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0001582982 CCLD：遠程患者監測會員 2024-01-01 2024-09-30 0001582982 CCLD：遠程患者監測會員 2023-01-01 2023-09-30 0001582982 CCLD：專業服務會員 未結帳收入會員 2024-01-01 2024-09-30 0001582982 CCLD：專業服務會員 未結帳收入會員 2023-01-01 2023-09-30 0001582982 CCLD：收入循環管理會員 2024-09-30 0001582982 CCLD：集團採購服務會員 2024-09-30 0001582982 CCLD：轉介費用會員 2024-09-30 0001582982 us-gaap：其他非流動資產成員 2024-09-30 0001582982 us-gaap：其他非流動資產成員 2023-09-30 0001582982 US-GAAP：應收帳款成員 美元指數:會計準則更新2016年第13號成員 2023-01-01 0001582982 美元指數：受限制股票單位RSU會員 us-gaap：普通股成員 2024-09-30 0001582982 美元指數：受限制股票單位RSU會員 us-gaap:優先股成員 美元指數：APreferredStock會員 2024-09-30 0001582982 美元指數：受限制股票單位RSU會員 us-gaap:優先股成員 US-GAAP：B系列優先股成員 2024-09-30 0001582982 US-GAAP：B系列優先股成員 2023-10-01 2023-10-31 0001582982 US-GAAP：B系列優先股成員 2024-01-01 2024-09-30 0001582982 US-GAAP：B系列優先股成員 2024-03-01 2024-03-31 0001582982 US-GAAP：B系列優先股成員 2024-05-01 2024-05-31 0001582982 US-GAAP：B系列優先股成員 2024-07-01 2024-09-30 0001582982 srt : 董事成員 2024-01-01 2024-09-30 0001582982 美元指數：受限制股票單位RSU會員 us-gaap：普通股成員 2023-12-31 0001582982 美元指數：受限制股票單位RSU會員 美元指數：APreferredStock會員 2023-12-31 0001582982 美元指數：受限制股票單位RSU會員 US-GAAP：B系列優先股成員 2023-12-31 0001582982 美元指數：受限制股票單位RSU會員 us-gaap：普通股成員 2024-01-01 2024-09-30 0001582982 美元指數：受限制股票單位RSU會員 美元指數：APreferredStock會員 2024-01-01 2024-09-30 0001582982 美元指數：受限制股票單位RSU會員 US-GAAP：B系列優先股成員 2024-01-01 2024-09-30 0001582982 美元指數：受限制股票單位RSU會員 美元指數：APreferredStock會員 2024-09-30 0001582982 美元指數：受限制股票單位RSU會員 US-GAAP：B系列優先股成員 2024-09-30 0001582982 美元指數：受限制股票單位RSU會員 us-gaap：普通股成員 2022-12-31 0001582982 美元指數：受限制股票單位RSU會員 美元指數：APreferredStock會員 2022-12-31 0001582982 美元指數：受限制股票單位RSU會員 US-GAAP：B系列優先股成員 2022-12-31 0001582982 美元指數：受限制股票單位RSU會員 us-gaap：普通股成員 2023-01-01 2023-09-30 0001582982 美元指數：受限制股票單位RSU會員 美元指數：APreferredStock會員 2023-01-01 2023-09-30 0001582982 美元指數：受限制股票單位RSU會員 US-GAAP：B系列優先股成員 2023-01-01 2023-09-30 0001582982 美元指數：受限制股票單位RSU會員 us-gaap：普通股成員 2023-09-30 0001582982 美元指數：受限制股票單位RSU會員 美元指數：APreferredStock會員 2023-09-30 0001582982 美元指數：受限制股票單位RSU會員 US-GAAP：B系列優先股成員 2023-09-30 0001582982 CCLD：直接運營成本會員 2024-07-01 2024-09-30 0001582982 CCLD：直接運營成本會員 2023-07-01 2023-09-30 0001582982 CCLD：直接運營成本會員 2024-01-01 2024-09-30 0001582982 CCLD：直接運營成本會員 2023-01-01 2023-09-30 0001582982 美元指數:總務及行政費用成員 2024-07-01 2024-09-30 0001582982 美元指數:總務及行政費用成員 2023-07-01 2023-09-30 0001582982 美元指數:總務及行政費用成員 2024-01-01 2024-09-30 0001582982 美元指數:總務及行政費用成員 2023-01-01 2023-09-30 0001582982 us-gaap:研究與開發費用成員 2024-07-01 2024-09-30 0001582982 us-gaap:研究與開發費用成員 2023-07-01 2023-09-30 0001582982 us-gaap:研究與開發費用成員 2024-01-01 2024-09-30 0001582982 us-gaap:研究與開發費用成員 2023-01-01 2023-09-30 0001582982 us-gaap：銷售和行銷費用成員 2024-07-01 2024-09-30 0001582982 us-gaap：銷售和行銷費用成員 2023-07-01 2023-09-30 0001582982 us-gaap：銷售和行銷費用成員 2024-01-01 2024-09-30 0001582982 us-gaap：銷售和行銷費用成員 2023-01-01 2023-09-30 0001582982 CCLD：醫療信息技術成員 2024-01-01 2024-09-30 0001582982 CCLD：未分配的企業開支成員 2024-01-01 2024-09-30 0001582982 CCLD：醫療信息技術成員 2024-07-01 2024-09-30 0001582982 CCLD：未分配的企業開支成員 2024-07-01 2024-09-30 0001582982 CCLD：醫療信息技術成員 2023-01-01 2023-09-30 0001582982 CCLD：未分配的企業開支成員 2023-01-01 2023-09-30 0001582982 CCLD: 醫療IT成員 2023-07-01 2023-09-30 0001582982 CCLD: 未分配企業費用成員 2023-07-01 2023-09-30 0001582982 CCLD: SVB信貸設施成員 CCLD: 第九次貸款修改協議成員 2024-09-30 0001582982 us-gaap：後續事項成員 CCLD: SVB信貸設施成員 CCLD: 第九次貸款修改協議成員 2024-10-31 iso4217:美元指數 xbrli:股份 iso4217:美元指數 xbrli:股份 CCLD:部門 純種成員

 

 

 

美國

證券交易委員會 及交易所

華盛頓特區，20549

 

表單 10-Q

 

(標記 一個)

 

☒季度 報告根據1934年證券交易法第13或15(d)條

 

截至年度季度結束 九月三十日， 2024

 

或

 

☐過渡 根據1934年證券交易法第13或15(d)節的報告

 

在 過渡期從至

 

委員會 檔案號碼： 001-36529

 

 

 

CareCloud, 公司。

(根據公司章程所述的註冊人的正確名稱)

 

特拉華   22-3832302

（註冊地點或其他管轄區的州份

註冊或組織）

 

（聯邦國稅局雇主身分識別號碼）

識別號碼

 

7 Clyde Road

Somerset, 新澤西州

  

08873

（總執行辦公室地址）   （郵政編碼）

 

(732) 873-5133

（申報人的電話號碼，包括區號）

 

根據該法案第12(b)條紀錄的證券：

 

每個類別的標題   交易標誌   在哪個交易所上市的名字
普通股，每股面值$0.001   CCLD   納斯達克全球市場
8.75% A类累積可贖回永續優先股，每股面值0.001美元  

CCLDP

  

納斯達克 全球市場

8.75% B 級累積贖回永續優先股，每股面額為$0.001  

CCLDO

  

納斯達克 全球貨幣市場

 

勾選表示公司已按照證券交易法第13或15(d)條款的規定，在過去12個月（或公司需要提交此類報告的較短期限內）提交了所有所需的報告；並且公司在過去90天內一直受到此類提交報告的要求。 Yes ☒ No ☐

 

請通過勾選的方式指明註冊人是否在過去12個月（或註冊人被要求提交此類文件的較短期間）內，電子提交了根據規則405（本章第232.405條）要求提交的每個互動數據文件。 是 ☒ 否 ☐

 

請勾選以下選項，指明掛牌者是否為大型快速申報掛牌者、快速申報掛牌者、非快速申報掛牌者、較小型的報告公司或新興成長型公司。關於Exchange Act第1202條中「大型快速申報掛牌者」、「快速申報掛牌者」、「較小型報告公司」和「新興成長型公司」的定義，請參閱。

 

 

大型 加速上市公司 ☐ 加速上市公司 ☐
非加速報告人 ☒ 較小的 報告公司 ☒
新興 增長公司 ☐

 

若屬新興成長公司，則請在適用於依據第13(a)款擬定的任何新或修訂財務會計準則時，打勾表示註冊人已選擇不使用過度過渡期遵守該準則。 ☐

 

請勾選是否登記者為外殼公司（依照交易所法規120億2的定義）。是 ☐ 否 ☒

 

截至2024年11月5日，註冊人擁有 16,239,777 普通股，面值 $ 0.001 每股，未發售。

 

 

 

 
 

 

指數

 

    頁
前瞻性聲明 2 
  第一部分 財務信息  
     
項目 1. 基本報表合併財務報表 (未經審核) 4
  截至2024年9月30日和2023年12月31日的合併資產負債表 4
  截至2024年和2023年9月30日的三個月和九個月的合併營業報表 5
  截至2024年和2023年9月30日的三個月和九個月的合併全面收益（損失）報表 6
  截至2024年和2023年9月30日的三個月和九個月的合併股東權益壓縮基本報表 7
  截至2024年和2023年9月30日的九個月的合併現金流量壓縮基本報表 8
  附註至簡明綜合財務報表 9
項目 2. 管理層對 財務狀況 和 經營成果 的討論與分析 27
項目 3. 關於市場風險的定量和定性披露 39
項目 4. 控制項和程序 39
     
第二部分。其他信息
     
項目 1. 法律程序 40
項目 1A. 風險因素 40
項目 2. 未註冊的股權證券銷售及資金用途 40
項目 3. 高級證券的默認情況 40
項目 4. 礦山安全披露 40
項目 5. 其他資訊 40
項目 6. 展品 40
簽名 41

 

1
 

 

前瞻性 聲明

 

某些 我們不時作出的聲明，包括本季度報告第10-Q表格中的聲明，構成了1933年證券法第27A條的「前瞻性 聲明」，以及1934年證券交易法第21E條的「交易所法」。 本季度報告第10-Q表格中其他所有非歷史事實的聲明均爲前瞻性聲明。這些聲明涉及預期的未來事件、未來的經營結果或未來的財務績效。在某些情況下，您可以通過諸如「可能」、「或許」、「將」、「應」、「應該」、「能夠」、「意圖」、「期望」、「計劃」、「目標」、「項目」、「預期」、「相信」、「尋求」、「估計」、「預測」、「預示」、「可能的」、「潛在的」、「目標」或「繼續」或這些術語的否定形式或其他可比術語來識別前瞻性聲明。我們的運營涉及風險和不確定性，其中許多超出我們的控制，任何一個或多個可能會對我們的經營結果產生重大影響，以及這些前瞻性聲明最終是否證明是正確的。本季度報告第10-Q表格中的前瞻性聲明包括但不限於反映管理層對未來財務績效和經營支出的預期（包括我們能夠繼續作爲一個持續經營的實體、籌集額外資金以及在未來的運營中取得成功）、預期的增長、盈利能力和業務前景、增加的銷售和營銷費用，以及我們收購整合的預期結果。

 

前瞻性 聲明僅是預測，不確定，並涉及實質性的已知和未知風險、不確定性以及其他因素，可能導致我們（或我們的行業）實際結果、活動水平或績效與這些前瞻性聲明所表達或隱含的未來結果、活動水平或績效存在重大差異。這些因素包括但不限於，我們認爲可能導致實際結果與這些前瞻性聲明相差的未知風險和不確定性，這些內容在我們提交給美國證券交易委員會的2024年3月21日的10-K年報中「風險因素」項下闡述。新的風險和不確定性會不時出現，我們無法預測所有可能影響前瞻性聲明的風險和不確定性，包括但不限於，涉及的風險和不確定性：

 

●我們的 增長管理能力，包括收購、合作與有效整合 收購的企業到我們的製造行業，並避免與 被收購的公司和資產相關的法律風險和責任；

 

●我們 保持客戶和營業收入水平的能力，包括有效地遷移新客戶 並維持或提高新客戶和現有客戶的營業收入水平；

 

●我們在巴基斯坦、阿扎德克什米爾和斯里蘭卡（統稱爲「離岸辦事處」）維持運營的能力，能夠讓我們繼續提供具有競爭力的價格產品和服務；

 

●我們 保持與快速變化的醫療行業板塊同步的能力；

 

●我們 有能力持續實現並維持對衆多聯邦、州、外國、地方、支付方和行業板塊要求、法規、規則、法律及合同的合規性；

 

●我們 保持和保護公司、客戶 和患者信息隱私的能力；

 

●我們的 開發新技術、升級和調整傳統及收購技術以適應不斷髮展的行業標準和第三方軟體平台和技術的能力，以及保護和執行所有這些及其他知識產權;

 

●我們 吸引和留住關鍵高管和員工的能力，以及馬哈茂德·哈克作爲執行主席和A·哈迪·喬杜裏作爲首席執行官的持續參與，這些對於我們持續運營和業務增長至關重要；

 

●我們實現預期的成本節約和來自重組活動及結構性成本削減的利益的能力;

 

●我們 遵守與我們的高級擔保貸方硅谷銀行（First Citizens Bank的一個部門）及其他未來債務融資的信貸協議中包含的契約的能力；

 

●我們 恢復並持續向我們的A系列和B系列優先股股東支付每月分紅派息的能力；

 

●我們的 能力比我們的競爭對手更快、更成功地將人工智能融入我們的產品中， 保護醫療記錄的隱私和網絡安全威脅;

 

●我們的 競爭能力與其他開發產品和銷售與我們競爭的服務的公司相比，他們可能擁有比我們更強的資源和知名度；

 

2
 

 

●我們的 有效整合、管理和保持我們信息系統在網絡攻擊事件中安全和運營的能力；

 

