What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-02 compared with 2022-03-14 · 446 added, 429 removed, 312 unchanged (74% of the section changed)

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Annual Report on Form 10-K.

Company is a healthcare information technology company that provides Software-as-a-Service offerings (“SaaS”) and technology-enabled

business solutions, which are often bundled, but are occasionally provided individually, together with related business services to healthcare

providers and hospitals throughout the United States.

Our integrated 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.

Company is a healthcare information technology company that provides technology-enabled business solutions and Software-as-a-Service

offerings (“SaaS”), which are often bundled, but are occasionally provided individually, together with related business services

to healthcare providers and hospitals throughout the United States.

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.

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

Technology-enabled

business solutions, which are often bundled but are occasionally provided individually, including:

which are easy to use, integrated with our business services or offered as Software-as-a-Service

(“SaaS”) solutions, and allow our healthcare provider clients to deliver better

patient care, document their clinical visits effectively and thus potentially qualify for

government incentives, reduce documentation errors and reduce paperwork;

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 companies;

intelligence, customized applications, interfaces and a variety of other technology solutions

that support our healthcare clients;

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

○ Professional

services consisting of application and advisory services, revenue cycle services, data analytic

services and educational training services.

business solutions, which are sometimes provided as individual offerings and often provided in combination with each other, including:

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;

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;

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;

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;

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;

intelligence and healthcare analytics platforms that allow our clients to derive actionable insights from their vast amount of data;

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;

applications, interfaces and a variety of other technology solutions that support our healthcare clients;

services consisting of application and advisory services, revenue cycle services, data analytic services and educational training

augmentation and on-demand staffing to support our clients as they expand their businesses, seek highly trained personnel, or struggle

with staffing shortages.

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.

offshore operations in Pakistan and Sri Lanka together accounted for approximately 11% and 10% of total

expenses for the years ended December 31, 2021 and 2020, respectively.

A significant portion of those expenses were personnel-related

costs (approximately 80% and 79% of foreign costs for the years ended December 31, 2021 and 2020,

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.

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.

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.

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.

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.

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

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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

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

● Stock-based

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

● Depreciation

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

tax expense or the cash requirements to pay our taxes;

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

currency gains and losses and other non-operating expenses;

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

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, exit costs

related to contractual agreements;

on lease termination, impairment and unoccupied lease 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 and exit costs related to contractual agreements;

loss on lease termination, impairment and unoccupied lease charges;

in contingent consideration.

forth below is a presentation of our adjusted EBITDA for the years ended December 31, 2022 and 2021:

Year Ended December 31,

($ in thousands)

net income (loss)

for income taxes

interest expense

exchange loss / other expense

compensation expense

and amortization

and integration costs

on lease termination, impairment and unoccupied lease charges

in contingent consideration

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

GAAP net income

Provision for income taxes

Net interest expense

Foreign exchange loss / other expense

Stock-based compensation expense

Depreciation and amortization

Transaction and integration costs

Net loss on lease termination, 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:

● Stock-based

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

compensation expense, which includes cash-settled awards and the related taxes, based on

changes in the stock price;

● Amortization

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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

costs, such as brokerage fees, pre-acquisition accounting costs and legal fees and exit costs

related to contractual agreements;

on lease termination, impairment and unoccupied lease charges;

loss on lease termination, impairment and unoccupied lease charges;

in contingent consideration.

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as a percentage of net revenue, for the years ended December 31, 2022 and 2021:

Year Ended December 31,

($ in thousands)

net income (loss)

for income taxes

interest expense

expense (income) - net

operating income (loss)

operating margin

compensation expense

of purchased intangible assets

and integration costs

on lease termination, impairment and unoccupied lease charges

in contingent consideration

adjusted operating income

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;

● Stock-based

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

● Amortization

GAAP net income

Provision for income taxes

Net interest expense

Other expense - net

GAAP operating income

GAAP operating margin

Stock-based compensation expense

Amortization of purchased intangible assets

Transaction and integration costs

Net loss on lease termination, 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:

currency gains and losses and other non-operating expenses;

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

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, exit costs

related to contractual agreements;

on lease termination, impairment and unoccupied lease 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 and exit costs related to contractual agreements;

loss on lease termination, impairment and unoccupied lease charges;

in contingent consideration;

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

tax expense 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.

