company recognized a

right-of-use

asset and lease liability for operating leases based on the net present value of future minimum lease payments. Lease expense is recognized on a straight-line basis over the

non-cancelable

lease term and renewal periods that are considered reasonably certain.

The Company has finance leases for certain computer devices and network equipment. In addition to purchasing MARTTI units for use as inventory, the Company also leases units through an arrangement with a third-party lessor to be used as equipment. Leased units are used as part of the Company’s promotional program whereby the Company loans out MARTTI units for trial purposes to various customers. These units are part of the Company’s finance lease right of use assets at

year-end,

but are in the possession of customers. The Company recognized a

right-of-use

asset and lease liability for finance leases based on the net present value of future minimum lease payments. Lease expense for the Company’s finance leases is comprised of the amortization of the

right-of-use

asset and interest expense recognized based on the effective interest method.

The Company has elected to use hindsight in determining the lease term (that is, when considering lessee options to extend or terminate the lease or to purchase the underlying asset) and in assessing impairment of the entity’s

right-of

use assets. Accordingly, management’s decisions regarding lease renewals that are reasonably certain to be exercised have been incorporated as part of the lease term in

right-of-use

asset and lease liability calculations. To support these determinations, the Company evaluated each active lease at transition that included a renewal option (or options) to assess whether or not the future renewal options were reasonably certain to be exercised. The periods related to any renewal options deemed not reasonably certain to be exercised were excluded from the lease term for the

right-of-use

asset and lease liability calculations.

Lease Expense

The components of lease expense were as follows for the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020:

	January 1, 2021 to June 8, 2021			January 1, 2020 to June 30, 2020
Amortization of finance ROU assets	$	1,378,074		$	1,041,000
Interest on finance lease liabilities		132,122			168,486
Finance lease expense		1,510,196			1,209,486
Operating lease expense		730,020			797,551
Variable lease expense		—			—
Sublease income		(200,420	)		(198,538	)
Total lease expense	$	2,039,796		$	1,808,499

Supplemental Cash Flow

Supplemental cash flow information related to leases was as follows for the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020:

	January 1, 2021 to June 8, 2021		January 1, 2020 to June 30, 2020
Operating cash flows from operating leases	$	730,020	$	797,551
Operating cash flows from finance leases		132,122		168,486
Financing cash flows from finance leases		1,428,170		1,334,369
Cash paid for amounts included in the measurement of lease liabilities	$	2,290,312	$	2,300,406

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Supplemental information

Supplemental information related to leases was as follows for the periods from January 1, 2021 to June 8, 2021 and January 1, 2020 to June 30, 2020:

	January 1, 2021 to June 8, 2021			January 1, 2020 to June 30, 2020
Weighted average remaining lease term (months)
Operating leases		76			81
Finance leases		20			27
Weighted average discount rate
Operating leases		6.70	%		6.70	%
Finance leases		9.60	%		8.10	%

Maturities

As of June 8, 2021, future minimum lease payments required under leases are as follows:

	Operating leases			Finance leases			Total
Years Ending December 31
Remaining 2021	$	703,441		$	1,818,467		$	2,521,908
2022		1,374,443			1,495,388			2,869,831
2023		1,037,855			632,803			1,670,658
Thereafter		2,950,392			56,285			3,006,677
Undiscounted cash flows		6,066,131			4,002,943			10,069,074
Less: imputed interest		(1,030,956	)		(250,770	)		(1,281,726	)
Total	$	5,035,175		$	3,752,173		$	8,787,348
Reconciliation to lease liabilities:
Lease liabilities – current	$	1,041,754		$	2,358,123		$	3,399,877
Lease liabilities – non-current		3,993,421			1,394,050			5,387,471
Total lease liabilities	$	5,035,175		$	3,752,173		$	8,787,348

16. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is subject to various other claims arising in the ordinary course of its business. In the opinion of management, based in part on discussions with legal counsel, the ultimate outcome of these matters is not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

17. SUBSEQUENT EVENTS

The Company evaluated events subsequent to June 8, 2021 for their potential impact on the financial statements and disclosures through September 1, 2021, which is the date the financial statements were available to be issued. The Company believes there are no additional subsequent events to disclose.

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12,594,458 Shares

UPHEALTH, INC.