●我們 應對因大流行、流行病或其他公共 衛生緊急事件引起的不確定性的能力，以及這些事件可能對我們的運營、服務需求、 我們的預計運營結果、財務表現或其他財務指標的影響，以及上述風險和經濟活動的一般情況;

 

●我們能夠保持並提高我們產品和服務的市場接受度;

 

●國內和國外的業務、市場、金融、政治和法律條件的變化；以及

 

●其他 在本季度10-Q表格報告或我們其他向證券 交易所（「SEC」）提交的文件中披露的因素。

 

本季度10-Q表格中包含的前瞻性聲明基於我們截至本季度10-Q表格日期的當前預期、信念和看法，涉及未來的發展及其對我們業務的潛在影響。儘管我們認爲本季度10-Q表格中包含的前瞻性聲明反映的預期是合理的，但我們無法保證未來的結果、活動水平、業績或成就。我們預期後續事件和發展可能會導致我們的評估發生變化。除法律要求外，我們沒有義務更新或修訂任何此類前瞻性聲明，無論是由於新信息、未來事件，或其他原因，在本季度10-Q表格日期之後。

 

您 應該閱讀本季度10-Q表格報告，同時理解我們的實際未來結果、活動水平、表現 以及事件和情況可能與我們目前的預期有重大不同。本報告中包含的前瞻性陳述 不應被視爲我們在本季度10-Q報告日期之後任何日期的評估。

 

3
 

 

部分 I. 財務信息

項目 1. 簡化合並基本報表

 

CARECLOUD公司

簡明合併資產負債表

(單位：千美元，除股數和每股金額外)

 

 

   2023年9月30日，   12月31日， 
   2024   2023 
   (未審核)     
資產          
流動資產：          
現金  $2,782   $3,331 
應收賬款 - 淨額   11,992    11,888 
合同資產   4,617    5,094 
庫存   514    465 
流動資產 - 關聯方   16    16 
預付費用和其他流動資產   2,741    2,449 
流動資產總計   22,662    23,243 
物業和設備 - 淨值   4,894    5,317 
經營租賃使用權資產   3,310    4,365 
無形資產 - 淨值   20,106    25,074 
商譽   19,186    19,186 
其他資產   536    641 
總資產  $70,694   $77,826 
負債和股東權益          
流動負債：          
應付賬款  $5,567   $5,798 
應計薪酬   2,545    3,444 
應計費用   5,138    5,065 
經營租賃負債（流動部分）   1,424    1,888 
遞延營業收入（流動部分）   1,312    1,380 
應付款項（流動部分）   506    292 
應付分紅   5,438    5,433 
總流動負債   21,930    23,300 
應付票據   29    37 
信用額度下的借款   -    10,000 
經營租賃負債   1,900    2,516 
遞延收入   327    256 
總負債   24,186    36,109 
承諾和或有事項（註釋7）   -    - 
股東權益：          
優先股，$0.001 面值 - 授權 7,000,000 股數。A系列，已發行和流通 4,526,231 截至2024年9月30日和2023年12月31日的股數。B系列，已發行和流通 1,482,792 和 1,468,792 截止2024年9月30日和2023年12月31日的股份   6    6 
普通股，$0.001 面值 - 授權 35,000,000 股份。在2024年9月30日和2023年12月31日發佈的 16,962,619 和 16,620,891 股份。 16,221,820 和 15,880,092 截止2024年9月30日和2023年12月31日的股份   17    17 
額外實收資本   121,033    120,706 
累計虧損   (69,926)   (74,481)
累計其他綜合虧損   (3,960)   (3,869)
減： 740,799 截至2024年9月30日和2023年12月31日以成本計算的庫存普通股   (662)   (662)
股東權益總額   46,508    41,717 
總負債及股東權益  $70,694   $77,826 

 

請參閱簡化合並基本報表的附註。

 

4
 

 

CARECLOUD公司

壓縮合並經營報表（未經審計）

（$ 以千爲單位，除每股及每股金額外）

 

 

                 
   截至三個月   截至九個月 
   2023年9月30日，   2023年9月30日， 
   2024   2023   2024   2023 
淨營業收入  $28,546   $29,280   $82,598   $88,643 
營業費用：                    
直接營業費用   15,420    18,260    45,839    53,843 
銷售和市場營銷   1,375    2,337    4,809    7,529 
一般和行政管理   4,378    5,482    12,127    16,518 
研發   800    1,260    2,768    3,523 
折舊和攤銷   3,241    3,903    10,885    10,282 
租約終止損失、空置租約費用和重組成本   67    8    505    430 
總營業費用   25,281    31,250    76,933    92,125 
營業收入（損失）   3,265    (1,970)   5,665    (3,482)
其他:                    
利息收入   17    52    68    124 
利息支出   (179)   (352)   (832)   (829)
其他收入（支出） - 淨額   60    (422)   (227)   (591)
稅前收入（損失）   3,163    (2,692)   4,674    (4,778)
所得稅準備   41    57    119    204 
凈利潤（虧損）  $3,122   $(2,749)  $4,555   $(4,982)
                     
優先股股息   3,789    3,916    9,024    11,757 
歸屬於普通股東的淨虧損  $(667)  $(6,665)  $(4,469)  $(16,739)
                     
每普通股淨虧損：基本和攤薄  $(0.04)  $(0.42)  $(0.28)  $(1.07)
用於計算基本每股虧損和稀釋每股虧損的加權平均普通股股份   16,195,363    15,760,499    16,114,330    15,600,361 

 

請參見簡化合並基本報表的說明。

 

5
 

 

CARECLOUD, INC.  

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

($ in thousands)

 

 

                 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
NET INCOME (LOSS)  $3,122   $(2,749)  $4,555   $(4,982)
OTHER COMPREHENSIVE (LOSS) INCOME                    
Foreign currency translation adjustment (a)   (51)   362    (91)   (1,255)
COMPREHENSIVE INCOME (LOSS)  $3,071   $(2,387)  $4,464   $(6,237)
                     

 

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

 

See notes to condensed consolidated financial statements.

 

6
 

 

CARECLOUD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND SEPTEMBER 30, 2023

($ in thousands, except for number of shares)

 

 

                                             
   優先股系列A   優先股系列B   普通股   額外繳入資本   累計的   其他綜合收益累積   國債（普通股）  

總計

股東權益

 
   股份   金額   股份   金額   股份   金額   資本   赤字   損失   股票   股權 
餘額 - 2024年1月1日   4,526,231   $5    1,468,792   $1    16,620,891   $17   $120,706   $(74,481)  $(3,869)  $(662)  $41,717 
淨虧損   -    -    -    -    -    -    -    (241)   -    -    (241)
外幣轉換調整   -    -    -    -    -    -    -    -    28    -    28 
根據股權激勵計劃發行股票   -    -    14,000    -    238,400    -    -    -    -    -    - 
基於股票的補償，扣除現金結算   -    -    -    -    -    -    (79)   -    -    -    (79)
優先股股息   -    -    -    -    -    -    (5)   -    -    -    (5)
餘額 - 2024年3月31日   4,526,231   $5    1,482,792   $1    16,859,291   $17   $120,622   $(74,722)  $(3,841)  $(662)  $41,420 
                                                        
餘額 - 2024年4月1日   4,526,231   $5    1,482,792   $1    16,859,291   $17   $120,622   $(74,722)  $(3,841)  $(662)  $41,420 
凈利潤   -    -    -    -    -    -    -    1,674    -    -    1,674 
外幣轉換調整   -    -    -    -    -    -    -    -    (68)   -    (68)
根據股權激勵計劃發行股票   -    -    -    -    26,695    -    -    -    -    -    - 
基於股票的薪酬，扣除現金結算   -    -    -    -    -    -    218    -    -    -    218 
餘額 - 2024年6月30日   4,526,231   $5    1,482,792   $1    16,885,986   $17   $120,840   $(73,048)  $(3,909)  $(662)  $43,244 
                                                        
餘額 - 2024年7月1日   4,526,231   $5    1,482,792   $1    16,885,986   $17   $120,840   $(73,048)  $(3,909)  $(662)  $43,244 
凈利潤   -    -    -    -    -    -    -    3,122    -    -    3,122 
外幣轉換調整   -    -    -    -    -    -    -    -    (51)   -    (51)
根據股權激勵計劃發行股票   -    -    -    -    76,633    -    -    -    -    -    - 
基於股票的補償，扣除現金結算   -    -    -    -    -    -    193    -    -    -    193 
餘額 - 2024年9月30日   4,526,231   $5    1,482,792   $1    16,962,619   $17   $121,033   $(69,926)  $(3,960)  $(662)  $46,508 
                                                        
餘額 - 2023年1月1日，採用ASC 326之前   4,526,231   $5    1,344,128   $1    15,970,204   $16   $130,987   $(25,621)  $(3,037)  $(662)  $101,689 
採納ASC 326的累積影響   -    -    -    -    -    -    -    (186)   -    -    (186)
餘額 - 2023年1月1日，採用後   4,526,231    5    1,344,128    1    15,970,204    16    130,987    (25,807)   (3,037)   (662)   101,503 
淨虧損   -    -    -    -    -    -    -    (401)   -    -    (401)
外幣轉換調整   -    -    -    -    -    -    -    -    (1,711)   -    (1,711)
根據股權激勵計劃發行股票   -    -    41,491    -    343,203    -    -    -    -    -    - 
以股票爲基礎的補償，扣除現金結算   -    -    -    -    -    -    1,185    -    -    -    1,185 
用於服務的股份   -    -    -    -    20,000    -    -    -    -    -    - 
發行B系列優先股   -    -    59,773    -    -    -    1,437    -    -    -    1,437 
優先股股息   -    -    -    -    -    -    (3,931)   -    -    -    (3,931)
餘額 - 2023年3月31日   4,526,231   $5    1,445,392   $1    16,333,407   $16   $129,678   $(26,208)  $(4,748)  $(662)  $98,082 
                                                        
餘額 - 2023年4月1日   4,526,231   $5    1,445,392   $1    16,333,407   $16   $129,678   $(26,208)  $(4,748)  $(662)  $98,082 
淨虧損   -    -    -    -    -    -    -    (1,832)   -    -    (1,832)
外幣轉換調整   -    -    -    -    -    -    -    -    94    -    94 
根據股權激勵計劃發行股票   -    -    9,000    -    15,489    -    -    -    -    -    - 
股票基礎的補償，扣除現金結算   -    -    -    -    -    -    1,089    -    -    -    1,089 
用於服務的股份   -    -    -    -    20,000    -    -    -    -    -    - 
優先股股息   -    -    -    -    -    -    (3,910)   -    -    -    (3,910)
餘額 - 2023年6月30日   4,526,231   $5    1,454,392   $1    16,368,896   $16   $126,857   $(28,040)  $(4,654)  $(662)  $93,523 
                                                        
餘額 - 2023年7月1日   4,526,231   $5    1,454,392   $1    16,368,896   $16   $126,857   $(28,040)  $(4,654)  $(662)  $93,523 
淨虧損   -    -    -    -    -    -    -    (2,749)   -    -    (2,749)
外幣轉換調整   -    -    -    -    -    -    -    -    362    -    362 
根據股權激勵計劃發行股票   -    -    9,000    -    229,553    1    -    -    -    -    1 
基於股票的補償，扣除現金結算   -    -    -    -    -    -    931    -    -    -    931 
優先股股息   -    -    -    -    -    -    (3,916)   -    -    -    (3,916)
餘額 - 2023年9月30日   4,526,231   $5    1,463,392   $1    16,598,449   $17   $123,872   $(30,789)  $(4,292)  $(662)  $88,152 

 

截至2023年9月的九個月內，優先股的送轉按每月支付，利率爲$2.75 和$2.19 分別適用於A系列和B系列，每股每年。

否 截至2024年9月的九個月內，已宣佈或支付了分紅派息。

請參見簡化合並基本報表的說明。

 

7
 

 

CARECLOUD公司

簡化合並現金流量表（未經審計）

截至2024年和2023年9月30日的九個月

(單位：千美元)

 

 

   2024   2023 
經營活動：          
凈利潤（虧損）  $4,555   $(4,982)
調整凈利潤（虧損）與營業活動提供的淨現金的調節：          
折舊和攤銷   11,138    10,672 
租賃攤銷   1,502    1,618 
遞延收入   3    221 
預期信用損失準備金   284    389 
遞延所得稅的準備   -    81 
匯率期貨（收益）損失   (114)   596 
利息累積   465    493 
基於股票的薪酬費用（收益）   (191)   3,783 
經營資產和負債的變動：          
應收賬款   (388)   1,889 
合同資產   477    (549)
庫存   (49)   (97)
其他資產   (63)   (117)
應付賬款及其他負債   (2,206)   (2,276)
經營活動提供的淨現金   15,413    11,721 
投資活動：          
購置物業和設備   (759)   (2,687)
資本化軟體和其他無形資產   (4,385)   (6,635)
投資活動使用的淨現金   (5,144)   (9,322)
融資活動：          
優先股股息支付   -    (11,691)
員工持股的稅收扣繳義務結算   (200)   (1,425)
應付票據的償還   (478)   (717)
發行B系列優先股票的收益，扣除費用後   -    1,427 
信用額度的收入   -    14,700 
信貸額度的償還   (10,000)   (10,700)
融資活動中使用的淨現金   (10,678)   (8,406)
匯率變動對現金的影響   (140)   114 
現金淨減少   (549)   (5,893)
現金 - 期初餘額   3,331    12,299 
現金 - 期末餘額  $2,782   $6,406 
補充非現金投資和融資活動：          
已宣告但未支付的分紅  $5   $4,125 
購買預付保險並承擔票據  $685   $620 
重新分類爲已投入使用的物業和設備存款  $296   $- 
補充信息 - 本期間支付的現金：          
所得稅  $145   $131 
利息  $642   $630 

 

請參閱簡化合並基本報表的說明。

 

8
 

 

CARECLOUD, INC.

