What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-14 compared with 2021-02-25 · 15 added, 774 removed, 5 unchanged (99% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

common stock has been listed since July 23, 2014 and is trading on the Nasdaq Global Market under the symbol “MTBC”.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

common stock has been listed since July 23, 2014 and is trading on the Nasdaq Global Market under the symbol “MTBC”.

of February 28, 2022, there were approximately 7,800 holders of record of our common stock.

on Common Stock

have not declared a cash dividend on our common stock since we became public on July 23, 2014, and currently we do not anticipate

paying any cash dividends to holders of our common stock in the foreseeable future.

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

was no sale of unregistered equity securities during the three months ended December 31, 2020.

have not declared a cash dividend on our common stock since we became public on July 23, 2014, and currently we do not anticipate paying

any cash dividends to holders of our common stock in the foreseeable future.

The Company is prohibited from paying any dividends on common

stock without the prior written consent of its senior lender, SVB.

of Unregistered Securities

was no sale of unregistered equity securities during the year ended December 31, 2021.

of Equity Securities by the Issuer and Affiliated Purchasers

1 unchanged sentence

Authorized for Issuance under the Equity Compensation Plan

of December 31, 2020, 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.

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

Equity compensation plan approved by security holders - preferred shares

Selected Financial Data

selected consolidated statements of operations data presented below for the years ended December 31, 2020 and 2019, as well as

the consolidated balance sheet data as of December 31, 2020 and 2019, are derived from our audited consolidated financial statements

included in this Annual Report on Form 10-K.

The selected consolidated statements of operations data presented below for the years

ended December 31, 2018, 2017 and 2016, as well as the consolidated balance sheet data as of December 31, 2018, 2017 and 2016

are derived from our consolidated financial statements not included in this Annual Report on Form 10-K.

Historical results are

not necessarily indicative of the results that may be expected in the future.

should read the following selected consolidated financial data in conjunction with “Management’s Discussion and Analysis

of Financial Condition and Results of Operations”

and our Consolidated Financial Statements appearing on page F-1 in this

Annual Report on Form 10-K.

Acquisitions by the Company in the last three years account for a significant portion of the increases

in revenue and expenses in those years.

Note 3 of our Consolidated Financial Statements discusses the acquisitions in the last

Consolidated Statements of Operations Data

Years ended December 31,

($ in thousands, except per share data)

Operating expenses:

Direct operating costs

Selling and marketing

General and administrative

Research and development

Change in contingent consideration

Depreciation and amortization

Restructuring, impairment and unoccupied lease charges

Total operating expenses

Operating (loss) income

Interest income - net

Other income (expense) - net

Loss before provision (benefit) for income taxes

Income tax provision (benefit)

Preferred stock dividend

Net loss attributable to common shareholders

Weighted average common shares outstanding basic and diluted

Net loss per common share:

basic and diluted

Consolidated Balance Sheet Data

As of December 31,

($ in thousands)

Working capital - net (1)

Long-term debt

Shareholders’

capital-net is defined as current assets less current liabilities.

Other Financial Data

Years ended December 31,

($ in thousands)

Adjusted EBITDA

provide investors with additional insight and allow for a more comprehensive understanding of the information used by management

in its financial and operational decision-making, we supplement our consolidated financial statements presented on a basis consistent

generally accepted accounting principles, or GAAP, with adjusted EBITDA, a non-GAAP financial measure of earnings.

EBITDA represents net income (loss) before income tax expense, interest income, interest expense, depreciation, amortization,

transaction, integration, restructuring, impairment charges, unoccupied lease charges and change in contingent consideration.

Our management uses adjusted EBITDA as a financial measure to evaluate the profitability and efficiency of our business model.

We use this non-GAAP financial measure to assess the strength of the underlying operations of our business.

These adjustments,

and the non-GAAP financial measure that is derived from them, provide supplemental information to analyze our operations between

periods and over time.

Investors should consider our non-GAAP financial measure in addition to, and not as a substitute for, financial

measures prepared in accordance with GAAP.

following table contains a reconciliation of net loss to adjusted EBITDA.

Reconciliation of net loss

Years ended December 31,

to adjusted EBITDA

($ in thousands)

Foreign exchange loss (gain) / other expense

Interest expense - net

Income tax provision (benefit)

Stock-based compensation expense

Transaction and integration costs

Restructuring, impairment and unoccupied lease charges

Change in contingent consideration

Adjusted EBITDA

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

following is a discussion of our consolidated financial condition and results of operations for the years ended December 31, 2020

and 2019 and other factors that are expected to affect our prospective financial condition.