following table shows our reconciliation of GAAP net income (loss) to non-GAAP adjusted net income for the years ended December 31, 2021

in thousands except for per share amounts)

net income (loss)

exchange loss / other expense

compensation expense

of purchased intangible assets

and integration costs

on lease termination, impairment and unoccupied lease charges

in contingent consideration

tax expense (benefit) related to goodwill

adjusted net income

net loss attributable to common shareholders, per share

of preferred stock dividend

income (loss) per end-of-period share

exchange loss / other expense

compensation expense

of purchased intangible assets

and integration costs

on lease termination, impairment and unoccupied lease charges

in contingent consideration

tax expense (benefit) related to goodwill

adjusted earnings per share

End-of-period

common shares

warrants and outstanding unvested RSUs

fully diluted shares

adjusted diluted earnings per share

sufficient carry forward net operating losses to offset the applicable income taxes.

following table shows our reconciliation of GAAP net income to non-GAAP adjusted net income for the years ended December 31, 2022 and

Year Ended December 31,

($ in thousands)

GAAP net income

Foreign exchange loss / other expense

Stock-based compensation expense

Amortization of purchased intangible assets

Transaction and integration costs

Net loss on lease termination, impairment and unoccupied lease charges

Change in contingent consideration

Income tax expense related to goodwill

Non-GAAP adjusted net income

Year Ended December 31,

GAAP net loss attributable to common shareholders, per share

Impact of preferred stock dividend

Net income per end-of-period share

Foreign exchange loss / other expense

Stock-based compensation expense

Amortization of purchased intangible assets

Transaction and integration costs

Net loss on lease termination, impairment and unoccupied lease charges

Change in contingent consideration

Income tax 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

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losses to offset the applicable income taxes.

Statements of Operations Data

ended December 31,

Consolidated Statements of Operations Data

Years Ended December 31,

($ in thousands, except per share data)

operating costs

and marketing

and administrative

and development

in contingent consideration

and amortization

on lease termination, impairment and unoccupied lease charges

Operating expenses:

income (loss)

expense - net

(expense) income - net

(loss) before provision for income taxes

tax provision (benefit)

income (loss)

stock dividend

loss attributable to common shareholders

average common shares outstanding basic and diluted

loss per common share:

Direct operating costs

Selling and marketing

General and administrative

Research and development

Change in contingent consideration

Depreciation and amortization

Net loss on lease termination, impairment and unoccupied lease charges

Total operating expenses

Operating income (loss)

Interest expense - net

Other (expense) income - net

Income (loss) before provision (benefit) for income taxes

Income tax provision (benefit)

Net income (loss)

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

Balance Sheet Data

of December 31,

As of December 31,

($ in thousands)

capital - net (1)

Shareholders’

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

Working capital - net (1)

Long-term debt

Shareholders’ equity

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

Financial Data

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, (previously defined), a non-GAAP financial measure

ended December 31,

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 with U.S.

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

Years Ended December 31,

($ in thousands)

Adjusted EBITDA

Results of Operations

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($ in thousands, except per share data)

operating costs

and marketing

and administrative

and development

in contingent consideration

and amortization

on lease termination, impairment and unoccupied lease charges

Operating expenses:

income (loss)

expense - net

(expense) income - net

(loss) before provision (benefit) for income taxes

tax provision (benefit)

income (loss)

stock dividend

loss attributable to common shareholders

loss per common share:

Direct operating costs

Selling and marketing

General and administrative

Research and development

Change in contingent consideration

Depreciation and amortization

Net loss on lease termination, impairment and unoccupied lease charges

Total operating expenses

Operating income (loss)

Interest expense - net

Other (expense) income - net

Income (loss) before provision (benefit) for income taxes

Income tax provision (benefit)

Net income (loss)

Preferred stock dividend

Net loss attributable to common shareholders

Net loss per common share:

Basic and diluted

Adjusted EBITDA

Reconciliation

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following table contains a reconciliation of net income (loss) to adjusted EBITDA by year.

ended December 31,

Years Ended December 31,

($ in thousands)

income (loss)

exchange loss (gain) / other expense

expense - net

tax provision (benefit)

compensation expense

and integration costs

on lease termination, impairment and unoccupied lease charges

in contingent consideration

Net income (loss)

Foreign exchange loss (gain) / other expense

Interest expense - net

Income tax provision (benefit)

Stock-based compensation expense

Transaction and integration costs

Net loss on lease termination, impairment and unoccupied lease charges

Change in contingent consideration

Adjusted EBITDA

following table contains a reconciliation of net income (loss) to adjusted EBITDA by quarter.