備註 關於簡化合並基本報表

截至2024年9月30日的三個月和九個月的情況

和 2023年（未經審計）

 

1. 組織與業務

 

CareCloud， 公司（連同其合併子公司，"CareCloud"，"公司"，"我們"，"我們"和/或"我們的"）是一個領先的提供科技驅動服務和解決方案的公司，重新定義了醫療營業收入週期。 我們提供科技驅動的營業收入管理和一整套專有的基於雲的解決方案，服務於醫療提供者， 從小型診所到大型醫療集團、醫院和整個美國的健康系統。如今，醫療組織在極其複雜和受監管的環境中運營。我們的科技驅動解決方案組合幫助我們的客戶提高財務 和運營表現，簡化臨牀工作流程，並改善患者體驗。

 

我們的 專有軟體和商業服務組合包括：通過支持科技的商業解決方案來最大化營業收入管理 ，並藉助平台無關的人工智能驅動應用程序創建效率；雲-based 軟體幫助服務提供者管理他們的實踐 和病人蔘與，同時利用分析來改善服務提供者的表現；互聯網醫療服務旨在應對基於價值的護理 並實現遠程病人護理的交付；醫療信息科技專業服務和人員配備以應對醫生職業倦怠、人員短缺 ，並利用諮詢專業知識過渡到下一代醫療；以及，醫療實踐管理服務 幫助醫療提供者設計運營模式和所需工具以運行他們的實踐。我們的高價值商業服務，例如營業收入管理，通常與我們的雲-based 軟體、高端醫療諮詢和實施服務 以及按需勞動力人員配備能力相結合，服務於全國高效能的醫療團體和醫療系統。

 

CareCloud 在新澤西州的蘇姆塞特設有總部，並在美國和巴基斯坦的離岸辦公室保持客戶壓力位團隊 以及在巴基斯坦管理的阿扎德查謨和克什米爾（「巴基斯坦辦公室」）和斯里蘭卡。 自2024年2月1日起，MTBC收購CORP（「MAC」）及其全資子公司已合併至CareCloud, Inc.（「CCI」）。 合併沒有造成財務或運營影響。

 

2. 財務報表的呈報基礎和主要會計政策摘要

 

本附帶的未經審計的簡明合併基本報表是根據美國普遍接受的會計原則（「GAAP」）爲中期財務報告所編制，並符合S-X規則第8-03條的要求。因此，它們不包括GAAP對完整基本報表所要求的所有信息和註釋。在公司管理層看來，附帶的未經審計的簡明合併基本報表包含了爲公正展示公司截至2024年9月30日的財務狀況、2024年和2023年前三個月及九個月的經營業績，以及截至2024年和2023年9月30日的現金流所需的所有調整（包括正常和經常性項目）。在按照GAAP編制基本報表時，公司必須做出影響資產和負債報告金額、財務報表日期的或有資產和負債披露以及報告期間的收入和費用的估計和假設。實際結果可能與這些估計顯著不同。簡明合併基本報表包括公司及其全資子公司的賬戶。所有的內部公司餘額和交易在合併時均已被消除。

 

附帶的未經審計的簡明合併基本報表及其附註應與截止至2023年12月31日的經過審計的合併基本報表一併閱讀，後者已包含在公司於2024年3月21日提交給SEC的10-K表格年報中。

 

9
 

 

流動性 和持續經營 — 主要是由於與我們醫療IT部門相關的營業收入下降及其商譽減值 爲$42.0 百萬，截止到2023年12月31日，公司產生了淨虧損$48.7 百萬，現金淨減少$9.0 百萬，較2022年12月31日的財年相比。截至2023年12月31日，公司有$57,000的負流動資金和現金$3.3 百萬。截止到2024年9月30日的三個月和九個月，公司有凈利潤$3.1 百萬和$4.6 百萬，截至2024年9月30日，公司擁有正的營運資金$732,000 和現金$2.8 百萬。若在2023年12月31日沒有其他措施，公司可能需要額外流動性以繼續其在未來12個月的運營。

 

然而，管理層考慮了繼續將公司作爲持續經營體的計劃，並相信通過專注於成本控制可以緩解重大疑慮。如註釋9所述，公司批准了一項重組計劃，以減少員工人數和運營成本，併產生正現金流。此外，在2023年12月，公司暫停了優先股的股息，這每月節省了大約$1.3 每月的現金，直到2024年9月11日，之後每月節省大約$1.1 股息將繼續每個月累積未付，因爲它是累積的，但在股息恢復之前不會成爲法律義務。在董事會宣佈股息之前，該股息不會被記錄爲負債。公司預計該重組計劃在2023年實施，並將在2024年底前完成，這將減少開支，從而減少持續的流動性需求，以使運營持續並遵守可預見未來的債務契約。儘管沒有保證公司會成功，但公司相信這些舉措將使其在至少未來12個月內繼續作爲持續經營體。

 

重要 會計政策 ——截至2024年9月30日的九個月期間，公司重要會計政策與2023年12月31日止年度在向SEC提交的10-K年度報告中的披露沒有變化，該報告於2024年3月21日提交。

 

Recent Accounting Pronouncements — From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently adopted and recently issued accounting pronouncements will not have a material impact on our condensed consolidated financial position, results of operations and cash flows.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The guidance in Accounting Standards Update (“ASU”) 2016-13 replaces the incurred loss impairment methodology under current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It will apply to all entities. For trade receivables, loans and held-to-maturity debt securities, entities will be required to estimate lifetime expected credit losses. This may result in the earlier recognition of credit losses. In November 2019, the FASB issued ASU No. 2019-10, which delayed this standard’s effective date for SEC smaller reporting companies to the fiscal years beginning on or after December 15, 2022. The Company adopted this guidance on January 1, 2023 using a modified retrospective adoption methodology, whereby the cumulative impact of all prior periods is recorded in accumulated deficit or other impacted balance sheet items upon adoption. The impact to the accumulated deficit as of January 1, 2023 was a charge of approximately $186,000 and a corresponding increase to the allowance for expected credit losses.

 

In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements – Issue 2. The amendments in this update require that leasehold improvements associated with common control leases be: (1) amortized by the lessee over the useful life of the leasehold improvements to the common control group as long as the lessee controls the use of the underlying asset through a lease and (2) accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The amendments in this update are effective for fiscal years beginning after December 15, 2023. There was no impact on the condensed consolidated financial statements as a result of this standard.

 

10
 

 

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This update amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”). The new guidance is intended to align U.S. GAAP requirements with those of the SEC and to facilitate the application of U.S. GAAP for all entities. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. If by June 30, 2027 the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the associated amendment will be removed from the Codification and will not become effective.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Disclosures. The amendments in this update improve segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The expected impact would only be to the financial statement disclosures.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. The amendments in this update enhance the transparency and decision usefulness of income tax disclosures primarily related to rate reconciliation and income taxes paid information. The update also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company does not expect this update to have a material impact on the condensed consolidated financial statements.

 

In March 2024, the FASB issued ASU 2024-02, Codification Improvements – Amendments to Remove References to the Concepts Statements. This update contains amendments to the Codification that remove references to various FASB Concepts Statements. These Codification updates are for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance and other minor improvements. The resulting amendments are referred to as Codification improvements. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect this update to have a material impact on the condensed consolidated financial statements.

 

3. GOODWILL AND INTANGIBLE ASSETS-NET

 

Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. At September 30, 2024 and December 31, 2023, approximately $90,000 of goodwill was allocated to the Medical Practice Management segment and the balance was allocated to the Healthcare IT segment.

 

The Company tests goodwill for impairment at the reporting unit level annually or more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists. As a result of a triggering event in December 2023 resulting from the decreased equity market value following the suspension of the Preferred Stock dividend, the Company updated its annual goodwill impairment test that was performed as of October 31, 2023 for the Healthcare IT segment. It was determined that the fair value of the Healthcare IT reporting unit was less than the carrying value at both October 31 and as of the date of the triggering event. Accordingly, impairment charges of approximately $42.0 million were recorded during the fourth quarter of 2023. The conclusion was based upon the value determined using the discounted cash flow method as supported by the guideline company transaction method and the guideline public company method. During the nine months ended September 30, 2024, the Company determined that there was no further impact on the valuation of goodwill.

 

The following is the summary of the carrying amount of goodwill for the nine months ended September 30, 2024 and the year ended December 31, 2023:

 

   Nine Months Ended   Year Ended 
   September 30, 2024   December 31, 2023 
   ($ in thousands) 
Beginning gross balance  $19,186   $61,186 
Impairment charges   -    (42,000)
Ending gross balance  $19,186   $19,186 

 

11
 

 

Intangible assets – net as of September 30, 2024 and December 31, 2023 consist of the following:

 

   September 30, 2024   December 31, 2023 
   ($ in thousands) 
Contracts and relationships acquired  $47,597   $47,597 
Capitalized software   33,801    29,379 
Non-compete agreements   1,236    1,236 
Other intangible assets   8,417    8,417 
Total intangible assets   91,051    86,629 
Less: Accumulated amortization   70,945    61,555 
Intangible assets - net  $20,106   $25,074 

 

Capitalized software represents payroll and development costs incurred for internally developed software. Other intangible assets primarily represent purchased intangibles. Amortization expense for the three months ended September 30, 2024 and 2023, was approximately $2.7 million and $3.4 million, respectively, and for the nine months ended September 30, 2024 and 2023, was approximately $9.4 million and $8.8 million, respectively. The weighted-average amortization period is approximately two years.

 

As of September 30, 2024, future amortization is scheduled to be expensed as follows:

 

     
Years ending December 31,  ($ in thousands) 
2024 (three months)  $2,818 
2025   9,855 
2026   5,472 
2027   1,211 
2028   300 
Thereafter   450 
Total  $20,106 

 

4. NET LOSS PER COMMON SHARE

 

The following table reconciles the weighted-average shares outstanding for basic and diluted net loss per share for the three and nine months ended September 30, 2024 and 2023:

 

   2024   2023   2024   2023 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
   ($ in thousands, except share and per share amounts) 
Basic and Diluted:                    
Net loss attributable to common shareholders  $(667)  $(6,665)  $(4,469)  $(16,739)
Weighted-average common shares used to compute basic and diluted loss per share   16,195,363    15,760,499    16,114,330    15,600,361 
Net loss attributable to common shareholders per share - basic and diluted  $(0.04)  $(0.42)  $(0.28)  $(1.07)

 

The net loss attributable to common shareholders includes the preferred stock dividend amount earned, but not declared, for the three and nine months ended September 30, 2024 of approximately $3.8 million and $9.0 million, respectively. The dividend payable at September 30, 2024 in the condensed consolidated balance sheets represents dividends declared, but not paid, through February 29, 2024.

 

12
 

 

At September 30, 2024, the 265,699 unvested equity restricted stock units (“RSUs”), as discussed in Note 12, have been excluded from the above calculations as they were anti-dilutive. All of the warrants previously outstanding expired unexercised in 2023 and are excluded from the above calculations. At September 30, 2023, the 758,160 unvested equity RSUs have been excluded from the above calculations as they were anti-dilutive. Vested RSUs, vested restricted shares and exercised warrants have been included in the above calculations.

 

5. ACCRUED EXPENSES AND DEBT

 

Accrued expenses as of September 30, 2024 and December 31, 2023 consist of the following:

 

   September 30, 2024   December 31, 2023 
   ($ in thousands) 
Accrued expenses  $3,287   $4,030 
Payable to managed practices   1,554    593 
Taxes and other   297    442 
Total  $5,138   $5,065 

 

Bank Debt —The Company has a revolving line of credit with Silicon Valley Bank (“SVB”). The Company’s credit facility is a secured revolving line of credit where borrowings are based on a formula of 200% of repeatable revenue adjusted by an annualized attrition rate as defined in the credit agreement. During February 2023, the line of credit was increased to $25 million and the term was extended for two additional years maturing on October 12, 2025. The financial covenants were also slightly modified for 2023 and subsequent years. Effective August 31, 2023, the credit facility agreement was amended whereby the interest rate was temporarily increased from the prime rate plus 1.5% to the prime rate plus 2.0% and the requirement for the minimum liquidity ratio was slightly reduced. The amendments expired March 31, 2024 and the credit facility reverted to its previous terms. During October 2024, the credit line was reduced to $10 million, which is the current unused borrowing base. (See Note 15).

 

As of September 30, 2024, there were no borrowings under the credit facility, compared to $10 million in borrowings as of December 31, 2023. Interest on the revolving line of credit was charged at the prime rate plus 2.0% for the first quarter of 2024, but decreased to the prime rate plus 1.5% on April 1, 2024. There is also a fee of one-half of 1% annually for the unused portion of the credit line. The debt is secured by all of the Company’s domestic assets and 65% of the shares in its offshore subsidiaries. Future acquisitions are subject to approval by SVB. Interest expense on the line of credit was approximately $106,000 and $624,000 for the three and nine months ended September 30, 2024, respectively. Interest expense on the line of credit was approximately $280,000 and $618,000, for the three and nine months ended September 30, 2023, respectively.

 

In connection with the original SVB debt agreement, the Company paid SVB approximately $50,000 of fees upfront and issued warrants for SVB to purchase 125,000 shares of its common stock, and committed to pay an annual anniversary fee of $50,000 a year. Based on the terms in the original SVB credit agreement, these warrants had a strike price equal to $3.92. They had a five-year exercise window and net exercise rights, and were valued at $3.12 per warrant. These warrants were exercised during 2022. As a result of the revision in the credit line in the third quarter of 2018, the Company paid approximately $50,000 of fees upfront and issued an additional 28,489 warrants, with a strike price equal to $5.26, a five-year exercise window and net exercise rights. The additional warrants were valued at $3.58 per warrant and expired in September 2023. The credit agreement contains various covenants and conditions governing the revolving line of credit including an annual fee of $110,000. These covenants include a minimum level of adjusted EBITDA and a minimum liquidity ratio. At September 30, 2024 and December 31, 2023, the Company was in compliance with all covenants. Due to the October 2024 modification, the anniversary fee was reduced to $44,000.

 

During March 2023, SVB became a division of First Citizens Bank & Trust Company. The agreements that governed the former SVB relationship remain in place. As a result, there was no change to the terms of the credit agreement.