The following discussion and analysis

should be read together with our Consolidated Financial Statements and related notes beginning on page F-1 of this Annual Report

on Form 10-K.

of the statements set forth in this section are forward-looking statements relating to our future results of operations.

results may vary from the results anticipated by these statements.

Please see “

Forward-Looking Statements ”

on page 2 of this Annual Report on Form 10-K.

Company is a healthcare information technology company that provides a full suite of proprietary cloud-based solutions, together

with related business services to healthcare providers and hospitals throughout the United States.

Our integrated Software-as-a-Service

(“SaaS”) platform includes revenue cycle management (“RCM”), practice management (“PM”), electronic

health record (“EHR”), business intelligence, telehealth, patient experience management (“PXM”) solutions

and complementary software tools and business services for high-performance medical groups and health systems.

At a high level,

these solutions can be categorized as follows:

services, which include end-to-end medical billing, eligibility, analytics, and related services, all of which can often be

provided either with our technology platform or through a third-party system.

healthcare IT software solutions, which can be bundled with our RCM services, including:

which are easy to use, integrated with our business services or offered as SaaS solutions, and allow our healthcare provider

clients to deliver better patient care, document their clinical visits effectively and thus potentially qualify for government

incentives, reduce documentation errors and reduce paperwork;

software and related tools, which support our clients’

day-to-day business operations and workflows;

Health (“mHealth”) solutions, including smartphone applications that assist patients and healthcare providers

in the provision of healthcare services;

solutions, which allow healthcare providers to conduct remote patient visits;

claims clearinghouse, which enables our clients to electronically scrub and submit claims to, and process payments from, insurance

intelligence, customized applications, interfaces and a variety of other technology solutions that support our healthcare

Office Practice Management Services are provided to medical practices.

In this service model, we provide the medical practice

with appropriate facilities, equipment, supplies, support services and administrative support staff.

We also provide management,

bill-paying and financial advisory services.

offshore operations in our Pakistan Offices and Sri Lanka together accounted for approximately 10% and 14% of total

expenses for the years ended December 31, 2020 and 2019, respectively.

A significant portion of those expenses were personnel-related

costs (approximately 79% and 78% of foreign costs for the years ended December 31, 2020 and 2019, respectively).

Because personnel-related

costs are significantly lower in our Pakistan Offices and Sri Lanka than in the U.S.

and many other offshore locations,

we believe our offshore operations give us a competitive advantage over many industry participants.

All of the medical billing

companies that we have acquired used domestic labor or subcontractors from higher cost locations to provide all or a substantial

portion of their services.

We are able to achieve significant cost reductions as we shift these labor costs to our offshore operations.

Performance Measures

consider numerous factors in assessing our performance.

Key performance measures used by management include adjusted EBITDA, adjusted

operating income, adjusted operating margin, adjusted net income and adjusted net income per share.

These key performance measures

are non-GAAP financial measures, which we believe better enable management and investors to analyze and compare the underlying

business results from period to period.

non-GAAP financial measures should not be considered in isolation, or as a substitute for or superior to, financial measures calculated

in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Moreover, these

non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of our business

as determined in accordance with GAAP.

We compensate for these limitations by analyzing current and future results on a GAAP basis,

as well as a non-GAAP basis, and we provide reconciliations from the most directly comparable GAAP financial measures to the non-GAAP

financial measures.

Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies.

companies, including companies in our industry, may calculate similarly titled non-GAAP financial measures differently than we

do, limiting the usefulness of those measures for comparative purposes.

EBITDA, adjusted operating income, adjusted operating margin, adjusted net income and adjusted net income per share provide an

alternative view of performance used by management and we believe that an investor’s understanding of our performance is

enhanced by disclosing these adjusted performance measures.

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

tax provision (benefit) or the cash requirements to pay our taxes;

expense, or the cash requirements necessary to service interest on principal payments on our debt;

exchange (gains) and losses and other non-operating expenses;

compensation expense and cash-settled awards, based on changes in the stock price;

and amortization charges;

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, exit costs related to contractual agreements;

Restructuring,

impairment and unoccupied lease charges;

in contingent consideration.

forth below is a presentation of our adjusted EBITDA for the years ended December 31, 2020 and 2019:

($ in thousands)

GAAP net loss

Provision for income taxes

Net interest expense

Foreign exchange loss / other expense

Stock-based compensation expense

Depreciation and amortization

Transaction and integration costs

Restructuring, impairment and unoccupied lease charges

Change in contingent consideration

Adjusted EBITDA

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

compensation expense and cash-settled awards, based on changes in the stock price;

of purchased intangible assets;

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, exit costs related to contractual agreements;

Restructuring,

impairment and unoccupied lease charges;

in contingent consideration.

