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What changed in CareCloud, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CareCloud, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+309 added−297 removedSource: 10-K (2024-03-21) vs 10-K (2023-03-02)

Top changes in CareCloud, Inc.'s 2023 10-K

309 paragraphs added · 297 removed · 237 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

42 edited+12 added−8 removed38 unchanged
Biggest changeOur technology-enabled business solutions can be categorized as follows: ● Technology-enabled revenue cycle management: ○ Revenue Cycle Management (“RCM”) 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 (“EHR”), 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 (“PM”) 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; ○ Patient Experience Management (“PXM”) 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: ○ Chronic 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; ○ Remote 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 ○ Telemedicine 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. 6 ● Healthcare IT professional services & staffing: ○ Professional 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; ○ Strategic advisory services to manage system evaluations and selection, provide interim management, and operational assessments; and ○ Workforce augmentation and on-demand staffing to support our clients as they expand their businesses, seek highly trained personnel, or struggle to address staffing shortages.
Biggest changeThis 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 (“PXM”) 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: ○ Chronic 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; ○ Remote 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 ○ Telemedicine 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: ○ Professional 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; ○ Strategic advisory services to manage system evaluations and selection, provide interim management, and operational assessments; and ○ Workforce augmentation and on-demand staffing to support our clients as they expand their businesses, seek highly trained personnel, or struggle to address staffing shortages.
We believe there are dynamics at play that are significantly increasing market need for our products and services. These market dynamics present opportunities for us to innovate and focus on impacting the day-to-day challenges our clients face as they work to provide excellent patient care, all while managing and expanding their businesses.
We believe there are dynamics at play that are significantly increasing the market need for our products and services. These market dynamics present opportunities for us to innovate and focus on impacting the day-to-day challenges our clients face as they work to provide excellent patient care, all while managing and expanding their businesses.
Our solutions enable clients to increase financial and operational performance, streamline clinical workflows, get better insight through data, and make better business and clinical decisions, resulting in improvement in patient care and collections while reducing administrative burdens and operating costs. We create elegant, user-friendly applications that solve many of the challenges facing healthcare organizations.
Our solutions enable clients to increase financial and operational performance, streamline clinical workflows, get better insight through data, and make better business and clinical decisions, resulting in improvement in patient care and collections while reducing administrative burdens and operating costs. 8 We create elegant, user-friendly applications that solve many of the challenges facing healthcare organizations.
We continually update our software and technology infrastructures, regularly execute releases of new software enhancements, and adapt our offerings to better serve our medical group and health system clients confronting rapid changes in the healthcare market space. Our agile software development methodology is designed to ensure that each software release is properly designed, built, tested, and released.
We continually update our software and technology infrastructures, regularly execute releases of new software enhancements, and adapt our offerings to better serve our medical group and health system clients confronting rapid changes in the healthcare market space. 11 Our agile software development methodology is designed to ensure that each software release is properly designed, built, tested, and released.
We believe the market for our expansive value proposition is underserved, and we will continue to make investments to create awareness of our brand, optimize our sales and implementation lifecycles, and capture greater market share. We are investing more in our sales and marketing activities, partners, and products to expand our client footprint. Extending our relationships with existing clients.
We believe the market for our expansive value proposition is underserved, and we will continue to make investments to create awareness of our brand, optimize our sales and implementation lifecycles, and capture greater market share. We are investing in our sales and marketing activities, partners, and products to expand our client footprint. Extending our relationships with existing clients.
We have developed sales and marketing capabilities aimed at driving growth of our client base, including small medical practices, large groups, and health systems. We expect to expand by selling our complete suite of software and services to new clients and up-selling additional solutions into our existing client base.
We have developed sales and marketing capabilities aimed at driving the growth of our client base, including small medical practices, large groups, and health systems. We expect to expand by selling our complete suite of software and services to new clients and up-selling additional solutions into our existing client base.
There are continuing legislative and regulatory reform efforts, as well as growing compliance requirements mandated by the federal government and other governmental agencies. This ever-evolving regulatory landscape increases the pressure placed on healthcare organizations to stay abreast of these changes and in compliance.
There are continuing legislative and regulatory reform efforts, as well as growing compliance requirements mandated by the federal government and other governmental agencies. This ever-evolving regulatory landscape increases the pressure placed on healthcare organizations to stay abreast of these changes and to remain in compliance.
We believe that healthcare providers are in need of an integrated, end-to-end solution and a flexible service delivery model to manage the different facets of their businesses, from care delivery software, to claim submission, financial reporting, and data analytics. 8 Enhancing our solutions.
We believe that healthcare providers are in need of an integrated, end-to-end solution and a flexible service delivery model to manage the different facets of their businesses, from care delivery software, to claim submission, financial reporting, and data analytics. Enhancing our solutions.
We intend to continue to enhance our solutions with new functionality and features leveraging our own teams, partnerships, and acquisitions. We will continue to dedicate significant resources to research and development to bolster our existing applications and drive new opportunities for innovation on behalf of our clients. Expanding into new categories/specialties/markets.
We intend to continue to enhance our solutions with new functionality and features leveraging our own teams, partnerships, and acquisitions. We will continue to dedicate resources to research and development to bolster our existing applications and drive new opportunities for innovation on behalf of our clients. Expanding into new categories/specialties/markets.
CareCloud.com, CareCloud, MTBC, A Unique Healthcare IT Company, and other trademarks and service marks of CareCloud appearing in this Annual Report on Form 10-K are the property of CareCloud. Trade names, trademarks and service marks of other companies appearing in this Annual Report on Form 10-K are the property of their respective holders. 13 We are a smaller reporting company.
CareCloud.com, CareCloud, MTBC, A Unique Healthcare IT Company, and other trademarks and service marks of CareCloud appearing in this Annual Report on Form 10-K are the property of CareCloud. Trade names, trademarks and service marks of other companies appearing in this Annual Report on Form 10-K are the property of their respective holders. We are a smaller reporting company.
The balance of the employees are classified as general and administrative, which includes support staff to maintain our offshore offices, a function that many businesses in other geographies might choose to outsource. We also utilize the services of a small number of part-time employees. In addition, all officers of the Company work on a full-time basis.
The balance of the employees is classified as general and administrative, which includes support staff to maintain our offshore offices, a function that many businesses in other geographies might choose to outsource. We also utilize the services of a small number of part-time employees. In addition, all officers of the Company work on a full-time basis.
Also, the SEC’s website (www.sec.gov) contains reports, proxy and information statements, and other information that we file electronically with the SEC.
Also, the SEC’s website (www.sec.gov) contains reports, proxy and information statements, and other information that we file electronically with the SEC. 14
Item 1. Business Overview CareCloud, Inc., (together with its consolidated subsidiaries, “CareCloud”, the “Company,” “we,” “us” and/or “our”) is a leading provider of technology-enabled services and solutions that redefine the healthcare revenue cycle.
Item 1. Business Overview CareCloud, Inc., (together with its consolidated subsidiaries, “CareCloud”, the “Company,” “we,” “us” and/or “our”) is a leading provider of technology-enabled services and solutions that redefine the healthcare revenue cycle management process.
These experts are supported by our highly educated and specialized offshore workforce of approximately 3,600 team members at labor costs that we believe are approximately one-tenth the cost of comparable U.S. employees.
These experts are supported by our highly educated and specialized offshore workforce of approximately 3,200 team members at labor costs that we believe are approximately one-tenth the cost of comparable U.S. employees.
This year the Company is not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended. Effective with this Form 10-K, the Company is now a non-accelerated filer. Where You Can Find More Information Our website, which we use to communicate important business information, can be accessed at: www.CareCloud.com.
This year the Company is not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended. The Company is a non-accelerated filer. Where You Can Find More Information Our website, which we use to communicate important business information, can be accessed at: www.CareCloud.com.
To achieve our objective and mission, we employ the following strategies: P roviding comprehensive next generation RCM solutions to medical practices and hospitals.
To achieve our objective and mission, we employ the following strategies: Providing comprehensive next generation RCM solutions to medical practices and hospitals.
Our Business Strategy CareCloud is a market leading provider of integrated, end-to-end SaaS and technology-enabled solutions that help our clients with the business of medicine. Our mission is to redefine the next generation of technology-enabled revenue cycle solutions.
CareCloud is a market leading provider of technology-enabled and integrated end-to-end Software-as-a-Service (“SaaS”) solutions that help our clients with the business of medicine. Our mission is to redefine the next generation of technology-enabled revenue cycle solutions.
In addition, our competitive edge could be diminished or completely lost if our competition develops similar offshore operations in Pakistan or other countries, such as India and the Philippines, where labor costs are lower than those in the U.S. (although higher than in Pakistan). Pricing pressures could negatively impact our margins, growth rate and market share.
In addition, our competitive edge could be diminished or completely lost if our competition develops similar offshore operations in Pakistan or other countries, such as India and the Philippines, where labor costs are lower than those in the U.S. (although higher than in Pakistan).
Our unique business model has 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. Employees Including the employees of our subsidiaries, as of December 2022, the Company employed approximately 4,150 people worldwide on a full-time basis.
Our unique business model has allowed us to become a leading consolidator in our industry sector, gaining us a reputation for acquiring and positively transforming distressed competitors into an accretive acquisition. Employees Including the employees of our subsidiaries, as of December 2023, the Company employed approximately 3,600 people worldwide on a full-time basis.
Our partner ecosystem is a comprehensive collection of apps, services, specialty solutions, and clinical connections. This is an integral part of our vision to be the premier cloud-based platform for healthcare. As the market continues to evolve, we may choose to build or partner for some or all of these solutions in order to broaden our product set.
This is an integral part of our vision to be the premier cloud-based platform for healthcare. 10 As the market continues to evolve, we may choose to build or partner for some or all of these solutions in order to broaden our product set.
Our unique business model includes our cloud-based software and a cost-effective offshore workforce located in Pakistan, Azad Jammu and Kashmir, and Sri Lanka (together, the “Offshore Offices”). We believe this operating model provides us with significant cost advantages compared to other revenue cycle management companies and it allows us to significantly reduce the operational costs of the companies we acquire.
Our unique business model includes our cloud-based software and a cost-effective offshore workforce located in our Offshore Offices. We believe this operating model provides us with significant cost advantages compared to other revenue cycle management companies and it allows us to significantly reduce the operational costs of the companies we acquire. Developing our partner ecosystem.
We believe we have a competitive advantage, as we are able to deliver our industry-leading solutions at competitive prices because we leverage a combination of our proprietary software, which automates our workflows and increases efficiency, together with a global team that includes more than 400 experienced health industry experts onshore.
Pricing pressures could negatively impact our margins, growth rate and market share. 13 We believe we have a competitive advantage, as we are able to deliver our industry-leading solutions at competitive prices because we leverage a combination of our proprietary software, which automates our workflows and increases efficiency, together with a global team that includes more than 300 experienced health industry experts onshore.
Approximately 72% of our employees are focused on service and client delivery functions, approximately 12% are assigned to research and development, and approximately 1.4% are engaged in sales and marketing.
Approximately 71% of our employees are focused on service and client delivery functions, approximately 10% are assigned to research and development, and approximately 2% are engaged in sales and marketing.
We also employ product management, user experience, and product marketing personnel who work continually on improvements to our products and services design. 10 Clients We estimate that as of December 31, 2022, we provided software and services to approximately 40,000 providers (which we define as physicians, nurses, nurse practitioners, therapists, physician assistants and other clinicians that render bills for their services) practicing in approximately 2,600 independent medical practices and hospitals, representing 80 specialties and subspecialties in 50 states allowing for low revenue concentration risk.
Clients We estimate that as of December 31, 2023, we provided software and services to approximately 40,000 providers (which we define as physicians, nurses, nurse practitioners, therapists, physician assistants and other clinicians that render bills for their services) practicing in approximately 2,600 independent medical practices and hospitals, representing 80 specialties and subspecialties in 50 states allowing for low revenue concentration risk.
Healthcare IT industry market to be approximately $97 billion in 2020 and is projected to reach $344 billion by 2030, growing at a 13% compound annual growth rate (“CAGR”). 2 Its largest sub-segment, RCM, is reported to be nearly $140 billion in 2022 and is estimated to grow at a 10% CAGR through 2030 according to Grand View Research. 3 The North American EHR market is expected to be valued at more than $50 billion by 2028.
Healthcare IT industry market to be approximately $105 billion in 2022 and is projected to reach $370.5 billion by 2032, growing at a 13.4% compound annual growth rate (“CAGR”). 2 Its largest sub-segment, RCM, is reported to be nearly $140 billion in 2022 and is estimated to grow at a 10% CAGR through 2030 according to Grand View Research. 3 The U.S.
We continue to optimize our technology offering by integrating them into our application ecosystem and with other industry solutions. The interconnectivity of our solutions will continue driving a consolidation of brands within our product architecture, aimed at improving the awareness and alignment of our products to targeted industry segments.
The interconnectivity of our solutions will continue driving a consolidation of brands within our product architecture, aimed at improving the awareness and alignment of our products to targeted industry segments.
Our Offerings Our solutions are designed to systematically drive clinical quality and patient outcomes, streamline staff and provider workflows and reimbursements, as well as support different settings of care and healthcare models.
Our Offerings Our solutions are designed to systematically drive clinical quality and patient outcomes, streamline staff and provider workflows and reimbursements, as well as support different settings of care and healthcare models. Our product and service strategy is simple: we build products and deliver solutions that meet our clients’ needs.
These trends will fuel growth over the next several years. In order for healthcare organizations to continue to succeed, these new realities require robust solutions and careful execution. Legacy tools that once powered these healthcare organizations are insufficient to support their growth and long-term strategies.
In order for healthcare organizations to continue to succeed, these new realities require robust solutions and careful execution. Legacy tools that once powered these healthcare organizations are insufficient to support their growth and long-term strategies. Our solutions facilitate the transition needed by these organizations to adopt the next generation of healthcare solutions to drive their future growth.
We continue to leverage and optimize various digital channels to present our solutions, identify national events to demonstrate our integrated capabilities and expand our participation in thought leadership and social communications to connect with the healthcare community. 11 Our Growth Levers We believe that we are in a great position to continue to grow by leveraging a multi-faceted growth strategy: Organic Growth and Direct Sales The sales and marketing team has expanded 11 times since 2019.
We continue to leverage and optimize various digital channels to present our solutions, identify national events to demonstrate our integrated capabilities and expand our participation in thought leadership and social communications to connect with the healthcare community. 12 Our Growth Levers We believe that we are in a good position to grow through organic growth and partnerships.
Voting Rights of Our Directors, Executive Officers, and Principal Stockholders As of December 31, 2022, approximately 35% of both the shares of our common stock and voting power of our common stock are held by our directors and executive officers.
During 2024, we anticipate further reducing our employee count. Voting Rights of Our Directors, Executive Officers, and Principal Stockholders As of December 31, 2023, approximately 38% of both the shares of our common stock and voting power of our common stock are held by our directors and executive officers.
Our product and service strategy is simple: we build products and deliver solutions that meet our clients’ needs. 9 Through the combination of our strategic acquisition strategy and continued development of next generation solutions, we provide comprehensive products and services tailored for small medical practices, large physician groups and health systems, as well as industry partners.
Through the combination of our continued development of next generation solutions and strategic acquisition strategy, we provide comprehensive products and services tailored for small medical practices, large physician groups and health systems, as well as industry partners. We continue to optimize our technology offerings by integrating them into our application ecosystem and with other industry solutions.
We have a direct sales force including team members focused on specific functional or divisional areas, such as CareCloud Force (workforce augmentation) and medSR (healthcare IT consulting). In addition, our direct sales are augmented through our partner initiatives and marketing campaigns.
We have a direct sales force including team members focused on specific functional or divisional areas, such as CareCloud Force (workforce augmentation) and medSR (healthcare IT consulting). This direct sales force is supplemented by offshore staff who support our sales and marketing efforts 24 hours per day.
The core philosophy behind this expansion is for every team member to perform at the top of their skills and ability. We have organized our sales force into different segments to promote the respective products and services for that segment and best address our clients’ needs and our markets.