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($ in thousands)

income (loss)

exchange loss (gain) / other expense

expense - net

tax provision (benefit)

compensation expense

and integration costs

on lease termination, impairment and unoccupied lease charges

in contingent consideration

Net income (loss)

Foreign exchange loss (gain) / other expense

Net interest expense

Income tax provision (benefit)

Stock-based compensation expense

Transaction and integration costs

Net loss on lease termination, 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,

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and Practices Served:

As of December 31, 2021 and 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, 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.

In addition, we served approximately 150 clients who were not medical practices, but are

service organizations who serve the healthcare community.

The foregoing numbers include clients leveraging any of our products or services

and are based in part upon estimates in cases where the precise number of practices or providers is unknown.

Renewal Rate:

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particular year.

Our renewal rates for 2021 and 2020 were 91% and 83%, respectively.

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.

We primarily derive our on-going revenues from technology-enabled business solutions, reported in our Healthcare IT segment, which

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

The fee for our services includes the ability to use our

EHR and practice management software as well as RCM as part of the bundled fee.

These services accounted for approximately 76% and 84%

of our revenues during the years ended December 31, 2021 and 2020, 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

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.

Revenue is also generated from coding, credentialing, indexing, transcription

and other ancillary services.

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 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.

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

When clients utilize our revenue cycle management services, basic SaaS services are included at no additional charge.

is also generated from coding, credentialing, indexing, transcription and other ancillary services.

professional services include an extensive set of services including EHR vendor-agnostic optimization and activation, project management,

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also generate revenue from our printing and mailing, group purchasing services and medical practice management services.

earned approximately 1% of our revenue from group purchasing services during the years ended December 31, 2021 and 2020.

We earned approximately

8% and 11% of our revenue from medical practice management services, including reimbursement of certain costs plus a percentage of the

operating profit, during the years ended December 31, 2021 and 2020, respectively.

We began providing practice management services and

group purchasing services on July 1, 2018.

earned approximately 1% of our revenue from group purchasing services during both the years ended December 31, 2022 and 2021.

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 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.

customers, claims processing costs, costs to operate the three managed practices, including facility lease costs, supplies, insurance

and other direct costs related to our services.

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

The reported amounts of direct operating costs do

not include depreciation and amortization, which are broken out separately in the consolidated statements

of operations.

Operations in our Offshore Offices together accounted for approximately 11% and 10% of direct operating costs for the

years ended December 31, 2021 and 2020, 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.

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.

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

and Development Expense.

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

costs as well as hosting services used in development of software.

expenses, which includes onshore and offshore personnel.

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.

Offshore Offices accounted for approximately 17% and 15% of general and administrative expenses

for the years ended December 31, 2021 and 2020, respectively.

employees, including compensation, benefits, travel, facility lease costs and insurance, software license fees and outside professional

Our Offshore Offices accounted for approximately 23% and 18% of general and administrative expenses for the years ended December

31, 2022 and 2021, respectively.

and Development Expense.

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

contractor costs.

in Contingent Consideration.

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or four years for most intangible assets acquired in connection with acquisitions including those intangibles related to the group purchasing

Amortization expense related to the value of our practice management clients is amortized on a straight-line basis over a period

of twelve years.

on lease termination, Impairment and Unoccupied Lease Charges.

Loss on lease termination represents the write-off of leasehold improvements

as the result of an early lease termination.

Impairment charges represent charges recorded for a leased facility no longer being used

by the Company and a non-cancellable vendor contract where the services are no longer being used.

Unoccupied lease charges represent

the portion of lease and related costs for that portion of the space that is vacant and not being utilized by the Company.

is marketing the unused space for sub-lease.

The Company was able to turn back to the landlord one of the unused facilities effective

January 1, 2022.

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.

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.

Impairment charges represent charges recorded for a leased facility

no longer being used by the Company and a non-cancellable vendor contract where the services are no longer being used.

Unoccupied lease

charges represent the portion of lease and related costs for vacant space not being utilized by the Company.

The Company was able to

turn back to the landlord one of the unused facilities effective January 1, 2022.

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).

There were foreign exchange gains of $16,000

and $14,000 for the years ended December 31, 2021 and 2020, respectively.

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.

Other income (expense) results primarily from foreign currency transaction

gains (losses) and income earned from temporary cash investments.

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

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These differences result in deferred income tax assets and liabilities.

Company reported GAAP earnings in 2021, it incurred losses historically and there is uncertainty regarding future US taxable income,

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.

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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.

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.

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.

payment for the services they rendered, assisted by our proprietary technology.

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.