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, 2020 and 2019:

($ in thousands)

GAAP net loss

Provision for income taxes

Net interest expense

Other (income) expense - net

GAAP operating (loss) / income

GAAP operating margin

Stock-based compensation expense

Amortization of purchased intangible assets

Transaction and integration costs

Restructuring, impairment and unoccupied lease charges

Change in contingent consideration

Non-GAAP adjusted operating income

Non-GAAP adjusted operating margin

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

exchange (gains) and losses and other non-operating expenses;

compensation expense and cash-settled awards, based on changes in the stock price;

of purchased intangible assets;

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, exit costs related to contractual agreements;

Restructuring,

impairment and unoccupied lease charges;

in contingent consideration;

tax expense (benefit) resulting from the amortization of goodwill related to our acquisitions.

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 losses to offset the applicable income taxes.

The following table shows our reconciliation of GAAP

net loss to non-GAAP adjusted net income for the years ended December 31, 2020 and 2019:

($ in thousands except for per share amounts)

GAAP net loss

Foreign exchange loss / other expense

Stock-based compensation expense

Amortization of purchased intangible assets

Transaction and integration costs

Restructuring, impairment and unoccupied lease charges

Change in contingent consideration

Income tax (benefit) expense related to goodwill

Non-GAAP adjusted net income

GAAP net loss attributable to common shareholders, per share

Impact of preferred stock dividend

Net loss per end-of-period share

Foreign exchange loss / other expense

Stock-based compensation expense

Amortization of purchased intangible assets

Transaction and integration costs

Restructuring, impairment and unoccupied lease charges

Change in contingent consideration

Income tax (benefit) expense related to goodwill

Non-GAAP adjusted earnings per share

End-of-period common shares

In-the-money warrants and outstanding unvested RSUs

Total fully diluted shares

Non-GAAP adjusted diluted earnings per share

purposes of determining non-GAAP adjusted earnings per share, the Company used the number of common shares outstanding at the

end of December 31, 2020 and 2019.

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.

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.

Results of Operations

September 30,

($ in thousands, except per share data)

Operating expenses:

Direct operating costs

Selling and marketing

General and administrative

Research and development

Change in contingent consideration

Depreciation and amortization

Restructuring, impairment and unoccupied lease charges

Total operating expenses

Operating income (loss)

Interest expense - net

Other (expense) income - net

Income (loss) before provision for income taxes

Income tax provision (benefit)

Net income (loss)

Preferred stock dividend

Net loss attributable to common shareholders

Loss per common share:

Basic and diluted

Adjusted EBITDA

Reconciliation

of net income (loss) to adjusted EBITDA

September 30,

($ in thousands)

Net income (loss)

Foreign exchange loss (gain) / other expense

Interest expense - net

Income tax provision (benefit)

Stock-based compensation expense

Transaction and integration costs

Restructuring, impairment and unoccupied lease charges

Change in contingent consideration

Adjusted EBITDA

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.

We believe information on these metrics is useful for investors

to understand the underlying trends in our business.

and Practices Served:

As of December 31, 2020, 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.

In addition, we served approximately 200 clients who were not medical practices, but

are service organizations who serve the healthcare community.

As of December 31, 2019, we served approximately 10,500 providers

representing approximately 1,800 practices.

Renewal Rate:

Our customer renewal rate measures the percentage of our RCM clients who utilize our technology platform

who were a party to a services agreement with us on January 1 of a particular year and continued to operate and be a client on

December 31 of the same year.

It also includes acquired accounts, if they are a party to a services agreement with the company

we acquired and are generating revenue for us, so long as the risk of client loss under the respective purchase agreement has

fully shifted to us by January 1 of the particular year.

Our renewal rates for 2020 and 2019 were 88% and 90%, respectively.

We primarily derive our revenues from revenue cycle management services and bundled services, reported in our Healthcare IT

segment, which is typically billed as a percentage of payments collected by our customers.

This fee includes RCM, as well as the

ability to use our EHR and practice management software as part of the bundled fee.