Common Stock

Preliminary Prospectus

Book-Running Manager

Oppenheimer & Co.

Co-Lead Managers

Lake Street

Northland Capital Markets

PART II—INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth all costs and expenses paid or payable by us in connection with the sale of the Common Stock being registered. All amounts shown are estimates except for the SEC registration fee.

	Amount Paid or to be Paid
SEC registration fee	$	6,723
Legal fees and expenses	$	250,000
Accounting fees and expenses	$	95,000
Financial printing and miscellaneous expenses	$	400,000
Total	$	751,723

Item 14. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law, or the DGCL, permits a corporation to indemnify its directors and officers against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlements actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties. The directors or officers must have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful. In a derivative action, an action only by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors and officers in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they must have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation. No indemnification may be made if such person must have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought must determine upon application that the defendant officers or directors are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability. The current certificate of incorporation and the bylaw of the registrant provide for indemnification by the registrant of its directors, senior officers and employees to the fullest extent permitted by applicable law.

Section 102(b)(7) of the DGCL permits a corporation to provide in its charter that a director of the corporation must not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) for payments of unlawful dividends or unlawful stock purchases or redemptions or (4) for any transaction from which the director derived an improper personal benefit. The current certificate of incorporation of the registrant provide for such limitation of liability.

We have entered into indemnification agreements with each of our directors and officers in which we have agreed to indemnify, defend and hold harmless, and also advance expenses as incurred, to the fullest extent permitted under applicable law, from damage arising from the fact that such person is or was an officer or director of our company or our subsidiaries.

The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, our amended and restated certificate of incorporation, our amended and restated bylaws, any agreement, any vote of stockholders or disinterested directors or otherwise.

We maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers.

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We have purchased and intend to maintain insurance on behalf of the registrant and any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in that capacity, subject to certain exclusions and limits of the amount of coverage.

Item 15. Recent Sales of Unregistered Securities.

On March 12, 2019, the Sponsor and Northland Investment purchased from us an aggregate of 2,500,000 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.01 per share, in a private placement. Of these, 2,378,125 Founder Shares were purchased by the Sponsor for an aggregate purchase price of approximately $23,781.25; and 121,875 Founder Shares were purchased by Northland Investment for an aggregate purchase price of approximately $1,218.75. In April 2019, we effected a stock dividend of 0.493 shares of Common Stock, resulting in the Sponsor and Northland Investment holding an aggregate of 3,732,500 shares of Common Stock. Subsequently, the Sponsor and Northland Investment sold 68,041 shares and 31,959 shares, respectively, to EarlyBird and the EarlyBird Group collectively for an aggregate purchase price of $669.79 or $0.0067 per share. In June 2019, the Company effected a stock dividend of 0.1541 shares of Common Stock for each outstanding share of Common Stock, resulting in the Sponsor, Northland Investments, EarlyBird and the EarlyBird Group holding an aggregate of 4,307,500 shares of Common Stock as of December 31, 2019. Such securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.

The Founders purchased from the Company an aggregate of 492,500 Private Placement Units at a price of $10.00 per unit in a private placement that occurred simultaneously with the completion of the initial closing of the IPO. The Founders also purchased from the Company an aggregate of 75,000 Private Placement Units at a price of $10.00 per unit in a private placement that occurred simultaneously with the completion of the second closing of the IPO with the exercise of the over-allotment option. Among the Private Placement Units, 481,250 units were purchased by the Sponsor, 29,900 units were purchased by EarlyBird, and 56,350 units were purchased by Northland Investments. Each Private Placement Unit consisted of one share of the Company’s Common Stock, $0.0001 par value, one warrant, and one right to receive one-twentieth of a share of Common Stock upon the consummation of the Company’s initial Business Combination. Warrants are exercisable for $11.50 per share, and the exercise price of the warrants may be adjusted in certain circumstances.

Each of our Founders, Northland, and Ms. McDonough is an accredited investor for purposes of Rule 501 of Regulation D. No underwriting discounts or commissions were paid with respect to such sales.