Organic Growth and Direct Sales We have organized our sales force into different segments to promote the respective products and services for that segment and best address our clients’ needs and our markets.
We partner with organizations to develop customized, best-in-class solutions to solve their specific challenges while ensuring they also meet future regulatory and organizational requirements and market demands. Market Overview In March 2022, Centers for Medicare & Medicaid Services (“CMS”) 1 reported that national healthcare expenditure in the U.S. grew by 4.2% in 2021.
We partner with organizations to develop customized, best-in-class solutions to solve their specific challenges while ensuring they also meet future regulatory and organizational requirements and market demands.
We have entered into such engagements with industry participants, and developed application interfaces with numerous EHR systems, together with device and lab integration to support these relationships. Growth through Acquisitions The Healthcare IT industry is highly fragmented, with many local and regional RCM companies serving small medical practices and hospitals.
We have entered into such engagements with industry participants, and developed application interfaces with numerous EHR systems, together with device and lab integration to support these relationships. Competition The market for RCM, practice management, EHR solutions, and related services is highly competitive, and we expect competition to increase in the future.
The healthcare industry has seen tremendous change over the last three years, with COVID-19 ushering in a new era of digital health. Our study of the evolving needs of our clients leads us to believe that there will be an increasing need for our services and products and emerging needs for the products and services that we are already developing.
Our study of the evolving needs of our clients leads us to believe that there will be an increasing need for our services and products and emerging needs for the products and services that we are already developing. 1 CMS – National Health Expenditure Historical 2 The Brainy Research – US Healthcare IT Market 3 U.S.
A core component of our model is to strip out expensive third-party software and vendor costs while improving efficiency and scale with our proven operational model and integration methodology. Developing our partner ecosystem. We offer an integrated partner ecosystem providing healthcare organizations access to a variety of innovative solutions that complement our suite of products and services.
We offer an integrated partner ecosystem providing healthcare organizations access to a variety of innovative solutions that complement our suite of products and services. Our partner ecosystem is a comprehensive collection of apps, services, specialty solutions, and clinical connections.
Strategic-thinking healthcare organizations across the country are aggressively addressing these new realities and are finding opportunities for growth and expansion. We see medical groups across the country and within all specialties and market segments, growing through consolidation and investing in their businesses at an accelerated pace.
We see medical groups across the country and within all specialties and market segments, growing through consolidation and investing in their businesses at an accelerated pace. This is also leading clients to focus on delivering emerging and disruptive care delivery settings.
Revenue Cycle Management Market Size, Share, Trends | Report 2023-2030 (Grand View Research) 7 Our Market Opportunity Considering the evolving needs of our clients and the market, we believe we continue to be uniquely positioned to provide tremendous value and support for our clients.
EHR market is expected to be valued at $40 billion by 2030 with a CAGR of 12.5% from 2022 to 2030. 4 The Telehealth market is estimated to be approximately $30 billion in 2022 with a CAGR of 23% from 2023 to 2030. 5 Our Market Opportunity Considering the evolving needs of our clients and the market, we believe we continue to be uniquely positioned to provide tremendous value and support for our clients.
Our medical practice management solutions include: ● Medical practice management: ○ Medical practice management services for medical providers, including facilities, equipment, supplies, support services, nurses, and administrative support staff.
Our medical practice management solutions include: ● Medical practice management: ○ Medical practice management services are provided to medical practices. In this service model, we provide the medical practice with appropriate facilities, equipment, supplies, support services, nurses and administrative support staff. We also provide management, bill-paying and financial advisory services.
Our solutions facilitate the transition needed by these organizations to adopt the next generation of healthcare solutions to drive their future growth. Our expansive product and services portfolio enables us to displace competitors and gain market share across a vast array of specialties, care settings and customer segments across the country.
Our expansive product and services portfolio enables us to displace competitors and gain market share across a vast array of specialties, care settings and customer segments across the country. Our Business Strategy The Company is focused on reducing costs, returning to profitability and generating positive free cash flow in order to resume paying the Preferred Stock dividends.
This is also leading clients to focus on delivering emerging and disruptive care delivery settings. Much of this change is driving executives and leaders to assess their IT and data strategy and reevaluate their adoption of next generation healthcare solutions.
Much of this change is driving executives and leaders to assess their IT and data strategy and reevaluate their adoption of next generation healthcare solutions. The healthcare industry has seen tremendous change over the last three years, with COVID-19 ushering in a new era of digital health.
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U.S. healthcare spending will grow 5.1% annually on average during the years 2021 through 2030, reaching $6.8 trillion by 2030. CMS also projected that the health share of GDP is expected to be 19.6% in 2030, nearly the same as the 2020 share of 19.7%. Additionally, analysts from Allied Market Research have estimated the U.S.
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Our technology-enabled business solutions can be categorized as follows: ● Technology-enabled revenue cycle management: ○ Revenue Cycle Management (“RCM”) 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 (“PM”) 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; ○ 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.
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The Telehealth market is estimated to be approximately $23 billion with a CAGR of 23%. 2 1 CMS Office of the Actuary Releases 2021-2030 Projections of National Health Expenditures | CMS 2 Healthcare IT Market in US Size, Share, Trends | Report 2030 (alliedmarketresearch.com) 3 U.S.
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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.
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Pursue acquisitions. We intend to continue to pursue acquisitions over time. As with most of our acquisition transactions, our goal is to retain the acquired clients over the long-term and migrate those clients to our platforms soon after closing and cross-sell our products and services to this newly acquired client base.
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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 (“EHR”) workflows.
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We believe that the industry is ripe for consolidation and that we can achieve significant growth through acquisitions.
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This tool streamlines post-training and onboarding for new staff, reducing response times and providing real-time assistance, ultimately saving time. 7 ● AI-Driven Appeals: CareCloud cirrusAI Appeals generates customized appeal letters by analyzing patient claim details, the appeal’s reason, and the specific payer involved for healthcare workers to review, edit, and send.
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We further believe that it is becoming increasingly difficult for traditional RCM companies, together with a variety of other healthcare industry vendors and healthcare IT companies, to meet the growing technology and business service needs of healthcare providers without a significant investment in an information technology infrastructure and the utilization of a talented, cost-efficient global team.
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Market Overview In June 2023, Centers for Medicare & Medicaid Services (“CMS”) 1 reported that over 2022-2031 the average National Health Expenditures (“NHE”) growth (5.4%) is projected to outpace that of average Gross Domestic Product (“GDP”) growth (4.6%) resulting in an increase in the health spending share of GDP from 18.3% in 2021 to 19.6% in 2031.
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Since the Company went public in July 2014, we have completed 17 transactions, acquiring complementary assets to grow our business. We typically leverage our technology and our cost-effective offshore team to quickly deliver additional value to the newly acquired customer base, while reducing costs.
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Additionally, analysts from The Brainy Research have estimated the U.S.
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Often, we will incur initial costs associated with the integration of the acquired business with our existing operations, but this early investment is designed to increase customer satisfaction and retention, while laying the foundation for long-term accretion. 12 Competition The market for RCM, practice management, EHR solutions, and related services is highly competitive, and we expect competition to increase in the future.
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Further compounding the burden of rising health insurance cost is the ongoing shift in patient demographics. As the national population ages into Medicare eligibility, the reimbursement received for procedures and services provided to these patients decreases. Medicaid is now the largest insurance product in the country and continues to grow.
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Over the next twelve months, we anticipate increasing our total number of employees only if our revenues increase, our operating requirements warrant such hiring, or we are hiring for specific functions where we place additional emphasis, such as marketing and sales.
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Reimbursements overall are not increasing at the same rate as costs, driving providers and practices to search for increased efficiencies and savings wherever possible. Strategic-thinking healthcare organizations across the country are aggressively addressing these new realities and are finding opportunities for growth and expansion.
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Revenue Cycle Management Market Size Report, 2030 (grandviewresearch.com) 4 US Electronic Health Record Market Set to Surge to $39.993 Billion by 2030 with Notable CAGR of 12.5% (yahoo.com) 5 Healthcare IT Market in US Size, Share, Trends | Report 2030 (alliedmarketresearch.com) 9 These trends will fuel growth over the next several years.
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We also employ product management, user experience, and product marketing personnel who work continually on improvements to our products and services design.
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In addition, our direct sales are augmented through our partner initiatives and marketing campaigns.
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Large groups and health systems that have grown through consolidation often realize economies of scale by establishing billing and management offices to perform many of the services we offer themselves.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

101 edited+23 added−29 removed220 unchanged
Biggest changeWe cannot assure you that our businesses will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to make distributions on our common stock, if any, and preferred stock, including the Preferred Stock to pay our indebtedness or to fund our other liquidity needs. 32 We may issue additional shares of Preferred Stock and additional series of preferred stock that rank on parity with the Preferred Stock as to dividend rights, rights upon liquidation or voting rights.
Biggest changeIf and when the dividends are reinstated, we may not maintain sufficient cash to continue to pay dividends on the Preferred Stock and we cannot assure you that our businesses will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to make the Preferred Stock dividend payments that are currently due or in arrears and to fund our other liquidity needs.
Our business depends on our ability to adapt to evolving technologies and industry standards and upgrade existing and introduce new products and services accordingly.
Our business depends on our ability to adapt to evolving technologies and industry standards and upgrade existing products and introduce new products and services accordingly.
Such reforms may also make introduction of new products and service costlier or more time-consuming than we currently anticipate. These changes may also prevent our introduction of new products and services or make the continuation or maintenance of our existing products and services unprofitable or impossible.
Such reforms may also make the introduction of new products and service costlier or more time-consuming than we currently anticipate. These changes may also prevent our introduction of new products and services or make the continuation or maintenance of our existing products and services unprofitable or impossible.
The Preferred Stock is not convertible into the common stock and earns dividends at a fixed rate. Accordingly, an increase in market price of our common stock will not necessarily result in an increase in the market price of our Preferred Stock.
The Preferred Stock is not convertible into the common stock and earns dividends at a fixed rate. Accordingly, an increase in the market price of our common stock will not necessarily result in an increase in the market price of our Preferred Stock.
Although our products comply with the latest ONC standards and provide seamless and secure access, use and sharing of electronic health records, market forces or regulatory authorities could create software interoperability standards that would apply to our solutions, and if our products and services are not consistent with those standards, we could be forced to incur substantial additional development costs.
Although our products comply with the latest ONC standards and provide seamless and secure access, use and sharing of electronic health records, market forces or regulatory authorities could create software interoperability standards that would apply to our solutions, and if our products and services are not consistent with those standards, we could be forced to incur substantial development costs.
The incurrence of additional accounting and legal costs and related expenses in connection with, and the assessment of, taxes, interest, and penalties as a result of audits, litigation, or otherwise could be materially adverse to our current and future results of operations and financial condition. 17 If we lose the services of Mahmud Haq as Executive Chairman, A.
The incurrence of additional accounting and legal costs and related expenses in connection with, and the assessment of, taxes, interest, and penalties as a result of audits, litigation, or otherwise could be materially adverse to our current and future results of operations and financial condition. If we lose the services of Mahmud Haq as Executive Chairman, A.
Our intellectual property rights may not be sufficient to help us maintain our position in the market and our competitive advantages. Trade secrets may not be protectable if not properly kept confidential. We strive to enter into non-disclosure agreements with our employees, customers, contractors and business partners to limit access to and disclosure of our proprietary information.
Our intellectual property rights may not be sufficient to help us maintain our position in the market and our competitive advantages. 18 Trade secrets may not be protectable if not properly kept confidential. We strive to enter into non-disclosure agreements with our employees, customers, contractors and business partners to limit access to and disclosure of our proprietary information.
We cannot assure you that we will not be subject to sales and use taxes or related penalties for past sales in states where we believe no compliance is necessary. If the federal government were to impose a tax on imports or services performed abroad, we might be subject to additional liabilities.
We cannot assure you that we will not be subject to sales and use taxes or related penalties for past sales in states where we believe no compliance is necessary. 17 If the federal government were to impose a tax on imports or services performed abroad, we might be subject to additional liabilities.
Any such claims or lawsuit could: ● be time-consuming and expensive to defend, whether meritorious or not; ● require us to stop providing products or services that use the technology that allegedly infringes the other party’s intellectual property; ● divert the attention of our technical and managerial resources; ● require us to enter into royalty or licensing agreements with third-parties, which may not be available on terms that we deem acceptable; ● prevent us from operating all or a portion of our business or force us to redesign our products, services or technology platforms, which could be difficult and expensive and may make the performance or value of our product or service offerings less attractive; 18 ● subject us to significant liability for damages or result in significant settlement payments; and/or ● require us to indemnify our customers.
Any such claims or lawsuit could: ● be time-consuming and expensive to defend, whether meritorious or not; 19 ● require us to stop providing products or services that use the technology that allegedly infringes the other party’s intellectual property; ● divert the attention of our technical and managerial resources; ● require us to enter into royalty or licensing agreements with third-parties, which may not be available on terms that we deem acceptable; ● prevent us from operating all or a portion of our business or force us to redesign our products, services or technology platforms, which could be difficult and expensive and may make the performance or value of our product or service offerings less attractive; ● subject us to significant liability for damages or result in significant settlement payments; and/or ● require us to indemnify our customers.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting. 22 In the future, if we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting. In the future, if we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.
Our Board of Directors may exercise its authority with respect to the remaining shares of preferred stock without any further approval of common stockholders. The rights of the holders of common stock may be adversely affected by the rights of future holders of preferred stock. 30 We do not intend to pay cash dividends on our common stock.
Our Board of Directors may exercise its authority with respect to the remaining shares of preferred stock without any further approval of common stockholders. The rights of the holders of common stock may be adversely affected by the rights of future holders of preferred stock. We do not intend to pay cash dividends on our common stock.
Other than the limited circumstances and except to the extent required by law, holders of Preferred Stock do not have any voting rights. 34 The Preferred Stock is not convertible, and investors will not realize a corresponding upside if the price of the common stock increases.
Other than the limited circumstances and except to the extent required by law, holders of Preferred Stock do not have any other voting rights. The Preferred Stock is not convertible, and investors will not realize a corresponding upside if the price of the common stock increases.
A recession or prolonged economic contraction as a result of health emergencies could also harm the business and results of operations of our enterprise customers, resulting in potential business closures, layoffs of employees and a significant increase in unemployment in the United States and elsewhere.
A recession or prolonged economic contraction as a result of health emergencies could harm the business and results of operations of our enterprise customers, resulting in potential business closures, layoffs of employees and a significant increase in unemployment in the United States and elsewhere.
A failure by us to timely adapt to ever changing technologies or our failure to regularly upgrade existing or introduce new products or to introduce these products on schedule could cause us to not only lose our current customers but also fail to attract new customers. 14 The continued success of our business model is heavily dependent upon our offshore operations, and any disruption to those operations will adversely affect us.
A failure by us to timely adapt to ever changing technologies or our failure to regularly upgrade existing or introduce new products or to introduce these products on schedule could cause us to not only lose our current customers but also fail to attract new customers. 15 The continued success of our business model is heavily dependent upon our offshore operations, and any disruption to those operations will adversely affect us.
Our ability to pay dividends may be impaired if any of the risks described in this document, including the documents incorporated by reference herein, were to occur.
Our ability to pay dividends may again be impaired if any of the risks described in this document, including the documents incorporated by reference herein, were to occur.
Our competitors include larger healthcare IT companies, such as athenahealth, Inc., eClinicalWorks, Greenway Medical Technologies, Inc., NextGen, RI RCM and Veradigm, all of which may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, regulations or customer needs and requirements.
Our competitors include larger healthcare IT companies, such as athenahealth, Inc., eClinicalWorks, Greenway Medical Technologies, Inc., NextGen, R1 RCM and Veradigm, all of which may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, regulations or customer needs and requirements.
At this time, there is no way to predict whether this will occur or estimate the impact on our business. Vendors of products and services like us are typically held responsible by taxing authorities for the collection and payment of any applicable sales and similar taxes.