 

The Company maintains cash balances at SVB in excess of the FDIC insurance coverage limits. The Company performs periodic evaluations of the relative credit standing of this financial institution to ensure its credit worthiness. As of September 30, 2024 and December 31, 2023, the Company held cash of approximately $100,000 and $255,000, respectively, in the name of its subsidiaries at banks in Pakistan and Sri Lanka. The banking systems in these countries do not provide deposit insurance coverage. The Company has not experienced any losses on its cash accounts.

 

13
 

 

6. LEASES

 

We determine if an arrangement is a lease at inception. We have operating leases for office and temporary living space as well as for some office equipment. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liability and non-current operating lease liability in our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023. The Company does not have any finance leases.

 

As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rates, which are derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our bank financing arrangements, geographical location and collateralization of assets when calculating our incremental borrowing rates. We review our incremental borrowing rate on a quarterly basis.

 

Our lease terms include options to extend the lease when we believe that we may want the right to exercise that option. Leases with a term of less than 12 months are not recorded in the condensed consolidated balance sheets. Our lease agreements do not contain any residual value guarantees. For real estate leases, we account for the lease and non-lease components as a single lease component. Some leases include escalation clauses and termination options that are factored in the determination of the lease payments when appropriate.

 

If a lease is modified after the effective date, the operating lease ROU asset and liability are re-measured using the current incremental borrowing rate. During the three and nine months ended September 30, 2023, there were approximately $5,000 and $168,000, respectively, of unoccupied lease charges for two of the Company’s facilities. There were no unoccupied lease charges for the nine months ended September 30, 2024.

 

During the nine months ended September 30, 2023, the Miami office lease that we assumed in connection with an acquisition ended, and we entered into a new lease arrangement with the landlord for significantly less office space. Charges of approximately $2,000 and $73,000 were incurred during the three and nine months ended September 30, 2023 as a result of vacating the former premises. During the year ended December 31, 2022, a facility lease was terminated in conjunction with the Company ceasing its document storage services. This termination resulted in additional costs for the three and nine months ended September 30, 2023 of approximately $1,000 and $162,000, respectively. In addition, during the nine months ended September 30, 2023, the Company paid approximately $27,000 to settle a claim regarding a lease termination in India. These amounts are included in loss on lease terminations, unoccupied lease charges and restructuring costs in the condensed consolidated statements of operations.

 

Lease expense is included in direct operating costs, general and administrative expense, selling and marketing expense and research and development expense in the condensed consolidated statements of operations based on the nature of the expense. Our lease terms are determined taking into account lease renewal options, the Company’s anticipated operating plans and leases that are on a month-to-month basis. The Company also has some related party leases – see Note 8.

 

The components of lease expense were as follows:

 

   2024   2023   2024   2023 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
   ($ in thousands) 
Operating lease cost  $607   $599   $1,864   $1,998 
Short-term lease cost   -    -    4    - 
Variable lease cost   9    7    21    26 
Total - net lease cost  $616   $606   $1,889   $2,024 

 

Short-term lease cost represents leases that were not capitalized as the lease term as of the later of January 1, 2024 or the beginning of the lease was less than 12 months. Variable lease costs include utilities, real estate taxes and common area maintenance costs.

 

14
 

 

Supplemental balance sheet information related to leases is as follows:

 

   September 30, 2024   December 31, 2023 
   ($ in thousands) 
Operating leases:          
Operating lease ROU assets, net  $3,310   $4,365 
          
Current operating lease liabilities  $1,424   $1,888 
Non-current operating lease liabilities   1,900    2,516 
Total operating lease liabilities  $3,324   $4,404 
           
Operating leases:          
ROU assets  $4,810   $6,571 
Asset lease expense   (1,502)   (2,152)
Foreign exchange gain/(loss)   2    (54)
ROU assets, net  $3,310   $4,365 
           
Weighted average remaining lease term (in years):          
Operating leases   4.8    4.5 
Weighted average discount rate:          
Operating leases   14.5%   13.3%

 

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

 

   2024   2023   2024   2023 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
   ($ in thousands) 
Cash paid for amounts included in the measurement of lease liabilities:                    
Operating cash flows from operating leases  $596   $802   $1,873   $2,463 
                     
ROU assets obtained in exchange for lease liabilities:                    
Operating leases, excluding terminations  $71   $532   $445   $1,252 

 

Maturities of lease liabilities are as follows:

 

Operating leases - Years ending December 31,  ($ in thousands) 
2024 (three months)  $610 
2025   1,446 
2026   623 
2027   469 
2028   396 
Thereafter   1,434 
Total lease payments   4,978 
Less: imputed interest   (1,654)
Total lease obligations   3,324 
Less: current obligations   (1,424)
Long-term lease obligations  $1,900 

 

The Company leases certain apartments which are subleased to others. The sublease agreements are currently on a month-to-month basis and are considered operating leases. For the three and nine months ended September 30, 2024, the Company received sublease income of approximately $19,000 and $75,000, respectively. There was no sublease income for the nine months ended September 30, 2023.

 

15
 

 

7. COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings — On December 22, 2023, an arbitrator rendered a decision in favor of Ramapo Anesthesiologists, PC (“Ramapo”) and granted in part and denied in part certain claims brought against Origin Healthcare Solutions, LLC; Meridian Medical Management, Inc.; and the Company for alleged breach of contract and other allegations. Ramapo was awarded mitigation related costs of $117,000. The payment for this award was made during the first quarter of 2024. The Company’s portion of the settlement was approximately $32,000 and the insurance company paid the balance. The Company’s portion was recorded in accrued expenses at December 31, 2023 in the condensed consolidated balance sheet.

 

A former customer filed a complaint against the Company in New Jersey State Court to recover damages claimed to have been caused by the mishandling of their account. Plaintiff alleged at least approximately $750,000 in damages which was disputed by the Company. The parties participated in a one-day court-ordered, non-binding arbitration. At that time, the arbitrator awarded Plaintiff $288,750 on its contract claims, and awarded the Company $21,698 on its cross-claim for unpaid fees. Plaintiff filed to reject this award. The Company previously filed a partial motion for summary judgment on the alleged punitive damages, but the court denied that motion finding there is an issue of fact as to whether those can be awarded at trial. The Company filed an offer of judgment for $200,000 during April 2024 which was accepted and paid in July.

 

In connection with a prior acquisition, the seller had alleged that the Company owed approximately $800,000 in transition related costs to them. The parties agreed to settle the claim for approximately $316,000, which was paid in September.

 

From time to time, we may become involved in other legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of our management, would individually or taken together have a material adverse effect on our business, consolidated results of operations, financial position or cash flows of the Company.

 

8. RELATED PARTIES

 

The Company had sales to a related party, a physician who is the wife of the Executive Chairman. Revenues from this customer were approximately $34,000 and $36,000 for the three months ended September 30, 2024 and 2023, respectively, and approximately $93,000 and $86,000 for the nine months ended September 30, 2024 and 2023. As of September 30, 2024 and December 31, 2023, the accounts receivable balance due from this customer was approximately $8,000 and $18,000, respectively, and is included in accounts receivable - net in the condensed consolidated balance sheets.

 

The Company leases its corporate office in New Jersey, temporary housing for its foreign visitors, a storage facility, its backup operations center in Bagh, Pakistan and an apartment for temporary housing in Dubai, the UAE, from the Executive Chairman. The related party rent expense for the three months ended September 30, 2024 and 2023 was approximately $71,000 and $84,000, respectively, and was approximately $211,000 and $186,000 for the nine months ended September 30, 2024 and 2023, respectively, and is included in direct operating costs, general and administrative expense, selling and marketing expense and research and development expense in the condensed consolidated statements of operations. During the nine months ended September 30, 2024 and 2023, the Company spent approximately $444,000 and $1.8 million, respectively, to upgrade the related party leased facilities. During the year ended December 31, 2023, the Company temporarily advanced the Executive Chairman approximately $330,000 to purchase vacant land surrounding the Bagh facility for the sole use and benefit of the Company in order to expedite the purchase on the Company’s behalf as only individuals with citizenship in Kashmir are allowed to purchase land in this region. All advanced amounts were repaid shortly after the advance was made. Current assets-related party in the condensed consolidated balance sheets includes security deposits related to the leases of the Company’s corporate offices in the amount of approximately $16,000 as of both September 30, 2024 and December 31, 2023. The Company also leases two facilities used for temporary housing from a management employee for approximately $6,500 per month.

 

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Included in the ROU asset at September 30, 2024 is approximately $219,000 applicable to the related party leases. Included in the current and non-current operating lease liability at September 30, 2024 is approximately $103,000 and $112,000, respectively, applicable to the related party leases.

 

Included in the ROU asset at December 31, 2023 is approximately $331,000 applicable to the related party leases. Included in the current and non-current operating lease liability at December 31, 2023 is approximately $182,000 and $142,000, respectively, applicable to the related party leases.

 

During June 2022, the Company entered into a one-year consulting agreement with an entity owned and controlled by one of its former non-independent directors whereby that director received 10,000 shares of the Company’s 8.75% Series B Cumulative Redeemable Perpetual Preferred Stock (“Series B Preferred Stock”) in exchange for assisting the Company to identify and acquire additional companies, including performing due diligence. In addition, the Company may make additional payments under the agreement for any successful acquisitions by the Company based on the purchase price of the transaction. No such additional payments were made in 2022. During February 2023, the agreement was amended and extended through December 2024 whereby the former director received 14,000 shares of Series B Preferred Stock in February 2023 and received an additional 14,000 shares in January 2024. All of the payments made were capitalized and are being amortized over the service period. The amortization is recorded as stock compensation in general and administrative expense in the condensed consolidated statement of operations. All such shares of the Series B Preferred Stock are issued in accordance with the Company’s Amended and Restated 2014 Equity Incentive Plan. In addition to the extension of the consulting agreement, the amendment provides that any transaction fees due will be offset against the last two above payments before any amounts are due to that former director. Effective February 1, 2024, the Company added an additional Statement of Work (“SOW”) to the consulting agreement with the same entity. As compensation for the SOW, the entity will receive $25,000 per month. The SOW was cancellable with ten days’ notice. The Consulting agreement and SOW, through mutual consent, were terminated as of April 30, 2024. There were no transaction fees paid through that date. Effective May 1, 2024, the former non-independent director became President of the Company.

 

Effective January 9, 2024, and as amended February 12, 2024, the Company entered into a consulting agreement with an entity owned and controlled by a member of its Board of Directors to provide investor relations services for $8,000 per month (reduced to $2,000 per month effective September 1, 2024) and other services as requested by the Company to be paid on an hourly basis. The consulting agreement is cancelable with ten days’ notice. For the three and nine months ended September 30, 2024, the expense recorded under this agreement were approximately $16,000 and $71,000, respectively.

 

During 2020, a New Jersey corporation, talkMD Clinicians, PA (“talkMD”), was formed by the wife of the Executive Chairman, who is a licensed physician, to provide telehealth services. talkMD was determined to be a variable interest entity (“VIE”) for financial reporting purposes because the entity will be controlled by the Company. As of September 30, 2024, talkMD had not yet commenced operations. Cumulatively, the Company has paid approximately $6,000 on behalf of talkMD for income taxes.

 

9. RESTRUCTURING COSTS

 

On October 2, 2023, the Company committed to effectively align resources with business priorities and improve profitability through a reduction in the workforce for the Healthcare IT segment. The Company identified opportunities for improvements in its workforce realignment, strategy and staffing, and increased its focus on performance management, to ensure it has the right skillsets and number of employees to execute its long-term vision. In addition, the Company instituted certain other expense reductions.

 

A majority of the impacted employees exited in the fourth quarter of 2023. The Company estimates that it will incur expenses of approximately $1.3 million related to the reduction in workforce of which approximately $645,000 was incurred in 2023, $67,000 and $505,000 was incurred during the three and nine months ended September 30, 2024 with the remaining expenses to be incurred during the remainder of 2024. These restructuring expenses consisted of one-time termination benefits, including, but not limited to, severance payments and healthcare benefits. Also as previously noted, the dividends on the Preferred Stock have been suspended in order to increase cash flow.

 

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The expense associated with the restructuring is included in loss on lease terminations, unoccupied lease charges and restructuring cost in the condensed consolidated statement of operations for the three and nine months ended September 30, 2024. This line also includes loss on lease terminations and unoccupied lease charges. The liabilities associated with restructuring costs are included in accrued expenses in the September 30, 2024 and December 31, 2023 condensed consolidated balance sheets. The following table summarizes activity related to liabilities associated with restructuring costs:

 

   Severance and separation costs   Equity awards acceleration costs   Other exit related costs   Total restructuring and other costs 
   ($ in thousands) 
Balance as of January 1, 2024  $145   $-   $26   $171 
Additions   505    -    -    505 
Payments and other adjustments   (650)   -    (26)   (676)
Balance as of September 30, 2024  $-   $-   $-   $- 
                     
Balance as of January 1, 2023  $-   $-   $-   $- 
Additions   439    170    36    645 
Payments and other adjustments   (294)   (170)   (10)   (474)
Balance as of December 31, 2023  $145   $-   $26   $171 

 

10. SHAREHOLDERS’ EQUITY

 

On September 11, 2024 a Certificate of Amendment (the “Amendment”) to the Certificate of Designations, Preferences and Rights of 11% Series A Cumulative Redeemable Preferred Stock (the “Existing Certificate”) became effective, amending certain provisions of the 11% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”).

 

The title of the Existing Certificate was amended to read “Amended and Restated Certificate of Designations, Preferences and Rights of 8.75% Series A Cumulative Redeemable Perpetual Preferred Stock.” Holders of Series A Preferred Stock will receive similar change of control protections to those afforded to holders of the Company’s Series B Preferred Stock. The dividend of Series A Preferred Stock was amended from 11% to 8.75% per annum and the per annum dividend amount per share was amended from $2.75 to $2.1875 per share per annum. Also, the Company now has the right to exchange the shares of Series A Preferred Stock for common stock at the liquidation preference value of the $25 per share, plus accrued and unpaid dividends.