On June 9, 2021, immediately prior to the closing of the Business Combinations, we issued and sold (1) an aggregate of 3,000,000 PIPE Shares at $10.00 per share, plus 300,000 PIPE Warrants at an exercise price of $11.50 per share, for an aggregate purchase price of $30,000,000, to certain institutional investors in private placements, including Oppenheimer & Co. Inc., the placement agent for the private placements, and (2) $160,000,000 aggregate principal amount of Convertible Notes in private placements to certain institutional investors. The Convertible Notes are convertible into approximately 15,023,475 shares of Common Stock. These issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.

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Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

Exhibit No.	Description
1.1	Form of Underwriting Agreement.
2.1†**	UpHealth Business Combination Agreement, dated as of November 20, 2020 (as amended by the First Amendment dated as of January 29, 2021, the Second Amendment, dated as of March 23, 2021, and the Third Amendment, dated as of April 23, 2021), by and among GigCapital2, Inc., UpHealth Merger Sub, Inc. and UpHealth Holdings, Inc. (included as Annex A to GigCapital2’s proxy statement/prospectus filed with the SEC on February 8, 2021).
2.2†**	Cloudbreak Business Combination Agreement, dated as of November 20, 2020 (as amended by the Amendment, dated as of April 23, 2021), by and among GigCapital2, Inc., Cloudbreak Merger Sub, LLC. Cloudbreak Health, LLC, solely with respect to Section 7.15, Chirinjeev Kathuria and Mariya Pylypiv and UpHealth Holdings, Inc., and Shareholder Representative Services LLC. (included as Annex B to GigCapital2’s proxy statement/prospectus filed with the SEC on February 8, 2021).
2.3**	Agreement and Plan of Merger, by and among UpHealth Holdings, Inc., UpHealth BHS Merger Sub, Inc., Behavioral Health Service, LLC and AM Physicians LLC, dated as of November 2, 2020 (included as Exhibit 2.3 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
2.4**	Waiver and First Amendment to Agreement and Plan of Merger, by and among UpHealth Holdings, Inc., UpHealth BHS Merger Sub, Inc., BHS Merger Sub 1, LLC, Behavioral Health Service, LLC and the AM Physicians LLC, dated as of November 20, 2020 (included as Exhibit 2.4 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
2.5**	Second Amendment to Agreement and Plan of Merger, by and among UpHealth Holdings, Inc., Behavioral Health Service, LLC and the AM Physicians LLC, dated as of February 6, 2021 (included as Exhibit 2.5 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
2.6**	Agreement and Plan of Merger, by and among UpHealth Holdings, Inc., UpHealth MedQuest Merger Sub, Inc., Innovations Group, Inc. and Jeffrey R. Bray, dated as of November 2, 2020 (included as Exhibit 2.6 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
2.7**	First Amendment to Agreement and Plan of Merger, by and among UpHealth Holdings, Inc., UpHealth MedQuest Merger Sub, Inc., Innovations Group, Inc. and Jeffrey R. Bray, dated as of January 19, 2021 (included as Exhibit 2.7 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
2.8**	Amended and Restated Agreement and Plan of Merger, by and among UpHealth Holdings, Inc., UpHealth Thrasys Merger Sub, Inc., Thrasys, Inc. and Shareholder Representative Services LLC, dated as of November 20, 2020 (included as Exhibit 2.8 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
2.9**	First Amendment to Amended and Restated Agreement and Plan of Merger, by and among UpHealth Holdings, Inc., Thrasys, Inc. and Shareholder Representative Services LLC, dated as of February 17, 2021 (included as Exhibit 2.9 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
2.10**	Agreement and Plan of Merger, by and among UpHealth Holdings, Inc., UpHealth TTC Merger Sub, Inc., TTC Healthcare, Inc. and TTC Healthcare Partners, LLC, dated as of October 30, 2020 (included as Exhibit 2.10 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
2.11**	Waiver and First Amendment to Agreement and Plan of Merger, by and among UpHealth Holdings, Inc., UpHealth TTC Merger Sub, Inc., TTC Healthcare, Inc. and TTC Healthcare Partners, LLC, dated as of January 25, 2021 (included as Exhibit 2.11 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).