At this time, there is no way to predict whether this will occur or estimate the impact on our business. Vendors of products and services like ours are typically held responsible by taxing authorities for the collection and payment of any applicable sales and similar taxes.
We believe that the labor costs in our Offshore Offices are approximately 14% of the cost of comparably educated and skilled workers in the U.S. If there were potential disruptions in any of these locations, they could have a negative impact on our business.
We believe that the labor costs in our Offshore Offices are approximately 9% of the cost of comparably educated and skilled workers in the U.S. If there were potential disruptions in any of these locations, they could have a negative impact on our business.
The majority of our operations, including the development and maintenance of our web-based platform, our customer support services and medical billing activities, are performed by our highly educated workforce of approximately 3,600 employees in our Offshore Offices.
The majority of our operations, including the development and maintenance of our web-based platform, our customer support services and medical billing activities, are performed by our highly educated workforce of approximately 3,200 employees in our Offshore Offices.
Starting February 15, 2024, we may, at our option, redeem the Series B Preferred Stock, in whole or in part, at any time or from time to time, paying a small premium if we choose to redeem any Series B Preferred Stock prior to February 15, 2027.
Since February 15, 2024, we may, at our option, redeem the Series B Preferred Stock, in whole or in part, at any time or from time to time, paying a small premium if we choose to redeem any Series B Preferred Stock prior to February 15, 2027.
These factors include, but are not limited to, the following: ● prevailing interest rates, increases in which may have an adverse effect on the market price of the Preferred Stock; ● trading prices of similar securities; ● our history of timely dividend payments; ● the annual yield from dividends on the Preferred Stock as compared to yields on other financial instruments; ● general economic and financial market conditions; ● government action or regulation; ● our financial condition, performance and prospects of our competitors; ● changes in financial estimates or recommendations by securities analysts with respect to us or our competitors in our industry; ● our issuance of additional preferred equity or debt securities; and ● actual or anticipated variations in quarterly operating results of us and our competitors.
These factors include, but are not limited to, the following: ● suspension of the dividend payments in December 2023; ● prevailing interest rates, increases in which may have an adverse effect on the market price of the Preferred Stock; 33 ● trading prices of similar securities; ● the annual yield from dividends on the Preferred Stock as compared to yields on other financial instruments; ● general economic and financial market conditions; ● government action or regulation; ● our financial condition, performance and prospects of our competitors; ● changes in financial estimates or recommendations by securities analysts with respect to us or our competitors in our industry; ● our issuance of additional preferred equity or debt securities; and ● actual or anticipated variations in quarterly operating results of us and our competitors.
Any impairment of our intellectual property rights, or our failure to protect our intellectual property rights adequately, could give our competitors’ access to our technology and could materially and adversely impact our business and operating results.
Any impairment of our intellectual property rights, or our failure to protect our intellectual property rights adequately, could give our competitors access to our technology and could materially and adversely impact our business and operating results.
Numerous governmental jurisdictions, including the State of New Jersey where we maintain our principal executive offices, and those in which many of our U.S. and international offices are based, have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of public health emergencies.
Numerous governmental jurisdictions, including the State of New Jersey where we maintain our principal executive offices, and those in which many of our U.S. and international offices are based may impose “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of public health emergencies.
Approximately 99% of our offshore employees are in our Pakistan Offices and our remaining employees are located at our smaller offshore operation center in Sri Lanka.
Approximately 98% of our offshore employees are in our Pakistan Offices and our remaining employees are located at our smaller offshore operation center in Sri Lanka.
We may not be able to pay dividends on the Preferred Stock if we fall out of compliance with our loan covenants and are prohibited by our bank lender from paying dividends or if we have insufficient cash to make dividend payments.
If and when they are reinstated, we may not be able to continue to pay dividends on the Preferred Stock if we fall out of compliance with our loan covenants and are prohibited by our bank lender from paying dividends or if we have insufficient cash to make dividend payments.
A holder of Preferred Stock has extremely limited voting rights. The voting rights for a holder of Preferred Stock are limited. Our shares of common stock are the only class of our securities that carry full voting rights, and Mahmud Haq, our Executive Chairman, beneficially owns approximately 29.5% of our outstanding shares of common stock. As a result, Mr.
A holder of Preferred Stock has extremely limited voting rights. The voting rights for a holder of Preferred Stock are limited. Our shares of common stock are the only class of our securities that carry full voting rights, and Mahmud Haq, our Executive Chairman, beneficially owns approximately 31.7% of our outstanding shares of common stock. As a result, Mr.
Future issuances and sales of senior or pari passu preferred stock, or the perception that such issuances and sales could occur, may cause prevailing market prices for the Preferred Stock and our common stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.
Future issuances and sales of senior or pari passu preferred stock, or the perception that such issuances and sales could occur, may cause prevailing market prices for the Preferred Stock and our common stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us. 32 Market interest rates may materially and adversely affect the value of the Preferred Stock.
Specific factors that may cause fluctuations in our operating results include: ● demand and pricing for our products and services; ● the encounter volumes of our customer base; ● government or commercial healthcare reimbursement policies; ● physician and patient acceptance of any of our current or future products; ● introduction of competing products; ● our operating expenses which fluctuate due to growth of our business; ● timing and size of any new product or technology acquisitions we may complete; and ● variable sales cycle and implementation periods for our products and services.
Specific factors that may cause fluctuations in our operating results include: ● demand and pricing for our products and services; ● the encounter volumes of our customer base; ● government or commercial healthcare reimbursement policies; ● physician and patient acceptance of any of our current or future products; ● introduction of competing products; ● our operating expenses which fluctuate due to growth of our business; ● timing and size of any new product or technology acquisitions we may complete; and ● variable sales cycle and implementation periods for our products and services. 29 Future sales of shares of our common stock could depress the market price of our common stock.
Our Board of Directors has the authority to issue up to 7,000,000 shares of preferred stock and to determine the price, privileges and other terms of these shares, of which 4,526,231 shares of Series A Preferred Stock and 1,344,128 of Series B Preferred Stock have been issued as of December 31, 2022.
Our Board of Directors has the authority to issue up to 7,000,000 shares of preferred stock and to determine the price, privileges and other terms of these shares, of which 4,526,231 shares of Series A Preferred Stock and 1,468,792 of Series B Preferred Stock have been issued as of December 31, 2023.
The HITECH Act provided financial incentives for healthcare providers that demonstrated “meaningful use” of an EHR and mandated use of health information technology systems that are certified according to technical standards developed under the supervision of the U.S. Department of Health and Human Services (“HHS”).
The HITECH Act provides financial incentives for healthcare providers that demonstrate “meaningful use” of an EHR and mandates use of health information technology systems that are certified according to technical standards developed under the supervision of the U.S. Department of Health and Human Services (“HHS”).
Any such downward revision, placing on a watch list or withdrawal of a rating could have an adverse effect on the market price of the Preferred Stock. 33 We may redeem the Series A Preferred Stock at any time and may redeem the Series B Preferred Stock after February 15, 2024.
Any such downward revision, placing it on a watch list or withdrawal of a rating could have an adverse effect on the market price of the Preferred Stock. We may redeem the Series A and Series B Preferred Stock at any time.
Moreover, if we are not able to stay in compliance with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies any deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
Moreover, if we are not able to stay in compliance with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies any deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. 30 Furthermore, investor perceptions of our Company may suffer if deficiencies are found, and this could cause a decline in the market price of our common and preferred stock.
We cannot predict with certainty whether we will remain in compliance with the covenants of our senior secured lender, SVB, which include, among other things, generating adjusted EBITDA or complying with a minimum liquidity ratio at times when we are utilizing our line of credit.
We cannot predict with certainty whether we will remain in compliance with the covenants of our senior secured lender, Silicon Valley Bank, a division First Citizens Bank, (“SVB”), which include, among other things, generating adjusted EBITDA or complying with a minimum liquidity ratio at times when we are utilizing our line of credit.
Because changes in payer requirements and practices are frequent and sometimes difficult to determine except through trial and error, we are continuously discovering defects and errors in our software and service processes compared against these requirements and practices.
Despite testing, defects or errors may arise in our existing or new software or service processes. Because changes in payer requirements and practices are frequent and sometimes difficult to determine except through trial and error, we are continuously discovering defects and errors in our software and service processes compared against these requirements and practices.
The 21 st Century Cures Act (the “Cures Act”), passed by Congress in 2016, is meant to improve various aspects of the healthcare industry, including interoperability and information blocking. The Cures Act’s interoperability provisions relate to Information Exchange and Certification administered by the Office of the National Coordinator for Health Information Technology (the “ONC”).
The 21 st Century Cures Act (the “Cures Act”), passed by Congress in 2016, is meant to improve various aspects of the healthcare industry, including interoperability and information blocking. The Cures Act’s interoperability provisions relate to Information Exchange and Certification administered by the ONC.
The HITECH Act transferred enforcement authority of the security rule from CMS to the Office for Civil Rights of HHS, thereby consolidating authority over the privacy and security rules under a single office within HHS. Further, HITECH empowered state attorneys’ general to enforce HIPAA.
The HITECH Act transferred enforcement authority of the security rule from CMS to the Office for Civil Rights of HHS, thereby consolidating authority over the privacy and security rules under a single office within HHS.
Market interest rates may materially and adversely affect the value of the Preferred Stock. One of the factors that influences the price of the Preferred Stock is the dividend yield on the Preferred Stock (as a percentage of the market price of each class of the Preferred Stock) relative to market interest rates.
One of the factors that influences the price of the Preferred Stock is the dividend yield on the Preferred Stock (as a percentage of the market price of each class of the Preferred Stock) relative to market interest rates.
Similarly, certain computer software products are regulated as medical devices under the Federal Food, Drug, and Cosmetic Act. While the Food and Drug Administration (“FDA”) has sometimes chosen to disclaim authority to, or to refrain from actively regulating certain software products which are similar to our products, this area of medical device regulation remains in flux.
While the Food and Drug Administration (“FDA”) has sometimes chosen to disclaim authority to, or to refrain from actively regulating certain software products which are similar to our products, this area of medical device regulation remains in flux.
Any failure of our products or services to comply with these laws and regulations could result in substantial civil or criminal liability and could, among other things, adversely affect demand for our services, invalidate all or portions of some of our contracts with our customers, require us to change or terminate some portions of our business, require us to refund portions of our revenue, cause us to be disqualified from serving customers doing business with government payers, and give our customers the right to terminate our contracts with them, any one of which could have an adverse effect on our business.
Any failure of our products or services to comply with these laws and regulations could result in substantial civil or criminal liability and could, among other things, adversely affect demand for our services, invalidate all or portions of some of our contracts with our customers, require us to change or terminate some portions of our business, require us to refund portions of our revenue, cause us to be disqualified from serving customers doing business with government payers, and give our customers the right to terminate our contracts with them, any one of which could have an adverse effect on our business. 28 Potential healthcare reform and new regulatory requirements placed on our products and services could increase our costs, delay or prevent our introduction of new products or services, and impair the function or value of our existing products and services.
Also, payment of our dividends depends upon our financial condition, remaining in compliance with our affirmative and negative loan covenants with SVB, which we may be unable to do in the future, and other factors as our Board of Directors may deem relevant from time to time.
Also, payment of our dividends depends upon our financial condition, remaining in compliance with our affirmative and negative loan covenants with SVB, which we may be unable to do in the future, and other factors as our Board of Directors may deem relevant from time to time. 31 Our Series A and Series B Preferred Stock rank junior to all of our indebtedness and other liabilities.
We may bear losses incurred as a result of, for example, physical damage to, or destruction of, our facilities (such as our operation centers), and business interruption due to weather events that may be attributable to climate change.
We may bear losses incurred as a result of, for example, physical damage to, or destruction of, our facilities (such as our operation centers), and business interruption due to weather events that may be attributable to climate change. These events and impacts could materially adversely affect our business operations, financial position, or results of operation.
Also, future offerings of debt or senior equity securities may adversely affect the market price of the Preferred Stock. If we decide to issue debt or senior equity securities in the future, it is possible that these securities will be governed by an indenture or other instruments containing covenants restricting our operating flexibility.
If we decide to issue debt or senior equity securities in the future, it is possible that these securities will be governed by an indenture or other instruments containing covenants restricting our operating flexibility.
If we are unable to successfully introduce new products or services or fail to keep pace with advances in technology, we would not be able to maintain our customers or grow our business, which will have a material adverse effect on our business.
There can be no assurance that these actions will achieve their intended benefits. If we are unable to successfully introduce new products or services or fail to keep pace with advances in technology, we would not be able to maintain our customers or grow our business, which will have a material adverse effect on our business.
If this trend continues, we cannot assure you that we will be able to continue to maintain or expand our customer base, negotiate contracts with acceptable terms, or maintain our current pricing structure, which would result in a decrease in our revenues and market share.
If this trend continues, we cannot assure you that we will be able to continue to maintain or expand our customer base, negotiate contracts with acceptable terms, or maintain our current pricing structure, which would result in a decrease in our revenues and market share. 16 If providers do not purchase our products and services or delay in choosing our products or services, we may not be able to grow our business.
Finally, we may be required to spend significant resources to monitor and protect our intellectual property rights, including with respect to legal proceedings, which could result in substantial costs and diversion of resources and could materially and adversely impact our business, financial condition and operating results. 19 Current and future litigation against us could be costly and time-consuming to defend and could result in additional liabilities.
Finally, we may be required to spend significant resources to monitor and protect our intellectual property rights, including with respect to legal proceedings, which could result in substantial costs and diversion of resources and could materially and adversely impact our business, financial condition and operating results.
If we are found to be in violation of the FCA, AKS, ACA, or any other applicable state or any federal fraud and abuse laws, whether by our current practices or for the past practices of a company we acquire, we may be subject to substantial civil damages and criminal penalties and fines that could have a material adverse impact on our business.
If we are found to be in violation of the FCA, AKS, ACA, or any other applicable state or any federal fraud and abuse laws, whether by our current practices or for the past practices of a company we acquire, we may be subject to substantial civil damages and criminal penalties and fines that could have a material adverse impact on our business. 26 In addition, federal and state legislatures and agencies periodically consider proposals to revise aspects of the healthcare industry or to revise or create additional statutory and regulatory requirements.
Any disruption or failure of these systems or services could cause substantial errors, processing inefficiencies, security breaches, inability to use the systems or process transactions, loss of customers or other business disruptions, all of which could negatively affect our business and financial performance. 23 Systems failures or cyberattacks and resulting interruptions in the availability of or degradation in the performance of our websites, applications, products or services could harm our business.
Any disruption or failure of these systems or services could cause substantial errors, processing inefficiencies, security breaches, inability to use the systems or process transactions, loss of customers or other business disruptions, all of which could negatively affect our business and financial performance.
If we fall out of compliance, our lender may exercise any of its rights and remedies under the loan agreement, including restricting us from making dividend payments. Further, notwithstanding these factors, we may not have sufficient cash to pay dividends on the Preferred Stock.
If we fall out of compliance, our lender may exercise any of its rights and remedies under the loan agreement, including restricting us from making dividend payments. Notwithstanding these factors, during December 2023, the Company suspended the dividends on the Preferred Stock.
Any of these events could impair or prohibit our ability to provide our services, reduce the attractiveness of our services to current or potential customers and adversely impact our financial condition and results of operations. 21 In addition, despite the implementation of security measures, our infrastructure, data centers, or systems that we interface with or utilize, including the internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks or other attacks by third-parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of security.
In addition, despite the implementation of security measures, our infrastructure, data centers, or systems that we interface with or utilize, including the internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks or other attacks by third-parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of security.
We are subject to risks related to the public health crises such as the global pandemic associated with the coronavirus (COVID-19).
We are subject to risks related to a public health crisis such as a global pandemic similar to the coronavirus (COVID-19).
We may lose sales or incur significant expenses should states be successful in imposing additional state sales and use taxes on our products and services.