These bundled fees are included in revenue

cycle management revenue.

These services accounted for approximately 62% and 66% of our revenues during the years ended December

31, 2020 and 2019, respectively.

This includes customers utilizing our proprietary product suite, PracticePro ®

as well as customers from acquisitions 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

Software-as-a-service

(“SaaS”) fees, for clients not utilizing revenue cycle management services, accounted for approximately 18% and 1%

of revenue during the year ended December 31, 2020 and 2019, respectively.

When clients utilize our revenue cycle management services,

basic SaaS services are included at no additional charge.

We also generate revenue from our practice management and group purchasing

services which began in July 2018 as a result of the Orion acquisition.

Revenue is also generated from transcription, coding,

indexing and other ancillary services.

earned approximately 6% and 8% of our revenue from printing and mailing operations, clearinghouse, EDI services and ancillary

RCM services during the years ended December 31, 2020 and 2019, respectively.

We earned approximately 1% and 2% of our revenue

from group purchasing services during the years ended December 31, 2020 and 2019, respectively.

also earned approximately 11% and 21% of our revenue from practice management services, including reimbursement of certain costs

plus a percentage of the operating profit, during the years ended December 31, 2020 and 2019, respectively.

We began providing

practice management services and group purchasing services on July 1, 2018.

In December 2019, we launched the telehealth service.

Revenues from the telehealth source were approximately $7,000 for the year ended December 31, 2020 and are included within our

revenue cycle management services revenue.

Operating Costs.

Direct operating costs consist primarily of salaries and benefits related to personnel who provide services

to our customers and the patients of the three managed medical practices, claims processing costs, and other direct costs related

to our services.

Costs associated with the implementation of new customers are expensed as incurred.

The reported amounts of direct

operating costs do not include depreciation and amortization, which are broken out separately in the consolidated statements of

Operations in our Pakistan Offices and Sri Lanka together accounted for approximately 10% and 13% of direct operating

costs for the years ended December 31, 2020 and 2019, respectively.

As we grow, we expect to achieve further economies of scale

and to see our direct operating costs decrease as a percentage of revenue.

and Marketing Expense.

Selling and marketing expense consists primarily of compensation and benefits, commissions, travel

and advertising expenses.

and Development Expense.

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

and Administrative Expense.

General and administrative expense consists primarily of personnel-related expense for administrative

employees, including compensation, benefits, travel, occupancy and insurance, software license fees and outside professional fees.

Our Pakistan Offices and Sri Lanka office accounted for approximately 15% and 16% of general and administrative expenses for the

years ended December 31, 2020 and 2019, respectively.

Consideration.

Contingent consideration represents the portion of consideration payable to the sellers of some of our acquisitions,

the amount of which is based on the achievement of defined performance measures contained in the purchase agreements.

consideration is adjusted to fair value at the end of each reporting period.

and Amortization Expense.

Depreciation expense is charged using the straight-line method over the estimated lives of the assets

ranging from three to five years.

Amortization expense is charged on either an accelerated or on a straight-line basis over a

period of three or four years for most intangible assets acquired in connection with acquisitions including those intangibles

related to the group purchasing services.

Amortization expense related to the value of our practice management clients is amortized

on a straight-line basis over a period of twelve years.

Restructuring,

Impairment and Unoccupied Lease Charges .

Restructuring charges represent the remaining lease costs for a facility no longer

used by the Company as the employees were transferred to another Company facility.

Impairment charges represent charges recorded

for a leased facility no longer being used by the Company.

Unoccupied lease charges represent the portion of lease and related

costs for vacant space not being utilized by the Company.

The Company is marketing both the unused facilities and the unused space

for sub-lease.

In February 2021, the Company was able to settle one lease obligation.

and Other Income (Expense).

Interest expense consists of interest costs and loan origination costs related to our working

capital line of credit and amounts due in connection with acquisitions, offset by interest income.

Our other income (expense)

results primarily from foreign currency transaction gains (losses), and amounted to a foreign exchange gain of $14,000 and a loss

of $827,000 for the years ended December 31, 2020 and 2019, respectively.

In preparing our consolidated financial statements, we estimate income taxes in each of the jurisdictions in which

This process involves estimating actual current tax exposure together with assessing temporary differences resulting

from differing treatment of items for tax and financial reporting purposes.

These differences result in deferred income tax assets

and liabilities.