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Exhibit No.	Description
2.12**	Second Amendment to Agreement and Plan of Merger, by and among UpHealth Holdings, Inc., UpHealth TTC Merger Sub, Inc., TTC Healthcare, Inc. and TTC Healthcare Partners, LLC, dated as of February 8, 2021 (included as Exhibit 2.12 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
2.13**	Fourth Amendment to Business Combination Agreement, dated as of May 30, 2021, by and among GigCapital2, Inc., UpHealth Holdings, Inc. and UpHealth Merger Sub, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by GigCapital2 on June 2, 2021).
2.14**	Second Amendment, dated as of June 9, 2021, to the Business Combination Agreement, dated as of November 20, 2020, by and among GigCapital2, Inc., Cloudbreak Health, LLC, Cloudbreak Merger Sub, LLC, solely with respect to Section 7.15, Chirinjeev Kathuria and Mariya Pylypiv and UpHealth Holdings, Inc., and Shareholder Representative Services LLC (incorporated by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021).
3.1**	Second Amended and Restated Certificate of Incorporation of UpHealth, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 14, 2021).
3.2**	Amended and Restated Bylaws of UpHealth, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 14, 2021).
4.1**	Specimen Common Stock Certificate of GigCapital2, Inc. (incorporated by reference to Exhibit 4.2 of GigGapital2’s Registration Statement on Form S-1 (Registration No. 333-231337) filed with the SEC on May 9, 2019).
4.2**	Amended and Restated Warrant Agreement, dated June 9, 2021, by and between GigCapital2, Inc. and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021).
4.3**	Indenture, dated June 9, 2021, by and between UpHealth, Inc. and Wilmington Trust, National Association, a national banking association, in its capacity as trustee thereunder (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021).
5.1	Opinion of DLA Piper LLP (US).
10.1**	Unit Purchase Agreement, dated June 5, 2019, by and between GigCapital2, Inc. and GigAcquisitions2, LLC (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed by GigCapital2 on June 10, 2019).
10.2**	Unit Purchase Agreement, dated June 5, 2019, by and between GigCapital2, Inc. and EarlyBirdCapital, Inc. (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed by GigCapital2 on June 10, 2019).
10.3**	Unit Purchase Agreement, dated June 5, 2019, by and between GigCapital2, Inc. and Northland Gig 2 Investment LLC (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K, filed by GigCapital2 on June 10, 2019).
10.4#**	GigCapital2, Inc. 2021 Equity Incentive Plan (included as Annex K to GigCapital2’s proxy statement/prospectus filed with the SEC on February 8, 2021).
10.5**	Stockholder Support Agreement dated as of November 20, 2020, by and among GigCapital2, Inc. and certain stockholders of UpHealth Holdings, Inc. (included as Annex D to GigCapital2’s proxy statement/prospectus filed with the SEC on February 8, 2021).
10.6**	Member Support Agreement, dated as of November 20, 2020, by and among GigCapital2, Inc. and certain members of Cloudbreak Health, LLC (included as Annex E to GigCapital2’s proxy statement/prospectus filed with the SEC on February 8, 2021).