We may be subject to liability for past sales and incur additional related costs and expenses, and our future sales may decrease. We may lose sales or incur significant expenses should states be successful in imposing additional state sales and use taxes on our products and services.
In addition, cancellation of any implementation after it has begun may involve loss to us of time, effort, and expenses invested in the canceled implementation process, and lost opportunity for implementing paying customers in that same period of time.
In addition, cancellation of any implementation after it has begun may involve loss to us of time, effort, and expenses invested in the canceled implementation process, and lost opportunity for implementing paying customers in that same period of time. We are required to collect sales and use taxes on certain products and services we sell in certain jurisdictions.
For the year 2021, we were subject to such requirement, but were not required to have this attestation performed for the year 2022. In future years if we are required to have our independent registered public accounting firm attest the effectiveness of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase.
In future years, if we are required to have our independent registered public accounting firm attest the effectiveness of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase.
The HITECH Act heightened enforcement of privacy and security rules, indicating that the imposition of penalties will be more common in the future and such penalties will be more severe.
Further, HITECH empowered state attorneys’ general to enforce HIPAA. 27 The HITECH Act heightened enforcement of privacy and security rules, indicating that the imposition of penalties will be more common in the future and such penalties will be more severe.
However, we may incur increased costs relating to the assessment and disclosure of climate-related risks and increased litigation risks related to disclosures made pursuant to the new rules, either of which could materially and adversely affect our future results of operations and financial condition. 31 Risks Related to Ownership of Shares of Our Preferred Stock Our Series A and Series B Preferred Stock ranks junior to all of our indebtedness and other liabilities.
However, we may incur increased costs relating to the assessment and disclosure of climate-related risks and increased litigation risks related to disclosures made pursuant to the new rules, either of which could materially and adversely affect our future results of operations and financial condition.
Many factors may lead to decreases in customer revenue, including: ● reduction of customer revenue as a result of changes to the ACA or fluctuation in medical appointments as COVID-19 evolves; ● a rollback of the expansion of Medicaid or other governmental programs; ● reduction of customer revenue resulting from increased competition or other changes in the marketplace for physician services; ● failure of our customers to adopt or maintain effective business practices; ● actions by third-party payers of medical claims to reduce reimbursement; ● government regulations and government or other payer actions or inactions reducing or delaying reimbursement; ● interruption of customer access to our system; and ● our failure to provide services in a timely or high-quality manner. 16 As a result of our variable sales and implementation cycles, we may be unable to recognize revenue from prospective customers on a timely basis and we may not be able to offset expenditures.
Many factors may lead to decreases in customer revenue, including: ● reduction of customer revenue as a result of changes to the Affordable Care Act (“ACA”) or fluctuations in medical appointments due to future pandemics; ● a rollback of the expansion of Medicaid or other governmental programs; ● reduction of customer revenue resulting from increased competition or other changes in the marketplace for physician services; ● failure of our customers to adopt or maintain effective business practices; ● actions by third-party payers of medical claims to reduce reimbursement; ● government regulations and government or other payer actions or inactions reducing or delaying reimbursement; ● interruption of customer access to our system; and ● our failure to provide services in a timely or high-quality manner.
Errors may result from receipt, entry, or interpretation of patient information or from interface of our services with legacy systems and data that we did not develop and the function of which is outside of our control. Despite testing, defects or errors may arise in our existing or new software or service processes.
We cannot assure you that material performance problems or defects in our products or services will not arise in the future. Errors may result from receipt, entry, or interpretation of patient information or from interface of our services with legacy systems and data that we did not develop and the function of which is outside of our control.
If this certification were to be challenged, we might face liability related to any incentive that the physicians received in reliance upon such certification. 20 If our security measures are breached or fail and unauthorized access is obtained to a customer’s data, our service may not be perceived as secure, the attractiveness of our services to current or potential customers may be reduced, and we may incur significant liabilities.
If our security measures are breached or fail and unauthorized access is obtained to a customer’s data, our service may not be perceived as secure, the attractiveness of our services to current or potential customers may be reduced, and we may incur significant liabilities.
We must ensure that our EHR solutions continue to be certified according to applicable HITECH Act and Cures Act technical standards so that our customers qualify for any MIPS/MACRA incentive payments and are not subject to penalties for non-compliance.
Our web-based EHR solutions have been certified as complete EHR systems by ICSA Labs or Drummond Group, non-governmental, independent certifying bodies. We must ensure that our EHR solutions continue to be certified according to applicable HITECH Act and Cures Act technical standards so that our customers qualify for any MIPS/MACRA incentive payments and are not subject to penalties for non-compliance.
Our inability to promptly and cost-effectively correct a product defect could result in the Company having to withdraw an important product from market, damage to our reputation, and result in material costs and expenses, any of which could have a material impact on our revenue, margins, and operating results.
Our inability to promptly and cost-effectively correct a product defect could result in the Company having to withdraw an important product from market, damage to our reputation, and result in material costs and expenses, any of which could have a material impact on our revenue, margins, and operating results. 20 Moreover, information services as complex as those we offer have in the past contained, and may in the future develop or contain, undetected defects or errors.
As a “smaller reporting company” prior to 2021, we elected to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act.
As a “smaller reporting company,” we elected to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act. We were not required to have this attestation performed for the years 2023 or 2022.
As cybersecurity attacks continue to evolve and increase, our information systems could also be penetrated or compromised by internal and external parties’ intent on extracting confidential information, disrupting business processes or corrupting information.
Systems failures or cyberattacks and resulting interruptions in the availability of or degradation in the performance of our websites, applications, products or services could harm our business. As cybersecurity attacks continue to evolve and increase, our information systems could also be penetrated or compromised by internal and external parties’ intent on extracting confidential information, disrupting business processes or corrupting information.
In addition, we could become subject to investigations by Nasdaq, the SEC or other regulatory authorities, which could require additional management attention and which could adversely affect our business. In 2021, we identified a material weakness in our internal controls over financial reporting related to a non-routine transaction.
In addition, we could become subject to investigations by Nasdaq, the SEC or other regulatory authorities, which could require additional management attention and which could adversely affect our business.
Under most of our customer contracts, which include RCM, we base our charges on a percentage of the revenue that our customer collects through the use of our services.
If the revenues of our customers decrease, or if our customers cancel or elect not to renew their contracts, our revenue will decrease. Under most of our customer contracts, which include RCM, we base our charges on a percentage of the revenue that our customer collects through the use of our services.
Should inaccurate claims data be submitted to payers, we may experience poor operational results and be subject to liability claims, which could damage our reputation with customers and result in liability claims that increase our expenses .
Should inaccurate claims data be submitted to payers, we may experience poor operational results and be subject to liability claims, which could damage our reputation with customers and result in liability claims that increase our expenses. 22 Failure by our clients to obtain proper permissions and waivers may result in claims against us or may limit or prevent our use of data, which could harm our business.
While we have developed and implemented a comprehensive billing compliance program that we believe is consistent with these recommendations, our failure to ensure compliance with controlling legal requirements, accurately anticipate the application of these laws and regulations to our business and contracting model, or other failure to comply with regulatory requirements, could create liability for us, result in adverse publicity and negatively affect our business. 26 The federal Anti-Kickback Statute (“AKS”) prohibits us from knowingly and willfully soliciting, receiving, offering or providing remuneration in exchange for referrals or recommendations for purposes of selling products or services which are paid for by federal healthcare programs such as Medicare and Medicaid.
While we have developed and implemented a comprehensive billing compliance program that we believe is consistent with these recommendations, our failure to ensure compliance with controlling legal requirements, accurately anticipate the application of these laws and regulations to our business and contracting model, or other failure to comply with regulatory requirements, could create liability for us, result in adverse publicity and negatively affect our business.
Providers may also choose to buy our competitors’ products and services instead of ours. Achieving market acceptance for our solutions and services will continue to require substantial sales and marketing efforts and the expenditure of significant financial and other resources to create awareness and demand by providers.
Achieving market acceptance for our solutions and services will continue to require substantial sales and marketing efforts and the expenditure of significant financial and other resources to create awareness and demand by providers. If providers fail to broadly accept our products and services, our business, financial condition and results of operations will be adversely affected.
Mahmud Haq, our founder and Executive Chairman, beneficially owns 29.5% of our outstanding shares of common stock. As a result, Mr. Haq exercises a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation, and approval of significant corporate transactions.
Haq exercises a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation, and approval of significant corporate transactions.
In addition, we could be perceived to have facilitated or participated in illegal misappropriation of funds, documents, or data and therefore be subject to civil or criminal liability. 29 Risks Related to Ownership of Shares of Our Common Stock Our revenues, operating results and cash flows may fluctuate in future periods and we may fail to meet investor expectations, which may cause the price of our common stock to decline.
Risks Related to Ownership of Shares of Our Common Stock Our revenues, operating results and cash flows may fluctuate in future periods and we may fail to meet investor expectations, which may cause the price of our common stock to decline.
Our competitors protect their proprietary rights by means of patents, trade secrets, copyrights, trademarks and other intellectual property. We have not conducted an independent review of patents and other intellectual property issued to third parties, who may have patents or patent applications relating to our proprietary technology.
We have not conducted an independent review of patents and other intellectual property issued to third parties, who may have patents or patent applications relating to our proprietary technology. We may receive letters from third parties alleging, or inquiring about, possible infringement, misappropriation or violation of their intellectual property rights.
We could be required to expend significant time and resources to comply with these requests, and the attention of our management team could be diverted by these efforts.
We could be required to expend significant time and resources to comply with these requests, and the attention of our management team could be diverted by these efforts. The occurrence of any of these events could give our customers the right to terminate our contracts with us and result in significant harm to our business and financial condition.
These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and/or invalidation of our proprietary rights or interruption or cessation of our operations.
Any party asserting that we infringe, misappropriate or violate proprietary rights may force us to defend ourselves, and potentially our customers, against the alleged claim. These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and/or invalidation of our proprietary rights or interruption or cessation of our operations.
Future sales of shares of our common stock could depress the market price of our common stock. Sales of a substantial number of shares of our common stock in the public market could occur at any time.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell substantial amounts of our common stock in the public market, the market price of our common stock could decline significantly.
Our success will depend on our ability to enhance our solution with next-generation technologies and to develop or to acquire and market new services to access new consumer populations.
The telehealth market is characterized by rapid technological change, changing consumer requirements, short product lifecycles and evolving industry standards. Our success will depend on our ability to enhance our solution with next-generation technologies and to develop or to acquire and market new services to access new consumer populations.
Failure by our clients to obtain proper permissions and waivers may result in claims against us or may limit or prevent our use of data, which could harm our business. Our clients are obligated by applicable law to provide necessary notices and to obtain necessary permission waivers for use and disclosure of the information that we receive.
Our clients are obligated by applicable law to provide necessary notices and to obtain necessary permission waivers for use and disclosure of the information that we receive.
In addition, whether there is an actual or a perceived breach of our security, the market perception of the effectiveness of our security measures could be harmed and we could lose current or potential customers.
In addition, whether there is an actual or a perceived breach of our security, the market perception of the effectiveness of our security measures could be harmed and we could lose current or potential customers. 21 Our products and services are required to meet the interoperability standards, which could require us to incur substantial additional development costs or result in a decrease in revenue.
Our products and services are required to meet the interoperability standards, which could require us to incur substantial additional development costs or result in a decrease in revenue. Our customers and the industry leaders enacting regulatory requirements are concerned with and often require that our products and services be interoperable with other third-party healthcare information technology suppliers.
Our customers and the industry leaders enacting regulatory requirements are concerned with and often require that our products and services be interoperable with other third-party healthcare information technology suppliers.
These events and impacts could materially adversely affect our business operations, financial position, or results of operation. 15 Changes in the healthcare industry could affect the demand for our services and may result in a decrease in our revenues and market share.
Changes in the healthcare industry could affect the demand for our services and may result in a decrease in our revenues and market share.
Acceptance of our products and services may require providers to adopt different behavior patterns and new methods of conducting business and exchanging information. Providers may not integrate our products and services into their workflow and may not accept our solutions and services as a replacement for traditional methods of practicing medicine.
Providers may not integrate our products and services into their workflow and may not accept our solutions and services as a replacement for traditional methods of practicing medicine. Providers may also choose to buy our competitors’ products and services instead of ours.
Furthermore, investor perceptions of our Company may suffer if deficiencies are found, and this could cause a decline in the market price of our common and preferred stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation.
Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters are located at 7 Clyde Road, Somerset, New Jersey 08873 where we occupy approximately 2,400 square feet of space under a month-to-month lease. Additionally, at December 31, 2022 we lease approximately 126,000 square feet of office space in approximately 16 locations throughout the U.S., with lease terms that are typically five years or less.
Biggest changeItem 2. Properties Our corporate headquarters are located at 7 Clyde Road, Somerset, New Jersey 08873 where we occupy approximately 2,400 square feet of space under a month-to-month lease. Additionally, at December 31, 2023 we lease approximately 73,000 square feet of office space in 15 locations throughout the U.S., with lease terms that are typically five years or less.
We lease approximately 18,000 square feet of land in Islamabad, Pakistan, where we constructed modular buildings used for office space and computer server facilities for three years expiring on September 30, 2024, with the first two years under a non-cancellable lease.
We lease approximately 14,000 square feet of land in Islamabad, Pakistan, where we constructed modular buildings used for office space and computer server facilities for three years expiring on September 30, 2024, with the first two years under a non-cancellable lease.
We also lease approximately 40,000 square feet for five pediatric offices in the Midwest, with leases that will expire between April 2023 and April 2036.
We also lease approximately 40,000 square feet for five pediatric offices in the Midwest, with leases that will expire between December 2025 and April 2036.
The Company also leases a total of 47,000 square feet of office space in Bagh and Karachi, Pakistan, and in Sri Lanka. The lease in Sri Lanka expires in March 2023 and we intend to renew it for an additional year at expiration.
The Company also leases a total of approximately 255,000 square feet of office space in Bagh and Karachi, Pakistan, and in Sri Lanka. The lease in Sri Lanka expires in March 2024 and we intend to renew it for an additional year at expiration.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFrom time to time, we may become involved in other legal proceedings arising in the ordinary course of our business.
Biggest changeThe Company’s portion has been recorded in accrued expenses in the December 31, 2023 consolidated balance sheet. From time to time, we may become involved in other legal proceedings arising in the ordinary course of our business.
Removed
Item 3. Legal Proceedings On December 9, 2022, an arbitrator rendered a decision in favor of MTBC Acquisition Corp. (“MAC”) and dismissed the claims brought against MAC by Randolph Pain Relief and Wellness Center (“RPRWC”), determining that RPRWC failed to prove any breach of the applicable billing services agreement and failed to prove that any alleged damages were due.
Added
Item 3. 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.
Removed
RPRWC has until April 5, 2023 to file a summary action in Superior Court of New Jersey should it seek to have the decision overturned. RPRWC was a client of Millennium Practice Management Associates, Inc. (“MPMA”), a subsidiary of MediGain, Inc., whose assets were purchased by MAC on October 3, 2016, after RPRWC terminated its billing services agreement with MPMA.
Added
The payment for such an award was made during the first quarter of 2024. The deadline for Ramapo to file a summary action in New Jersey seeking to overturn the arbitrator’s decision is April 20, 2024. The Company’s portion of the settlement is approximately $32,000 and our insurance will pay the balance.
Removed
After MAC’s purchase of MediGain’s assets, RPRWC demanded an arbitration proceeding against CareCloud and MAC before the American Arbitration Association for damages they alleged were caused by MPMA prior to the asset purchase.
Removed
On May 30, 2018, the Superior Court of New Jersey, Chancery Division, Somerset County (the “Chancery Court”) denied CareCloud’s and MAC’s request to enjoin the arbitration proceeding demanded by RPRWC. CareCloud and MAC filed an appeal of the Chancery Court’s decision with the New Jersey Superior Court, Appellate Division. The Chancery Court stayed the arbitration pending the appeal.