 

The Company had the right to sell up to $35 million of its Series B Preferred Stock using its preferred stock at-the-market facility (“ATM”). This right terminated when the Company suspended the Preferred Stock dividends in December 2023. The Company also had the right to sell up to $50 million of its common stock using a common stock ATM facility. This right also terminated when the Company suspended the Preferred Stock dividends. The underwriters of the ATMs receive 3% of the gross proceeds actually received.

 

On December 11, 2023, the Board of Directors suspended the monthly cash dividends for the Series A Preferred Stock and Series B Preferred Stock beginning with the payment scheduled for December 15, 2023 together with the remaining dividends that were declared. The suspension of these dividends deferred approximately $1.3 million in cash dividend payments each month. Due to the above Amendment, effective on September 12, 2024, the monthly cash dividends were reduced to approximately $1.1 million per month. During this suspension, dividends will continue to accumulate in arrears on the Series A and Series B Preferred Stock. The Board of Directors will regularly review and consider when the suspension should be lifted.

 

During the nine months ended September 30, 2024, no dividends were declared by the Board of Directors. At September 30, 2024, the Company owed approximately $5.4 million for dividends that had previously been declared through February 2024 (but whose payment has been suspended), and also had total undeclared dividends of approximately $9.0 million, which represents the accumulated (but undeclared) dividends due to preferred shareholders of record on September 30, 2024. Dividends in arrears that have not been declared by the Board of Directors are not recorded in the condensed consolidated balance sheets but are reflected in the net loss attributable to common shareholders.

 

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11. REVENUE

 

Introduction

The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers. All revenue is recognized as our performance obligations are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under ASC 606. The Company recognizes revenue when the revenue cycle management services begin on the medical billing claims, which is generally upon receipt of the claim from the provider. For many services, the Company recognizes revenue as a percentage of the amount the customer collects on the medical billing claims. The Company’s software is utilized at the time the provider sees the patient, and the Company estimates the value of the consideration it will earn over the remaining contractual period as our services are provided and recognizes the fees over the term; this estimation involves predicting the amounts our clients will ultimately collect associated with the services they provided. Certain significant estimates, such as payment-to-charge ratios, effective billing rates and the estimated contractual payment periods are required to measure revenue cycle management revenue under the standard.

 

Most of our current contracts with customers contain a single performance obligation. For contracts where we provide multiple services, such as where we perform multiple ancillary services, each service represents its own performance obligation. The standalone selling prices are based on the contractual price for the service.

 

We apply the portfolio approach as permitted by ASC 606 as a practical expedient to contracts with similar characteristics and we use estimates and assumptions when accounting for those portfolios. Our contracts generally include standard commercial payment terms. We have no significant obligations for refunds, warranties or similar obligations and our revenue does not include taxes collected from our customers.

 

Disaggregation of Revenue from Contracts with Customers

We derive revenue from five primary sources: (1) technology-enabled business solutions, (2) professional services, (3) printing and mailing services, (4) group purchasing services and (5) medical practice management services.

 

The following table represents a disaggregation of revenue for the three and nine months ended September 30, 2024 and 2023:

 

   2024   2023   2024   2023 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
   ($ in thousands) 
Healthcare IT:                    
Technology-enabled business solutions  $17,871   $18,763   $54,188   $57,878 
Professional services   4,854    5,691    13,767    17,755 
Printing and mailing services   969    749    2,639    2,149 
Group purchasing services   608    389    1,009    749 
Medical Practice Management:                    
Medical practice management services   4,244    3,688    10,995    10,112 
Total  $28,546   $29,280   $82,598   $88,643 

 

Technology-enabled business solutions:

Revenue derived on an on-going basis from our technology-enabled solutions, which typically include revenue cycle management services, is billed as a percentage of payments collected by our customers. The fee for our services often includes the ability to use our electronic health records (“EHR”) and practice management software as well as revenue cycle management (“RCM”) as part of the bundled fee. The Software-as-a-Service (“SaaS”) component is not a material portion of the contract compared to the stand-alone value of RCM.

 

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

 

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In many cases, our clients may terminate their agreements with 90 days’ notice without cause, thereby limiting the term in which we have enforceable rights and obligations, although this time period can vary between clients. Our payment terms are normally net 30 days. Although our contracts typically have stated terms of one or more years, under ASC 606 our contracts are considered month-to-month and accordingly, there is no financing component.

 

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

 

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

 

Our digital health services, which began generating revenue in 2022, include chronic care management, where a care manager has remote visits with patients with one or more chronic conditions under the supervision of a physician who is our client. The performance obligation for chronic care management is satisfied at a point in time once the patient receives the remote visit. The digital health services also include remote patient monitoring where our system monitors recordings from FDA approved internet connected devices. These devices record patient trends and alert the physician to changes which might trigger the need for additional follow-up visits. The performance obligations for remote patient monitoring are satisfied over time as the recordings are received and the patient receives the remote visit. The revenue for chronic care management for the three months ended September 30, 2024 and 2023, was approximately $929,000 and $440,000, respectively and for the nine months ended September 30, 2024 and 2023, was approximately $2.2 million and $914,000, respectively. The revenue for remote patient monitoring for the three months ended September 30, 2024 and 2023, was approximately $194,000 and $183,000, respectively and for the nine months ended September 30, 2024 and 2023, was approximately $544,000 and $262,000, respectively.

 

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

 

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

 

Professional services:

Our professional services include an extensive set of services including EHR vendor-agnostic optimization and activation, project management, IT transformation consulting, process improvement, training, education and staffing for large healthcare organizations including health systems and hospitals. The performance obligation is satisfied over time using the input method. The revenue is recorded on a monthly basis as the professional services are rendered. Unbilled revenue at September 30, 2024 and 2023 was approximately $88,000 and $243,000, respectively.

 

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Printing and mailing services:

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

 

Group purchasing services:

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

 

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

 

There were no unsatisfied performance obligations for contracts with an original duration greater than one year. The Company has elected to utilize the practical expedient available with the guidance for contracts with an expected duration of one year or less.

 

Medical practice management services:

The Company also provides medical practice management services under long-term management service agreements to three medical practices. We provide the medical practices with the nurses, administrative support, facilities, supplies, equipment, marketing, RCM, accounting, and other non-clinical services needed to efficiently operate their practices. Revenue is recognized as the services are provided to the medical practices. Revenue recorded in the condensed consolidated statements of operations represents the reimbursement of costs paid by the Company for the practices and the management fee earned each month for managing the practice. The management fee is based on either a fixed fee or a percentage of the net operating income.

 

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

 

Our contracts for medical practice management services have approximately an additional 14 years remaining and are only cancellable under very limited circumstances. The Company receives a management fee each month for managing the day-to-day business operations of each medical group as a fixed fee or a percentage payment of the net operating income which is included in revenue in the condensed consolidated statements of operations.

 

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

 

Information about contract balances:

As of September 30, 2024, the estimated revenue expected to be recognized in the future related to the remaining revenue cycle management performance obligations outstanding was approximately $3.8 million. We expect to recognize substantially all of the revenue for the remaining performance obligations over the next three months. Approximately $543,000 and $294,000 of the contract asset represents revenue earned, not paid, from the group purchasing services and referral fees, respectively.

 

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

 

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

 

   Accounts Receivable - Net   Contract Asset   Deferred Revenue (current)   Deferred Revenue (long term) 
   ($ in thousands) 
Balance as of January 1, 2024  $11,888   $5,094   $1,380   $256 
Increase (decrease), net   104    (477)   (68)   71 
Balance as of September 30, 2024  $11,992   $4,617   $1,312   $327 
                    
Balance as of January 1, 2023  $14,773   $4,399   $1,386   $342 
(Decrease) increase, net   (2,463)   549    141    80 
Balance as of September 30, 2023  $12,310   $4,948   $1,527   $422 

 

Deferred commissions:

Our sales incentive plans include commissions payable to employees and third parties at the time of initial contract execution that are capitalized as incremental costs to obtain a contract. The capitalized commissions are amortized over the period the related services are transferred. As we do not offer commissions on contract renewals, we have determined the amortization period to be the estimated client life, which is three years. Deferred commissions were approximately $443,000 and $543,000 at September 30, 2024 and 2023, respectively, and are included in the other assets amounts in the condensed consolidated balance sheets. The amortization of deferred sales commissions during the three months ended September 30, 2024 and 2023 was approximately $79,000 and $105,000, respectively, and approximately $252,000 and $389,000 for the nine months ended September 30, 2024 and 2023, respectively.

 

Trade Accounts Receivable – Estimate of Credit Losses:

ASU 2016-13 requires the recognition of lifetime estimated credit losses expected to occur for trade accounts receivable. The guidance also requires we pool assets with similar risk characteristics and consider current economic conditions when estimating losses. The adoption of the ASU 2016-13 for trade accounts receivable was recorded as a charge to accumulated deficit of approximately $186,000 as of January 1, 2023.

 

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At adoption, we segmented the accounts receivable population into pools based on their risk assessment. Risks related to trade accounts receivable are a customer’s inability to pay or bankruptcy. Each pool was defined by their internal credit assessment and business size. The pools are aligned with management’s review of financial performance. For the three and nine months ended September 30, 2024 and 2023, no adjustment to the pools was necessary.

 

We utilize a loss-rate method to measure the expected credit loss for each pool. The loss rate is calculated using a three-year lookback period of write-offs and adjustments, divided by the revenue for each pool by aging category, net of customer payments during that period. We consider current and future economic conditions, internal forecasts, customer collection experience and credit memos issued during the current period when assessing loss rates. We reviewed these factors and concluded that no adjustments should be made to the historical loss rate data for the current quarter. In addition, the Company uses specific account identification in determining the total allowance for expected credit losses. Trade receivables are written off only after the Company has exhausted all collection efforts.

 

Changes in the allowance for expected credit losses for trade accounts receivable are presented in the table below:

 

   Nine Months Ended   Year Ended 
   September 30, 2024   December 31, 2023 
   ($ in thousands) 
Beginning balance  $879   $823 
Adoption of ASC 326   -    186 
Provision   284    454 
Recoveries/adjustments   2    107 
Write-offs   (205)   (691)
Ending balance  $960   $879 

 

12. STOCK-BASED COMPENSATION

 

As of September 30, 2024, 526,577 shares of common stock, 33,769 shares of Series A Preferred Stock and 16,000 shares of Series B Preferred Stock are available for grant. Permissible awards include incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance stock and cash-settled awards and other stock-based awards in the discretion of the Compensation Committee of the Board of Directors including unrestricted stock grants.

 

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

 

Common and preferred stock RSUs

 

In February 2023, the Compensation Committee approved executive bonuses to be paid in shares of Series B Preferred Stock, with the number of shares and the amount based on specified criteria being achieved during the year 2023. During October 2023, the Compensation Committee approved the issuance of 10,000 of the above shares to one of the executives who retired. The remaining 24,000 shares were forfeited in 2024.

 

In March 2024, the Compensation Committee approved executive bonuses to be paid in shares of Series B Preferred Stock with the number of shares and the amount based on specified criteria being achieved during the year 2024. There were 34,000 shares awarded. These criteria will be evaluated in early 2025. During May 2024, an additional executive bonus with similar terms was approved and 12,000 shares were awarded. For the three and nine months ended September 30, 2024, an expense of approximately $252,000 and a net benefit of approximately $191,000, respectively, was recorded. The stock-based compensation benefit was primarily related to prior year bonuses that had been accrued but were not awarded, net of current year bonuses that have been accrued. Stock compensation expense recorded is based on the value of the shares at the grant date and recognized over the service period. The portion of the stock compensation expense to be used for the payment of withholding and payroll taxes is included in accrued compensation in the condensed consolidated balance sheets. The balance of the stock compensation expense has been recorded as additional paid-in capital.

 

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The following table summarizes the RSU transactions related to the common and preferred stock under the Company’s equity incentive Plan for the nine months ended September 30, 2024 and 2023:

 

   Common Stock   Series A Preferred Stock   Series B Preferred Stock 
Outstanding and unvested shares at January 1, 2024   753,495    -    57,199 
Granted   200,000    -    46,000 
Vested   (448,727)   -    (14,000)
Forfeited   (224,699)   -    (24,000)
Outstanding and unvested shares at September 30, 2024   280,069    -    65,199 
                
Outstanding and unvested shares at January 1, 2023   645,475    -    80,462 
Granted   1,056,453    -    62,000 
Vested   (843,950)   -    (75,263)
Forfeited   (58,388)   -    - 
Outstanding and unvested shares at September 30, 2023   799,590    -    67,199 

 

During the year, 30,000 shares of common stock were granted to each independent member of the Board of Directors, one quarter of which vests every six months over a two year period. Additionally, 50,000 shares of common stock were granted to the Company’s sales management to pay sales commissions as earned.

 

The liability for the 14,370 cash-settled awards outstanding and the liability for withheld taxes in connection with the equity awards was approximately $116,000 and $767,000 at September 30, 2024 and December 31, 2023, respectively, and is included in accrued compensation in the condensed consolidated balance sheets. No amounts were paid in connection with cash-settled awards during both the nine months ended September 30, 2024 and 2023.

 

Stock-based compensation expense

 

The following table summarizes the components of share-based compensation expense (benefit) for the three and nine months ended September 30, 2024 and 2023:

 

   2024   2023   2024   2023 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
   ($ in thousands) 
Direct operating costs  $3   $271   $(40)  $659 
General and administrative   229    771    (199)   2,225 
Research and development   4    26    (10)   105 
Selling and marketing   16    141    58    794 
Total stock-based compensation expense (benefit)  $252   $1,209   $(191)  $3,783 

 

13. INCOME TAXES

 

The income tax expense for the three months ended September 30, 2024 was approximately $41,000 comprised of current state tax expense of $30,000 and foreign tax expense of $11,000. The income tax expense for the nine months ended September 30, 2024 was approximately $119,000 comprised of current state tax expense of $90,000 and foreign tax expense of $29,000. There was no deferred income tax for the three and nine months ended September 30, 2024.