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

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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.

determine variable consideration such as payment to charge ratios, effective billing rates, and the estimated contractual payment periods

are updated at each reporting date.

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.

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

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.

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is recorded based on the number of hours incurred and the agreed-upon hourly rate.

Invoicing is performed at the end of each month.

Invoicing is primarily performed as of the end of

management services:

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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.

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 and market approach methodology.

These analyses require significant assumptions

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

operating costs

and marketing

and administrative

and development

in contingent consideration

and amortization

on lease termination, impairment and unoccupied lease charges

Year Ended December 31,

Operating expenses:

income (loss)

expense - net

(expense) income - net

(loss) before income taxes

tax provision

income (loss)

Direct operating costs

Selling and marketing

General and administrative

Research and development

Change in contingent consideration

Depreciation and amortization

Net loss on lease termination, impairment and unoccupied lease charges

Total operating expenses

Operating income

Interest expense - net

Other expense - net

Income before provision for income taxes

Income tax provision

of 2022 and 2021

($ in thousands)

Net revenue of $139.6 million for the year ended December 31, 2021 increased by $34.5 million or 33% from revenue of $105.1

million for the year ended December 31, 2020.

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 from customers acquired in the CCH and Meridian acquisitions and approximately $15.9 million from the medSR acquisition.

year 2021 includes a full year of revenue from the Meridian acquisition.

Revenue for the year ended December 31, 2021 includes $105.5

million relating to technology-enabled business solutions, $19.0 million related to professional services, $12.5 million for practice

management services and $2.6 million from printing and mailing and group purchasing services.

million as a result of the medSR acquisition compared to $15.9 million in 2021.

Revenue was negatively impacted by two large accounts

from a 2020 acquisition that were winding down at the time of the acquisition.

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 Ended December 31,

($ in thousands)

operating costs

and marketing

and administrative

and development

in contingent consideration

on lease termination, impairment and unoccupied lease charges

operating expenses

Direct operating costs

Selling and marketing

General and administrative

Research and development

Change in contingent consideration

Net loss on lease termination, impairment and unoccupied lease charges

Total operating expenses

Operating Costs.

Direct operating costs of $86.9 million for the year ended December 31, 2021

increased by $22.1 million or 34% from direct operating costs of $64.8 million for the year ended

December 31, 2020.

Salary costs increased by $15.3 million primarily

as a result of the medSR and Meridian acquisitions.

Outsourcing and other customer processing

costs increased by $7.4 million , outside consultant costs decreased by $326,000 and

facility costs decreased by $173,000 .

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.

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.

Outsourcing and other

customer processing costs increased by $1.9 million and an increase in the cost of vaccines by $514,000.

and Marketing Expense.

1 unchanged sentence

or 11% from selling and marketing expense of $8.8 million for the year ended December 31, 2021.

The increase was primarily related to additional emphasis on sales and marketing activities in CareCloud Health and medSR.

The increase was primarily related to

additional emphasis on sales and marketing activities.

and Administrative Expense.

General and administrative expense of $24.3 million for the year ended December 31, 2021 increased by

$1.5 million or 6%

from general and administrative expense of $22.8 million for the year ended December 31, 2020.

costs increased by $440,000 as a result of the medSR acquisition.

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.

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.

and Development Expense.

Research and development expense of $4.4 million for the year ended December

31, 2021 decreased by $4.9 million or 53% from research and development expense of $9.3 million in the prior year.

resulted from an increase in internally developed software projects which were capitalized and use of offshore resources for software

maintenance which is expensed.

Research and development expense of $4.4 million remained consistent for the years ended December 31, 2022

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.

in Contingent Consideration.

The change of $2.5 million and $1.0 million for the years ended 2021 and 2020, respectively,

The change of $3.1 million and $2.5 million for the years ended December 31, 2022 and 2021, respectively,

relates to changes in the fair value of the contingent consideration.

Depreciation.

Depreciation of $1.9 million for the year ended December 31, 2021 increased by $573,000 or 42% from

depreciation of $1.4 million for the year ended December 31, 2020, primarily as a result of additional property and equipment

purchases and the property and equipment obtained from the medSR and Meridian acquisitions.

Amortizati on

Amortization expense of $10.3 million for the year ended December 31, 2021 increased

by $1.7 million or 20% from amortization expense of $8.6 million for the year ended December

The increase was primarily related to the intangible assets acquired from the medSR and Meridian

acquisitions.

on lease termination, Impairment and Unoccupied Lease Charges.

Loss on lease termination represents the write-off of leasehold improvements

as the result of an early lease termination.