Removed
On appeal, CareCloud and MAC contended they were never party to the billing services agreement giving rise to the arbitration claim, did not assume the obligations of MPMA under such agreement, and any agreement to arbitrate disputes arising under such agreement did not apply to CareCloud or MAC as RPRWC terminated the agreement before the applicable asset purchase agreement took effect. 35 On April 23, 2019, the Appellate Division affirmed in part and reversed in part the Chancery Court’s order.
Removed
The Appellate Division upheld the portion of the Chancery Court’s order requiring MAC to participate in the arbitration based on the Chancery Court’s finding that MAC had assumed MPMA’s contractual responsibilities.
Removed
The Appellate Division, however, reversed the Chancery Court’s order requiring CareCloud to participate in the arbitration on the grounds that insufficient facts had been provided by RPRWC from which the court could conclude CareCloud was required to participate in the arbitration and remanded the matter back to the trial court for further proceedings.
Removed
On February 6, 2020, the Chancery Court held that CareCloud cannot be compelled to participate in the arbitration. On March 25, 2020, the Chancery Court lifted the stay of arbitration relative to RPRWC and MAC.
Removed
In its arbitration demand, RPRWC alleged that MPMA, a subsidiary of MediGain, LLC, breached the terms of the billing services agreement the parties had entered into and sought compensatory damages of $6.6 million and costs.
Removed
During the discovery phase of the arbitration, RPRWC served expert reports whereby RPRWC’s expert alleged that damages were estimated to be in the range of $9.8 million to $10.8 million. MAC served an expert report refuting the alleged damages. In the event RPRWC files a summary action, MAC will continue to vigorously defend against RPRWC’s claim.
Removed
It remains that since MAC is not a significant subsidiary of CareCloud pursuant to Rule 1-02(w) of Regulation S-X and CareCloud is not a party to this proceeding, we do not expect any outcome to have a material impact on the Company’s consolidated financial statements.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePurchases of Equity Securities by the Issuer and Affiliated Purchasers There was no share repurchase activity during the three months ended December 31, 2022. 36 Securities Authorized for Issuance under the Equity Compensation Plan As of December 31, 2022, the following table shows the number of securities to be issued upon vesting under the equity compensation plan approved by the Company’s Board of Directors.
Biggest changeSecurities Authorized for Issuance under the Equity Compensation Plan As of December 31, 2023, the following table shows the number of securities to be issued upon vesting under the equity compensation plan approved by the Company’s Board of Directors.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock has been listed since July 23, 2014 and is trading on the Nasdaq Global Market under the symbol “CCLD”. Common Stockholders As of December 31, 2022, there were approximately 7,000 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock has been listed since July 23, 2014 and is trading on the Nasdaq Global Market under the symbol “CCLD”. Common Stockholders As of December 31, 2023, there were approximately 6,800 holders of record of our common stock.
The Company is prohibited from paying any dividends on common stock without the prior written consent of its senior lender, SVB. Sales of Unregistered Securities There was no sale of unregistered equity securities during the year ended December 31, 2022.
The Company is prohibited from paying any dividends on common stock without the prior written consent of its senior lender, SVB. 36 Sales of Unregistered Securities There were no sales of unregistered equity securities during the year ended December 31, 2023.
Equity Compensation Plan Information Plan Category Number of securities to be issued upon vesting Number of securities remaining available for future issuance under equity incentive plan (excluding securities to be issued upon vesting) Equity compensation plan approved by security holders - common shares 645,475 1,498,492 Equity compensation plan approved by security holders - preferred shares 80,462 133,769 Total 725,937 1,632,261 Item 6. [Reserved]
Equity Compensation Plan Information Plan Category Number of securities to be issued upon vesting Number of securities remaining available for future issuance under equity incentive plan (excluding securities to be issued upon vesting) Equity compensation plan approved by security holders - common shares 753,495 493,579 Equity compensation plan approved by security holders - preferred shares 57,199 71,769 Total 810,694 565,348 Item 6. [Reserved]
Added
Purchases of Equity Securities by the Issuer and Affiliated Purchasers There was no share repurchase activity during the three months ended December 31, 2023.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved] 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 51 Item 8. Financial Statements and Supplementary Data 51 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 51 Item 9A. Controls and Procedures 52 Item 9B.
Biggest changeItem 6. [Reserved] 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 53 Item 8. Financial Statements and Supplementary Data 53 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 53 Item 9A. Controls and Procedures 53 Item 9B.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYears Ended December 31, 2022 2021 2020 2019 2018 ($ in thousands) Adjusted EBITDA $ 22,248 $ 22,119 $ 10,871 $ 8,101 $ 4,802 41 Quarterly Results of Operations December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2022 2022 2022 2022 2021 2021 2021 2021 ($ in thousands, except per share data) Net revenue $ 32,534 $ 33,723 $ 37,228 $ 35,341 $ 37,462 $ 38,304 $ 34,065 $ 29,768 Operating expenses: Direct operating costs 19,568 20,406 21,787 22,673 24,200 24,124 20,534 18,060 Selling and marketing 2,474 2,504 2,426 2,384 2,317 2,375 2,204 1,890 General and administrative 5,341 6,500 6,394 5,585 6,459 5,921 6,269 5,624 Research and development 1,150 1,168 1,098 985 81 488 1,813 2,026 Change in contingent consideration (200 ) (1,660 ) (630 ) (600 ) (2,515 ) - - - Depreciation and amortization 3,039 2,810 2,936 2,940 2,689 3,547 3,128 2,831 Net loss on lease termination, impairment and unoccupied lease charges 210 307 463 158 340 424 223 1,018 Total operating expenses 31,582 32,035 34,474 34,125 33,571 36,879 34,171 31,449 Operating income (loss) 952 1,688 2,754 1,216 3,891 1,425 (106 ) (1,681 ) Interest expense - net (83 ) (82 ) (104 ) (95 ) (176 ) (87 ) (113 ) (64 ) Other (expense) income - net (337 ) (495 ) 112 83 (16 ) (65 ) 205 (220 ) Income (loss) before provision (benefit) for income taxes 532 1,111 2,762 1,204 3,699 1,273 (14 ) (1,965 ) Income tax provision (benefit) 33 55 25 64 177 (232 ) 213 (1 ) Net income (loss) $ 499 $ 1,056 $ 2,737 $ 1,140 $ 3,522 $ 1,505 $ (227 ) $ (1,964 ) Preferred stock dividend 3,855 3,849 3,776 4,037 3,644 3,642 3,638 3,128 Net loss attributable to common shareholders $ (3,356 ) $ (2,793 ) $ (1,039 ) $ (2,897 ) $ (122 ) $ (2,137 ) $ (3,865 ) $ (5,092 ) Net loss per common share: Basic and diluted $ (0.22 ) $ (0.18 ) $ (0.07 ) $ (0.19 ) $ (0.01 ) $ (0.15 ) $ (0.27 ) $ (0.36 ) Adjusted EBITDA $ 5,684 $ 4,817 $ 7,017 $ 4,730 $ 6,098 $ 6,674 $ 5,656 $ 3,691 Reconciliation of net income (loss) to adjusted EBITDA The following table contains a reconciliation of net income (loss) to adjusted EBITDA by year.
Biggest changeYears Ended December 31, 2023 2022 2021 2020 2019 ($ in thousands) Adjusted EBITDA $ 15,429 $ 22,248 $ 22,119 $ 10,871 $ 8,101 Quarterly Results of Operations December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2023 2023 2023 2023 2022 2022 2022 2022 ($ in thousands, except per share data) Net revenue $ 28,416 $ 29,280 $ 29,362 $ 30,001 $ 32,534 $ 33,723 $ 37,228 $ 35,341 Operating expenses: Direct operating costs 16,974 18,260 17,476 18,107 19,568 20,406 21,787 22,673 Selling and marketing 2,121 2,337 2,580 2,612 2,474 2,504 2,426 2,384 General and administrative 4,946 5,482 5,916 5,120 5,341 6,500 6,394 5,585 Research and development 1,213 1,260 1,185 1,078 1,150 1,168 1,098 985 Change in contingent consideration - - - - (200 ) (1,660 ) (630 ) (600 ) Depreciation and amortization 4,120 3,903 3,341 3,038 3,039 2,810 2,936 2,940 Goodwill impairment charges 42,000 - - - - - - - Net loss on lease terminations, unoccupied lease charges and restructuring costs 675 8 153 269 210 307 463 158 Total operating expenses 72,049 31,250 30,651 30,224 31,582 32,035 34,474 34,125 Operating (loss) income (43,633 ) (1,970 ) (1,289 ) (223 ) 952 1,688 2,754 1,216 Interest expense - net (335 ) (300 ) (275 ) (130 ) (83 ) (82 ) (104 ) (95 ) Other (expense) income - net (292 ) (422 ) (186 ) 17 (337 ) (495 ) 112 83 (Loss) income before (benefit) provision for income taxes (44,260 ) (2,692 ) (1,750 ) (336 ) 532 1,111 2,762 1,204 Income tax (benefit) provision (568 ) 57 82 65 33 55 25 64 Net (loss) income $ (43,692 ) $ (2,749 ) $ (1,832 ) $ (401 ) $ 499 $ 1,056 $ 2,737 $ 1,140 Preferred stock dividend 3,917 3,916 3,910 3,931 3,855 3,849 3,776 4,037 Net loss attributable to common shareholders $ (47,609 ) $ (6,665 ) $ (5,742 ) $ (4,332 ) $ (3,356 ) $ (2,793 ) $ (1,039 ) $ (2,897 ) Net loss per common share: Basic and diluted $ (3.04 ) $ (0.42 ) $ (0.37 ) $ (0.28 ) $ (0.22 ) $ (0.18 ) $ (0.07 ) $ (0.19 ) Adjusted EBITDA $ 4,128 $ 3,245 $ 3,819 $ 4,237 $ 5,684 $ 4,817 $ 7,017 $ 4,730 42 Reconciliation of net (loss) income to adjusted EBITDA The following table contains a reconciliation of net (loss) income to adjusted EBITDA by year.
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 financial statements issuance. 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.
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. 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.
Changes in judgment on any of the above factors could materially impact the timing and amount of revenue recognized in a given period. Revenue is recognized as the performance obligations are satisfied. We derive revenue from five primary sources: technology-enabled business solutions, professional services, printing and mailing services, group purchasing services and medical practice management services.
Changes in judgment on any of the above factors could materially impact the timing and amount of revenue recognized in a given period. 45 Revenue is recognized as the performance obligations are satisfied. We derive revenue from five primary sources: technology-enabled business solutions, professional services, printing and mailing services, group purchasing services and medical practice management services.
Non-GAAP adjusted diluted earnings per share was computed using an as-converted method and includes warrants that are in-the-money as of that date as well as outstanding unvested RSUs. Non-GAAP adjusted earnings per share and non-GAAP adjusted diluted earnings per share do not take into account dividends paid on Preferred Stock.
Non-GAAP adjusted diluted earnings per share was computed using an as-converted method and includes warrants that are in-the-money as of that date as well as outstanding unvested RSUs. Non-GAAP adjusted earnings per share and non-GAAP adjusted diluted earnings per share do not take into account dividends on the Preferred Stock.
Contingent consideration is adjusted to fair value at the end of each reporting period. Depreciation and Amortization Expense. Depreciation expense is charged using the straight-line method over the estimated lives of the assets ranging from three to five years.
Contingent consideration is adjusted to fair value at the end of each reporting period. 44 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.
Off-Balance Sheet Arrangements As of December 31, 2022, and 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Off-Balance Sheet Arrangements As of December 31, 2023, and 2022, 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.
As a result of the Company incurring tax losses for 2022 and 2021 which have an indefinite life under the recent tax reform legislation, the federal deferred tax liability resulting from the amortization of goodwill was offset against these indefinite federal operating net loss deferred tax assets to the extent allowable.
As a result of the Company incurring tax losses for 2023 and 2022 which have an indefinite life under the recent tax reform legislation, the federal deferred tax liability resulting from the amortization of goodwill was offset against these indefinite federal operating net loss deferred tax assets to the extent allowable.
These transaction gains and losses result from revaluing intercompany accounts which are denominated in U.S. dollars that represent amounts receivable/payable between the entities. Whenever the exchange rate varies, the gains and losses are recorded in the consolidated statements of operations. Income Tax Provision.
Transaction gains and losses result from revaluing intercompany accounts which are denominated in U.S. dollars that represent amounts receivable/payable between the entities. Whenever the exchange rate varies, the gains and losses are recorded in the consolidated statements of operations. Income Tax (Benefit) Provision.
Providers and Practices Served: As of December 31, 2022 and December 31, 2021, we provided services to approximately 40,000 providers (which we define as physicians, nurses, nurse practitioners, physician assistants and other clinical staff that render bills for their services), representing approximately 2,600 practices.
Providers and Practices Served: As of December 31, 2023 and December 31, 2022, we provided services to approximately 40,000 providers (which we define as physicians, nurses, nurse practitioners, physician assistants and other clinical staff that render bills for their services), representing approximately 2,600 practices.
Salary costs decreased by $4.7 million due to the decrease in the Pakistan exchange rate, a decrease in the U.S. headcount and the redeployment of employees performing functions that were classified as direct operating costs to functions classified as research and development expense.
Salary costs decreased by $9.4 million due to the decrease in the Pakistan exchange rate, a decrease in the U.S. headcount and the redeployment of employees performing functions that were classified as direct operating costs to functions classified as research and development expense.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following is a discussion of our consolidated financial condition and results of operations for the years ended December 31, 2022 and 2021 and other factors that are expected to affect our prospective financial condition.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following is a discussion of our consolidated financial condition and results of operations for the years ended December 31, 2023 and 2022 and other factors that are expected to affect our prospective financial condition.
Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred. 46 Results of Operations The following table sets forth our consolidated results of operations as a percentage of total revenue for the years shown.
Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred. 47 Results of Operations The following table sets forth our consolidated results of operations as a percentage of total revenue for the years shown.
At a high level, these solutions can be categorized as follows: ● Technology-enabled business solutions, which are sometimes provided as individual offerings and often provided in combination with each other, including: ○ RCM services including end-to-end medical billing, eligibility, analytics, and related services, all of which can be provided utilizing our technology platform or through a third-party system; ○ EHRs, 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; ○ PM 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; ○ PXM 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, including contactless digital check-in solutions, messaging and online appointment scheduling tools; 37 ○ CareCloud Wellness, a digital health solution which includes chronic care management interactions with certified care managers, remote patient monitoring which feeds patient data directly to the EHR and highlights exceptions, and telehealth solutions which allow healthcare providers to conduct remote patient visits; ○ Business intelligence and healthcare analytics platforms that allow our clients to derive actionable insights from their vast amount of data; ○ Healthcare claims clearinghouse which enables our clients to electronically scrub and submit claims and process payments from insurance companies; ○ Interoperability and data transformation software to support the complex realities of data exchange with healthcare trading partners, including labs, insurance companies, and other healthcare IT vendors; ○ Customized applications, interfaces and a variety of other technology solutions that support our healthcare clients; ○ Professional services consisting of application and advisory services, revenue cycle services, data analytic services and educational training services; and ○ Workforce augmentation and on-demand staffing to support our clients as they expand their businesses, seek highly trained personnel, or struggle with staffing shortages. ● Medical practice management services are provided to medical practices.
At a high level, these solutions can be categorized as follows: ● Technology-enabled business solutions, which are sometimes provided as individual offerings and often provided in combination with each other, including: ○ RCM services including end-to-end medical billing, eligibility, analytics, and related services, all of which can be provided utilizing our technology platform or through a third-party system; ○ AI tools are 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; ○ EHRs, 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; 37 ○ PM 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; ○ PXM 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, including contactless digital check-in solutions, messaging and online appointment scheduling tools; ○ CareCloud Wellness, a digital health solution which includes chronic care management interactions with certified care managers, remote patient monitoring which feeds patient data directly to the EHR and highlights exceptions, and telehealth solutions which allow healthcare providers to conduct remote patient visits; ○ Business intelligence and healthcare analytics platforms that allow our clients to derive actionable insights from their vast amount of data; ○ Healthcare claims clearinghouse which enables our clients to electronically scrub and submit claims and process payments from insurance companies; ○ Interoperability and data transformation software to support the complex realities of data exchange with healthcare trading partners, including labs, insurance companies, and other healthcare IT vendors; ○ Customized applications, interfaces and a variety of other technology solutions that support our healthcare clients; ○ Professional services consisting of application and advisory services, revenue cycle services, data analytic services and educational training services; and ○ Workforce augmentation and on-demand staffing to support our clients as they expand their businesses, seek highly trained personnel, or struggle with staffing shortages. ● Medical practice management services are provided to medical practices.