 

The income tax expense for the three months ended September 30, 2023 was approximately $57,000 comprised of a current tax expense of $30,000, a deferred tax expense of $17,000 and a foreign tax of $10,000. The income tax expense for the nine months ended September 30, 2023 was approximately $204,000 comprised of a current tax expense of $94,000, a deferred tax expense of $81,000 and a foreign tax of $29,000.

 

The current income tax provision for the three and nine months ended September 30, 2024 and 2023 primarily relates to state minimum taxes and foreign income taxes. The deferred tax provision for the three and nine months ended September 30, 2023 relates to the book and tax difference of amortization on indefinite-lived intangibles, primarily goodwill. To the extent allowable, prior to January 1, 2024, the federal and state deferred tax provision had been offset by the indefinite life net operating loss. As a result of the goodwill impairment charge recorded for the year ended December 31, 2023, no deferred tax liability is currently required.

 

The Company has incurred cumulative losses, which make realization of a deferred tax asset difficult to support in accordance with ASC 740. Accordingly, a valuation allowance has been recorded against the federal and state deferred tax assets as of September 30, 2024 and December 31, 2023.

 

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14. SEGMENT REPORTING

 

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

 

The Healthcare IT segment includes revenue cycle management, SaaS solutions and other services. The Medical Practice Management segment includes the management of three medical practices. Each segment is considered a reporting unit. The CODM evaluates the financial performance of the business units on the basis of revenue and direct operating costs excluding unallocated amounts that are mainly corporate overhead costs. Our CODM does not evaluate operating segments using asset or liability information. The accounting policies of the segments are the same as those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 21, 2024. The following table presents revenues, operating expenses and operating income (loss) by reportable segment:

 

                 
   Nine Months Ended September 30, 2024 
   ($ in thousands) 
   Healthcare IT   Medical Practice Management   Unallocated Corporate Expenses   Total 
Net revenue  $71,603   $10,995   $-   $82,598 
Operating expenses:                    
Direct operating costs   37,699    8,140    -    45,839 
Selling and marketing   4,785    24    -    4,809 
General and administrative   6,923    1,392    3,812    12,127 
Research and development   2,768    -    -    2,768 
Depreciation and amortization   10,638    247    -    10,885 
Loss on lease terminations, unoccupied lease charges and restructuring costs   505    -    -    505 
Total operating expenses   63,318    9,803    3,812    76,933 
Operating income (loss)  $8,285   $1,192   $(3,812)  $5,665 

 

                 
   Three Months Ended September 30, 2024 
   ($ in thousands) 
   Healthcare IT   Medical Practice Management   Unallocated Corporate Expenses   Total 
Net revenue  $24,302   $4,244   $-   $28,546 
Operating expenses:                    
Direct operating costs   12,445    2,975    -    15,420 
Selling and marketing   1,368    7    -    1,375 
General and administrative   2,321    481    1,576    4,378 
Research and development   800    -    -    800 
Depreciation and amortization   3,159    82    -    3,241 
Loss on lease terminations, unoccupied lease charges and restructuring costs   67    -    -    67 
Total operating expenses   20,160    3,545    1,576    25,281 
Operating income (loss)  $4,142   $699   $(1,576)  $3,265 

 

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   Nine Months Ended September 30, 2023 
   ($ in thousands) 
   Healthcare IT   Medical Practice Management   Unallocated Corporate Expenses   Total 
Net revenue  $78,531   $10,112   $-   $88,643 
Operating expenses:                    
Direct operating costs   46,003    7,840    -    53,843 
Selling and marketing   7,503    26    -    7,529 
General and administrative   8,466    1,362    6,690    16,518 
Research and development   3,523    -    -    3,523 
Depreciation and amortization   10,013    269    -    10,282 
Loss on lease terminations and unoccupied lease charges   430    -    -    430 
Total operating expenses   75,938    9,497    6,690    92,125 
Operating income (loss)  $2,593   $615   $(6,690)  $(3,482)

 

                 
   Three Months Ended September 30, 2023 
   ($ in thousands) 
   Healthcare IT   Medical Practice Management   Unallocated Corporate Expenses   Total 
Net revenue  $25,592   $3,688   $-   $29,280 
Operating expenses:                    
Direct operating costs   15,369    2,891    -    18,260 
Selling and marketing   2,329    8    -    2,337 
General and administrative   2,719    466    2,297    5,482 
Research and development   1,260    -    -    1,260 
Depreciation and amortization   3,814    89    -    3,903 
Loss on lease terminations and unoccupied lease charges   8    -    -    8 
Total operating expenses   25,499    3,454    2,297    31,250 
Operating income (loss)  $93   $234   $(2,297)  $(1,970)

 

15. SUBSEQUENT EVENT

 

During October 2024, the Company entered into a Ninth Loan Modification agreement with Silicon Valley Bank whereby the Company decreased the amount available on its revolving line of credit from $25 million to $10 million which proportionally reduced the anniversary fee and the fee on the unused portion of the credit line. As a result of the modification, one covenant was slightly modified.

 

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

 

The following is a discussion of our condensed consolidated financial condition and results of operations for the three and nine months ended September 30, 2024 and 2023, and other factors that are expected to affect our prospective financial condition. The following discussion and analysis should be read together with our Condensed Consolidated Financial Statements and related notes beginning on page 4 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024.

 

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

 

Financial Risks

 

The Company maintains cash balances at Silicon Valley Bank (“SVB”), a division of First Citizens Bank & Trust Company in excess of the FDIC insurance coverage limits. The Company performs periodic evaluations of the relative credit standing of this financial institution to ensure its credit worthiness. As of September 30, 2024 and December 31, 2023, the Company held cash of approximately $100,000 and $255,000, respectively, in the name of its subsidiaries at banks in Pakistan and Sri Lanka. The banking systems in these countries do not provide deposit insurance coverage. The Company has not experienced any losses on its cash accounts.

 

During December 2023, the Company suspended its Preferred Stock dividend and experienced a decline in its market capitalization as a result of a sustained decrease in the Company’s stock price for its common and preferred shares. This was considered a triggering event and resulted in a goodwill impairment charge. As of September 30, 2024, the Company’s stock price for its common and preferred shares increased from their year-end values. Accordingly, the Company determined there was no impact on the valuation of goodwill. If the stock prices were to decline, it could result in another triggering event that could impact the valuation of goodwill.

 

Overview

 

The Company is a healthcare information technology company that provides technology-enabled revenue cycle management and a full suite of proprietary cloud-based solutions to healthcare providers, from small practices to enterprise medical groups, hospitals, and health systems throughout the United States. Our integrated Software-as-a-Service (“SaaS”) platform includes revenue cycle management (“RCM”), practice management (“PM”), electronic health records (“EHR”), business intelligence, telehealth, patient experience management (“PXM”) solutions and complementary software tools and business services for high-performance medical groups and health systems. The Company also offers printing and mailing and group purchasing services.

 

Our technology-enabled business solutions can be categorized as follows:

 

●Technology-enabled revenue cycle management:
○Revenue Cycle Management services including end-to-end medical billing, eligibility, analytics, and related services, all of which can be provided utilizing our technology platform and robotic process automation tools or leveraging a third-party system;
○Medical coding and credentialing services to improve provider collections, back-end cost containment, and drive total revenue realization for our healthcare clients; and
○Healthcare claims clearinghouse which enables our clients to electronically scrub and submit claims and process payments from insurance companies.

 

●Cloud-based software:
○Electronic Health Records, which are easy to use and sometimes integrated with our business services, and enable our healthcare provider clients to deliver better patient care, streamline their clinical workflows, decrease documentation errors, and potentially qualify for government incentives;
○Practice Management software and related capabilities, which support our clients’ day-to-day business operations and financial workflows, including automated insurance eligibility software, a robust billing and claims rules engine, and other automated tools designed to maximize reimbursement;

 

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○Artificial intelligence (“AI”):
●CareCloud cirrusAI is designed to serve as a digital healthcare assistant, helping to enhance clinical decision-making, streamline workflows, reduce administrative burdens, optimize revenue management, and promote patient-centered care. The functions include:
●AI-Powered Clinical Decision Support: CareCloud cirrusAI Guide automates clinical data input, and assists clinicians in workflow tasks, providing real-time, evidence-based recommendations and personalized suggestions via Vertex AI’s generative AI tools for providers to consider. This innovation can lead to enhanced diagnosis accuracy and treatment planning.
●AI-Powered Virtual Support Assistant: CareCloud cirrusAI Chat facilitates natural language conversations with practice staff members, offering valuable assistance in navigating CareCloud Electronic Health Records workflows. This tool streamlines post-training and onboarding for new staff, reducing response times and providing real-time assistance, ultimately saving time.
●AI-Driven Appeals: CareCloud cirrusAI Appeals generates customized appeal letters by analyzing patient claim details, the appeal’s reason, and the specific payor involved for healthcare workers to review, edit, and send. This functionality supports CareCloud’s RCM teams in optimizing providers’ RCM and securing proper reimbursement.
●CareCloud cirrusAI integrates with CareCloud’s EHR solution, talkEHR, making it easily accessible to providers of all sizes.
○Patient Experience Management solutions designed to transform interactions between patients and their clinicians, including smartphone applications that assist patients and healthcare providers in the provision of healthcare services, contactless digital check-in solutions, messaging, and online appointment scheduling tools;
○Business Intelligence (“BI”) and healthcare analytics platforms that allow our clients to derive actionable insights from their vast amount of data; and
○Customized applications, interfaces, and a variety of other technology solutions that support our healthcare clients.

 

●Digital health:
oChronic care management is a program that supports care for patients with chronic conditions by certified care managers that operate under the supervision of the patient’s regular physician;
oRemote patient monitoring enables patient data collected outside the clinical setting through remote devices to be fed into their provider’s EHR to enable proactive patient care; and
oTelemedicine solutions which allow healthcare providers to conduct remote patient visits and extend the timely delivery of care to patients unable to travel to a provider’s office.

 

●Healthcare IT professional services & staffing:
oProfessional services consisting of a broad range of consulting services including full software implementations and activation, revenue cycle optimization, data analytic services, and educational training services;
oStrategic advisory services to manage system evaluations and selection, provide interim management, and operational assessments; and
oWorkforce augmentation and on-demand staffing to support our clients as they expand their businesses, seek highly trained personnel, or struggle to address staffing shortages.

 

Our medical practice management solutions include:

 

●Medical practice management:
oMedical practice management services for medical providers, including facilities, equipment, supplies, support services, nurses, and administrative support staff.

 

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We are able to deliver our industry-leading solutions at very competitive prices because we leverage a combination of our proprietary software, which automates our workflows and increases efficiency, together with our team of approximately 330 experienced health industry experts throughout the United States. These experts are supported by our highly educated and specialized offshore workforce of approximately 3,300 team members that are approximately 15% of the cost of comparably educated and skilled workers in the U.S. Our unique business model also allowed us to become a leading consolidator in our industry sector, gaining us a reputation for acquiring and positively transforming distressed competitors into profitable operations of CareCloud.

 

Our offshore operations in the Pakistan Offices and Sri Lanka together accounted for approximately 15% and 13% of total expenses for the nine months ended September 30, 2024 and 2023, respectively. A significant portion of those foreign expenses were personnel-related costs (approximately 75% and 77% for the nine months ended September 30, 2024 and 2023, respectively). Because personnel-related costs are significantly lower in Pakistan and Sri Lanka than in the U.S. and many other offshore locations, we believe our offshore operations give us a competitive advantage over many industry participants. We are able to achieve significant cost reductions and leverage technology to reduce manual work and strategically transition a portion of the remaining manual tasks to our highly-specialized, cost-efficient team in the U.S., the Pakistan Offices and Sri Lanka.

 

Key Performance Measures

 

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

 

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

 

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

 

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

 

●Income tax provision or the cash requirements to pay our taxes;
●Interest expense, or the cash requirements necessary to service interest on principal payments, on our debt;
●Foreign currency gains and losses and other non-operating expenditures;
●Stock-based compensation expense (benefit) includes cash-settled awards and the related taxes, based on changes in the stock price;
●Depreciation and amortization charges;
●Integration costs, such as severance amounts paid to employees from acquired businesses, and transaction costs, such as brokerage fees, pre-acquisition accounting costs and legal fees and exit costs related to contractual agreements; and
●Loss on lease terminations, unoccupied lease charges and restructuring costs.

 

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Set forth below is a presentation of our adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023:

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
   ($ in thousands) 
Net revenue  $28,546   $29,280   $82,598   $88,643 
                     
GAAP net income (loss)   3,122    (2,749)   4,555    (4,982)
                     
Provision for income taxes   41    57    119    204 
Net interest expense   162    300    764    705 
Foreign exchange (gain) loss / other expense   (57)   426    244    609 
Stock-based compensation expense (benefit), net of restructuring costs   252    1,209    (191)   3,783 
Depreciation and amortization   3,241    3,903    10,885    10,282 
Transaction and integration costs   12    91    35    270 
Loss on lease terminations, unoccupied lease charges and restructuring costs   67    8    505    430 
Adjusted EBITDA  $6,840   $3,245   $16,916   $11,301 

 

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

 

●Stock-based compensation expense (benefit) includes cash-settled awards and the related taxes, based on changes in the stock price;
●Amortization of purchased intangible assets;
●Integration costs, such as severance amounts paid to employees from acquired businesses, and transaction costs, such as brokerage fees, pre-acquisition accounting costs and legal fees and exit costs related to contractual agreements; and
●Loss on lease terminations, unoccupied lease charges and restructuring costs.