Although the Company is forecasting a return to profitability, it incurred losses historically and there is uncertainty

regarding future US taxable income, which make realization of a deferred tax asset difficult to support in accordance with ASC

Accordingly, a valuation allowance has been recorded against all deferred tax assets as of December 31, 2020 and December

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.

The Company elected to record the GILTI provisions as they are incurred each period.

Accounting Policies and Estimates

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.

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.

On a regular basis, we review our accounting policies, estimates, assumptions

and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP.

However, because future

events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates,

and such differences could be material.

The methods, estimates and judgments that we use in applying our accounting policies have

a significant impact on our results of operations.

accounting policies are those policies used in the preparation of our consolidated financial statements that require management

to make difficult, subjective, or complex adjustments, and to make estimates about the effect of matters that are inherently uncertain.

from Contracts with Customers :

account for revenue in accordance with ASC 606, Revenue from Contracts with Customers .

Our revenue recognition policies

require us to make significant judgments and estimates, particularly as it relates to revenue cycle management.

Under ASC 606,

certain significant accounting estimates, such as payment-to-charge ratios, effective billing rates and the estimated contractual

payment periods are required to measure the revenue cycle management revenue.

To measure group purchasing services revenue, we

need to estimate the number of providers purchasing vaccines and the amount and timing of those purchases.

We analyze various

factors including, but not limited to, contractual terms and conditions, the credit-worthiness of our customers and our pricing

Changes in judgment on any of the above factors could materially impact the timing and amount of revenue recognized

in a given period.

is recognized as the performance obligations are satisfied.

We derive revenue from seven primary sources:

revenue cycle management

services, SaaS, practice management services, professional services, ancillary services, group purchasing services, printing and

mailing services, and clearinghouse and EDI (electronic data interchange) services.

All of our revenue arrangements are based

on contracts with customers.

Most of our contracts with customers contain a single performance obligation.

For contracts where

we provide multiple services such as where we perform multiple ancillary services, each service represents its own performance

Selling or transaction prices are based on the contractual price for the service, which is consistent with the stand-alone

selling price.

cycle management services:

cycle management services are the recurring process of submitting and following up on claims with health insurance companies in

order for the healthcare providers to receive payment for the services they rendered.

MTBC 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.

We consider the services to be one performance

obligation since the promises are not distinct in the context of the contract.

The performance obligation consists of a series

of distinct services that are substantially the same and have the same periodic pattern of transfer to our customers.

many cases, our clients may terminate their agreements with 90 days’

notice without cause, thereby limiting the term in

which we have enforceable rights and obligations, although this time period can vary between clients.

Our payment terms are normally

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.

the majority of our revenue cycle management contracts, the total transaction price is variable because our obligation is to process

an unknown quantity of claims, as and when requested by our customers over the contract period.

When a contract includes variable

consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained;

therefore, we include variable consideration in the transaction price only to the extent that it is probable that a significant

reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with variable consideration

is subsequently resolved.

Estimates to determine variable consideration such as payment to charge ratios, effective billing rates,

and the estimated contractual payment periods are updated at each reporting date.

Revenue is recognized over the performance period

using the input method.

management services:

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.

These compensation amounts reduce the revenue that the Company recognizes since

they are deducted from gross billings.

The estimate of the amounts to be received from the insurance claims are updated at each

reporting period.

we believe that our approach to estimates and judgments is reasonable, actual results could differ, and we may be exposed to increases

or decreases in revenue that could be material.

Our estimates of variable consideration may prove to be inaccurate, in which case

we may have understated or overstated the revenue recognized in an accounting period.

The amount of variable consideration recognized

to date that remains subject to estimation is included within the contract asset in the consolidated balance sheets.

Consideration:

a business combination provides for contingent consideration, the Company records the contingent consideration at fair value at

the acquisition date.

The Company adjusts the contingent consideration liability at the end of each reporting period based on

fair value inputs representing changes in forecasted revenue of the acquired entities and the probability of an adjustment to

the purchase price.

Critical estimates include determining the forecasted revenue for certain acquisitions, probability and timing

of cash collections and an appropriate discount rate.

Changes in the fair value of the contingent consideration after the acquisition

date are included in earnings if the contingent consideration is recorded as a liability.

is evaluated for impairment annually as of October 31 st , referred to as the annual test date.

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 Practice Management).

Application of the

goodwill impairment test requires judgment including the use of a discounted cash flow and market approach methodology.

analyses require significant assumptions and judgments.