Contractual Obligations and Commitments We have contractual obligations under our line of credit. We also maintain operating leases for property and certain office equipment. We were in compliance with all SVB covenants in 2022.
Contractual Obligations and Commitments We have contractual obligations under our line of credit. We also maintain operating leases for property and certain office equipment. We were in compliance with all SVB covenants in 2023.
CareCloud 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 services include use of practice management software and related tools (on a software-as-a-service (“SaaS”) basis), electronic health records (on a SaaS basis), medical billing services and use of mobile health solutions.
CareCloud 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 services include 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.
A significant portion of those expenses were personnel-related costs (approximately 79% and 80% of foreign costs for the years ended December 31, 2022 and 2021, 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.
A significant portion of those expenses were personnel-related costs (approximately 76% and 79% of foreign costs for the years ended December 31, 2023 and 2022, 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.
In this service model, we provide the medical practice with appropriate facilities, equipment, supplies, support services, nurses and administrative support staff. We also provide management, bill-paying and financial advisory services. Our offshore operations in Pakistan and Sri Lanka together accounted for approximately 14% and 11% of total expenses for the years ended December 31, 2022 and 2021, respectively.
In this service model, we provide the medical practice with appropriate facilities, equipment, supplies, support services, nurses and administrative support staff. We also provide management, bill-paying and financial advisory services. Our offshore operations in Pakistan and Sri Lanka together accounted for approximately 9% and 14% of total expenses for the years ended December 31, 2023 and 2022, respectively.
Adjusted EBITDA excludes the following elements which are included in GAAP net income: ● Income tax expense 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 expenses; ● Stock-based compensation expense, which 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; ● Net loss on lease termination, impairment and unoccupied lease charges; and ● Change in contingent consideration.
Adjusted EBITDA excludes the following elements which are included in GAAP net (loss) income: ● Income tax (benefit) provision or the cash requirements to pay our taxes; 38 ● 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 expenses; ● Stock-based compensation expense, which 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; ● Goodwill impairment charges; ● Net loss on lease terminations, unoccupied lease charges and restructuring costs; and ● Change in contingent consideration.
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. Our Offshore Offices accounted for approximately 23% and 18% of general and administrative expenses for the years ended December 31, 2022 and 2021, respectively. Research and Development 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. Our Offshore Offices accounted for approximately 17% and 23% of general and administrative expenses for the years ended December 31, 2023 and 2022, respectively. Research and Development Expense.
We earned approximately 10% and 8% of our revenue from medical practice management services during the years ended December 31, 2022 and 2021, 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.
We earned approximately 11% and 10% of our revenue from medical practice management services during the years ended December 31, 2023 and 2022, 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.
As of December 31, 2022, talkMD had not yet commenced operations. The Company has made arrangements to have the income tax returns prepared for talkMD and will advance the funds for the required taxes. Cumulatively, the Company has paid approximately $4,000 on behalf of talkMD for income taxes. We do not engage in off-balance sheet financing arrangements.
As of December 31, 2023, talkMD had not yet commenced operations. The Company has made arrangements to have the income tax returns prepared for talkMD and will advance the funds for the required taxes. Cumulatively, the Company has paid approximately $5,000 on behalf of talkMD for income taxes. We do not engage in off-balance sheet financing arrangements. 52
There was also $1.2 million of payments to settle the tax withholding obligations in 2022 compared to $2.1 million in 2021. The net proceeds from the line of credit were $8.0 million during the year ended December 31, 2021. There were no net proceeds from the line of credit during the year ended December 31, 2022.
There was also $1.5 million of payments to settle the tax withholding obligations in 2023 compared to $1.2 million in 2022. The net proceeds from the line of credit were $2.0 million during the year ended December 31, 2023. There were no net proceeds from the line of credit during the year ended December 31, 2022.
The reported amounts of direct operating costs do not include depreciation and amortization, which are broken out separately in the consolidated statements of operations. Operations in our Offshore Offices together accounted for approximately 11% and 13% of direct operating costs for the years ended December 31, 2022 and 2021, respectively.
The reported amounts of direct operating costs do not include depreciation and amortization, which are broken out separately in the consolidated statements of operations. Operations in our Offshore Offices together accounted for approximately 11% of direct operating costs for both the years ended December 31, 2023 and 2022.
Other expense - net was $637,000 for the year ended December 31, 2022 compared to other expense - net of $96,000 for the year ended December 31, 2021. Other expense primarily represents foreign currency transaction gains and losses. There were foreign exchange losses of $610,000 and gains of $16,000 for the years ended December 31, 2022 and 2021, respectively.
Other expense - net was $883,000 for the year ended December 31, 2023 compared to other expense - net of $637,000 for the year ended December 31, 2022. Other expense primarily represents foreign currency transaction gains and losses. There were foreign exchange losses of $790,000 and $610,000 for the years ended December 31, 2023 and 2022, respectively.
Out of the total federal NOL carry forward, approximately $238 million is from the CareCloud and Meridian acquisitions and is subject to the federal Section 382 NOL annual usage limitations. The Company has state NOL carry forwards of approximately $211 million, of which $86 million relates to the State of New Jersey.
Out of the total federal NOL carry forward, approximately $238 million is from the CareCloud and Meridian acquisitions and is subject to the federal Section 382 NOL annual usage limitations. The Company has state NOL carry forwards of approximately $199 million, of which $86 million relates to the State of New Jersey. These NOLs expire starting in 2025.
Years Ended December 31, 2022 2021 2020 2019 2018 ($ in thousands) Net income (loss) $ 5,432 $ 2,836 $ (8,813 ) $ (872 ) $ (2,138 ) Depreciation 1,952 1,927 1,354 909 689 Amortization 9,773 10,268 8,551 2,097 2,165 Foreign exchange loss (gain) / other expense 712 241 71 827 (435 ) Interest expense - net 364 440 446 121 250 Income tax provision (benefit) 177 157 103 193 (157 ) Stock-based compensation expense 4,914 5,396 6,502 3,216 2,464 Transaction and integration costs 876 1,364 2,694 1,735 1,891 Net loss on lease termination, impairment and unoccupied lease charges 1,138 2,005 963 219 - Change in contingent consideration (3,090 ) (2,515 ) (1,000 ) (344 ) 73 Adjusted EBITDA $ 22,248 $ 22,119 $ 10,871 $ 8,101 $ 4,802 42 The following table contains a reconciliation of net income (loss) to adjusted EBITDA by quarter.
Years Ended December 31, 2023 2022 2021 2020 2019 ($ in thousands) Net (loss) income $ (48,674 ) $ 5,432 $ 2,836 $ (8,813 ) $ (872 ) Depreciation 2,001 1,952 1,927 1,354 909 Amortization 12,401 9,773 10,268 8,551 2,097 Foreign exchange loss / other expense 918 712 241 71 827 Interest expense - net 1,040 364 440 446 121 Income tax (benefit) provision (364 ) 177 157 103 193 Stock-based compensation expense, net of restructuring costs 4,716 4,914 5,396 6,502 3,216 Transaction and integration costs 286 876 1,364 2,694 1,735 Goodwill impairment charges 42,000 - - - - Net loss on lease terminations, impairment, unoccupied lease charges and restructuring costs 1,105 1,138 2,005 963 219 Change in contingent consideration - (3,090 ) (2,515 ) (1,000 ) (344 ) Adjusted EBITDA $ 15,429 $ 22,248 $ 22,119 $ 10,871 $ 8,101 The following table contains a reconciliation of net (loss) income to adjusted EBITDA by quarter.
There was a $177,000 provision for income taxes for the year ended December 31, 2022, compared to the provision for income taxes of $157,000 for the year ended December 31, 2021.
There was a $364,000 benefit for income taxes for the year ended December 31, 2023 compared to the provision for income taxes of $177,000 for the year ended December 31, 2022.
During the year ended December 31, 2021, there was positive cash flow from operations of $13.3 million and at year-end, the Company had $10.3 million in cash and restricted cash and positive working capital of $6.0 million. The Company has a revolving line of credit with SVB, and as of December 31, 2022, there was $8 million outstanding.
During the year ended December 31, 2022, there was positive cash flow from operations of $21.2 million and at year-end, the Company had $12.3 million in cash and positive working capital of $12.3 million. The Company has a revolving line of credit with SVB, and as of December 31, 2023, there was $10 million outstanding.
As of December 31, 2022, the Company has a total federal NOL carry forward of approximately $273 million of which approximately $199 million will expire between 2034 and 2037, and the balance of approximately $74 million has an indefinite life.
As of December 31, 2023, the Company has a total federal NOL carry forward of approximately $274 million of which approximately $198 million will expire between 2034 and 2037, and the balance of approximately $76 million has an indefinite life.
This was repaid in early January 2023. During the year ended December 31, 2022, the Company sold 1,324,858 shares of Series B Preferred Stock and raised $30.9 million in net proceeds after fees and expenses.
During the year ended December 31, 2023, the Company sold 59,773 shares of 8.75% Series B Preferred Stock and raised $1.4 million in net proceeds after fees and expenses. During the year ended December 31, 2022, the Company sold 1,324,858 shares of 8.75% Series B Preferred Stock and raised $30.9 million in net proceeds after fees and expenses.
No tax effect has been provided in computing non-GAAP adjusted earnings per share and non-GAAP adjusted diluted earnings per share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes. 40 Consolidated Statements of Operations Data Years Ended December 31, 2022 2021 2020 2019 2018 ($ in thousands, except per share data) Net revenue $ 138,826 $ 139,599 $ 105,122 $ 64,439 $ 50,546 Operating expenses: Direct operating costs 84,434 86,918 64,821 41,186 31,253 Selling and marketing 9,788 8,786 6,582 1,522 1,612 General and administrative 23,820 24,273 22,811 17,912 16,264 Research and development 4,401 4,408 9,311 871 1,029 Change in contingent consideration (3,090 ) (2,515 ) (1,000 ) (344 ) 73 Depreciation and amortization 11,725 12,195 9,905 3,006 2,854 Net loss on lease termination, impairment and unoccupied lease charges 1,138 2,005 963 219 - Total operating expenses 132,216 136,070 113,393 64,372 53,085 Operating income (loss) 6,610 3,529 (8,271 ) 67 (2,539 ) Interest expense - net (364 ) (440 ) (446 ) (121 ) (250 ) Other (expense) income - net (637 ) (96 ) 7 (625 ) 494 Income (loss) before provision (benefit) for income taxes 5,609 2,993 (8,710 ) (679 ) (2,295 ) Income tax provision (benefit) 177 157 103 193 (157 ) Net income (loss) $ 5,432 $ 2,836 $ (8,813 ) $ (872 ) $ (2,138 ) Preferred stock dividend 15,517 14,052 13,877 6,386 4,824 Net loss attributable to common shareholders $ (10,085 ) $ (11,216 ) $ (22,690 ) $ (7,258 ) $ (6,962 ) Weighted average common shares outstanding basic and diluted 15,109,587 14,541,061 12,678,845 12,087,947 11,721,232 Net loss per common share: basic and diluted $ (0.67 ) $ (0.77 ) $ (1.79 ) $ (0.60 ) $ (0.59 ) Consolidated Balance Sheet Data As of December 31, 2022 2021 2020 2019 2018 ($ in thousands) Cash $ 12,299 $ 10,340 $ 20,925 $ 19,994 $ 14,472 Working capital - net (1) 12,255 5,997 15,795 19,823 17,916 Total assets 136,174 140,848 137,999 56,402 47,623 Long-term debt 13 20 41 83 222 Shareholders’ equity 101,689 97,931 101,245 42,837 38,870 (1) Working capital-net is defined as current assets less current liabilities.
Consolidated Statements of Operations Data Years Ended December 31, 2023 2022 2021 2020 2019 ($ in thousands, except per share data) Net revenue $ 117,059 $ 138,826 $ 139,599 $ 105,122 $ 64,439 Operating expenses: Direct operating costs 70,817 84,434 86,918 64,821 41,186 Selling and marketing 9,650 9,788 8,786 6,582 1,522 General and administrative 21,464 23,820 24,273 22,811 17,912 Research and development 4,736 4,401 4,408 9,311 871 Change in contingent consideration - (3,090 ) (2,515 ) (1,000 ) (344 ) Depreciation and amortization 14,402 11,725 12,195 9,905 3,006 Goodwill impairment charges 42,000 - - - - Net loss on lease terminations, impairment, unoccupied lease charges and restructuring costs 1,105 1,138 2,005 963 219 Total operating expenses 164,174 132,216 136,070 113,393 64,372 Operating (loss) income (47,115 ) 6,610 3,529 (8,271 ) 67 Interest expense - net (1,040 ) (364 ) (440 ) (446 ) (121 ) Other (expense) income - net (883 ) (637 ) (96 ) 7 (625 ) (Loss) income before (benefit) provision for income taxes (49,038 ) 5,609 2,993 (8,710 ) (679 ) Income tax (benefit) provision (364 ) 177 157 103 193 Net (loss) income $ (48,674 ) $ 5,432 $ 2,836 $ (8,813 ) $ (872 ) Preferred stock dividend 15,674 15,517 14,052 13,877 6,386 Net loss attributable to common shareholders $ (64,348 ) $ (10,085 ) $ (11,216 ) $ (22,690 ) $ (7,258 ) Weighted average common shares outstanding basic and diluted 15,669,472 15,109,587 14,541,061 12,678,845 12,087,947 Net loss per common share: basic and diluted $ (4.11 ) $ (0.67 ) $ (0.77 ) $ (1.79 ) $ (0.60 ) 41 Consolidated Balance Sheet Data As of December 31, 2023 2022 2021 2020 2019 ($ in thousands) Cash $ 3,331 $ 12,299 $ 10,340 $ 20,925 $ 19,994 Working capital - net (1) (57 ) 12,255 5,997 15,795 19,823 Total assets 77,826 136,174 140,848 137,999 56,402 Total liabilities 36,109 34,485 42,917 36,754 13,565 Shareholders’ equity 41,717 101,689 97,931 101,245 42,837 (1) Working capital-net is defined as current assets less current liabilities.
Although the Company reported GAAP earnings in 2022, it incurred losses historically and there is uncertainty regarding future U.S. taxable income, which make 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 December 31, 2022 and December 31, 2021.
Although the Company reported GAAP earnings in 2022, it incurred losses historically and in 2023 and there is uncertainty regarding future U.S. taxable income, which make realization of a deferred tax asset difficult to support in accordance with ASC 740.
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.
In preparing our 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.
Assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values. The fair value amount assigned to intangible assets is based on an exit price from a market participant’s viewpoint, and utilizes data such as discounted cash flow analysis and replacement cost models.
The fair value amount assigned to intangible assets is based on an exit price from a market participant’s viewpoint, and utilizes data such as discounted cash flow analysis and replacement cost models.
Year Ended December 31, 2022 2021 Net revenue 100.0 % 100.0 % Operating expenses: Direct operating costs 60.8 % 62.3 % Selling and marketing 7.0 % 6.3 % General and administrative 17.2 % 17.4 % Research and development 3.2 % 3.2 % Change in contingent consideration (2.2 )% (1.8 )% Depreciation and amortization 8.4 % 8.7 % Net loss on lease termination, impairment and unoccupied lease charges 0.8 % 1.4 % Total operating expenses 95.2 % 97.5 % Operating income 4.8 % 2.5 % Interest expense - net 0.3 % 0.3 % Other expense - net (0.5 )% (0.1 )% Income before provision for income taxes 4.0 % 2.1 % Income tax provision 0.1 % 0.1 % Net income 3.9 % 2.0 % Comparison of 2022 and 2021 Year Ended December 31, Change 2022 2021 Amount Percent ($ in thousands) Net revenue $ 138,826 $ 139,599 $ (773 ) (1 )% Net revenue.