 

Set forth below is a presentation of our adjusted operating income and adjusted operating margin, which represents adjusted operating income as a percentage of net revenue for the three and nine months ended September 30, 2024 and 2023:

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
   ($ in thousands) 
Net revenue  $28,546   $29,280   $82,598   $88,643 
                     
GAAP net income (loss)   3,122    (2,749)   4,555    (4,982)
Provision for income taxes   41    57    119    204 
Net interest expense   162    300    764    705 
Other (income) expense - net   (60)   422    227    591 
GAAP operating income (loss)   3,265    (1,970)   5,665    (3,482)
GAAP operating margin   11.4%   (6.7%)   6.9%   (3.9%)
                     
Stock-based compensation expense (benefit), net of restructuring costs   252    1,209    (191)   3,783 
Amortization of purchased intangible assets   75    1,201    1,501    3,775 
Transaction and integration costs   12    91    35    270 
Loss on lease terminations, unoccupied lease charges and restructuring costs   67    8    505    430 
Non-GAAP adjusted operating income  $3,671   $539   $7,515   $4,776 
Non-GAAP adjusted operating margin   12.9%   1.8%   9.1%   5.4%

 

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

 

●Foreign currency gains and losses and other non-operating expenditures;
●Stock-based compensation expense (benefit) includes cash-settled awards and the related taxes, based on changes in the stock price;
●Amortization of purchased intangible assets;
●Integration costs, such as severance amounts paid to employees from acquired businesses, and transaction costs, such as brokerage fees, pre-acquisition accounting costs and legal fees and exit costs related to contractual agreements;
●Loss on lease terminations, unoccupied lease charges and restructuring costs; and
●Income tax provision resulting from the amortization of goodwill related to our acquisitions.

 

No tax effect has been provided in computing non-GAAP adjusted net income and non-GAAP adjusted net income per share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes. The following table shows our reconciliation of GAAP net income (loss) to non-GAAP adjusted net income for the three and nine months ended September 30, 2024 and 2023:

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
   ($ in thousands) 
GAAP net income (loss)  $3,122   $(2,749)  $4,555   $(4,982)
                     
Foreign exchange (gain) loss / other expense   (57)   426    244    609 
Stock-based compensation expense (benefit), net of restructuring costs   252    1,209    (191)   3,783 
Amortization of purchased intangible assets   75    1,201    1,501    3,775 
Transaction and integration costs   12    91    35    270 
Loss on lease terminations, unoccupied lease charges and restructuring costs   67    8    505    430 
Income tax provision related to goodwill   -    17    -    81 
Non-GAAP adjusted net income  $3,471   $203   $6,649   $3,966 

 

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

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
GAAP net loss attributable to common shareholders, per share  $(0.04)  $(0.42)  $(0.28)  $(1.07)
Impact of preferred stock dividend   0.23    0.25    0.56    0.76 
Net income (loss) per end-of-period share   0.19    (0.17)   0.28    (0.31)
                     
Foreign exchange (gain) loss / other expense   0.00    0.02    0.02    0.04 
Stock-based compensation expense (benefit), net of restructuring costs   0.02    0.08    (0.01)   0.24 
Amortization of purchased intangible assets   0.00    0.07    0.09    0.23 
Transaction and integration costs   0.00    0.01    0.00    0.02 
Loss on lease terminations, unoccupied lease charges and restructuring costs   0.00    0.00    0.03    0.03 
Income tax provision related to goodwill   -    0.00    -    0.00 
Non-GAAP adjusted earnings per share  $0.21   $0.01   $0.41   $0.25 
                     
End-of-period common shares   16,221,820    15,857,650    16,221,820    15,857,650 
Outstanding unvested RSUs   265,699    758,160    265,699    758,160 
Total fully diluted shares   16,487,519    16,615,810    16,487,519    16,615,810 
Non-GAAP adjusted diluted earnings per share  $0.21   $0.01   $0.40   $0.24 

 

For purposes of determining non-GAAP adjusted earnings per share, the Company used the number of common shares outstanding at the end of September 30, 2024 and 2023. Non-GAAP adjusted diluted earnings per share was computed using an as-converted method and includes outstanding unvested RSUs. Non-GAAP adjusted earnings per share and non-GAAP adjusted diluted earnings per share does not take into account dividends paid on preferred stock. No tax effect has been provided in computing non-GAAP adjusted earnings per share and non-GAAP adjusted diluted earnings per share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes.

 

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Key Metrics

 

In addition to the line items in our condensed consolidated financial statements, we regularly review the following metrics. We believe information on these metrics is useful for investors to understand the underlying trends in our business.

 

Providers and Practices Served: As of both September 30, 2024 and 2023, we provided services to an estimated universe of approximately 40,000 providers (which we define as physicians, nurses, nurse practitioners, physician assistants and other clinical staff that render bills for their services), representing approximately 2,600 independent medical practices and hospitals. In addition, we served approximately 150 clients who were not medical practices, but are service organizations who serve the healthcare community. The foregoing numbers include clients leveraging any of our products or services and are based in part upon estimates in cases where the precise number of practices or providers is unknown.

 

Sources of Revenue

 

Revenue: We primarily derive our revenues from subscription-based technology-enabled business solutions, reported in our Healthcare IT segment, which are typically billed as a percentage of payments collected by our customers. This fee includes technology-enabled RCM, as well as the ability to use our EHR, practice management system and other software as part of the bundled fee. These solutions accounted for approximately 63% and 64% for the three months ended September 30, 2024 and 2023, respectively, and 66% and 65% for the nine months ended September 30, 2024 and 2023, respectively. Other healthcare IT services, including printing and mailing operations, group purchasing and professional services, represented approximately 22% and 23% of revenues for the three months ended September 30, 2024 and 2023, respectively, and 21% and 23% for the nine months ended September 30, 2024 and 2023, respectively.

 

We earned approximately 15% and 13% of our revenue from medical practice management services during the three and nine months ended September 30, 2024, respectively, and approximately 13% and 12% during the three and nine months ended September 30, 2023, respectively. This revenue represents fees based on our actual costs plus a percentage of the operating profit and is reported in our Medical Practice Management segment.

 

Operating Expenses

 

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

 

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

 

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

 

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

 

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

 

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Loss on Lease Terminations, Unoccupied Lease Charges and Restructuring Costs. Loss on lease terminations represents the write-off of leasehold improvements and gains or losses as the result of lease terminations. Unoccupied lease charges represent the portion of the lease and related costs for that portion of the space that is vacant and not being utilized by the Company. Two of the leases that had unoccupied space ended in February 2023. Restructuring costs consists of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements.

 

Interest and Other Income (Expense) - net. Interest income represents interest earned on temporary cash investments and late fees from customers. Interest expense consists primarily of interest costs related to our line of credit, term loans and the amortization of deferred financing costs. Other income (expense) - net results primarily from foreign currency transaction gains/(losses).

 

Income Taxes. In preparing our condensed consolidated financial statements, we estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred income tax assets and liabilities. Although the Company is forecasting a return to profitability, it incurred losses historically and there is uncertainty regarding future U.S. taxable income, which makes realization of a deferred tax asset difficult to support in accordance with ASC 740. Accordingly, a valuation allowance has been recorded against all deferred tax assets as of September 30, 2024 and December 31, 2023.

 

Critical Accounting Policies and Estimates

 

The critical accounting policies and estimates used in the preparation of our condensed consolidated financial statements that we believe affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements presented in this Report are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the condensed consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

 

Capitalized Software Costs:

As of September 30, 2024 and December 31, 2023, the carrying amounts of internally-developed capitalized software in use was $13.7 million and $17.1 million, respectively. The decrease was due to the current year amortization exceeding the amounts being capitalized.

 

There have been no material changes in our critical accounting policies and estimates from those described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024.

 

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Results of Operations

 

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

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2024   2023   2024   2023 
Net revenue   100.0%   100.0%   100.0%   100.0%
Operating expenses:                    
Direct operating costs   54.0%   62.4%   55.5%   60.7%
Selling and marketing   4.8%   8.0%   5.8%   8.5%
General and administrative   15.3%   18.7%   14.7%   18.6%
Research and development   2.8%   4.3%   3.4%   4.0%
Depreciation and amortization   11.4%   13.3%   13.2%   11.6%
Loss on lease terminations, unoccupied lease charges and restructuring costs   0.2%   0.0%   0.6%   0.5%
Total operating expenses   88.5%   106.7%   93.2%   103.9%
                     
Operating income (loss)   11.5%   (6.7%)   6.8%   (3.9%)
                     
Net interest expense   (0.6%)   1.0%   (0.9%)   0.8%
Other income (expense) - net   0.2%   (1.4%)   (0.3%)   (0.7%)
Income (loss) before provision for income taxes   11.1%   (9.1%)   5.6%   (5.4%)
Income tax provision   0.1%   0.2%   0.1%   0.2%
Net income (loss)   11.0%   (9.3%)   5.5%   (5.6%)

 

Comparison of the three and nine months ended September 30, 2024 and 2023:

 

  

Three Months Ended

September 30,

   Change   Nine Months Ended
September 30,		   Change 
   2024   2023   Amount   Percent   2024   2023   Amount   Percent 
   ($ in thousands) 
Net revenue  $28,546   $29,280   $(734)   (3%)  $82,598   $88,643   $(6,045)   (7%)

 

Net Revenue. Net revenue of $28.5 million and $82.6 million for the three and nine months ended September 30, 2024, respectively, decreased by $734,000 or 3% and $6.0 million or 7% from net revenue of $29.3 million and $88.6 million for the three and nine months ended September 30, 2023, respectively. Revenue for the three and nine months ended September 30, 2024 includes $17.9 million and $54.2 million relating to technology-enabled business solutions, $4.9 million and $13.8 million related to professional services and $4.2 million and $11.0 million for medical practice management services, respectively.

 

There was an $800,000 and $4.0 million decrease in project-based professional services revenue for the three and nine months ended September 30, 2024 compared to the same periods in the prior year. The 2024 revenue was also negatively impacted by two large accounts that had each been previously acquired prior to our beginning to serve them after a 2020 acquisition. The services provided to them were each winding down at the time of our acquisition and they both transitioned to the systems of their acquirers during 2022. There was no revenue from these two customers for the three months ended September 30, 2024, compared to $700,000 for the same period in 2023. Revenue from these customers for the nine months ended September 30, 2024 and 2023 was $300,000 and $2.7 million, respectively, accounting for approximately $2.4 million of the decline in revenue.

 

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Three Months Ended

September 30,

   Change   Nine Months Ended
September 30,		   Change 
   2024   2023   Amount   Percent   2024   2023   Amount   Percent 
   ($ in thousands) 
Direct operating costs  $15,420   $18,260   $(2,840)   (16%)  $45,839   $53,843   $(8,004)   (15%)
Selling and marketing   1,375    2,337    (962)   (41%)   4,809    7,529    (2,720)   (36%)
General and administrative   4,378    5,482    (1,104)   (20%)   12,127    16,518    (4,391)   (27%)
Research and development   800    1,260    (460)   (37%)   2,768    3,523    (755)   (21%)
Depreciation   504    493    11    2%   1,510    1,496    14    1%
Amortization   2,737    3,410    (673)   (20%)   9,375    8,786    589    7%
Loss on lease terminations, unoccupied lease charges and restructuring costs   67    8    59    738%   505    430    75    17%
Total operating expenses  $25,281   $31,250   $(5,969)   (19%)  $76,933   $92,125   $(15,192)   (16%)

 

Direct Operating Costs. Direct operating costs of $15.4 million and $45.8 million for the three and nine months ended September 30, 2024, respectively, decreased by $2.8 million or 16% and $8.0 million or 15% compared to direct operating costs of $18.3 million and $53.8 million for the three and nine months ended September 30, 2023, respectively. During the three and nine months ended September 30, 2024, salary costs decreased by $1.7 million and $5.1 million, outsourcing and processing costs decreased by $813,000 and $1.7 million and billable expenses decreased by $400,000 and $1.1 million, respectively. The decrease in the salary costs was due to a decrease in the U.S. and Pakistan headcount, lower revenue and the redeployment of employees performing functions that were previously classified as direct operating costs to functions classified as research and development expense for the nine months ended September 30, 2024.

 

Selling and Marketing Expense. Selling and marketing expense of $1.4 million and $4.8 million for the three and nine months ended September 30, 2024, respectively, decreased by $962,000 or 41% and $2.7 million or 36% from selling and marketing expense of $2.3 million and $7.5 million for the three and nine months ended September 30, 2023, respectively. The decrease for the three and nine months ended September 30, 2024 was due to a reduction in headcount and lower spending on selling and marketing activities.

 

General and Administrative Expense. General and administrative expense of $4.4 million and $12.1 million for the three and nine months ended September 30, 2024, respectively, decreased by $1.1 million or 20% and $4.4 million or 27% compared to general and administrative expense of $5.5 million and $16.5 million for the three and nine months ended September 30, 2023, respectively. During the three and nine months ended September 30, 2024, salary costs decreased by $823,000 and $3.0 million, respectively and legal and professional fees decreased by $105,000 and $564,000, respectively. The decrease in salary costs was due to lower headcount. Also, there was a decrease in the Company’s contributions to community-based projects in Pakistan.

 

Research and Development Expense. Research and development expense of $800,000 and $2.8 million for the three and nine months ended September 30, 2024, respectively, decreased by $460,000 or 37% and $755,000 or 21% from research and development expense of $1.3 million and $3.5 million for the three and nine months ended September 30, 2023, respectively. During the nine months ended September 30, 2024 and 2023, the Company capitalized approximately $4.4 million and $6.6 million, respectively, of development costs in connection with its internal-use software.

 

Depreciation Expense. Depreciation expense of $504,000 and $1.5 million for the three and nine months ended September 30, 2024, respectively, increased by $11,000 and $14,000 from depreciation of $493,000 and $1.5 million for the three and nine months ended September 30, 2023, respectively.

 

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Amortization Expense. Amortization expense of $2.7 million and $9.4 million for the three and nine months ended September 30, 2024, respectively, decreased by $673,000 or 20% and increased by $589,000 or 7% from amortization expense of $3.4 million and $8.8 million for the three and nine months ended September 30, 2023, respectively. The increase for the nine months ended September 30, 2024 was due to the placement of additional internal-use software into production and beginning the related amortization. The decrease for the quarter was due to previously acquired customer relationships becoming fully amortized.