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Exhibit No.	Description
10.7**	Sponsor Support Agreement, dated as of November 20, 2020, by and among GigCapital2, Inc., GigAcquisitions2, LLC and Cloudbreak Health, LLC (included as Annex F to GigCapital2’s proxy statement/prospectus filed with the SEC on February 8, 2021).
10.8**	Form of PIPE Subscription Agreement (included as Annex I to GigCapital2’s proxy statement/ prospectus filed with the SEC on February 8, 2021).
10.9**	Form of Convertible Note Subscription Agreement (included as Annex J to GigCapital2’s proxy statement/prospectus filed with the SEC on February 8, 2021).
10.10#**	Amended & Restated Employment Offer Letter (Martin S.A. Beck) (included as Exhibit 10.10 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
10.11#**	Amended & Restated Employment Offer Letter (Alfonso W. Gatmaitan) (included as Exhibit 10.11 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
10.12#**	Amended & Restated Employment Offer Letter (Chirinjeev Kathuria) (included as Exhibit 10.12 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
10.13#**	Amended & Restated Employment Offer Letter (Mariya Pylypiv) (included as Exhibit 10.13 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
10.14#**	Ramesh Balakrishnan Employment Agreement (included as Exhibit 10.14 to GigCapital2’s Form S-4/A filed with the SEC on March 23, 2021).
10.15**	Forward Share Purchase Agreement dated June 3, 2021, by and between GigCapital2, Inc. and Kepos Alpha Master Fund L.P. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed by GigCapital2 on June 4, 2021).
10.16**	Form of Amendment to Subscription Agreement (PIPE), dated June 8, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 14, 2021)
10.17**	Form of Amendment to Subscription Agreement (Reduction in Purchase Amount), dated June 8, 2021 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 14, 2021)
10.18**	Form of Termination of Subscription Agreement, dated June 8, 2021 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 14, 2021)
10.19**	Registration Rights and Lockup Agreement, dated June 9, 2021, by and among UpHealth, Inc. and certain stockholders (Cloudbreak) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021)
10.20**	Registration Rights and Lockup Agreement, dated June 9, 2021, by and among UpHealth, Inc. and certain stockholders (UpHealth Holdings) (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021)
10.21#**	Cloudbreak Health LLC 2015 Unit Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021)
10.22#**	Form of Cloudbreak Health LLC Unit Option Agreement (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021)
10.23#**	2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021)
10.24#**	Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021)
10.25#**	Form of Option Agreement (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021)
23.1	Consent of DLA Piper LLP (US) (included in Exhibit 5.1).
23.2	Consent of Plante & Moran, PLLC, with respect to Thrasys.
23.3	Consent of Plante & Moran, PLLC, with respect to Innovations Group.

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Exhibit No.	Description
23.4	Consent of Plante & Moran, PLLC, with respect to TTC Healthcare.
23.5	Consent of Plante & Moran, PLLC, with respect to Behavioral Health Services.
23.6	Consent of D. K. Chhajer & Co., PLLC, with respect to Glocal.
23.7	Consent of Hall & Company, with respect to Cloudbreak.
23.8	Consent of Macias Gini & O’Connell LLP, with respect to Cloudbreak.
23.9	Consent of Plante & Moran, PLLC, with respect to UpHealth Holdings, Inc.
24.1**	Power of Attorney, incorporated by reference to page II-9 to initial filing of this Registration Statement on Form S-1.
101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the Inline XBRL document).
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	The Cover Page Interactive Data File, formatted in Inline XBRL (included within the Exhibit 101 attachments).

** Previously filed.

† Certain exhibits and schedules to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish a copy of the omitted exhibits and schedules to the SEC on a supplemental basis upon its request.

# Indicates management contract or compensatory plan or arrangement

(b) Financial Statements . The financial statements filed as part of this registration statement are listed in the index to the financial statements immediately preceding such financial statements, which index to the financial statements is incorporated herein by reference.

Item 17. Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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The undersigned hereby undertakes that:

1) The undersigned Registrant will provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

2) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

3) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form

S-1

and has duly caused this registration statement on Form

S-1

to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on this 27th day of September, 2021.

UPHEALTH, INC.
By:	/s/ Dr. Ramesh Balakrishnan
Name:	Dr. Ramesh Balakrishnan
Title:	Chief Executive Officer

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Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form

S-1

has been signed below by the following persons on behalf of UpHealth, Inc. in the capacities and on the dates indicated.

Name	Title	Date
/s/ Ramesh Balakrishnan Dr. Ramesh Balakrishnan	Chief Executive Officer ( Principal Executive Officer )	September 27, 2021
/s/ Martin S. A. Beck Martin S. A. Beck	Chief Financial Officer ( Principal Accounting and Financial Officer )	September 27, 2021
* Dr. Chirinjeev Kathuria	Co-Chairman of the Board of Directors	September 27, 2021
* Dr. Avi S. Katz	Co-Chairman of the Board of Directors	September 27, 2021
* Moshe Bar-Siman-Tov	Director	September 27, 2021
* Dr. Raluca Dinu	Director	September 27, 2021
* Nathan Locke	Director	September 27, 2021
* Neil Miotto	Director	September 27, 2021
* Dr. Mariya Pylypiv	Director	September 27, 2021
* Agnès Rey-Giraud	Director	September 27, 2021
* Jerome Ringo	Director	September 27, 2021

*By:	/s/ Dr. Ramesh Balakrishnan
	Dr. Ramesh Balakrishnan Attorney-in-fact

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