Year Ended December 31, 2023 2022 Net revenue 100.0 % 100.0 % Operating expenses: Direct operating costs 60.5 % 60.8 % Selling and marketing 8.2 % 7.0 % General and administrative 18.3 % 17.2 % Research and development 4.0 % 3.2 % Change in contingent consideration - (2.2 %) Depreciation and amortization 12.3 % 8.4 % Goodwill impairment charges 35.9 % - Net loss on lease terminations, unoccupied lease charges and restructuring costs 0.9 % 0.8 % Total operating expenses 140.1 % 95.2 % Operating (loss) income (40.1 %) 4.8 % Interest expense - net 0.9 % 0.3 % Other expense - net (0.8 %) (0.5 %) (Loss) income before (benefit) provision for income taxes (41.8 %) 4.0 % Income tax (benefit) provision (0.3 %) 0.1 % Net (loss) income (41.5 %) 3.9 % Comparison of 2023 and 2022 Year Ended December 31, Change 2023 2022 Amount Percent ($ in thousands) Net revenue $ 117,059 $ 138,826 $ (21,767 ) (16 %) Net revenue.
The Company will maintain a full valuation allowance on deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.
The impairment charge resulted in the reversal of the entire deferred tax liability at December 31, 2023. 50 The Company will maintain a full valuation allowance on deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.
Set forth below is a presentation of our adjusted EBITDA for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 ($ in thousands) Net revenue $ 138,826 $ 139,599 GAAP net income 5,432 2,836 Provision for income taxes 177 157 Net interest expense 364 440 Foreign exchange loss / other expense 712 241 Stock-based compensation expense 4,914 5,396 Depreciation and amortization 11,725 12,195 Transaction and integration costs 876 1,364 Net loss on lease termination, impairment and unoccupied lease charges 1,138 2,005 Change in contingent consideration (3,090 ) (2,515 ) Adjusted EBITDA $ 22,248 $ 22,119 Adjusted operating income and adjusted operating margin exclude the following elements which are included in GAAP operating income: ● Stock-based compensation expense, which 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; ● Net loss on lease termination, impairment and unoccupied lease charges; and ● Change in contingent consideration. 38 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 years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 ($ in thousands) Net revenue $ 138,826 $ 139,599 GAAP net income 5,432 2,836 Provision for income taxes 177 157 Net interest expense 364 440 Other expense - net 637 96 GAAP operating income 6,610 3,529 GAAP operating margin 4.8 % 2.5 % Stock-based compensation expense 4,914 5,396 Amortization of purchased intangible assets 6,277 8,880 Transaction and integration costs 876 1,364 Net loss on lease termination, impairment and unoccupied lease charges 1,138 2,005 Change in contingent consideration (3,090 ) (2,515 ) Non-GAAP adjusted operating income $ 16,725 $ 18,659 Non-GAAP adjusted operating margin 12.0 % 13.4 % Adjusted net income and adjusted net income per share exclude the following elements which are included in GAAP net income: ● Foreign currency gains and losses and other non-operating expenses; ● Stock-based compensation expense, which 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; ● Net loss on lease termination, impairment and unoccupied lease charges; ● Change in contingent consideration; and ● Income tax expense resulting from the amortization of goodwill related to our acquisitions. 39 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.
Set forth below is a presentation of our adjusted EBITDA for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 ($ in thousands) Net revenue $ 117,059 $ 138,826 GAAP net (loss) income (48,674 ) 5,432 (Benefit) provision for income taxes (364 ) 177 Net interest expense 1,040 364 Foreign exchange loss / other expense 918 712 Stock-based compensation expense, net of restructuring costs 4,716 4,914 Depreciation and amortization 14,402 11,725 Transaction and integration costs 286 876 Goodwill impairment charges 42,000 - Net loss on lease terminations, unoccupied lease charges and restructuring costs 1,105 1,138 Change in contingent consideration - (3,090 ) Adjusted EBITDA $ 15,429 $ 22,248 Adjusted operating income and adjusted operating margin exclude the following elements which are included in GAAP operating (loss) income: ● Stock-based compensation expense, which 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; ● Goodwill impairment charges; ● Net loss on lease terminations, unoccupied lease charges and restructuring costs; and ● Change in contingent consideration. 39 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 years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 ($ in thousands) Net revenue $ 117,059 $ 138,826 GAAP net (loss) income (48,674 ) 5,432 (Benefit) provision for income taxes (364 ) 177 Net interest expense 1,040 364 Other expense - net 883 637 GAAP operating (loss) income (47,115 ) 6,610 GAAP operating margin (40.2 %) 4.8 % Stock-based compensation expense, net of restructuring costs 4,716 4,914 Amortization of purchased intangible assets 4,975 6,277 Transaction and integration costs 286 876 Goodwill impairment charges 42,000 - Net loss on lease terminations, unoccupied lease charges and restructuring costs 1,105 1,138 Change in contingent consideration - (3,090 ) Non-GAAP adjusted operating income $ 5,967 $ 16,725 Non-GAAP adjusted operating margin 5.1 % 12.0 % Adjusted net income and adjusted net income per share exclude the following elements which are included in GAAP net (loss) income: ● Foreign currency gains and losses and other non-operating expenses; ● Stock-based compensation expense, which 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; ● Goodwill impairment charges; ● Net loss on lease terminations, unoccupied lease charges and restructuring costs; ● Change in contingent consideration; and ● Income tax (benefit) provision resulting from the amortization of goodwill related to our acquisitions.
The remaining deferred tax liability could remain on the Company’s consolidated balance sheet indefinitely unless there is an impairment of goodwill (for financial reporting purposes) or a portion of the related business is sold.
The remaining deferred tax liability remains on the Company’s consolidated balance sheet indefinitely unless there is an impairment of goodwill (for financial reporting purposes) or a portion of the related business is sold. In 2023, there was a goodwill impairment charge of $42 million, a portion of which was allocated to the tax deductible portion of the goodwill balance.
The following table shows our reconciliation of GAAP net income to non-GAAP adjusted net income for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 ($ in thousands) GAAP net income $ 5,432 $ 2,836 Foreign exchange loss / other expense 712 241 Stock-based compensation expense 4,914 5,396 Amortization of purchased intangible assets 6,277 8,880 Transaction and integration costs 876 1,364 Net loss on lease termination, impairment and unoccupied lease charges 1,138 2,005 Change in contingent consideration (3,090 ) (2,515 ) Income tax expense related to goodwill 75 290 Non-GAAP adjusted net income $ 16,334 $ 18,497 Year Ended December 31, 2022 2021 GAAP net loss attributable to common shareholders, per share $ (0.67 ) $ (0.77 ) Impact of preferred stock dividend 1.03 0.96 Net income per end-of-period share 0.36 0.19 Foreign exchange loss / other expense 0.05 0.02 Stock-based compensation expense 0.32 0.36 Amortization of purchased intangible assets 0.41 0.60 Transaction and integration costs 0.06 0.09 Net loss on lease termination, impairment and unoccupied lease charges 0.07 0.13 Change in contingent consideration (0.20 ) (0.17 ) Income tax expense related to goodwill 0.00 0.02 Non-GAAP adjusted earnings per share $ 1.07 $ 1.24 End-of-period common shares 15,229,405 14,916,842 In-the-money warrants and outstanding unvested RSUs 598,245 684,528 Total fully diluted shares 15,827,650 15,601,370 Non-GAAP adjusted diluted earnings per share $ 1.03 $ 1.19 For purposes of determining non-GAAP adjusted earnings per share, the Company used the number of common shares outstanding at the end of December 31, 2022 and 2021.
The following table shows our reconciliation of GAAP net (loss) income to non-GAAP adjusted net income for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 ($ in thousands) GAAP net (loss) income $ (48,674 ) $ 5,432 Foreign exchange loss / other expense 918 712 Stock-based compensation expense, net of restructuring costs 4,716 4,914 Amortization of purchased intangible assets 4,975 6,277 Transaction and integration costs 286 876 Goodwill impairment charges 42,000 - Net loss on lease terminations, unoccupied lease charges and restructuring costs 1,105 1,138 Change in contingent consideration - (3,090 ) Income tax (benefit) provision related to goodwill (525 ) 75 Non-GAAP adjusted net income $ 4,801 $ 16,334 40 Year Ended December 31, 2023 2022 GAAP net loss attributable to common shareholders, per share $ (4.11 ) $ (0.67 ) Impact of preferred stock dividend 1.04 1.03 Net (loss) income per end-of-period share (3.07 ) 0.36 Foreign exchange loss / other expense 0.06 0.05 Stock-based compensation expense 0.30 0.32 Amortization of purchased intangible assets 0.31 0.41 Transaction and integration costs 0.02 0.06 Goodwill impairment charges 2.65 - Net loss on lease terminations, unoccupied lease charges and restructuring costs 0.07 0.07 Change in contingent consideration 0.00 (0.20 ) Income tax (benefit) provision related to goodwill (0.04 ) 0.00 Non-GAAP adjusted earnings per share $ 0.30 $ 1.07 End-of-period common shares 15,880,092 15,229,405 In-the-money warrants and outstanding unvested RSUs 733,908 598,245 Total fully diluted shares 16,614,000 15,827,650 Non-GAAP adjusted diluted earnings per share $ 0.29 $ 1.03 For purposes of determining non-GAAP adjusted earnings per share, the Company used the number of common shares outstanding at the end of December 31, 2023 and 2022.
Interest income of $41,000 for the year ended December 31, 2022 increased by $26,000 or 173% from interest income of $15,000 for the year ended December 31, 2021. Interest income primarily represents interest earned on temporary cash investments and late fees from customers. Interest Expense.
Interest income of $154,000 for the year ended December 31, 2023 increased by $113,000 or 276% from interest income of $41,000 for the year ended December 31, 2022. The interest income represents interest earned on temporary cash investments, which increased due to rising interest rates and late fees from customers. Interest Expense.
Our integrated SaaS platform includes technology-assisted 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 SaaS component is not material to the overall contract compared to the stand-alone value of RCM. Our integrated SaaS platform includes technology-enabled revenue cycle management (“RCM”), practice management (“PM”), electronic health records (“EHR”), artificial intelligence (“AI”) tools, business intelligence, telehealth, patient experience management (“PXM”) solutions and complementary software tools and business services for high-performance medical groups and health systems.
Sources of Revenue Revenue: We primarily derive our on-going revenues from technology-enabled business solutions, reported in our Healthcare IT segment, which typically includes revenue cycle management and is billed as a percentage of payments collected by our customers. This fee includes the ability to use our EHR, practice management systems and other software as part of the bundled fee.
These renewal percentages are not indicative of the loss of revenue due to non-renewal. 43 Sources of Revenue Revenue: We primarily derive our on-going revenues from technology-enabled business solutions, reported in our Healthcare IT segment, which typically includes revenue cycle management and is billed as a percentage of payments collected by our customers.
The increase in the net income of $2.6 million included the following changes in non-cash items: decrease in depreciation and amortization of $358,000, a decrease in stock-based compensation of $482,000 , and an increase in the change in contingent consideration of $575,000.
The decrease in the net income of $54.1 million included the following changes in non-cash items: a goodwill impairment charge of $42 million, an increase in depreciation and amortization of $2.6 million and a decrease in the change in contingent consideration of $3.1 million .
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. 45 For the majority of our contracts which include revenue cycle management services, 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.
For the majority of our contracts which include revenue cycle management services, 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.
The accounting estimates used in the preparation of our consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes.
We base our estimates, assumptions and judgments on historical experience, current trends and various other factors that we believe to be reasonable under the circumstances. The accounting estimates used in the preparation of our consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes.
Revenue is also generated from coding, credentialing, indexing, transcription and other ancillary 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.
Our professional services include an extensive set of services including EHR vendor-agnostic optimization and activation, project management, IT transformation, consulting, process improvement, training, education and staffing for large healthcare organizations including health systems and hospitals. Revenue is recorded monthly on either a time and materials or a fixed rate basis for each contract.
December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2022 2022 2022 2022 2021 2021 2021 2021 ($ in thousands) Net income (loss) $ 499 $ 1,056 $ 2,737 $ 1,140 $ 3,522 $ 1,505 $ (227 ) $ (1,964 ) Depreciation 547 474 482 449 446 488 533 460 Amortization 2,492 2,336 2,454 2,491 2,243 3,059 2,595 2,371 Foreign exchange loss (gain) / other expense 353 523 (108 ) (56 ) 73 70 (146 ) 244 Net interest expense 83 82 104 95 176 87 113 64 Income tax provision (benefit) 33 55 25 64 177 (232 ) 213 (1 ) Stock-based compensation expense 1,515 1,328 1,184 887 1,390 1,004 1,735 1,267 Transaction and integration costs 152 316 306 102 246 269 617 232 Net loss on lease termination, impairment and unoccupied lease charges 210 307 463 158 340 424 223 1,018 Change in contingent consideration (200 ) (1,660 ) (630 ) (600 ) (2,515 ) - - - Adjusted EBITDA $ 5,684 $ 4,817 $ 7,017 $ 4,730 $ 6,098 $ 6,674 $ 5,656 $ 3,691 Key Metrics In addition to the line items in our consolidated financial statements, we regularly review the following key metrics to evaluate our business, measure our performance, identify trends in our business, prepare financial projections, make strategic business decisions, and assess market share trends and working capital needs.
December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2023 2023 2023 2023 2022 2022 2022 2022 ($ in thousands) Net (loss) income $ (43,692 ) $ (2,749 ) $ (1,832 ) $ (401 ) $ 499 $ 1,056 $ 2,737 $ 1,140 Depreciation 505 493 511 492 547 474 482 449 Amortization 3,615 3,410 2,830 2,546 2,492 2,336 2,454 2,491 Foreign exchange loss (gain) / other expense 309 426 191 (8 ) 353 523 (108 ) (56 ) Net interest expense 335 300 275 130 83 82 104 95 Income tax (benefit) provision (568 ) 57 82 65 33 55 25 64 Stock-based compensation expense, net of restructuring costs 933 1,209 1,502 1,072 1,515 1,328 1,184 887 Transaction and integration costs 16 91 107 72 152 316 306 102 Goodwill impairment charges 42,000 - - - - - - - Net loss on lease terminations, unoccupied lease charges and restructuring costs 675 8 153 269 210 307 463 158 Change in contingent consideration - - - - (200 ) (1,660 ) (630 ) (600 ) Adjusted EBITDA $ 4,128 $ 3,245 $ 3,819 $ 4,237 $ 5,684 $ 4,817 $ 7,017 $ 4,730 Key Metrics In addition to the line items in our consolidated financial statements, we regularly review the following key metrics to evaluate our business, measure our performance, identify trends in our business, prepare financial projections, make strategic business decisions, and assess market share trends and working capital needs.
These NOLs expire between 2034 and 2041. 49 Liquidity and Capital Resources During the year ended December 31, 2022, there was positive cash flow from operations of $21.2 million and at year-end, the Company had $12.3 million in cash and positive working capital of $12.3 million.
Liquidity and Capital Resources During the year ended December 31, 2023, there was positive cash flow from operations of $15.5 million and at year-end, the Company had $3.3 million in cash and negative working capital of $57,000.
Revenue is recorded monthly on either a time and materials or a fixed rate basis for each contract. 43 We also generate revenue from our printing and mailing, group purchasing services and medical practice management services. We earned approximately 1% of our revenue from group purchasing services during both the years ended December 31, 2022 and 2021.
We also generate revenue from our printing and mailing, group purchasing services and medical practice management services. We earned approximately 1% of our revenue from group purchasing services during both the years ended December 31, 2023 and 2022.