These assumptions and judgments include estimation of future cash flows,

which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful

life over which cash flows will occur, determination of our weighted average cost of capital and the selection of comparable companies

and the interpretation of their data.

Future business and economic conditions, as well as differences in actual financial results

related to any of the assumptions, could materially impact the consolidated financial statements through impairment of goodwill

or intangible assets and acceleration of the amortization period of the purchased intangible assets which are finite-lived assets.

No impairment charges were recorded during the years ended December 31, 2020 or 2019.

Combinations:

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.

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

Critical estimates in valuing certain intangible assets include, but are not limited to, historical and projected

client retention rates, expected future cash inflows and outflows, discount rates, and estimated useful lives of those intangible

ASC 805 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and

reported apart from goodwill.

Goodwill represents the excess purchase price over the fair value of the tangible net assets and

intangible assets acquired in a business combination.

Acquisition-related expenses are recognized separately from the business

combinations and are expensed as incurred.

of Operations

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

Operating expenses:

Direct operating costs

Selling and marketing

General and administrative

Research and development

Change in contingent consideration

Depreciation and amortization

Restructuring, impairment and unoccupied lease charges

Total operating expenses

Operating (loss) income

Interest expense - net

Other income (expense) - net

Loss before income taxes

Income tax provision

of 2020 and 2019

($ in thousands)

Net revenue of $105.1 million for the year ended December 31, 2020 increased by $40.7 million or 63% from revenue

of $64.4 million for the year ended December 31, 2019.

Total revenue for the year ended December 31, 2020 included $53.3 million

from customers acquired in the CareCloud and Meridian acquisitions.

Revenue for the year ended December 31, 2020 includes $65.3

million relating to RCM and bundled services, $18.7 million related to SaaS services and $11.8 million for practice management

($ in thousands)

Direct operating costs

Selling and marketing

General and administrative

Research and development

Change in contingent consideration

Restructuring, impairment and unoccupied lease charges

Total operating expenses

Operating Costs.

Direct operating costs of $64.8 million for the year ended December 31, 2020 increased by $23.6 million or

57% from direct operating costs of $41.2 million for the year ended December 31, 2019.

Salary costs increased by $12.2 million

primarily as a result of the CareCloud and Meridian acquisitions.

Outsourcing and other customer processing costs increased by

$9.2 million, outside consultant costs increased by $873,000 and facility costs increased by $962,000.

and Marketing Expense.

Selling and marketing expense of $6.6 million for the year ended December 31, 2020 increased by $5.1

million or 332% from selling and marketing expense of $1.5 million for the year ended December 31, 2019.

The increase was primarily

related to additional emphasis on sales and marketing activities which accelerated as a result of the CareCloud acquisition.

and Administrative Expense.

General and administrative expense of $22.8 million for the year ended December 31, 2020 increased

by $4.9 million or 27% from general and administrative expense of $17.9 million for the year ended December 31, 2019.

increased by $2.3 million as a result of the CareCloud and Meridian acquisitions.

Computer expenses in subsidiaries increased

by $771,000 and legal and professional fees increased by $965,000.

and Development Expense.

Research and development expense of $9.3 million for the year ended December 31, 2020 increased by

$8.4 million or 969% from research and development expense of $871,000 in the prior year.

The increase primarily represented additional

salaries and outsourced development expense and cloud services related to new and enhanced product development, primarily on technologies

acquired as a result of the CareCloud and Meridian acquisitions.

Consideration.

The changes in contingent consideration of ($1.0 million) and ($344,000) for the years ended December 31, 2020

and 2019, respectively, relate to changes in the fair value of the contingent consideration.

Depreciation.

Depreciation of $1.4 million for the year ended December 31, 2020 increased by $445,000 or 49% from depreciation of $909,000

for the year ended December 31, 2019, primarily as a result of additional property and equipment purchases and the property and

equipment obtained from the CareCloud and Meridian acquisitions.

Amortization expense of $8.6 million for the year ended December 31, 2020, increased by $6.5 million or 308% from

amortization expense of $2.1 million for the year ended December 31, 2019.

The increase was primarily related to the intangible

assets acquired from the CareCloud and Meridian acquisitions.

Restructuring,

Impairment and Unoccupied Lease Charges.

Restructuring charges represent the remaining lease costs for a facility no longer

used by the Company as the employees were transferred to another Company facility.

Impairment charges represent charges recorded

for a leased facility no longer being used by the Company.