 

Loss on Lease Terminations, Unoccupied Lease Charges and Restructuring Costs. Loss on lease terminations represents the write-off of leasehold improvements and gains or losses as the result of lease terminations. During the nine months ended September 30, 2023, the Miami office lease that we assumed in connection with an acquisition ended and we entered into a new lease arrangement with the landlord for significantly less space. Charges of $2,000 and $73,000 for the three and nine months ended September 30, 2023, respectively, were incurred as a result of vacating the former premises. In addition, during the nine months ended September 30, 2023, the Company paid approximately $27,000 to settle a claim regarding a lease termination in India. During the year ended December 31, 2022, a facility lease was terminated in conjunction with the Company ceasing its document storage services resulting in additional costs for the three and nine months ended September 30, 2023, of approximately $1,000 and $162,000, respectively. During the three and nine months ended September 30, 2023, there were $5,000 and $168,000 of unoccupied lease charges, respectively. There were $67,000 and $505,000 of restructuring costs being recorded for the three and nine months ended September 30, 2024, respectively, whereas in the same periods for 2023, there were no restructuring costs. Restructuring costs consists of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements. There were no losses on lease terminations or unoccupied lease charges during the nine months ended September 30, 2024.

 

  

Three Months Ended

September 30,

   Change   Nine Months Ended
September 30,		   Change 
   2024   2023   Amount   Percent   2024   2023   Amount   Percent 
   ($ in thousands) 
Interest income  $17   $52   $(35)   (67%)  $68   $124   $(56)   (45%)
Interest expense   (179)   (352)   173    49%   (832)   (829)   (3)   0%
Other income (expense) - net   60    (422)   482    114%   (227)   (591)   364    62%
Income tax provision   41    57    (16)   (28%)   119    204    (85)   (42%)

 

Interest Income. Interest income of $17,000 and $68,000 for the three and nine months ended September 30, 2024, respectively, decreased by $35,000 and $56,000 from interest income of $52,000 and $124,000 for the three and nine months ended September 30, 2023, respectively. The interest income represents late fees from customers and interest earned on temporary cash investments, which decreased due to less funds being temporarily invested.

 

Interest Expense. Interest expense of $179,000 and $832,000 for the three and nine months ended September 30, 2024, respectively, decreased by $173,000 and increased by $3,000 from interest expense of $352,000 and $829,000 for the three and nine months ended September 30, 2023, respectively. Interest expense on the line of credit was $624,000 and $618,000 during the nine months ended September 30, 2024 and 2023, respectively.

 

Other Income (Expense) – net. Other income – net was $60,000 and other expense – net was $227,000 for the three and nine months ended September 30, 2024, respectively, compared to other expense – net of $422,000 and $591,000 for the three and nine months ended September 30, 2023, respectively. Other expense or income primarily represents foreign currency transaction losses or gains. These transaction losses or gains result from revaluing intercompany accounts which are denominated in U.S. dollars that represent amounts payable/receivable between the entities. Whenever the exchange rate varies, the losses or gains are recorded in the condensed consolidated statements of operations.

 

Income Tax Provision. The provision for income taxes was $41,000 and $119,000 for the three and nine months ended September 30, 2024, respectively, compared to the provision for income taxes of $57,000 and $204,000 for the three and nine months ended September 30, 2023, respectively. As a result of the Company having certain net operating losses with an indefinite life under the federal and state tax rules, the federal and state deferred tax liability was offset against the net operating loss to the extent allowable in 2023. There were no deferred income taxes for the nine months ended September 30, 2024.

 

The current income tax expense for the three and nine months ended September 30, 2024 was approximately $41,000 and $119,000, respectively, which represents state minimum taxes and foreign income taxes. The Company has incurred cumulative losses historically and there is uncertainty regarding future U.S. taxable income, which makes realization of a deferred tax losses difficult to support in accordance with ASC 740. Accordingly, a valuation allowance was recorded against all deferred tax assets at September 30, 2024 and December 31, 2023.

 

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Liquidity and Capital Resources

 

As of September 30, 2024, the Company had total cash of $2.8 million and net working capital of $732,000. For the nine months ended September 30, 2024, cash provided by operations was $15.4 million offset by cash used in investing and financing activities of $15.8 million resulting in a decrease in cash of $549,000 after accounting for the effect of $140,000 of exchange rate changes. As of September 30, 2024, there were no borrowings under the credit facility as the Company fully repaid the outstanding $10.0 million balance during the nine months ended September 30, 2024.

 

In fiscal year 2023, the Company incurred a net loss of $48.7 million compared to $5.4 million of net income in fiscal year 2022, and at December 31, 2023, had cash of $3.3 million and a working capital deficit of $57,000. The decrease in cash for fiscal 2023 was $9.0 million compared to an increase in cash of $2.0 million in fiscal 2022. The Company also had $10.0 million drawn on its line of credit. Together, at December 31, 2023 these factors raised substantial doubt regarding the Company’s ability to continue as a going concern.

 

However, management has considered its plans to continue the Company as a going concern and believes substantial doubt was alleviated by focusing on cost-control. Management developed a plan that was substantially implemented during fiscal 2023 to improve liquidity in its operations through reductions in payroll and operating expenses. After the reductions are implemented and through employee attrition, the Company expects an improvement of approximately $22.0 million in annualized cost savings, of which approximately $16.0 million will be realized during 2024. The Company also suspended its Preferred Stock dividends in December 2023 resulting in cash savings of $1.3 million per month through September 11, 2024 and approximately $1.1 million per month thereafter. Additional headcount reductions occurred in 2024 and further cost reductions will continue throughout the year. As of September 30, 2024, the Company’s outstanding line of credit was fully repaid. The Company continues to be focused on reducing costs, returning to profitability, generating positive cash flow and maintaining compliance with its debt covenants. Although there are no guarantees that the Company will be successful, it believes that such initiatives will enable it to continue as a going concern through at least the next twelve months.

 

The Company has begun realizing the effect of these plans and expects continued effects to be realized during the remainder of 2024 and beyond, including further decrease in the Company’s operating costs and an improvement in the Company’s monthly cash flow from operations.

 

Management continues to focus on the Company’s overall profitability, including managing expenses, and to the extent possible growing revenue, and expects that these efforts will continue to enhance our liquidity and financial position. Based on management’s forecasts, the Company will have sufficient liquidity to meet its obligations as they become due for the next twelve months from the date of the financial statements’ issuance.

 

Change Healthcare, a subsidiary of UnitedHealth Group, experienced an incident on February 21, 2024, in which a cybersecurity threat actor gained access to some of its information technology systems (“Change Healthcare Cybersecurity Incident”). The Company used Change Healthcare to submit patient claims to Medicare and other payors for reimbursement. Since the time of the system disruption, the Company found alternative processes to maintain overall operations.

 

As of September 30, 2024, the Company has not identified any compromise or unauthorized access of its systems or networks due to this third party incident. As of the end of the third quarter of 2024, the Company reconnected to many of the applications previously maintained by Change Healthcare. The Company resumed claims submission to payors and utilized alternative platforms for its claims.

 

During the nine months ended September 30, 2024, the Company did not experience a material financial impact from the Change Healthcare Cybersecurity Incident on the financial results as reported. The impact to the first quarter financial results was primarily related to decreased cash flows from operations, which were recognized during the second and third quarters. The Company resumed submission of claims to payors and determined that the Change Healthcare Cybersecurity Incident did not materially impact the Company, including its business operations, financial condition or results of operations.

 

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We have not been adversely affected by inflation as typically we receive a percentage of the fees our clients collect from our revenue cycle management services. Additionally, our medical practice management contracts are based on our costs plus a percentage of the medical practice’s operating income. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. In the event of inflation, we believe that we will be able to pass on any price increases for fixed rate contracts to our customers, as the prices that we charge are not governed by long-term contracts. The interest rate on our line of credit is based on the prime rate which had been increasing through 2023 but has decreased slightly in 2024.

 

The Company has a revolving line of credit, and as of September 30, 2024, there were no borrowings under the credit facility. During October 2024, the credit line was reduced to $10 million, which is the current unused borrowing base.

 

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

 

   Three Months Ended September 30,   Nine Months Ended September 30,   Change 
   2024   2023   2024   2023   Amount   Percent 
   ($ in thousands)     
Net cash provided by operating activities  $7,068   $4,313   $15,413   $11,721   $3,692    31%
Net cash used in investing activities   (1,673)   (3,245)   (5,144)   (9,322)   4,178    45%
Net cash used in financing activities   (5,166)   (2,581)   (10,678)   (8,406)   (2,272)   (27%)
Effect of exchange rate changes on cash   (64)   253    (140)   114    (254)   223%
Net increase (decrease) in cash  $165   $(1,260)  $(549)  $(5,893)  $5,344    91%

 

The income before income taxes was $3.2 million and $4.7 million for the three and nine months ended September 30, 2024, respectively, which included $3.2 million and $10.9 million of non-cash depreciation and amortization, respectively. The loss before income taxes was $2.7 million and $4.8 million for the three and nine months ended September 30, 2023, respectively, which included $3.9 million and $10.3 million of non-cash depreciation and amortization, respectively.

 

Operating Activities

 

Net cash provided by operating activities was $15.4 million and $11.7 million during the nine months ended September 30, 2024 and 2023, respectively. This increase was primarily the result of the decrease in the net loss of $9.5 million which included the following changes in non-cash items: an increase in depreciation and amortization of $466,000 offset by a net decrease in stock-based compensation of $4.0 million. Accounts receivable increased $388,000 for the nine months ended September 30, 2024, compared with a decrease of $1.9 million for the nine months ended September 30, 2023. Accounts payable, accrued compensation and accrued expenses decreased by $2.2 million and $2.3 million during the nine months ended September 30, 2024 and 2023, respectively. The contract asset decreased by $477,000 during the nine months ended September 30, 2024 compared to an increase of $549,000 in the prior period.

 

Investing Activities

 

Net cash used in investing activities was $5.1 million and $9.3 million for the nine months ended September 30, 2024 and 2023, respectively. Capital expenditures were $759,000 and $2.7 million for the nine months ended September 30, 2024 and 2023, respectively. The capital expenditures for the nine months ended September 30, 2024 and 2023 primarily represented computer equipment purchased and leasehold improvements for the Pakistan Offices. Software development costs of $4.4 million and $6.6 million for the nine months ended September 30, 2024 and 2023, respectively, were capitalized in connection with the development of software for providing technology-enabled business solutions.

 

38

 

 

Financing Activities

 

Net cash used in financing activities was $10.7 million and $8.4 million during the nine months ended September 30, 2024 and 2023, respectively. Cash used in financing activities during the nine months ended September 30, 2024 included $478,000 of repayments for debt obligations and $200,000 of tax withholding obligations paid in connection with stock awards issued to employees. Cash used in financing activities during the nine months ended September 30, 2023 included $11.7 million of preferred stock dividends, $717,000 of repayments for debt obligations and $1.4 million of tax withholding obligations paid in connection with stock awards issued to employees offset by $1.4 million of proceeds from the issuance of Series B Preferred Stock. Repayments and net proceeds on the line of credit were $10.0 million and $4.0 million for the nine months ended September 30, 2024 and 2023, respectively.

 

Contractual Obligations and Commitments

 

We have contractual obligations under our line of credit. We were in compliance with all covenants as of September 30, 2024. We also maintain operating leases for property and certain office equipment. For additional information, see Contractual Obligations and Commitments under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2024, and 2023, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

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

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, based on the Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024 as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

 

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

 

Based on the evaluation of our disclosure controls and procedures, as of September 30, 2024, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective. We will continue to improve the controls to ensure that information required to be disclosed by the Company in reports that it files under the Exchange Act is reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and l5d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than a process improvement to our disclosure controls and procedures.

39

 

 

Part II. Other Information

 

Item 1. Legal Proceedings

 

See discussion of legal proceedings in “Note 7, Commitments And Contingencies” of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report, which is incorporated by reference herein.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I—Item 1A. “Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on March 21, 2024, which could materially affect our business, financial condition and/or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, cash flows and/or future results.

 

We Maintain Our Cash at Financial Institutions, Often in Balances That Exceed Federally Insured Limits.

The financial markets recently have encountered volatility associated with concerns about the balance sheets of banks, especially small and regional banks who may have significant losses associated with investments that make it difficult to fund demands to withdraw deposits and other liquidity needs. Although the federal government has announced measures to assist these banks and protect depositors, some banks have already been impacted and others may be materially and adversely impacted. Our business is dependent on bank relationships and we are proactively monitoring the financial health of such bank relationships. Continued strain on the banking system may adversely impact our business, financial condition and results of operations.

 

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

 

Not applicable.

 

Item 3. Defaults Upon Senior Securities

 

On December 11, 2023, the Board of Directors suspended the monthly cash dividends for Series A Preferred Stock and Series B Preferred Stock beginning with the payment scheduled for December 15, 2023 together with the remaining dividends that were declared. The suspension of these dividends deferred approximately $1.3 million in cash dividend payments each month. Effective in September 2024, due to a change in the dividend rate on the Series A Preferred Stock, the monthly cash dividends were reduced to approximately $1.1 million per month. As a result of such suspension, as of the filing date of this Quarterly Report, the Company has approximately $10.6 million of dividends in arrears. During this suspension, dividends will continue to accumulate in arrears on the Series A and Series B Preferred Stock. The Board of Directors will regularly review and consider when the suspension should be lifted. See discussion of preferred stock dividend suspension in “Note 10, Shareholders’ Equity” of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

Item 6. Exhibits

 

Exhibit Number   Exhibit Description
     
31.1   Certification of the Company’s Principal Executive Officer pursuant to Rules 13a-14(a)/15d-14(a), of the Securities Exchange Act of 1934, as amended.
31.2   Certification of the Company’s Principal Financial Officer pursuant to Rules 13a-14(a)/15d-14(a), of the Securities Exchange Act of 1934, as amended.
32.1*   Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*   Certification of the Company’s Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

101.DEF

104

  

XBRL Taxonomy Extension Definition Linkbase

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

 

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

 

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Signatures

 

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

 

  CareCloud, Inc.
     
  By: /s/ A. Hadi Chaudhry
    A. Hadi Chaudhry
    Chief Executive Officer
    Date: November 12, 2024
     
  By: /s/ Norman S. Roth
    Norman S. Roth
    Interim Chief Financial Officer and Corporate Controller
    Date: November 12, 2024

 

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