Direct operating costs of $84.4 million for the year ended December 31, 2022 decreased by $2.5 million or 3% from direct operating costs of $86.9 million for the year ended December 31, 2021.
Direct operating costs of $70.8 million for the year ended December 31, 2023 decreased by $13.6 million or 16% from direct operating costs of $84.4 million for the year ended December 31, 2022.
Research and development expense of $4.4 million remained consistent for the years ended December 31, 2022 and 2021. During the years ended December 31, 2022 and 2021, the Company capitalized approximately $9.2 million and $7.6 million of development costs in connection with its internal-use software, respectively. Change in Contingent Consideration.
During the years ended December 31, 2023 and 2022, the Company capitalized approximately $8.6 million and $9.2 million of development costs in connection with its internal-use software, respectively. Change in Contingent Consideration. The change of $3.1 million for the year ended December 31, 2022 reflected the estimated decrease in the fair value of the contingent consideration from the medSR acquisition.
The Company will also test for impairment between annual test dates if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is performed at the reporting-unit level. The Company has determined that its business consists of two operating segments and two reporting units (Healthcare IT and Medical Practice Management).
As a result of the annual impairment test, an impairment of approximately $2 million was recorded. The Company will also test for impairment between annual test dates if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is performed at the reporting-unit level.
The Company has incurred losses historically and there is uncertainty regarding future U.S. taxable income, which make realization of a deferred tax asset difficult to support in accordance with ASC 740. Accordingly, a valuation allowance was recorded against all deferred tax assets at December 31, 2022 and 2021. The Company has recorded goodwill as a result of its acquisitions.
The pre-tax loss and pre-tax income was $49 million and $5.6 million for the years ended December 31, 2023 and 2022, respectively. The Company has incurred losses historically and there is uncertainty regarding future U.S. taxable income, which make realization of a deferred tax asset difficult to support in accordance with ASC 740.
Effective January 1, 2018, there is a global intangible low-taxed income (“GILTI”) tax. Companies can either account for the GILTI inclusion in the period in which they are incurred or establish deferred tax liabilities for the expected future taxes associated with GILTI.
Accordingly, a valuation allowance has been recorded against all deferred tax assets as of December 31, 2023 and December 31, 2022. For the global intangible low-taxed income (“GILTI”) tax, companies can either account for the GILTI inclusion in the period in which they are incurred or establish deferred tax liabilities for the expected future taxes associated with GILTI.
Salary costs decreased by $1.1 million due to the decrease in the Pakistan exchange rate which was offset by the Company’s contributions to community based projects and to a new academic institution in the Bagh area, a community where the Company has a large employee base. Research and Development Expense.
The Company’s contributions to community based projects and to a new academic institution in the Bagh area, a community where the Company has a large employee base, decreased by $1.0 million. Other costs such as computer expenses, utilities and office supplies decreased by $646,000. This increase was offset by a $635,000 increase in consulting expenses. Research and Development Expense.
Capitalized software was $9.2 million and $7.6 million during the years ended December 31, 2022 and 2021, respectively. Financing Activities Cash used by financing activities during the year ended December 31, 2022 was $7.7 million, compared to $519,000 of cash used for the year ended December 31, 2021.
Financing Activities Cash used by financing activities during the year ended December 31, 2023 was $13.3 million, compared to $7.7 million of cash used for the year ended December 31, 2022.
Revenue decreased by $773,000 for the year ended December 31, 2022 compared to the year ended December 31, 2021, and operating expenses decreased by $3.9 million for the same period primarily due to a decrease in salary costs. 50 Accounts receivable decreased by $1.5 million and increased by $620,000 for the years ended December 31, 2022 and 2021, respectively.
Revenue decreased by $21.8 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, offset by a decrease in cash operating expenses of $15.8 million for the same period. Accounts receivable decreased by $2.2 million and $1.5 million for the years ended December 31, 2023 and 2022, respectively.
Year Ended December 31, Change 2022 2021 Amount Percent ($ in thousands) Net cash provided by operating activities $ 21,151 $ 13,334 $ 7,817 59 % Net cash used in investing activities (11,767 ) (23,146 ) 11,379 49 % Net cash used in financing activities (7,650 ) (519 ) (7,131 ) (1,374 )% Effect of exchange rate changes on cash 225 (254 ) 479 189 % Net increase (decrease) in cash and restricted cash $ 1,959 $ (10,585 ) $ 12,544 119 % The income before income taxes was $5.6 million for the year ended December 31, 2022, of which $11.7 million was non-cash depreciation and amortization.
Year Ended December 31, Change 2023 2022 Amount Percent ($ in thousands) Net cash provided by operating activities $ 15,461 $ 21,151 $ (5,690 ) (27 %) Net cash used in investing activities (11,613 ) (11,767 ) 154 1 % Net cash used in financing activities (13,285 ) (7,650 ) (5,635 ) (74 %) Effect of exchange rate changes on cash 469 225 244 108 % Net (decrease) increase in cash $ (8,968 ) $ 1,959 $ (10,927 ) (558 %) The loss before income taxes was $49 million for the year ended December 31, 2023, of which $42 million was a non-cash goodwill impairment charge and $14.4 million was non-cash depreciation.
The increase was primarily related to additional emphasis on sales and marketing activities. General and Administrative Expense. General and administrative expense of $23.8 million for the year ended December 31, 2022 decreased by $453,000 or 2% from general and administrative expense of $24.3 million for the year ended December 31, 2021.
Selling and marketing expense of $9.7 million for the year ended December 31, 2023 decreased by $138,000 or 1% from selling and marketing expense of $9.8 million for the year ended December 31, 2022. The decrease for the year ended December 31, 2023 was due to lower spending on selling and marketing activities. General and Administrative Expense.
Cash provided by financing activities during 2021 includes $6.4 million of net proceeds from issuing 858,000 shares from the exercise of common stock warrants and $2.7 million of net proceeds after fees and expenses from issuing 346,389 shares of common stock via an “at-the-market” offering, offset by $1.0 million of repayments for debt obligations, and $14.4 million of preferred stock dividends.
Cash provided by financing activities during 2023 includes $1.4 million of net proceeds from issuing 59,773 shares, offset by $888,000 of repayments for debt obligations, and $14.3 million of preferred stock dividends.
Net loss on lease termination represents the write-off of leasehold improvements and gains or losses as the result of lease terminations. Impairment charges represent charges recorded for a leased facility no longer being used by the Company and a non-cancellable vendor contract where the services are no longer being used.
Net Loss on Lease Terminations, Unoccupied Lease Charges and Restructuring Costs. Net loss on lease termination represents the write-off of leasehold improvements and gains or losses as the result of lease terminations. Unoccupied lease charges represent the portion of lease and related costs for vacant space not being utilized by the Company.
The Company elected to record the GILTI provisions as they are incurred each period. 44 Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with GAAP.
The Company records the GILTI provisions as they are incurred each period. Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expense and related disclosures.
Goodwill is generally not amortized for financial reporting purposes. However, goodwill from asset acquisitions is tax deductible and amortized over 15 years for tax purposes. As such, deferred income tax expense and a deferred tax liability arise as a result of the tax-deductibility of this indefinitely lived asset.
Accordingly, a valuation allowance was recorded against all deferred tax assets at December 31, 2023 and 2022. The Company has recorded goodwill as a result of its acquisitions. Goodwill is generally not amortized for financial reporting purposes. However, goodwill from asset acquisitions is tax deductible and amortized over 15 years for tax purposes.
Revenue is recorded based on the number of hours incurred and the agreed-upon hourly rate. Invoicing is primarily performed as of the end of each month. Practice management services: We estimate the amount that will be collected on claims submitted to insurance carriers which is used to determine the compensation to be paid to the owners of the managed practices.
The Company records a contract asset for revenue earned and not paid as the ultimate payment is conditioned on achieving certain volume thresholds. 46 Practice management services: We estimate the amount that will be collected on claims submitted to insurance carriers which is used to determine the compensation to be paid to the owners of the managed practices.
Interest expense of $405,000 for the year ended December 31, 2022 decreased by $50,000 or 11% from interest expense of $455,000 for the year ended December 31, 2021. Interest expense includes the amortization of deferred financing costs which was approximately $124,000 and $200,000 during the years ended December 31, 2022 and 2021, respectively. Other Expense - net.
Interest expense on the line of credit was $906,000 and $138,000 and the amortization of deferred financing costs was $169,000 and $124,000 during the years ended December 31, 2023 and 2022, respectively. Other Expense - net.
The Company was able to turn back to the landlord one of the unused facilities effective January 1, 2022. Interest and Other Income (Expense). Interest expense consists primarily of interest costs related to our line of credit, term loans and amounts due in connection with acquisitions, offset by interest income.
The Company was able to turn back to the landlord one of the unused facilities effective January 1, 2022. Restructuring costs, which were incurred in 2023, primarily consist of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements. Interest and Other Income (Expense).
The resulting deferred tax liability, which is expected to continue to be recorded over the amortization period, will have an indefinite life.
As such, deferred income tax expense and a deferred tax liability arise as a result of the tax-deductibility of this indefinitely lived asset. The resulting deferred tax liability, which is recorded over the amortization period, will have an indefinite life.
Investing Activities Cash used in investing activities during the year ended December 31, 2022 was $11.8 million , a decrease of $11.4 million compared to $23.1 million during the year ended December 31, 2021. The change is due to the Company acquiring medSR for a cash consideration of $12.6 million during 2021.
Accounts payable, accrued compensation and accrued expenses increased by $3.3 million and $6.6 million for the years ended December 31, 2023 and 2022, respectively. Investing Activities Cash used in investing activities during the year ended December 31, 2023 was $11.6 million , a decrease of $154,000 compared to $11.8 million during the year ended December 31, 2022.
No impairment charges were recorded during the years ended December 31, 2022 or 2021. Business Combinations: The Company accounts for business combinations under the provisions of ASC 805, Business Combinations , which requires that the acquisition method of accounting be used for all business combinations.
Business Combinations: The Company accounts for business combinations under the provisions of ASC 805, Business Combinations , which requires that the acquisition method of accounting be used for all business combinations. Assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values.
Our renewal rates for 2022 and 2021 were 98% and 91% of the practices, respectively. These renewal percentages are not indicative of the loss of revenue due to non-renewal.
Our renewal rates for 2023 and 2022 were 91% and 98% of the number of practices that renewed, respectively.
These solutions accounted for approximately 63% and 76% of our revenues during the years ended December 31, 2022 and 2021, respectively. This includes customers utilizing our proprietary product suites, as well as customers from acquisitions of RCM companies which we are servicing utilizing third-party software.
This includes customers utilizing our proprietary product suites, as well as customers from acquisitions of RCM companies which we are servicing utilizing third-party software. Key drivers of our revenue include growth in the number of providers we are servicing, the number of patients served by those providers, and collections by those providers.
Application of the goodwill impairment test requires judgment including the use of a discounted cash flow and market approach methodology. These analyses require significant assumptions and judgments.
The Company has determined that its business consists of two operating segments and two reporting units (Healthcare IT and Medical Practice Management). Application of the goodwill impairment test requires judgment including the use of a discounted cash flow approach, the trading price of publicly traded stock and the guideline public company method. These analyses require significant assumptions and judgments.
Unoccupied lease charges represent the portion of lease and related costs for that portion of the space that is vacant and not being utilized by the Company. The Company was able to turn back to the landlord one of the unused facilities effective January 1, 2022.
The Company was able to turn back to the landlord one of the unused facilities effective January 1, 2022. Unoccupied lease charges for the year ended December 31, 2023 were $169,000. In addition, there was $645,000 of restructuring costs being recorded in 2023, whereas in 2022, there were no restructuring costs.
Amortization expense related to the value of our medical practice management clients is amortized on a straight-line basis over a period of twelve years. Net Loss on Lease Termination, Impairment and Unoccupied Lease Charges. Net loss on lease termination represents the write-off of leasehold improvements and gains or losses as the result of lease terminations.
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. Goodwill Impairment Charges. Goodwill impairment charges, which were related to the Healthcare IT reporting unit, represent the impairment recorded as it was determined that the fair value of the goodwill was less than the carrying value.
The provision for 2022 and the balance for 2021 primarily relates to state and foreign income taxes. The pre-tax income was $5.6 million and $3.0 million for the years ended December 31, 2022 and 2021, respectively.
The current income tax expense for the year ended December 31, 2023 was approximately $161,000 compared to a current income tax expense of approximately $101,000 for the year ended December 31, 2022. The current provision for 2023 and 2022 primarily relates to state and foreign income taxes.
Key drivers of our revenue include growth in the number of providers we are servicing, the number of patients served by those providers, and collections by those providers. It also includes Software-as-a-Service (“SaaS”) fees, for clients not utilizing revenue cycle management services. When clients utilize our revenue cycle management services, basic SaaS services are included at no additional charge.
It also includes SaaS fees, for clients not utilizing revenue cycle management services. When clients utilize our revenue cycle management services, basic SaaS services are included at no additional charge. Revenue is also generated from coding, credentialing, indexing, transcription and other ancillary services.
Net revenue of $138.8 million for the year ended December 31, 2022 decreased by $773,000 or 1% from revenue of $139.6 million for the year ended December 31, 2021. Total revenue for the year ended December 31, 2022 included approximately $29.7 million as a result of the medSR acquisition compared to $15.9 million in 2021.
Net revenue of $117.1 million for the year ended December 31, 2023 decreased by $21.8 million or 16% from revenue of $138.8 million for the year ended December 31, 2022.
Revenue from these two customers for the years ended December 31, 2022 and 2021 was $12.1 million and $21.5 million, respectively, and is expected to be between $1 million and $2 million for the year 2023. 47 Year Ended December 31, Change 2022 2021 Amount Percent ($ in thousands) Direct operating costs $ 84,434 $ 86,918 $ (2,484 ) (3 )% Selling and marketing 9,788 8,786 1,002 11 % General and administrative 23,820 24,273 (453 ) (2 )% Research and development 4,401 4,408 (7 ) 0 % Change in contingent consideration (3,090 ) (2,515 ) (575 ) (23 )% Depreciation 1,952 1,927 25 1 % Amortization 9,773 10,268 (495 ) (5 )% Net loss on lease termination, impairment and unoccupied lease charges 1,138 2,005 (867 ) (43 )% Total operating expenses $ 132,216 $ 136,070 $ (3,854 ) (3 )% Direct Operating Costs.
(Refer to Forward-Looking Statements disclosure on page 2 of this Form 10-K.) 48 Year Ended December 31, Change 2023 2022 Amount Percent ($ in thousands) Direct operating costs $ 70,817 $ 84,434 $ (13,617 ) (16 %) Selling and marketing 9,650 9,788 (138 ) (1 %) General and administrative 21,464 23,820 (2,356 ) (10 %) Research and development 4,736 4,401 335 8 % Change in contingent consideration - (3,090 ) 3,090 100 % Depreciation 2,001 1,952 49 3 % Amortization 12,401 9,773 2,628 27 % Goodwill impairment charges 42,000 - 42,000 100 % Net loss on lease terminations, unoccupied lease charges and restructuring costs 1,105 1,138 (33 ) (3 %) Total operating expenses $ 164,174 $ 132,216 $ 31,958 24 % Direct Operating Costs.
Outsourcing and other customer processing costs increased by $1.9 million and an increase in the cost of vaccines by $514,000. Selling and Marketing Expense. Selling and marketing expense of $9.8 million for the year ended December 31, 2022 increased by $1.0 million or 11% from selling and marketing expense of $8.8 million for the year ended December 31, 2021.
Research and development expense of $4.7 million for the year ended December 31, 2023 increased by $335,000 or 8% from research and development expense of $4.4 million for the year ended December 31, 2022.
Other income (expense) results primarily from foreign currency transaction gains (losses) and income earned from temporary cash investments. Income Taxes. In preparing our consolidated financial statements, we estimate income taxes in each of the jurisdictions in which we operate.
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, motor vehicle loans and amounts due in connection with acquisitions. Other income (expense) results primarily from foreign currency transaction gains (losses). Income Taxes.

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