Unoccupied lease charges represent the portion of lease and related

costs for space not being utilized by the Company.

The Company is marketing the unused facilities and unused space for sub-lease.

In February 2021, the Company was able to settle one lease obligation.

($ in thousands)

Interest income

Interest expense

Other income (expense) - net

Income tax provision

Interest income of $42,000 for the year ended December 31, 2020 decreased by $220,000 or 84% from interest income

of $262,000 for the year ended December 31, 2019.

Interest income primarily represents interest earned on temporary cash investments

and late fees from customers.

Interest expense of $488,000 for the year ended December 31, 2020 increased by $105,000 or 27% from interest expense

of $383,000 for the year ended December 31, 2019.

Interest expense also includes the amortization of deferred financing costs

which was approximately $180,000 and $192,000 during the years ended December 31, 2020 and 2019, respectively.

Income (Expense) - net.

Other income - net was $7,000 for the year ended December 31, 2020 compared to other expense - net

of $625,000 for the year ended December 31, 2019.

Included in other income (expense) - net are foreign currency transaction gains

(losses) primarily resulting from transactions in foreign currencies other than the functional currency.

These transaction gains

and losses are recorded in the consolidated statements of operations related to the recurring measurement and settlement of such

transactions.

Tax Provision (Benefit).

There was a $103,000 provision for income taxes for the year ended December 31, 2020, compared to

the provision for income taxes of $193,000 for the year ended December 31, 2019.

Included in the tax provision for the year ended

December 31, 2020 is an $84,000 deferred income tax benefit.

current income tax provision for the years ended December 31, 2020 and 2019 was approximately $187,000 and $113,000, respectively,

and primarily relates to state minimum taxes and foreign income taxes.

The pre-tax loss was $8.7 million and $679,000 for the

years ended December 31, 2020 and 2019, respectively.

The Company has incurred losses historically and there is uncertainty regarding

taxable income, which make realization of a deferred tax asset difficult to support in accordance with ASC 740.

a valuation allowance was recorded against all deferred tax assets at December 31, 2020 and 2019.

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.

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 expected to continue to be recorded over the amortization period, will have an indefinite life.

As a result of the Company incurring tax losses for 2020 and 2019 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.

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.

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.

While the Company’s plan is to be profitable in the future and begin utilizing

these deferred tax assets, the Company currently lacks sufficient evidence to allow it to release the valuation allowance in 2020

Release of the valuation allowance would result in the recognition of certain deferred tax assets and an income tax

benefit in the period of release.

of December 31, 2020, the Company has a total federal NOL carry forward of approximately $270.9 million of which approximately

$198.8 million will expire between 2029 and 2037, and the balance of approximately $72.1 million has an indefinite life.

Out of the total federal NOL carry forward, approximately $237.6 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 $161.0

million, of which $85.8 million relates to the State of New Jersey.

These NOLs expire between 2034 and 2040.

and Capital Resources

the year ended December 31, 2020, there was negative cash flow from operations of approximately $892,000 and at year-end the Company

had $20.9 million in cash and positive working capital of $15.8 million.

Cash used by operations in 2020 includes $10.3 million

used to pay outstanding obligations assumed with the acquisitions of CareCloud and Meridian, which were anticipated at the time

of acquisition and factored into the purchase prices.

During the three months ended December 31, 2020, cash provided by operations

was $3.4 million.

The Company has a revolving line of credit with SVB, and, as of December 31, 2020, there was no balance outstanding.

During 2019, the Company sold 373,000 shares of Preferred Stock and raised $9.6 million in net proceeds after fees and expenses.

During the year ended December 31, 2020, the Company sold 1,932,000 shares of Preferred Stock and raised $44.5 million in net

proceeds after fees and expenses.

following table summarizes our cash flows for the years presented.

Year ended December 31,

($ in thousands)

Net cash (used in) provided by operating activities

Net cash used in investing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net increase in cash

loss before income taxes was $8.7 million for the year ended December 31, 2020, of which $9.9 million was non-cash depreciation

and amortization.

The loss before income taxes for the year ended December 31, 2019 was $679,000, of which $3.0 million was non-cash

depreciation and amortization.

continues to focus on the Company’s overall profitability, including growing revenue and managing expenses, and expects

that these efforts will continue to enhance our liquidity and financial position.

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.

have not been adversely affected by inflation as typically we receive a percentage of the fees our clients collect from our revenue

cycle management services.