Impairment charges represent charges recorded for a leased facility no longer being used

by the Company and a non-cancellable vendor contract where the services are no longer being used.

Unoccupied lease charges represent

the portion of lease and related costs for that portion of the space that is vacant and not being utilized by the Company.

is marketing the unused space for sub-lease.

The Company was able to turn back to the landlord one of the unused facilities effective

January 1, 2022.

Depreciation of $2.0 million for the year ended December 31, 2022 increased by $25,000 or 1% from depreciation of $1.9 million for

the year ended December 31, 2021, primarily as a result of additional property and equipment purchases and the property and equipment

obtained from the medSR acquisition.

Amortization expense of $9.8 million for the year ended December 31, 2022 decreased by $495,000 or 5% from amortization

expense of $10.3 million for the year ended December 31, 2021.

The decrease in amortization expense was due to intangibles which were

previously capitalized becoming fully amortized.

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.

Impairment charges represent charges recorded for a leased facility

no longer being used by the Company and a non-cancellable vendor contract where the services are no longer being used.

Unoccupied lease

charges represent the portion of lease and related costs for that portion of the space that is vacant and not being utilized by the Company.

The Company was able to turn back to the landlord one of the unused facilities effective January 1, 2022.

The change was primarily due

to $842,000 of impairments being recorded in 2021, whereas in 2022, there were no impairments.

Year Ended December 31,

($ in thousands)

(expense) income - net

tax provision

Interest income of $15,000 for the year ended December 31, 2021 decreased b y

$27,000 or 64% fr om interest income of $42,000 for the year ended December 31, 2020.

income primarily represents interest earned on temporary cash investments and late fees from customers.

Interest expense of $455,000 for the year ended December 31, 2021 decreased by

$33,000 or 7% from interest expense of $488,000 for the year ended December 31, 2020.

expense also includes the amortization of deferred financing costs which was approximately $200,000 and

$180,000 during the years ended December 31, 2021 and 2020, respectively.

(Expense) Income - net.

Other expense - net was $96,000 for the year ended December 31, 2021

compared to other income - net of $7,000 for the year ended December 31, 2020.

Included in other (expense) income - 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.

Interest income

Interest expense

Other expense - net

Income tax provision

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 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.

Expense - net.

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.

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.

Tax Provision.

1 unchanged sentence

for the year ended December 31, 2022, compared to the provision for income taxes of $157,000 for the year ended December 31, 2021.

current income tax benefit for the year ended December 31, 2021 was approximately $132,000 compared to a tax provision of $187,000, for

the year ended December 31, 2020.

current income tax expense for the year ended December 31, 2022 was approximately $101,000 compared to an income tax benefit of $132,000

for the year ended December 31, 2021.

In 2021, there was a net operating loss carryback of $285,000 recorded as a result of pre-acquisition

losses of Meridian.

The balance of the provision for 2021 and for 2020 primarily relates to state minimum taxes and foreign income taxes.

The pre-tax income was $3.0 million for

the year ended December 31, 2021 and the pre-tax loss was $8.7 million for the year ended December 31, 2020.

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,

2021 and 2020.

The provision for 2022 and the balance for 2021 primarily relates to state and foreign income taxes.

income was $5.6 million and

$3.0 million for the years ended December 31, 2022 and 2021, 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

Accordingly, a valuation allowance was recorded against all deferred tax assets at December 31, 2022 and 2021.

Company has recorded goodwill as a result of its acquisitions.

18 unchanged sentences

in the period of release.

of December 31, 2021, the Company has a total federal NOL carry forward of approximately $274.5 million of which approximately $198.8

million will expire between 2034 and 2037, and the balance of approximately $75.7 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 $212.1 million, of which $86.5 million relates

to the State of New Jersey.

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.

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.

These NOLs expire between 2034 and 2041.

and Capital Resources

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 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

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

The Company has a revolving line of credit with SVB, and, as of December 31, 2021, there was $8 million balance outstanding.

During the year ended December 31, 2021, the Company sold 346,389 shares of common stock and raised $2.7

million in net proceeds after fees and expenses.

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.

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.

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.

the year ended December 31, 2021, the Company sold 346,389 shares of common stock and raised $2.7 million in net proceeds after fees

and expenses.

The exercise of 858,000 warrants resulted in net proceeds of $6.4 million.

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.

Ended December 31,

Year Ended December 31,

($ in thousands)

cash provided by (used in) operating activities

cash used in investing activities

cash (used in) provided by financing activities

of exchange rate changes on cash

(decrease) increase in cash and restricted cash

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash and restricted cash

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.

The loss before income taxes for

The income before income taxes for

the year ended December 31, 2021 was $3.0 million, of which $12.2 million was non-cash depreciation and amortization.

2 unchanged sentences

Based on management’s forecasts, the Company will have sufficient

liquidity to meet its obligations as they become due for the next twenty-four months from the date of financial statements issuance.

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 income.

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 second half of 2020

and have remained fairly consistent since then.

The Company did not have any significant employee terminations or furloughs as a result

provided by operating activities was $13.3 million and cash used

by operating activities was $ 892,000 during the years ended December 31, 2021 and 2020, respectively.

The increase in the net

income of $11.6 million included the following changes in non-cash items:

increase in depreciation and amortization of $2.5

million, decrease in stock-based compensation of $1.1 million, and an increase in contingent

consideration of $1.5 million.

Revenue increased by $34.5 million for the year ended December

31, 2021 compared to the year ended December 31, 2020, and operating expenses increased by $22.7 million for the same period primarily

due to the acquisitions of Meridian and medSR.

receivable increased by $620,000 for the year ended

December 31, 2021, compared with a reduction of $394,000 for the year ended December 31, 2020.

This excludes the acquired accounts receivable

as part of the medSR, CareCloud and Meridian acquisitions.

Accounts payable, accrued compensation and accrued expenses increased by $10.4

million during the year ended December 31, 2021, compared with an increase o f $11.9 million for

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

practice’s operating income.

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

productivity improvements and cost reductions.

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

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

Additionally, we have

not been significantly impacted by the increase in worldwide interest rates as most of our financing has been through preferred stock,

which carries a fixed interest rate, and we have not maintained significant balances outstanding on our line of credit.

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

Patient volumes are at or near normal

provided by operating activities was $21.2 million and $ 13.3

million during the years ended December 31, 2022 and 2021, respectively.

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.

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.

receivable decreased by $1.5 million and increased by

$620,000 for the years ended December 31, 2022 and 2021, respectively.

This excludes the acquired accounts receivable as part of the

medSR acquisition.

Accounts payable, accrued compensation and accrued expenses increased by $6.6 million

during the year ended December 31, 2022, compared with an increase o f $10.4 million for

the year ended December 31, 2021.

While the cash used to pay pre-acquisition accounts payable, accrued compensation and accrued expenses

was anticipated at the time of the CareCloud, Meridian and medSR 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.

Cash used in investing activities during the year ended December 31, 2021 was $23.1 million, a decrease of $8.3 million compared to $31.5

was anticipated at the time of the medSR acquisition in 2021, and was considered as part of the purchase price of this transaction, it

is shown as cash used by operations to conform with GAAP.

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.

change is due to the Company acquiring medSR for a cash consideration of $12.6 million during 2021.

Capitalized software was $9.2 million

and $7.6 million during the years ended December 31, 2022 and 2021, respectively.

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.

Cash provided by financing activities during 2022 includes $30.9 million of net proceeds from issuing 1,324,858

shares of Series B Preferred Stock of which $20.0 million was used to redeem 800,000 shares of Series A Preferred Stock, offset by $1.0

million of repayments for debt obligations, and $15.3 million of preferred stock dividends.

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.

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.

The change is due to the Company acquiring CareCloud and Meridian for

a cash consideration of $23.7 million during 2020, while in 2021 the Company paid $12.6 million for the acquisitions of medSR.

software was $7.6 million and $5.2 million during the years ended December 31, 2021 and 2020, respectively.

used by financing activities during the year ended December 31, 2021 was $519,000, compared to

$33.4 million of cash provided for the year ended December 31, 2020.

Cash provided by financing activities during 2021 includes $6.4

million of n et 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

Cash provided by financing activities during 2020 includes $44.5 million of net proceeds 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.

There was also $2.1 million of payments to settle

the tax withholding obligations in 2021 compared to $2.2 million in 2020.

The net proceeds from the line of credit were $8.0 million

during the year ended December 31, 2021.

There were no borrowings under the revolving line of credit during the year ended December 31,

There were no net proceeds from the line of credit during the year ended December 31,

Obligations and Commitments

12 unchanged sentences

As of December 31, 2022, talkMD had not yet commenced operations.

During September 2021,

the Company made arrangements to have the income tax returns prepared for talkMD and will advance the funds for the required taxes.

aggregate amount advanced was approximately $3,500.

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.

7 unchanged sentences

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 7. Management’s Discussion and Analysis