Additionally, our practice management contracts are based on our costs plus a percentage of operating

We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity

improvements and cost reductions.

In the event of inflation, we believe that we will be able to pass on any price increases for

fixed rate contracts to our customers, as the prices that we charge are not governed by long-term contracts.

the second quarter of 2020, patient volumes decreased due to COVID-19, but returned to near normal levels during the third and

fourth quarters.

The Company did not have any significant employee terminations or furloughs as a result of COVID -19.

2021, the Company currently estimates that it will need to pay approximately $4.2 million to resolve a civil investigation which

one of the subsidiaries it acquired in 2020 has been subject to since July 2018.

Of this amount, $4.0 million will come from

escrowed shares of preferred stock that the Company holds.

used by operating activities was $892,000 and cash generated by operating activities was $7.6 million during the years ended December

31, 2020 and 2019, respectively.

The increase in the net loss of $7.9 million included the following changes in non-cash items:

increase in depreciation and amortization of $7.1 million, increase in stock-based compensation of $3.3 million, and an increase

in lease amortization of $1.0 million.

Revenue increased by $40.7 million for the year ended December 31, 2020 compared to the

year ended December 31, 2019, and operating expenses increased by $49.0 million for the same period primarily due to the acquisitions

of CareCloud and Meridian.

generated by the reduction of accounts receivable was $394,000 for the year ended December 31, 2020, compared with a reduction

of $765,000 for the year ended December 31, 2019.

This excludes the acquired accounts receivable as part of the ETM, CareCloud

and Meridian acquisitions.

Accounts payable, accrued compensation and accrued expenses increased by $11.9 million during the year

ended December 31, 2020, compared with an increase of $1.4 million for the year ended December 31, 2019.

While the cash used to

pay pre-acquisition accounts payable, accrued compensation and accrued expenses was anticipated at the time of the CareCloud and

Meridian acquisitions, and was considered as part of the purchase prices of these transactions, it is shown as cash used by operations

to conform with GAAP.

used in investing activities during the year ended December 31, 2020 was $31.5 million, an increase of $27.3 million compared

to $4.2 million during the year ended December 31, 2019.

The change is due to the Company acquiring ETM for a cash consideration

of $1.6 million during 2019, while in 2020 the Company paid $23.7 million for the acquisitions of CareCloud and Meridian.

software was $5.2 million and $538,000 during the years ended December 31, 2020 and 2019, respectively.

provided by financing activities during the year ended December 31, 2020 was $33.4 million, compared to $1.4 million for the year

ended December 31, 2019.

Cash provided by financing activities during 2020 includes $44.5 million of net proceeds after fees and

expenses from issuing 1,932,000 shares of Preferred Stock, offset by $666,000 of repayments for debt obligations, and $11.4 million

of Preferred Stock dividends.

Cash provided by financing activities during 2019 includes $9.6 million of net proceeds from issuing

373,000 shares of Preferred Stock, offset by $430,000 of repayments for debt obligations, and $6.1 million of Preferred Stock

There was also $2.2 million of payments to settle the tax withholding obligations in 2020 compared to $1.4 million

There were no borrowings under the revolving line of credit as of December 31, 2020 and 2019.

Obligations and Commitments

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 2020.

Sheet Arrangements

of December 31, 2020, and 2019, 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.

During the first quarter of

2020, a New Jersey corporation, talkMD Clinicians, PA (“talkMD”), was formed by the wife of the Executive Chairman,

who is a licensed physician, to provide telehealth services.

talkMD was determined to be a variable interest entity (“VIE”)

for financial reporting purposes because the entity will be controlled by the Company.

As of December 31, 2020, talkMD had not

yet commenced operations or had any transactions or agreements with the Company or otherwise.

We do not engage in off-balance

sheet financing arrangements.

Quantitative and Qualitative Disclosures about Market Risk

are a smaller reporting company as defined by 17 C.F.R.

229.10(f)(1) and are not required to provide information under this item,

pursuant to Item 305(e) of Regulation S-K.

Financial Statements and Supplementary Data

“Index to Consolidated Financial Statements”

which appears on page F-1 of this Annual Report on Form 10-K.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

of December 31, 2021, 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.

Compensation Plan Information

of securities to be issued upon vesting

of securities remaining available for future issuance under equity incentive plan (excluding securities to be issued upon vesting)

compensation plan approved by security holders - common shares

compensation plan approved by security holders - preferred shares

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity