CareCloud, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, based on the Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023 as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures, as of December 31, 2023, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective. Our management, including our Chief Executive Officer and Interim Chief Financial Officer, has concluded that the consolidated financial statements in this Annual Report on Form 10-K fairly present, in all material respects, our consolidated financial condition, results of operations and cash flows for the periods presented in accordance with U.S. generally accepted accounting principles. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. 53 Management is required to base its assessment on the effectiveness of our internal control over financial reporting on a suitable, recognized control framework. Management has utilized the criteria established in COSO to evaluate the effectiveness of internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Our management has performed its assessment according to the guidelines established by COSO. Our management concluded that as of December 31, 2023, the Company’s internal control over financial reporting was effective. Management has performed analysis and procedures in preparing our consolidated financial statements. We have concluded that our consolidated financial statements fairly present, in all material respects, our financial condition, results of operations and cash flows at and for the periods presented. Because of its inherent limitations, our internal controls over financial reporting provide reasonable, not absolute, assurance that the financial statements and notes thereto are free of material error. In addition, no internal control structure can provide absolute assurance that all instances of fraud have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting During the fourth quarter of 2023, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information During the quarter ended December 31, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading agreement or non-Rule 10b5-1 trading agreement. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance Information required by this item will be included in our definitive Proxy Statement for the 2024 Meeting of Shareholders which will be filed within 120 days of the end of our fiscal year ended December 31, 2023 (“2024 Proxy Statement”) and is incorporated herein by reference. Item 11. Executive Compensation Information required by this item will be included in the 2024 Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item will be included in the 2024 Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence Information required by this item will be included in the 2024 Proxy Statement and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services Information required by this item will be included in the 2024 Proxy Statement and is incorporated herein by reference. 54 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements (i) Consolidated Balance Sheets as of December 31, 2023 and 2022 (ii) Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 (iii) Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2023 and 2022 (iv) Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023 and 2022 (v) Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 (vi) Notes to Consolidated Financial Statements (2) Financial Statement Schedules There are no Financial Statement Schedules filed as part of this Annual Report on Form 10-K, as the required information is not applicable or is included in the Notes to Consolidated Financial Statements. (b) Exhibit Index: Exhibit Number Description 2.1 Assignment Agreement dated October 3, 2016, by and between the Company, The Prudential Insurance Company of America, and Prudential Retirement Insurance and Annuity Company (filed as Exhibit 10.1 to the Company’s Form 8-K filed on October 5, 2016, and incorporated herein by reference). 2.2 Strict Foreclosure Agreement dated October 3, 2016, by and between MTBC Acquisition, Corp., MediGain, LLC and Millennium Practice Management Associates, LLC (filed as Exhibit 10.2 to the Company’s Form 8-K filed on October 5, 2016, and incorporated herein by reference). 2.3 Transition Services Agreement dated October 3, 2016, by and between MTBC Acquisition, Corp., MediGain, LLC and Millennium Practice Management Associates, LLC (filed as Exhibit 10.3 to the Company’s Form 8-K filed on October 5, 2016, and incorporated herein by reference). 2.4 First Amendment to Assignment Agreement dated January 3, 2017, by and between the Company, The Prudential Insurance Company of America, and Prudential Retirement Insurance and Annuity Company (filed as Exhibit 2.1 to the Company’s Form 8-K filed on January 6, 2017, and incorporated herein by reference). 2.5 Second Amendment to Assignment Agreement dated January 23, 2017, by and between the Company, The Prudential Insurance Company of America, and Prudential Retirement Insurance and Annuity Company (filed as Exhibit 2.1 to the Company’s Form 8-K filed on January 24, 2017, and incorporated herein by reference). 2.6 Asset Purchase Agreement dated June 25, 2018, by and between MTBC, and Orion Healthcorp, Inc. (filed as Exhibit 10.1 to the Company’s Form 8-K filed on July 2, 2018, and incorporated herein by reference). 2.7 Transition Services Agreement dated June 25, 2018, by and between MTBC, and Orion Healthcorp, Inc. (filed as Exhibit 2.29 to the Company’s Form S-1 filed on September 25, 2018, and incorporated herein by reference). 2.8 Asset Purchase Agreement dated March 27, 2019, by and between MTBC-Med, Inc., and Etransmedia Technology, Inc., et. al. (filed as Exhibit 10.1 to the Company’s Form 8-K filed on March 28, 2019, and incorporated herein by reference). 55 2.9 Amended and Restated Asset Purchase Agreement dated April 3, 2019, by and between MTBC-Med, Inc., and Etransmedia Technology, Inc., et. al. (filed as Exhibit 10.1 to the Company’s Form 8-K filed on April 4, 2019, and incorporated herein by reference). 2.10 Agreement and Plan of Merger by and among MTBC, Inc., MTBC Merger Sub, Inc., CareCloud Corporation and Runway Growth Credit Fund Inc., as the Seller’s representative dated January 8, 2020 (filed as Exhibit 2.1 to the Company’s Form 8-K filed on January 8, 2020, and incorporated herein by reference). 2.11 Escrow Agreement dated January 8, 2020 by and among MTBC, Inc., Runway Growth Credit Fund., Inc. and TD Bank (filed as Exhibit 10.17 to the Company’s Form 10-K filed on February 28, 2020, and incorporated herein by reference). 2.12 Stock Purchase Agreement dated June 16, 2020 by and among MTBC, Inc., Origin Holdings, Inc., Meridian Billing Management Co., Origin Holdings, Inc., and GMM II Holdings, LLC, (filed as Exhibit 2.1 to the Company’s Form 8-K on June 17, 2020, and incorporated herein by reference). 2.13 Asset and Stock Purchase Agreement by and among CareCloud Acquisition. Corp., MedMatica Consulting Associates, Inc., and Jerold Howell dated June 1, 2021 (filed as Exhibit 2.1 to the Company’s Form 8-K filed on June 2, 2021, and incorporated herein by reference). 2.14 Non-Competition and Non-Solicitation Agreement by and among Santa Rosa Consulting, Inc., SureTest Holdings, LLC, Laura O’Toole, Mark Scruggs, Raleigh Brewer, Thomas Watford, and CareCloud Acquisition, Corp., dated June 1, 2021 (filed as Exhibit 2.2 to the Company’s Form 8-K filed on June 2, 2021, and incorporated herein by reference). 2.15 Transition Services Agreement by and among CareCloud Acquisition, Corp., MedMatica Consulting Associates, Inc., and Jerold Howell, dated June 1, 2021 (filed as Exhibit 2.3 to the Company’s Form 8-K filed on June 2, 2021 and incorporated herein by reference). 3.1 Amended and Restated Certificate of Incorporation of the Company dated April 4, 2014 (filed as Exhibit 3.1 to the Company’s Form S-1 filed on September 25, 2018 and incorporated herein by reference). 3.2 Certificate of Amendment of Certificate of Incorporation of the Company dated June 28, 2016 (filed as Exhibit 3.2 to the Company’s Form S-1 filed on September 25, 2018 and incorporated herein by reference). 3.3 Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company dated June 18, 2018 (filed as Exhibit 3.6 to the Company’s Form S-1 filed on September 25, 2018 and incorporated herein by reference). 3.4 Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company dated February 6, 2019 (filed as Exhibit 3.1 to the Company’s Form 8-K filed on February 7, 2019 and incorporated herein by reference). 3.5 Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company dated June 25, 2019 (filed as Exhibit 3.1 to the Company’s Form 8-K filed on June 25, 2019 and incorporated herein by reference). 3.6 Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company dated February 26, 2021 (filed as Exhibit 3.1 to the Company’s Form 8-K filed on March 29, 2021 and incorporated herein by reference). 3.7 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company dated June 16, 2022 (filed as Exhibit 3.6 to the Company’s Form 8-K/A filed on June 17, 2022 and incorporated herein by reference). 56 3.8 Certificate of Correction to Certificate of Amendment to Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Form 8-K/A filed June 17, 2022 and incorporated herein by reference). 3.9 Amended and Restated Certificate of Designations, Preferences and Rights of 11% Series A Cumulative Redeemable Perpetual Preferred Stock dated July 6, 2016 (filed as Exhibit 3.3 to the Company’s Form S-1 filed on September 25, 2018, and incorporated herein by reference). 3.10 First Amendment to Amended and Restated Certificate of Designations, Preferences and Rights of 11% Series A Cumulative Redeemable Perpetual Preferred Stock dated September 15, 2017 (filed as Exhibit 3.4 to the Company’s Form S-1 filed on September 25, 2018, and incorporated herein by reference). 3.11 Second Amendment to Amended and Restated Certificate of Designations, Preferences and Rights of 11% Series A Cumulative Redeemable Perpetual Preferred Stock dated March 23, 2018 (filed as Exhibit 3.5 to the Company’s Form S-1 filed on September 25, 2018, and incorporated herein by reference). 3.12 Third Amendment to Amended and Restated Certificate of Designations, Preferences and Rights of 11% Series A Cumulative Redeemable Perpetual Preferred Stock dated September 25, 2018 (filed as Exhibit 3.7 to the Company’s Form S-1 filed on September 25, 2018, and incorporated herein by reference). 3.13 Fourth Amendment to Amended and Restated Certificate of Designations, Preferences and Rights of 11% Series A Cumulative Redeemable Perpetual Preferred Stock dated January 9, 2020 (filed as Exhibit 3.1 to the Company’s Form 8-K filed on January 28, 2020, and incorporated herein by reference). 3.14 Fifth Amendment to Amended and Restated Certificate of Designations, Preferences and Rights of 11% Series A Cumulative Redeemable Perpetual Preferred Stock dated May 19, 2020 (filed as Exhibit 3.2 to the Company’s Form 8-K filed on May 21, 2020, and incorporated herein by reference). 3.15 Sixth Amendment to Amended and Restated Certificate of Designations, Preferences and Rights of 11% Series A Cumulative Redeemable Perpetual Preferred Stock dated July 9, 2020 (filed as Exhibit 3.1 to the Company’s Form 8-K filed on July 9, 2020, and incorporated herein by reference). 3.16 Seventh Amendment to Amended and Restated Certificate of Designations, Preferences and Rights of 11% Series A Cumulative Redeemable Perpetual Preferred Stock (filed as exhibit 3.1 to the Company’s Form 8-K filed January 31, 2022 and incorporated herein by reference). 3.17 Certificate of Correction to Eighth Amendment to Amended and Restated Certificate of Designations, Preferences and Rights of 11% Series A Cumulative Redeemable Perpetual Preferred Stock (filed as Exhibit 3.2 to the Company’s Form 8-K/A filed June 17, 2022 and incorporated herein by reference). 3.18 Eighth Amendment to Amended and Restated Certificate of Designations, Preferences and Rights of 11% Series A Cumulative Redeemable Perpetual Preferred Stock dated June 15, 2022 (filed as Exhibit 3.4 to the Company’s Form 8-K/A filed June 17, 2022 and incorporated herein by reference). 3.19 Certificate of Designations, Preferences and Rights of 8.75% Series B Cumulative Redeemable Perpetual Preferred Stock (filed as exhibit 3.2 to the Company’s Form 8-K filed January 31, 2022 and incorporated herein by reference). 3.20 Certificate of Correction to First Amendment to Certificate of Designations, Preferences and Rights of 8.75% Series B Cumulative Redeemable Perpetual Preferred Stock (filed as Exhibit 3.3 to the Company’s Form 8-K/A filed June 17, 2022 and incorporated herein by reference). 3.21 First Amendment to Certificate of Designations, Preferences and Rights of 8.75% Series B Cumulative Redeemable Perpetual Preferred Stock dated June 15, 2022 (filed as Exhibit 3.5 to the Company’s Form 8-K/A filed June 17, 2022 and incorporated herein by reference). 3.22 Amended and Restated By-laws of the Company (filed as Exhibit 3.2 to the Company’s Amendment No. 1 to Form S-1 filed on April 7, 2014, and incorporated herein by reference). 57 4.1 Form of common stock certificate of the Company (filed as Exhibit 4.1 to Amendment No. 2 to the Company’s Form S-1 filed on May 7, 2014, and incorporated herein by reference). 4.2 Form of stock certificate of the 11% Series A Cumulative Redeemable Perpetual Preferred Stock (filed as Exhibit 4.2 to Amendment No. 2 to the Company’s Form S-1 on October 19, 2015, and incorporated herein by reference). 4.3 Form of stock certificate of the 8.75% Series B Cumulative Redeemable Perpetual Preferred Stock (filed as Exhibit 4.3 to the Company’s Form 8-A on January 31, 2022 and incorporated herein by reference). 4.4 Warrant to Purchase Stock dated as of October 13, 2017 issued by the Company to Silicon Valley Bank (filed as Exhibit 10.2 to the Company’s Form 8-K filed on October 16, 2017, and incorporated herein by reference). 4.5 Warrant to Purchase Stock issued by the Company on September 20, 2018 to Silicon Valley Bank (filed as Exhibit 10.2 to the Company’s Form 8-K filed on September 20, 2018, and incorporated herein by reference). 4.6 Warrant to Purchase Stock issued by the Company on January 8, 2020 to Runway Growth Credit Fund Inc. (filed as Exhibit 4.5 to the Company’s Form 10-K filed on February 28, 2020, and incorporated herein by reference). 4.7 Warrant to Purchase Stock issued by the Company on January 8, 2020 to Runway Growth Credit Fund Inc. (filed as Exhibit 4.6 to the Company’s Form 10-K filed on February 28, 2020, and incorporated herein by reference). 4.8 Form of Warrant to Purchase Stock issued by the Company on June 16, 2020 with respect to the Meridian transaction (filed as Exhibit 4.7 to the Company’s Form S-1 filed on August 20, 2020, and incorporated herein by reference). 4.9 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed as Exhibit 4.9 to the Company’s Form 10-K filed on March 2, 2023, and incorporated herein by reference). 10.1 Form of Indemnification Agreement between the Company and each of its directors and executive officers (filed as Exhibit 10.1 to Amendment No. 2 to the Company’s Form S-1 filed on May 7, 2014, and incorporated herein by reference). 10.2 * Amended and Restated Equity Incentive Plan of the Company (filed as Appendix B to the Company’s Proxy Statement on Schedule 14A filed on February 10, 2017, and incorporated herein by reference). 10.3 * First Amendment to the Amended and Restated Equity Incentive Plan of the Company (filed as Exhibit 10.16 to the Company’s Form 10-Q filed on August 8, 2018, and incorporated herein by reference). 10.4* Second Amendment to MTBC, Inc. Amended and Restated Equity Incentive Plan (filed as Exhibit 3.1 to the Company’s Form 8-K filed on May 21, 2020, and incorporated herein by reference). 10.5 * Form of Restricted Stock Unit Agreement under Amended and Restated Equity Incentive Plan (filed as Exhibit 10.3 to Amendment No. 1 to the Company’s Form S-1 filed on April 7, 2014, and incorporated herein by reference). 10.6 * Third Amendment to Amended and Restated Equity Incentive Plan (filed as Exhibit 3.1 to the Company’s Form 8-K filed on June 9, 2022, and incorporated herein by reference). 10.7 * Form of Restricted Stock Award Agreement under the Amended and Restated Equity Incentive Plan (filed as Exhibit 10.12 to the Company’s Form 10-K filed on March 24, 2016, and incorporated herein by reference). 10.8 Lease between Company and Mahmud Haq with respect to offices located at 7 Clyde Road, Somerset, NJ 08873 (filed as Exhibit 10.4 to the Company’s Form S-1 filed on December 20, 2013, and incorporated herein by reference). 10.9 * Employment Agreement between the Company and Mahmud Haq dated as of May 1, 2018 (filed as Exhibit 10.1 to the Company’s Form 8-K filed on May 7, 2018, and incorporated herein by reference). 58 10.10 * Employment Agreement between the Company and A. Hadi Chaudhry dated as of March 23, 2021 (filed as Exhibit 10.2 to the Company’s Form 8-K filed on March 24, 2021, and incorporated herein by reference). 10.11 * Employment Agreement between the Company and Bill Korn dated as of May 1, 2018 (filed as Exhibit 10.4 to the Company’s Form 8-K filed on May 7, 2018, and incorporated herein by reference). 10.12 Employment Agreement and Bonus Agreement between the Company and Larry Steenvoorden each dated as of July 6, 2023 (filed as Exhibit 10.1 and 10.2 , respectively, to the Company’s Form 8-K filed on July 11, 2023 and incorporated herein by reference). 10.13 Loan and Security Agreement dated as of October 13, 2017 between Medical Transcription Billing, Corp., MTBC Acquisition, Corp. and Silicon Valley Bank (filed as Exhibit 10.1 to the Company’s Form 8-K filed on October 16, 2017, and incorporated herein by reference). 10.14 Joinder and First Loan Modification Agreement dated as of September 20, 2018 between Medical Transcription Billing, Corp., MTBC Acquisition, Corp., MTBC Health, Inc. and MTBC Practice Management, Corp. and Silicon Valley Bank (filed as Exhibit 10.1 to the Company’s Form 8-K filed on September 20, 2018, and incorporated herein by reference). 10.15 Second Loan Modification Agreement dated November 15, 2019, by and between the Company and SVB (filed as Exhibit 1.1 to the Company’s Form 8-K filed on November 21, 2019, and incorporated herein by reference). 10.16 Joinder and Third Loan Modification Agreement dated as of February 28, 2020 between MTBC, Inc., MTBC Acquisition Corp., MTBC Health, Inc. and MTBC Practice Management Corp., MTBC-Med, Inc., CareCloud Corporation and Silicon Valley Bank (filed as Exhibit 10.16 to the Company’s Form 10-K filed on February 28, 2020, and incorporated herein by reference). 10.17 Joinder and Fourth Loan Modification Agreement dated September 21, 2020, by and between the Company and SVB (filed as Exhibit 1.1 to the Company’s Form 8-K filed on September 25, 2020, and incorporated herein by reference). 10.18 Joinder and Fifth Loan Modification Agreement dated September 21, 2021, by and between the Company and SVB (filed as Exhibit 10.1 to the Company’s Form 8-K filed on September 22, 2021 and incorporated herein by reference). 10.19 Sixth Loan Modification Agreement dated January 27, 2022, by and between the Company and SVB (filed as Exhibit 10.19 to the Company’s Form 10-Q filed on May 9, 2022 and incorporated herein by reference). 10.20 Seventh Loan Modification Agreement dated February 17, 2023, by and between the Company and SVB (filed as Exhibit 10.1 to the Company’s Form 8-K filed on February 21, 2023 and incorporated herein by reference). 10.21 Eighth Loan Modification Agreement dated August 31, 2023, by and between the Company and SVB (filed as Exhibit 10.1 to the Company’s Form 8-K filed on September 1, 2023 and incorporated herein by reference). 10.22 Underwriting Agreement dated January 28, 2022 by and between the Company and B. Riley FBR, Inc. as representative of several underwriters named therein (filed as Exhibit 1.1 to the Company’s Form 8-K filed on January 31, 2022, and incorporated herein by reference). 10.23 At Market Issuance Sales Agreement dated February 14, 2022 by and between CareCloud, Inc. and B. Riley Securities, Inc. (filed as Exhibit 1.1 to the Company’s Form 8-K filed on February 14, 2022 and incorporated herein by reference). 10.24 Consulting Agreement dated June 3, 2022 by and between the Company and Hill City Advisors, LLC (filed as Exhibit 10.22 to the Company’s Form 10-K filed on March 2, 2023, and incorporated herein by reference). 59 10.25 Amendment to Consulting Agreement dated February 16, 2023 by and between the Company and Hill City Advisors, LLC (filed as Exhibit 10.23 to the Company’s Form 10-K filed on March 2, 2023, and incorporated herein by reference). 10.26 Additional Statement of Work dated January 29, 2024 added as Exhibit B to the Consulting Agreement between the Company and Hill City Advisors, LLC. 10.27 Consulting Agreement dated January 9, 2024, and as amended February 12, 2024, by and between the Company and Korn Intellect, LLC. 21.1 List of subsidiaries. 23.1 Consent of Grant Thornton LLP. 31.1 Certification of the Company’s Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), of the Securities Exchange Act of 1934, as amended. 31.2 Certification of the Company’s Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), of the Securities Exchange Act of 1934, as amended. 32.1 Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Company’s Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1 Policy relating to recovery of erroneously awarded compensation, as required by applicable listing standards adopted pursuant to 17 CFR 240.10D-1. 101.INS Inline XBRL Instance 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Indicates management contract or compensatory plan or arrangement. The certifications on Exhibit 32 hereto are deemed not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. 60 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CareCloud, Inc. By: /s/ A. Hadi Chaudhry A. Hadi Chaudhry Chief Executive Officer Date: March 21, 2024 By: /s/ Norman Roth Norman Roth Interim Chief Financial Officer and Corporate Controller Date: March 21, 2024 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Mahmud Haq March 21, 2024 Mahmud Haq Executive Chairman and Director /s/ A. Hadi Chaudhry March 21, 2024 A. Hadi Chaudhry Principal Executive Officer, President and Director /s/ Norman Roth March 21, 2024 Norman Roth Principal Financial and Accounting Officer /s/ Anne Busquet March 21, 2024 Anne Busquet Director /s/ John N. Daly March 21, 2024 John N. Daly Director /s/ Bill Korn March 21, 2024 Bill Korn Director /s/ Cameron Munter March 21, 2024 Cameron Munter Director /s/ Lawrence Sharnak March 21, 2024 Lawrence Sharnak Director 61 Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Grant Thornton, LLP (PCAOB ID Number 248 ) F-2 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-4 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 F-5 Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2023 and 2022 F-6 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023 and 2022 F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 F-8 Notes to Consolidated Financial Statements F-9 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders CareCloud, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of CareCloud, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive (loss) income, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinion on the critical audit matters or on the accounts or disclosures to which it relates. Goodwill Impairment Assessment - Healthcare IT Reporting Unit As described further in Note 2, 3, and 19 to the consolidated financial statements, the Company performed its annual goodwill impairment assessment as of October 31, 2023, on its Healthcare IT (HIT) reporting unit. In addition, the Company identified triggering events on August 31, 2023 and December 12, 2023 that resulted in goodwill impairment assessments of HIT for each of the respective dates. For the annual impairment test date and at December 12, 2023, the Company concluded that the fair value of the HIT reporting unit was less than the carrying value at these dates, leading to the Company recording an impairment charge. We identified the Company’s goodwill impairment assessment over the HIT reporting unit for each of those assessment dates as a critical audit matter. The principal considerations for our determination that the goodwill impairment assessment as of August 31, 2023, October 31, 2023 and December 12, 2023 is a critical audit matter are the significant management estimates and judgements related to forecasts of expected future cash flows required to estimate the HIT reporting unit’s fair value. Management’s significant estimates and judgements include the determination of the discount rates, revenue growth rates, operating margins, long-term growth rate, and weightings assigned to the valuation methodologies used. Auditing these estimates requires a high degree of auditor judgement, including the use of professionals with specialized skills and knowledge. F- 2 Our audit procedures related to the goodwill impairment assessment included the following, among others: ● We assessed management’s ability to forecast by comparing historical projections to actual results. ● We evaluated management’s revenue growth rates, operating margins, and cash flows for consistency with relevant historical data and trends, recent changes in the business, underlying business strategies, and external industry data and forecasts used at each impairment testing date. ● With the assistance of our valuation professionals with specialized skills and knowledge, we evaluated the valuation methodologies, inputs, and assumptions utilized by management, including the long-term growth rate and discount rate. ● We performed sensitivity analyses on discount rates used to evaluate the impact that changes in these assumptions have on management’s conclusion. Going Concern Analysis As described further in Note 2 to the consolidated financial statements, as of and for the year end December 31, 2023, the Company generated a net loss of $48.7 million, suspended the dividend on its Series A and B Preferred Stock and had negative working capital of $57,000 and cash of $3.3 million. These factors, among others, raised substantial doubt regarding the Company’s ability to continue as a going concern for a period of at least once year from the date of the issuance of the financial statements; however, management believes its plan to mitigate these conditions alleviates this substantial doubt. Management’s plan includes an assessment of liquidity, judgments about the Company’s future activities and compliance with terms of its lending arrangement that are based on estimates of future cash flows. Significant assumptions used in the Company’s forecasted model of liquidity include forecasted revenue and accounts receivable, costs, and cash flows. Changes in these assumptions could have a material impact on the forecasted liquidity and going concern assessment. We identified the going concern analysis as a critical audit matter. The principal consideration for our determination that the going concern analysis is a critical audit matter are the significant judgements and assumptions involved in determining whether it is probable that management’s plans will be effectively implemented and alleviate substantial doubt about the Company’s ability to continue as a going concern. More specifically, there was a high degree of auditor judgment and subjectivity in performing our procedures to evaluate the reasonableness of the Company’s forecasted financial results. Our audit procedures related to the going concern assessment included the following, among others: ● We evaluated the Company’s forecasted financial results and ability to meet obligations as they come due for at least twelve months from the issuance date of these financial statements by: ○ Comparing the Company’s forecasted future financial results to (1) historical results and previous forecasts, (2) internal communications to management and the Board of Directors, (3) forward-looking guidance set forth by the Company within their earnings release, (4) industry data, and (5) forecasted balances against actual results of the first two months of fiscal year 2024. ○ Performing sensitivity analyses on the Company’s forecasted cash flows and liquidity covenant calculations by adjusting management’s projected cash balances using actual results subsequent to year end and adjusted levels of revenue growth. ● We evaluated management’s plans, including estimated cost savings and probability that the Company will be able to successfully implement these plans to alleviate substantial doubt about the Company’s ability to continue as a going concern. ● We assessed the appropriateness of the disclosures included within the consolidated financial statements relating to liquidity and going concern. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2015. Iselin, New Jersey March 21, 2024 F- 3 CARECLOUD, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2023 AND 2022 ($ in thousands, except share and per share amounts) December 31, December 31, 2023 2022 ASSETS Current assets: Cash $ 3,331 $ 12,299 Accounts receivable - net 11,888 14,773 Contract asset 5,094 4,399 Inventory 465 381 Current assets - related party 16 16 Prepaid expenses and other current assets 2,449 2,785 Total current assets 23,243 34,653 Property and equipment - net 5,317 5,056 Operating lease right-of-use assets 4,365 4,921 Intangible assets - net 25,074 29,520 Goodwill 19,186 61,186 Other assets 641 838 TOTAL ASSETS $ 77,826 $ 136,174 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 5,798 $ 5,681 Accrued compensation 3,444 4,248 Accrued expenses 5,065 4,432 Operating lease liability (current portion) 1,888 2,273 Deferred revenue (current portion) 1,380 1,386 Notes payable (current portion) 292 319 Dividend payable 5,433 4,059 Total current liabilities 23,300 22,398 Notes payable 37 13 Borrowings under line of credit 10,000 8,000 Operating lease liability 2,516 3,207 Deferred revenue 256 342 Deferred tax liability - 525 Total liabilities 36,109 34,485 COMMITMENTS AND CONTINGENCIES (NOTE 10) - SHAREHOLDERS’ EQUITY: Preferred stock, $ 0.001 par value - authorized 7,000,000 shares. Series A, issued and outstanding 4,526,231 shares at December 31, 2023 and December 31, 2022. Series B, issued and outstanding 1,468,792 and 1,344,128 shares at December 31, 2023 and December 31, 2022, respectively 6 6 Common stock, $ 0.001 par value - authorized 35,000,000 shares. Issued 16,620,891 and 15,970,204 shares at December 31, 2023 and December 31, 2022, respectively. Outstanding 15,880,092 and 15,229,405 shares at December 31, 2023 and December 31, 2022, respectively 17 16 Additional paid-in capital 120,706 130,987 Accumulated deficit ( 74,481 ) ( 25,621 ) Accumulated other comprehensive loss ( 3,869 ) ( 3,037 ) Less: 740,799 common shares held in treasury, at cost at December 31, 2023 and December 31, 2022 ( 662 ) ( 662 ) Total shareholders’ equity 41,717 101,689 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 77,826 $ 136,174 See notes to consolidated financial statements. F- 4 CARECLOUD, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 ($ in thousands, except share and per share amounts) 2023 2022 December 31, 2023 2022 NET REVENUE $ 117,059 $ 138,826 OPERATING EXPENSES: Direct operating costs 70,817 84,434 Selling and marketing 9,650 9,788 General and administrative 21,464 23,820 Research and development 4,736 4,401 Change in contingent consideration - ( 3,090 ) Depreciation and amortization 14,402 11,725 Goodwill impairment charges 42,000 - Net loss on lease terminations, unoccupied lease charges and restructuring costs 1,105 1,138 Total operating expenses 164,174 132,216 OPERATING (LOSS) INCOME ( 47,115 ) 6,610 OTHER: Interest income 154 41 Interest expense ( 1,194 ) ( 405 ) Other expense - net ( 883 ) ( 637 ) (LOSS) INCOME BEFORE (BENEFIT) PROVISION FOR INCOME TAXES ( 49,038 ) 5,609 Income tax (benefit) provision ( 364 ) 177 NET (LOSS) INCOME $ ( 48,674 ) $ 5,432 Preferred stock dividend 15,674 15,517 NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ ( 64,348 ) $ ( 10,085 ) Net loss per common share: basic and diluted $ ( 4.11 ) $ ( 0.67 ) Weighted-average common shares used to compute basic and diluted loss per share 15,669,472 15,109,587 See notes to consolidated financial statements. F- 5 CARECLOUD, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 ($ in thousands) 2023 2022 December 31, 2023 2022 NET (LOSS) INCOME $ ( 48,674 ) $ 5,432 OTHER COMPREHENSIVE LOSS, NET OF TAX Foreign currency translation adjustment (a) ( 832 ) ( 1,283 ) COMPREHENSIVE (LOSS) INCOME $ ( 49,506 ) $ 4,149 (a) No tax effect has been recorded as the Company recorded a valuation allowance against the tax benefit from its foreign currency translation adjustments. See notes to consolidated financial statements. F- 6 CARECLOUD, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 ($ in thousands, except for number of shares) Shares Amount Shares Amount Shares Amount Capital Deficit Loss Stock Equity Preferred Stock Series A Preferred Stock Series B Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Treasury (Common) Total Shareholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Loss Stock Equity Balance - January 1, 2023 before adoption of ASC 326 4,526,231 $ 5 1,344,128 $ 1 15,970,204 $ 16 $ 130,987 $ ( 25,621 ) $ ( 3,037 ) $ ( 662 ) $ 101,689 Cumulative effect of adopting ASC 326 - - - - - - - ( 186 ) - - ( 186 ) Balance - January 1, 2023 after adoption 4,526,231 5 1,344,128 1 15,970,204 16 130,987 ( 25,807 ) ( 3,037 ) ( 662 ) 101,503 Net loss - - - - - - - ( 48,674 ) - - ( 48,674 ) Foreign currency translation adjustment - - - - - - - - ( 832 ) - ( 832 ) Stock issued under the equity incentive plan - - 64,891 - 610,687 1 - - - - 1 Issuance of Series B Preferred Stock (1) - - 59,773 - - - 1,427 - - - 1,427 Shares issued for services - - - - 40,000 - - - - - - Stock-based compensation, net of cash settlements - - - - - - 3,966 - - - 3,966 Preferred stock dividends - - - - - - ( 15,674 ) - - - ( 15,674 ) Balance - December 31, 2023 4,526,231 $ 5 1,468,792 $ 1 16,620,891 $ 17 $ 120,706 $ ( 74,481 ) $ ( 3,869 ) $ ( 662 ) $ 41,717 Balance - January 1, 2022 5,299,227 $ 5 - $ - 15,657,641 $ 16 $ 131,379 $ ( 31,053 ) $ ( 1,754 ) $ ( 662 ) $ 97,931 Balance 5,299,227 $ 5 - $ - 15,657,641 $ 16 $ 131,379 $ ( 31,053 ) $ ( 1,754 ) $ ( 662 ) $ 97,931 Net income - - - - - - - 5,432 - - 5,432 Net (loss) income - - - - - - - 5,432 - - 5,432 Foreign currency translation adjustment - - - - - - - - ( 1,283 ) - ( 1,283 ) Stock issued under the equity incentive plan 27,004 - 19,270 - 303,491 - - - - - - Redemption of Series A Preferred Stock ( 800,000 ) - - - - - ( 20,005 ) - - - ( 20,005 ) Exercise of common stock warrants - - - - 9,072 - - - - - - Issuance of Series B Preferred Stock (1) - - 1,324,858 1 - - 30,900 - - - 30,901 Stock issuance costs - - - - - - ( 32 ) - - - ( 32 ) Stock-based compensation, net of cash settlements - - - - - - 4,262 - - - 4,262 Preferred stock dividends - - - - - - ( 15,517 ) - - - ( 15,517 ) Balance - December 31, 2022 4,526,231 $ 5 1,344,128 $ 1 15,970,204 $ 16 $ 130,987 $ ( 25,621 ) $ ( 3,037 ) $ ( 662 ) $ 101,689 Balance 4,526,231 $ 5 1,344,128 $ 1 15,970,204 $ 16 $ 130,987 $ ( 25,621 ) $ ( 3,037 ) $ ( 662 ) $ 101,689 (1) Amounts are net of issuance cost of approximately $ 71,000 and $ 2.3 million for 2023 and 2022, respectively. For 2022, the preferred stock dividends were paid monthly at the rate of $ 2.75 and $ 2.19 for Series A and Series B, respectively, per share per annum. For 2023, the preferred stock dividends were paid monthly from January through November at the rate of $ 2.75 and $ 2.19 for Series A and Series B, respectively, per share per annum. See notes to consolidated financial statements. F- 7 CARECLOUD, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 ($ in thousands) 2023 2022 OPERATING ACTIVITIES: Net (loss) income $ ( 48,674 ) $ 5,432 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 14,889 12,318 Lease amortization 2,152 3,286 Deferred revenue ( 92 ) 302 Provision for expected credit losses 454 740 Deferred income taxes (benefit) provision ( 525 ) 76 Foreign exchange loss 790 610 Interest accretion 688 596 Goodwill impairment charges 42,000 - Stock-based compensation expense 4,886 4,914 Change in contingent consideration - ( 3,090 ) Changes in operating assets and liabilities: Accounts receivable 2,246 1,493 Contract asset ( 695 ) 326 Inventory ( 84 ) 122 Other assets 682 619 Accounts payable and other liabilities ( 3,256 ) ( 6,593 ) Net cash provided by operating activities 15,461 21,151 INVESTING ACTIVITIES: Purchases of property and equipment ( 3,063 ) ( 2,588 ) Capitalized software and other intangible assets ( 8,550 ) ( 9,179 ) Net cash used in investing activities ( 11,613 ) ( 11,767 ) FINANCING ACTIVITIES: Preferred stock dividends paid ( 14,300 ) ( 15,314 ) Settlement of contingent obligation - ( 1,000 ) Settlement of tax withholding obligations on stock issued to employees ( 1,524 ) ( 1,197 ) Repayments of notes payable ( 888 ) ( 1,003 ) Stock issuance costs - ( 32 ) Proceeds from issuance of Series B Preferred Stock, net of expenses 1,427 30,901 Redemption of Series A Preferred Stock - ( 20,005 ) Proceeds from line of credit 14,700 25,500 Repayment of line of credit ( 12,700 ) ( 25,500 ) Net cash used in financing activities ( 13,285 ) ( 7,650 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH 469 225 NET (DECREASE) INCREASE IN CASH ( 8,968 ) 1,959 CASH - Beginning of the year 12,299 10,340 CASH - End of the year $ 3,331 $ 12,299 SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES: Dividends declared, not paid $ 5,433 $ 4,059 Purchase of prepaid insurance and motor vehicle with assumption of notes $ 656 $ 695 SUPPLEMENTAL INFORMATION - Cash paid during the year for: Income taxes $ 144 $ 153 Interest $ 927 $ 162 See notes to consolidated financial statements. F- 8 CARECLOUD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 1. ORGANIZATION AND BUSINESS CareCloud, Inc., (together with its consolidated subsidiaries, “CareCloud,” the “Company,” “we,” “us” and/or “our”) is a healthcare information technology company that provides a full suite of proprietary cloud-based solutions, related business services, to healthcare providers and hospitals throughout the United States. The Company’s integrated services are designed to help customers increase revenues, streamline workflows and make better business and clinical decisions, while reducing administrative burdens and operating costs. Our Software-as-a-Service (“SaaS”) platform includes revenue cycle management (“RCM”), practice management (“PM”), electronic health records (“EHR”), business intelligence, telehealth, patient experience management (“PXM”) solutions and complementary software tools and business services for high-performance medical groups and health systems. CareCloud has its corporate offices in Somerset, New Jersey and maintains client support teams throughout the U.S., and offshore offices in Pakistan and Azad Jammu and Kashmir, a region administered by Pakistan (the “Pakistan Offices”), and in Sri Lanka. CareCloud was founded in 1999 under the name Medical Transcription Billing, Corp. and incorporated under the laws of the State of Delaware in 2001. In 2004, the Company formed MTBC Private Limited (“MTBC Pvt. Ltd.”), a 99.9 % majority-owned subsidiary of CareCloud based in Pakistan. The remaining 0.1 % of the shares of MTBC Pvt. Ltd. is equally owned by the founder and Executive Chairman of CareCloud and a local employee who is also a director of this entity. In 2016, the Company formed MTBC Acquisition Corp. (“MAC”), a Delaware corporation, in connection with its acquisition of substantially all of the assets of MediGain, LLC and its subsidiary, Millennium Practice Management Associates, LLC (together “MediGain”). MAC has a wholly owned subsidiary in Sri Lanka, RCM MediGain Colombo, Pvt. Ltd. In May 2018, the Company formed CareCloud Practice Management, Corp. (“CPM”), a Delaware corporation, to operate the medical practice management business acquired from Orion Healthcorp. In January 2020, the Company purchased CareCloud Corporation, a company whose name we took. That company is now known as CareCloud Health, Inc. (“CCH”). In June 2020, the Company purchased Meridian Billing Management Co. and its affiliate Origin Holdings, Inc. (collectively “Meridian” and sometimes referred to as “Meridian Medical Management”). Both companies were subsequently merged and the surviving company was renamed Meridian Medical Management, Inc. During March 2021, the Company formed a new wholly-owned subsidiary, CareCloud Acquisition, Corp. (“CAC”). In June 2021, CAC purchased certain assets and assumed certain liabilities of MedMatica Consulting Associates Inc., (“MedMatica”) and purchased the stock of Santa Rosa Staffing, Inc. (“SRS”). The assets and liabilities of MedMatica were merged into SRS and the company was renamed medSR, Inc. (“medSR”). Effective April 1, 2022, the Company formed MTBC Bagh Private Limited (“MTBC Bagh Pvt. Ltd.”), a 99.8 % majority-owned subsidiary of CareCloud based in Azad Jammu and Kashmir, a region administered by Pakistan. The remaining 0.2 % of the shares of MTBC Bagh Pvt. Ltd. is equally owned by the founder and Executive Chairman of CareCloud and the same director/employee as noted above. During the second quarter of 2023, the Company formed a wholly owned subsidiary, CareCloud ME Health Consultancy LLC, in the United Arab Emirates, which has not yet begun operations. 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation — The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the operating results and financial condition of CareCloud, its wholly-owned subsidiaries, MAC, CPM, its majority-owned subsidiary MTBC Pvt. Ltd, majority-owned subsidiary MTBC Bagh Pvt. Ltd, CCH (since January 2020), Meridian Medical Management (since June 2020), medSR (since June 2021) and the subsidiary in Sri Lanka. The non-controlling interests of MTBC Pvt. Ltd. and MTBC Bagh Pvt. Ltd. are inconsequential to the consolidated financial statements. All intercompany accounts and transactions have been eliminated in consolidation. F- 9 Liquidity and Going Concern — Primarily due to a decline in revenue associated with our Healthcare IT segment and a goodwill impairment of $ 42 million, the Company generated a net loss of $ 48.7 million and had a net decrease in cash of $ 9.0 million for the year ended December 31, 2023. At December 31, 2023, the Company had negative working capital of $ 57,000 and cash of $ 3.3 million. Absent any other action, the Company will require additional liquidity to continue its operations over the next 12 months. However, management has considered its plans to continue the Company as a going concern and believes substantial doubt is alleviated by focusing on cost-control. As discussed in Note 13, the Company approved a restructuring plan to reduce headcount and operating costs and generate positive cash flow. In addition, the Company has suspended the dividend on the Company’s Preferred Stock, which saves approximately $ 1.3 million of cash each month. The dividend will continue to accrue in arrears each month since it is cumulative, but would not be a legal obligation until the dividend is reinstated. The dividend will not be recorded as a liability until its declared by the Board of Directors. The Company projects that this restructuring plan, that was implemented in 2023 and will be completed by the end of 2024, will reduce expenses, thereby reducing ongoing liquidity needs to enable continuation of operations and compliance with debt covenants for the foreseeable future. Although there are no guarantees that the Company will be successful, it believes such initiatives will enable it to continue as a going concern through at least the next twelve months. Segment Reporting — The Company views its operations as comprising two operating segments, Healthcare IT and Medical Practice Management. The chief operating decision maker (“CODM”) monitors and reviews financial information at these segment levels for assessing operating results and the allocation of resources. Use of Estimates — The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management include, but are not limited to: (1) impairment of goodwill and long-lived assets, (2) depreciable lives of assets, (3) allowance for expected credit losses, (4) contingent consideration, (5) estimates of variable consideration related to the contract asset, (6) fair value of identifiable purchased tangible and intangible assets, including determination of expected customer life, (7) stock-based compensation, and (8) estimating lease terms and incremental borrowing rates. Actual results could significantly differ from those estimates. Revenue Recognition — We derive revenue from five primary sources: (1) technology-enabled business solutions including revenue cycle management, (2) professional services, (3) printing and mailing services, (4) group purchasing services and (5) medical practice management services. All of our revenue arrangements are based on contracts with customers. Most of our contracts with customers contain single performance obligations, although certain contracts do contain multiple performance obligations where we perform more than one service for the same customer. We account for individual performance obligations separately if they are distinct within the context of the contract. For contracts where we provide multiple services such as where we perform multiple ancillary services, each service represents its own performance obligation. Selling or transaction prices are based on the contractual prices for each service at its stand-alone selling price. A five-step approach is applied in the recognition of revenue under ASC 606: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when we satisfy a performance obligation. Although 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 a reporting period. The amount of variable consideration recognized to date that remains subject to estimation is included within the contract asset within the consolidated balance sheet. Payment of invoices is due as specified in the underlying customer agreement, typically 30 days from the invoice date, which occurs on the date of transfer of control of the services to the customer. Since payment terms are less than a year, we have elected the practical expedient and do not assess whether a customer contract has a significant financing component. The Company’s revenue arrangements generally do not include a general right of refund for services provided (See Note 8, Revenue, for additional information). F- 10 Direct Operating Costs — Direct operating costs consist primarily of salaries and benefits related to personnel who provide services to clients and at our managed medical practices, claims processing costs, medical supplies at our managed practices and other direct costs related to the Company’s services. Costs associated with the implementation of new clients are expensed as incurred. The reported amounts of direct operating costs include allocated amounts for rent expense and overhead costs. Selling and Marketing Expenses — Selling and marketing expenses consist primarily of compensation and benefits, travel and advertising expenses and are expensed as incurred. The Company incurred approximately $ 4.0 million and $ 4.5 million of advertising costs for the years ended December 31, 2023 and 2022, respectively. Research and Development Expenses — Research and development expenses consist primarily of personnel-related costs incurred performing market research, analyzing proposed products and developing new products. Internal-Use Software Costs — The Company capitalizes certain development costs incurred in connection with its internal-use software. Costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable that the expenditures will result in additional functionality. Capitalized costs are recorded as part of intangible assets in the accompanying consolidated balance sheets. Maintenance and training costs are expensed as incurred. Internal use software is amortized on a straight line basis over its estimated useful life, generally three years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. During the years ended December 31, 2023 and 2022, the Company capitalized approximately $ 8.6 million and $ 9.2 million, respectively, primarily consisting of salaries and payroll-related costs of employees and consultants who devoted time to the development of internal-use software projects. Accounts Receivable — Accounts receivable are stated at their net realizable value. Accounts receivable are presented on the consolidated balance sheet net of an allowance for expected credit losses, which is established based on a lifetime estimated credit loss expected to occur for trade accounts receivable. Property and Equipment — Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line basis over the estimated useful lives of the assets ranging from three to five years . Ordinary maintenance and repairs are expensed as incurred. Depreciation for computers is calculated over three years, while the remaining assets (except leasehold improvements) are depreciated over five years. The Company amortizes leasehold improvements over the lesser of the lease term or the remaining economic life of those assets. Generally, the lease term is the base lease term plus certain renewal option periods for which renewal is reasonably certain and for which failure to exercise the renewal option would result in an economic penalty to the Company. Intangible Assets — Intangible assets include customer relationships, covenants not-to-compete acquired in connection with acquisitions, software purchase and development costs and trademarks acquired. Amortization for intangible assets related to revenue cycle management is recorded primarily using the double declining balance method over three to four years . Amortization for intangible assets related to the group purchasing organization and medical practice management is recorded on a straight line basis over four and twelve years , respectively. Evaluation of Long-Lived Assets — The Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the sum of undiscounted expected future cash flows is less than the carrying amount of the asset group, the Company will recognize an impairment loss based on the fair value of the asset. There was no impairment of internal-use software costs, intangible assets, operating lease right of use assets or property and equipment during the years ended December 31, 2023 and 2022. Goodwill — Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. The Company tests goodwill for impairment annually as of October 31 st , referred to as the annual test date. The goodwill impairment test for the Healthcare IT segment is performed using the discounted cash flow approach, the trading price of publicly traded stock, and the guideline public company method. Conditions that could trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change to the Company in certain agreements, significant underperformance relative to historical or projected future operating results, loss of customer relationships, an economic downturn in customers’ industries, or increased competition. 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. The Company had a triggering event at August 31, 2023, but it was determined that no goodwill impairment existed at that time. The Company had an additional triggering event in December 2023. It was determined that the fair value of the Healthcare IT reporting unit was less than the carrying value at October 31 and on December 12, 2023 (triggering event). Accordingly, impairment charges of approximately $ 2.0 million and $ 40.0 million, respectively, were recorded. (See Note 3.) No impairment charges were recorded during the year ended December 31, 2022. F- 11 Treasury Stock — Treasury stock is recorded at cost and represents shares repurchased by the Company. No shares were repurchased or issued from treasury stock during the years ended December 31, 2023 and 2022. Stock-Based Compensation — The Company recognizes compensation for all share-based payments granted based on the grant date fair value. Compensation expense is generally recognized on a straight-line basis over the vesting period. The Company does not estimate forfeitures in recognizing the expense for share-based payments, as historical forfeiture rates have not been significant. For restricted stock units (“RSUs”) classified as equity, the market price of our common stock on the date of grant is used in recording the fair value of the award. For RSUs classified as a liability, the earned amount is marked to market based on the end-of-period common stock price. Business Combinations — The Company accounts for business combinations under the provisions of ASC 805, Business Combinations , which requires that the acquisition method of accounting be used for all business combinations. Assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values. ASC 805 also specifies criteria that intangible assets acquired in a business combination must 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. If the business combination provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date with changes in the fair value recorded through earnings. Income Taxes — The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date. The Company records net deferred tax assets to the extent that these assets will more likely than not be realized. All available positive and negative evidence is considered in making such a determination, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. A valuation allowance would be recorded to reduce deferred income tax assets when it is determined that it is more likely than not that the Company would not be able to realize its deferred income tax assets in the future in excess of their net recorded amount. The Company records uncertain tax positions on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority. At December 31, 2023 and 2022, the Company did not have any uncertain tax positions that required recognition. Interest and penalties related to uncertain tax positions are recognized in income tax expense. For the years ended December 31, 2023 and 2022, the Company did not recognize any penalties or interest related to unrecognized tax benefits in its consolidated financial statements. Dividends — Dividends are recorded when declared by the Company’s Board of Directors. The Board of Directors had declared monthly dividends on the Series A and Series B Preferred Stock through February 2024. However, in December 2023, the dividends on the Preferred Stock were suspended. The dividend scheduled for payment on December 15, 2023 together with the remaining dividends that were declared, have been accrued in the consolidated balance sheet. Future monthly dividends will continue to accrue in arrears but will not be recorded as a liability until declared by the Board of Directors. Preferred Stock dividends are charged against paid in capital because the Company does not have sufficient retained earnings. The Company is prohibited from paying dividends on its common stock without the prior written consent of its lender, Silicon Valley Bank, a division of First Citizens Bank (“SVB”). F- 12 Deferred Revenue — Deferred revenue primarily consists of payments received in advance of the revenue recognition criteria being met. Deferred revenue includes certain deferred implementation services fees that are recognized as revenue ratably over the longer of the life of the agreement or the estimated expected customer life, which is currently estimated to be three years. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as non-current. At the time of customer termination, any unrecognized service fees associated with implementation services are recognized as revenue. Fair Value Measurements — ASC 820, Fair Value Measurement , requires the disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. The Company follows a fair value measurement hierarchy to measure financial instruments. The fair value of the Company’s financial instruments is measured using inputs from the three levels of the fair value hierarchy as follows: Level 1 — Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 — Inputs are directly or indirectly observable, which include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 — Inputs are unobservable inputs that are used to measure fair value to the extent observable inputs are not available. The Company has certain financial instruments that are not measured at fair value on a recurring basis. These financial instruments are subject to fair value adjustments only in certain circumstances and include cash, accounts receivable, accounts payable and accrued expenses, borrowings under term loans and line of credit, and notes payable. Due to the short term nature of these financial instruments and that the borrowings bear interest at prevailing market rates, the carrying value approximates the fair value. Foreign Currency Translation — The financial statements of the Company’s foreign subsidiaries are translated from their functional currency into U.S. dollars, the Company’s functional currency. All foreign currency assets and liabilities are translated at the period-end exchange rate, and all revenue and expenses are translated at transaction date exchange rates. The effects of translating the financial statements of the foreign subsidiaries into U.S. dollars are reported as a cumulative translation adjustment, a separate component of accumulated other comprehensive loss in the consolidated statements of shareholders’ equity, except for transactions related to the intercompany receivable for which transaction adjustments are recorded in the consolidated statements of operations as they are not deemed to be permanently reinvested. Foreign currency transaction gains/losses are reported as a component of other expense – net in the consolidated statements of operations and amounted to losses of approximately $ 790,000 and $ 610,000 for the years ended December 31, 2023 and 2022, respectively. Net Loss on Lease Terminations, Unoccupied Lease Charges and Restructuring Costs — Net loss on lease termination represents the write-off of leasehold improvements as the result of early lease terminations. Unoccupied lease charges represent the portion of lease and related costs for that portion of the space that is vacated 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. Restructuring costs which were incurred in 2023, primarily consist of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements. (See Note 13.) Recent Accounting Pronouncements — From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently adopted and recently issued accounting pronouncements will not have a material impact on our consolidated financial position, results of operations and cash flows. F- 13 In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The guidance in Accounting Standards Update (“ASU”) 2016-13 replaces the incurred loss impairment methodology under current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It will apply to all entities. For trade receivables, loans and held-to-maturity debt securities, entities will be required to estimate lifetime expected credit losses. This may result in the earlier recognition of credit losses. In November 2019, the FASB issued ASU No. 2019-10, which delayed this standard’s effective date for SEC smaller reporting companies to the fiscal years beginning on or after December 15, 2022. The Company adopted this guidance on January 1, 2023 using a modified retrospective adoption methodology, whereby the cumulative impact of all prior periods is recorded in accumulated deficit or other impacted balance sheet items upon adoption. The impact to the accumulated deficit as of January 1, 2023 for the allowance related to accounts receivable was a charge of approximately $ 186,000 and a corresponding increase to the allowance for expected credit losses. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments are effective for public business entities for fiscal years beginning after December 15, 2022. There was no impact on the consolidated financial statements as a result of this standard. In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This update amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. The new guidance is intended to align U.S. GAAP requirements with those of the SEC and to facilitate the application of U.S. GAAP for all entities. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. If by June 30, 2027 the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the associated amendment will be removed from the Codification and will not become effective. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Disclosures . The amendments in this update improve segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The expected impact would only be to the financial statement disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. The amendments in this update enhance the transparency and decision usefulness of income tax disclosures primarily related to rate reconciliation and income taxes paid information. The update also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company does not expect this update to have a material impact on the consolidated financial statements. 3. GOODWILL AND INTANGIBLE ASSETS – NET Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. At December 31, 2023, and 2022, approximately $ 90,000 of goodwill was allocated to the Medical Practice Management segment and the balance was allocated to the Healthcare IT segment. The following is the summary of the changes to the carrying amount of goodwill for the years ended December 31, 2023 and 2022: SCHEDULE OF CHANGES TO THE CARRYING AMOUNT OF GOODWILL 2023 2022 Year Ended December 31, 2023 2022 ($ in thousands) Beginning gross balance $ 61,186 $ 61,186 Acquisitions - - Impairment charges ( 42,000 ) - Ending gross balance $ 19,186 $ 61,186 As a result of a triggering event in December 2023 resulting from the suspension of the Preferred Stock dividend, the Company updated its annual goodwill impairment test that was performed as of October 31, 2023 for the Healthcare IT segment. It was determined that the fair value of the Healthcare IT reporting unit was less than the carrying value at both October 31 and as a result of the triggering event. Accordingly, impairment charges of approximately $ 2.0 million and $ 40.0 million, respectively, were recorded. F- 14 Below is a summary of intangible asset activity for the years ended December 31, 2023 and 2022: SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS Customer Capitalized Other Intangible Relationships Software Assets Total ($ in thousands) COST Balance, January 1, 2023 $ 47,597 $ 21,547 $ 9,651 $ 78,795 Additions - 8,548 2 8,550 Translation loss - ( 716 ) - ( 716 ) Balance, December 31, 2023 $ 47,597 $ 29,379 $ 9,653 $ 86,629 Useful lives 3 - 12 years 3 years 3 years ACCUMULATED AMORTIZATION Balance, January 1, 2023 $ 39,523 $ 4,932 $ 4,820 $ 49,275 Amortization expense 4,849 7,426 126 12,401 Translation loss - ( 121 ) - ( 121 ) Balance, December 31, 2023 44,372 12,237 4,946 61,555 Net book value $ 3,225 $ 17,142 $ 4,707 $ 25,074 COST Balance, January 1, 2022 $ 47,597 $ 13,196 $ 9,632 $ 70,425 Additions - 9,160 19 9,179 Translation loss - ( 809 ) - ( 809 ) Balance, December 31, 2022 $ 47,597 $ 21,547 $ 9,651 $ 78,795 Useful lives 3 - 12 years 3 years 3 years ACCUMULATED AMORTIZATION Balance, January 1, 2022 $ 33,851 $ 1,591 $ 4,205 $ 39,647 Amortization expense 5,672 3,485 615 9,772 Translation loss - ( 144 ) - ( 144 ) Balance, December 31, 2022 39,523 4,932 4,820 49,275 Net book value $ 8,074 $ 16,615 $ 4,831 $ 29,520 As a result of a triggering event in December 2023, we also reviewed our other long term assets for impairment. We determined that the fair value of these assets exceeded their carrying value and that there was no impairment. The amount for capitalized software represents payroll and development costs incurred for internally developed software. Other intangible assets primarily represent non-compete agreements, purchased and acquired software and trademarks. Amortization expense was approximately $ 12.4 million and $ 9.8 million for the years ended December 31, 2023 and 2022, respectively. The weighted-average amortization period is three years . As of December 31, 2023, future amortization expense scheduled to be expensed is as follows: SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS, FUTURE AMORTIZATION EXPENSE Years ending December 31, ($ in thousands) 2024 $ 11,634 2025 8,384 2026 4,006 2027 300 2028 300 Thereafter 450 Total $ 25,074 F- 15 4. PROPERTY AND EQUIPMENT Property and equipment consisted of the following: SCHEDULE OF PROPERTY AND EQUIPMENT 2023 2022 December 31, 2023 2022 ($ in thousands) Computer equipment $ 5,510 $ 5,831 Office furniture and equipment 1,985 1,990 Transportation equipment 1,129 1,099 Leasehold improvements 5,350 3,460 Assets not placed in service - 72 Total property and equipment 13,974 12,452 Less accumulated depreciation ( 8,657 ) ( 7,396 ) Property and equipment – net $ 5,317 $ 5,056 Depreciation expense was approximately $ 2.0 million for both the years ended December 31, 2023 and 2022. As a result of a triggering event in December 2023, we also reviewed our property and equipment for impairment. We determined that the fair value of these assets exceeded their carrying value and that there was no impairment. 5. CONCENTRATIONS Financial Risks — As of December 31, 2023 and 2022, the Company held cash of approximately $ 255,000 and $ 1.8 million, respectively, in the name of its subsidiaries, at banks in Pakistan and Sri Lanka. The banking systems in these countries do not provide deposit insurance coverage. Additionally, from time to time, the Company maintains cash balances at financial institutions in the United States in excess of federal insurance limits. The Company has not experienced any losses on such accounts. The cash held by each U.S. operating company was below the federal insurance limit at December 31, 2023. Concentrations of credit risk with respect to trade accounts receivable are managed by periodic credit evaluations of customers. The Company does not require collateral for outstanding trade accounts receivable. As of December 31, 2023, two customers each individually accounted for approximately 7 % of accounts receivable. As of December 31, 2022, two customers each individually accounted for approximately 6 % of accounts receivable. During the years ended December 31, 2023 and 2022 , there was one customer with sales of approximately 9 % and 7 % of total revenue, respectively. Geographical Risks — The Company’s offices in Islamabad and Bagh, Pakistan, and Colombo, Sri Lanka conduct significant back-office operations for the Company. The Company has no revenue earned outside of the United States. The office in Bagh is located in a different territory of Pakistan from the Islamabad office known as Azad Jammu and Kashmir. The Bagh office was opened in 2009 for the purpose of providing operational support and operating as a backup to the Islamabad office. The Bagh office now operates as the main operational center for the Company. The Company’s operations outside the United States are subject to special considerations and significant risks not typically associated with companies in the United States. The Company’s business, financial condition and results of operations may be influenced by the political, economic, and legal environment in the countries in which it operates and by the general state of these countries’ economies. The Company’s results may be adversely affected by, among other things, changes in governmental policies with respect to laws and regulations, changes in local countries’ telecommunications industries, regulatory rules and policies, anti-inflationary measures, currency conversion and remittance, and rates and methods of taxation. Carrying amounts of net assets located outside the United States were approximately $ 7.6 million and $ 8.5 million as of December 31, 2023 and 2022, respectively. These balances exclude net intercompany receivables of approximately $ 1.0 million as of both December 31, 2023 and 2022, respectively. The following is a summary of the net assets located outside the United States as of December 31, 2023 and 2022: SCHEDULE OF CONCENTRATION OF RISK, BY GEOGRAPHICAL RISKS FACTOR 2023 2022 December 31, 2023 2022 ($ in thousands) Current assets $ 806 $ 2,306 Non-current assets 8,250 7,890 Assets 9,056 10,196 Current liabilities ( 1,250 ) ( 1,500 ) Non-current liabilities ( 240 ) ( 224 ) Net assets $ 7,566 $ 8,472 F- 16 6. NET LOSS PER COMMON SHARE The following table reconciles the weighted-average shares outstanding for basic and diluted net loss per common share for the years ended December 31, 2023 and 2022: SCHEDULE OF RECONCILIATION OF WEIGHTED-AVERAGE SHARES OUTSTANDING FOR BASIC AND DILUTED NET LOSS PER COMMON SHARE 2023 2022 Year ended December 31, 2023 2022 ($ in thousands, except share and per share amounts) Basic and Diluted: Net loss attributable to common shareholders $ ( 64,348 ) $ ( 10,085 ) Weighted-average common shares used to compute basic and diluted loss per share 15,669,472 15,109,587 Net loss attributable to common shareholders per share - basic and diluted $ ( 4.11 ) $ ( 0.67 ) At December 31, 2023, the 733,908 unvested restricted stock units (“RSUs”) as discussed in Note 15 have been excluded from the above calculations as they were anti-dilutive. All of the warrants previously outstanding expired unexercised in 2023 and are excluded from the above calculations. At December 31, 2022, the 598,245 unvested equity RSUs and 1,128,489 unexercised warrants have been excluded from the above calculations as they were anti-dilutive. Vested RSUs, vested restricted shares and exercised warrants have been included in the above calculations. 7. DEBT SVB — During October 2017, the Company opened a revolving line of credit from SVB under a three-year agreement which replaced the previous credit facility. The SVB credit facility is a secured revolving line of credit where borrowings are based on a formula of 200% of repeatable revenue adjusted by an annualized attrition rate as defined in the credit agreement . During the third quarter of 2018, the credit line was increased from $ 5 million to $ 10 million and the term was extended for an additional year . During the third quarter of 2021, the credit line was further increased to $ 20 million and the term was extended for two years . During February 2023, the line of credit was increased to $ 25 million and the term was extended for two years through October 13, 2025 . Effective August 31, 2023, the credit facility agreement was amended whereby the interest rate was increased from the prime rate plus 1.5 % to the prime rate plus 2.0 % . The requirement for the minimum liquidity ratio was slightly reduced. These amendments expire March 31, 2024 and the credit facility reverts to its previous terms. As of December 31, 2023 and 2022, there was $ 10 million and $ 8 million, respectively, of borrowings under the credit facility. Interest on the SVB revolving line of credit is currently charged at the prime rate plus 2.0 % . There is also a fee of one-half of 1% annually for the unused portion of the credit line . The debt is secured by all of the Company’s domestic assets and 65 % of the shares in its offshore subsidiaries. Future acquisitions are subject to approval by SVB. At December 31, 2023, the remaining borrowing base was approximately $ 4.6 million. In connection with the original SVB debt agreement, the Company paid SVB approximately $ 50,000 of fees upfront and issued warrants for SVB to purchase 125,000 shares of its common stock, and committed to pay an annual anniversary fee of $ 50,000 a year. Based on the terms in the original SVB credit agreement, these warrants had a strike price equal to $ 3.92 . They had a five -year exercise window and net exercise rights, and were valued at $ 3.12 per warrant. These warrants were exercised during 2022. As a result of the revision in the SVB credit line, which increased the credit line from $ 5 million to $ 10 million and reduced the interest rate by 25 basis points , the Company paid approximately $ 50,000 of fees upfront and issued an additional 28,489 warrants, with a strike price equal to $ 5.26 , a five-year exercise window and net exercise rights. The additional warrants were valued at $ 3.58 per warrant and expired unexercised in September 2023. The SVB credit agreement contains various covenants and conditions governing the revolving line of credit including a current annual fee of $ 100,000 . These covenants include a minimum level of adjusted EBITDA or a minimum liquidity ratio, one of which must be satisfied when borrowings are outstanding. At December 31, 2023 and 2022, the Company was in compliance with all covenants. F- 17 During January 2022, the agreement with SVB was modified to allow the Company to issue Series B Preferred Stock and pay monthly dividends on this stock, to use a portion of the offering proceeds to redeem a portion of the Series A Preferred Stock that is outstanding and to allow for the potential exchange of shares of Series A Preferred Stock for Series B Preferred Stock. During March 2023, SVB became a division of First Citizens Bank & Trust Company. The agreements that governed the former SVB relationship remain in place. As a result, there were no changes to the terms of the credit agreement. Vehicle Financing Notes — The Company finances certain vehicle purchases both in the United States and in Pakistan. The vehicle financing notes typically have three to six year terms and are issued at current market rates. Insurance Financing — The Company finances certain insurance purchases over the term of the policy life. The interest rate charged is 8.56 % . Maturities of the outstanding notes payable and other obligations as of December 31, 2023 are as follows: SCHEDULE OF MATURITIES OF LONG-TERM DEBT Years ending December 31, Line of Credit Vehicle Financing Notes Insurance Financing Total ($ in thousands) 2024 $ - $ 12 $ 280 $ 292 2025 10,000 12 - 10,012 2026 - 11 - 11 2027 - 7 - 7 2028 - 7 - 7 Total $ 10,000 $ 49 $ 280 $ 10,329 8. REVENUE Introduction The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers . All revenue is recognized as our performance obligations are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under ASC 606. The Company recognizes revenue when the revenue cycle management services begin on the medical billing claims, which is generally upon receipt of the claim from the provider. For many services the Company recognizes revenue as a percentage of the amount the customer collects on the medical billing claims. The Company’s software is utilized at the time the provider sees the patient, and the Company estimates the value of the consideration it will earn over the remaining contractual period as our services are provided and recognizes the fees over the term; this estimation involves predicting the amounts our clients will ultimately collect associated with the services they provided. Certain significant estimates, such as payment-to-charge ratios, effective billing rates and the estimated contractual payment periods are required to measure revenue cycle management revenue under the new standard. Most of our current contracts with customers contain a single performance obligation. For contracts where we provide multiple services, such as where we perform multiple ancillary services, each service represents its own performance obligation. The standalone selling prices are based on the contractual price for the service. We apply the portfolio approach as permitted by ASC 606 as a practical expedient to contracts with similar characteristics and we use estimates and assumptions when accounting for those portfolios. Our contracts generally include standard commercial payment terms. We have no significant obligations for refunds, warranties or similar obligations and our revenue does not include taxes collected from our customers. F- 18 Disaggregation of Revenue from Contracts with Customers We derive revenue from five primary sources: (1) Technology-enabled business solutions, (2) professional services, (3) printing and mailing services, (4) group purchasing services and (5) medical practice management services. The following table represents a disaggregation of revenue for the years ended December 31, 2023 and 2022: SCHEDULE OF DISAGGREGATION OF REVENUE 2023 2022 Year Ended December 31, 2023 2022 ($ in thousands) Healthcare IT: Technology-enabled business solutions $ 76,640 $ 88,140 Professional services 23,022 33,984 Printing and mailing services 2,968 2,207 Group purchasing services 1,053 945 Medical Practice Management: Medical practice management services 13,376 13,550 Total $ 117,059 $ 138,826 Revenue $ 117,059 $ 138,826 Technology-enabled business solutions: Revenue derived on an on-going basis from our technology-enabled solutions, which typically includes revenue cycle management services, is billed as a percentage of payments collected by our customers. The fee for our services often includes the ability to use our EHR and practice management software as well as RCM as part of the bundled fee. The SaaS component is not a material portion of the contract compared to the stand-alone value of RCM. Technology-assisted revenue cycle management services are the recurring process of submitting and following up on claims with health insurance companies in order for the healthcare providers to receive payment for the services they rendered. The Company typically invoices customers on a monthly basis based on the actual collections received by its customers and the agreed-upon rate in the sales contract. The fee for these services typically includes use of practice management software and related tools (on a SaaS basis), electronic health records (on a SaaS basis), medical billing services and use of mobile health solutions. We consider the services to be one performance obligation since the promises are not distinct in the context of the contract. The performance obligation consists of a series of distinct services that are substantially the same and have the same periodic pattern of transfer to our customers. In many cases, our clients may terminate their agreements with 90 days’ notice without cause, thereby limiting the term in which we have enforceable rights and obligations, although this time period can vary between clients. Our payment terms are normally net 30 days. Although our contracts typically have stated terms of one or more years, under ASC 606 our contracts are considered month-to-month and accordingly, there is no financing component. For the majority of our revenue cycle management contracts, the total transaction price is variable because our obligation is to process an unknown quantity of claims, as and when requested by our customers over the contract period. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with variable consideration is subsequently resolved. Estimates to determine variable consideration such as payment to charge ratios, effective billing rates, and the estimated contractual payment periods are updated at each reporting date. Revenue is recognized over the performance period using the input method. Our proprietary, cloud-based practice management application automates the labor-intensive workflow of a medical office in a unified and streamlined SaaS platform. The Company has a large number of clients who utilize the Company’s practice management software, electronic health records software, patient experience management solutions, business intelligence software and/or robotic process automation software on a SaaS basis, but who do not utilize the Company’s revenue cycle management services. SaaS fees may be fixed based on the number of providers, or may be variable. F- 19 Our digital health services, which began generating revenue in 2022, include chronic care management, where a care manager has remote visits with patients with one or more chronic conditions under the supervision of a physician who is our client. The performance obligation for chronic care management is satisfied at a point in time once the patient receives the remote visit. The digital health services also include remote patient monitoring where our system monitors recordings from FDA approved internet connected devices. These devices record patient trends and alerts the physician to changes which might trigger the need for additional follow-up visits. The performance obligations for remote patient monitoring are satisfied over time as the recordings are received and the patient receives the remote visit. The revenue for chronic care management for the years ended December 31, 2023 and 2022, was approximately $ 1.5 million and $ 208,000 , respectively. The revenue for remote patient monitoring for the years ended December 31, 2023 and 2022 was approximately $ 400,000 and $ 6,000 , respectively. The medical billing clearinghouse service takes claim information from customers, checks the claims for errors and sends this information electronically to insurance companies. The Company invoices customers on a monthly basis based on the number of claims submitted and the agreed-upon rate in the agreement. This service is provided to medical practices and providers to medical practices who are not revenue cycle management customers. The performance obligation is satisfied once the relevant submissions are completed. Additional services such as coding and transcription are rendered in connection with the delivery of revenue cycle management and related medical services. The Company invoices customers monthly, based on the actual amount of services performed at the agreed-upon rate in the contract. These services are only offered to revenue cycle management customers. These services do not represent a material right because the services are optional to the customer and customers electing these services are charged the same price for those services as if they were on a standalone basis. Each individual coding or transcription transaction processed represents a performance obligation, which is satisfied over time as that individual service is rendered. Professional services: Our professional services include an extensive set of services including EHR vendor-agnostic optimization and activation, project management, IT transformation consulting, process improvement, training, education and staffing for large healthcare organizations including health systems and hospitals. The performance obligation is satisfied over time using the input method. The revenue is recorded on a monthly basis as the professional services are rendered. Unbilled revenue at December 31, 2023 and 2022 was approximately $ 100,000 and $ 2.0 million, respectively. Printing and mailing services: The Company provides printing and mailing services for both revenue cycle management customers and a non- revenue cycle management customer, and invoices on a monthly basis based on the number of prints, the agreed-upon rate per print and the postage incurred. The performance obligation is satisfied once the printing and mailing is completed. Group purchasing services: The Company provides group purchasing services which enable medical providers to purchase various vaccines directly from selected pharmaceutical companies at a discounted price. Currently, there are approximately 4,000 medical providers who are members of the program. Revenue is recognized as the vaccine shipments are made to the medical providers. Fees from the pharmaceutical companies are paid either quarterly or annually and the Company adjusts its revenue accrual at the time of payment. The Company makes significant judgments regarding the variable consideration which we expect to be entitled to for the group purchasing services which includes the anticipated shipments to the members enrolled in the program, anticipated volumes of purchases made by the members, and the changes in the number of members. The amounts recorded are constrained by estimates of decreases in shipments and loss of members to avoid a significant revenue reversal in the subsequent period. The only performance obligation is to provide the pharmaceutical companies with the medical providers who want to become members in order to purchase vaccines. The performance obligation is satisfied once the medical provider agrees to purchase a specific quantity of vaccines and the medical provider’s information is forwarded to the vaccine suppliers. The Company records a contract asset for revenue earned and not paid as the ultimate payment is conditioned on achieving certain volume thresholds. F- 20 For all of the above revenue streams other than group purchasing services and chronic care management, revenue is recognized over time, which is typically one month or less, which closely matches the point in time that the customer simultaneously receives and consumes the benefits provided by the Company. For the group purchasing services, revenue is recognized at a point in time. Each service is substantially the same and has the same periodic pattern of transfer to the customer. Each of the services provided above is considered a separate performance obligation. There were no unsatisfied performance obligations for contracts with an original duration greater than one year. The Company has elected to utilize the practical expedient available within the guidance for contracts with an expected duration of one year or less. Medical practice management services: The Company also provides medical practice management services under long-term management service agreements to three medical practices. We provide the medical practices with the nurses, administrative support, facilities, supplies, equipment, marketing, RCM, accounting, and other non-clinical services needed to efficiently operate their practices. Revenue is recognized as the services are provided to the medical practices. Revenue recorded in the consolidated statements of operations represents the reimbursement of costs paid by the Company for the practices and the management fee earned each month for managing the practice. The management fee is based on either a fixed fee or a percentage of the net operating income. The Company assumes all financial risk for the performance of the managed medical practices. Revenue is impacted by the amount of the costs incurred by the practices and their operating income. The gross billing of the practices is impacted by billing rates, changes in current procedural terminology code reimbursement and collection trends which in turn impacts the management fee that the Company is entitled to. Billing rates are reviewed at least annually and adjusted based on current insurer reimbursement practices. The performance obligation is satisfied as the management services are provided. Our contracts for medical practice management services have approximately an additional 15 years remaining and are only cancellable under very limited circumstances. The Company receives a management fee each month for managing the day-to-day business operations of each medical group as a fixed fee or a percentage payment of the net operating income which is included in revenue in the consolidated statements of operations. Our medical practice management services obligations consist of a series of distinct services that are substantially the same and have the same periodic pattern of transfer to our customers. Revenue is recognized over time, however for reporting and convenience purposes, the management fee is computed at each month end. Information about contract balances: As of December 31, 2023, the estimated revenue expected to be recognized in the future related to the remaining revenue cycle management performance obligations outstanding was approximately $ 4.7 million. We expect to recognize substantially all of the revenue for the remaining performance obligations over the next three months . Approximately $ 374,000 of the contract asset represents revenue earned, not paid, from the group purchasing services. Amounts that we are entitled to collect under the applicable contract are recorded as accounts receivable. Invoicing is performed at the end of each month when the services have been provided. The contract asset includes our right to payment for services already transferred to a customer when the right to payment is conditional on something other than the passage of time. For example, contracts for revenue cycle management services where we recognize revenue over time but do not have a contractual right to payment until the customer receives payment of their claim from the insurance provider. The contract asset also includes the revenue accrued, not received, for the group purchasing services. Changes in the contract asset are recorded as adjustments to net revenue. The changes primarily result from providing services to revenue cycle management customers that result in additional consideration and are offset by our right to payment for services becoming unconditional and changes in the revenue accrued for the group purchasing services. The contract asset for our group purchasing services is reduced when we receive payments from vaccine manufacturers and is increased for revenue earned, not received. The opening and closing balances of the Company’s accounts receivable, contract asset and deferred revenue are as follows: SCHEDULE OF CHANGES IN ACCOUNTS RECEIVABLE, CONTRACT ASSET AND DEFERRED REVENUE Accounts Receivable – Net Contract Asset Deferred Revenue (current) Deferred Revenue (long term) ($ in thousands) Balance as of January 1, 2023 $ 14,773 $ 4,399 $ 1,386 $ 342 (Decrease) increase, net ( 2,885 ) 695 ( 6 ) ( 86 ) Balance as of December 31, 2023 $ 11,888 $ 5,094 $ 1,380 $ 256 Balance as of January 1, 2022 $ 17,006 $ 4,725 $ 1,085 $ 341 (Decrease) increase, net ( 2,233 ) ( 326 ) 301 1 Balance as of December 31, 2022 $ 14,773 $ 4,399 $ 1,386 $ 342 F- 21 Deferred revenue: The amount of deferred revenue at the beginning of the year and recognized during the year ended December 31, 2023 and 2022 was approximately $1.1 million and $1.3 million, respectively. Deferred commissions: Our sales incentive plans include commissions payable to employees and third parties at the time of the initial contract execution that are capitalized as incremental costs to obtain a contract. The capitalized commissions are amortized over the period the related services are transferred. As we do not offer commissions on contract renewals, we have determined the amortization period to be the estimated client life, which is three years. Deferred commissions were approximately $ 517,000 and $ 643,000 at December 31, 2023 and 2022, respectively, and are included in the other assets amounts in the consolidated balance sheets. The amortization of deferred sales commissions during the years ended December 31, 2023 and 2022 was approximately $ 487,000 and $ 594,000 , respectively. Trade Accounts Receivable – Estimate of Credit Losses: ASU 2016-13 requires the recognition of lifetime estimated credit losses expected to occur for trade accounts receivable. The guidance also requires we pool assets with similar risk characteristics and consider current economic conditions when estimating losses. The adoption of the ASU 2016-13 for trade accounts receivable was recorded as a charge to accumulated deficit of approximately $ 186,000 as of January 1, 2023. At adoption, we segmented the accounts receivable population into pools based on their risk assessment. Risks related to trade accounts receivable are a customer’s inability to pay or bankruptcy. Each pool was defined by their internal credit assessment and business size. The pools are aligned with management’s review of financial performance. For the year ended December 31, 2023, no adjustment to the pools was necessary. We utilize a loss-rate method to measure the expected credit loss for each pool. The loss rate is calculated using a three-year lookback period of write-offs and adjustments, divided by the revenue for each pool by aging category, net of customer payments during that period. We consider current and future economic conditions, internal forecasts, customer collection experience and credit memos issued during the current period when assessing loss rates. We reviewed these factors and concluded that no adjustments should be made to the historical loss rate data for the current quarter. In addition, the Company uses specific account identification in determining the total allowance for expected credit losses. Trade receivables are written off only after the Company has exhausted all collection efforts. Changes in the allowance for expected credit losses for trade accounts receivable are presented in the table below: SCHEDULE OF TRADE ALLOWANCE FOR DOUBTFUL ACCOUNTS 2023 2022 Year Ended December 31, 2023 2022 ($ in thousands) Beginning balance $ 823 $ 537 Adoption of ASC 326 186 - Provision 454 740 Recoveries/adjustments 107 313 Write-offs ( 691 ) ( 767 ) Ending balance $ 879 $ 823 F- 22 9. SHAREHOLDERS’ EQUITY Treasury stock The Board of Directors of the Company previously approved common stock repurchase programs. The last program expired January 25, 2017 . As a result of these stock repurchases, the Company has 740,799 common shares held as treasury stock at an aggregate cost of $ 662,000 . Common stock The Company had the right to sell up to $ 50 million of its common stock using an “at-the-market” facility (“ATM”). The underwriter receives 3 % of the gross proceeds. During the years ended December 31, 2023 and 2022, no shares of common stock were issued under this ATM. This right terminated when the Company suspended the Preferred Stock dividends. Holders of our common stock are entitled to one vote for each share held on all matters properly submitted to a vote of shareholders on which holders of common stock are entitled to vote . Holders of common stocks are entitled to receive dividends only at times and amounts as determined by the Board of Directors. The common stock is not entitled to pre-emptive rights, and is not subject to conversion, redemption or sinking fund provisions. The common stock is listed on the Nasdaq Global Market under the trading symbol “CCLD.” Preferred stock The Company has seven million authorized shares of preferred stock of which 4,526,231 have been designated as Series A shares and the balance have been designated as Series B shares. The Company also had the right to sell up to $ 35 million of its Series B Preferred Stock using an ATM facility. This right terminated when the Company suspended the Preferred Stock dividends. The underwriter received 3 % of the gross proceeds. During the year ended December 31, 2023, the Company sold 59,773 of shares of Series B Preferred Stock under the Company’s ATM and received net proceeds of approximately $ 1.4 million . During the year ended December 31, 2022, the Company sold 1,324,858 shares of Series B Preferred Stock and received net proceeds of approximately $ 30.9 million . This includes 224,048 shares sold under the Company’s ATM. On March 18, 2022, the Company used a portion of the proceeds from selling Series B Preferred Stock to redeem 800,000 shares of Series A Preferred Stock for $ 25.00 per share, plus all accrued and unpaid dividends to, but not including, the redemption date. Since November 4, 2020, the Company has the right to redeem, at its option, the Series A Preferred Stock, in whole or in part, at a cash redemption price of $ 25.00 per share, plus all accrued and unpaid dividends to, but not including, the redemption date. The Series A Preferred Stock has no stated maturity, is not subject to any sinking fund or other mandatory redemption, and is not convertible into or exchangeable for any of the Company’s other securities. Holders of the Series A Preferred Stock have no voting rights except for limited voting rights if dividends payable on the Series A Preferred Stock are in arrears for eighteen or more consecutive or non-consecutive monthly dividend periods, at which time they are entitled to appoint two additional directors to our Board of Directors. If the Company were to liquidate, dissolve or wind up, the holders of the Series A Preferred Stock will have the right to receive $ 25.00 per share, plus any accumulated and unpaid dividends to, but not including, the date of payment, before any payment is made to the holders of the common stock. The Series A Preferred Stock is listed on the Nasdaq Global Market under the trading symbol “CCLDP.” Since February 15, 2024 and prior to February 15, 2025, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $ 25.75 per share, plus all accrued and unpaid dividends to, but not including, the redemption date. On or after February 15, 2025 and prior to February 15, 2026, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $ 25.50 per share, plus all accrued and unpaid dividends to, but not including, the redemption date. On or after February 15, 2026 and prior to February 15, 2027, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $ 25.25 per share, plus all accrued and unpaid dividends to, but not including, the redemption date. On or after February 15, 2027, we may redeem, at our option, the Series B Preferred Stock, in whole or in part, at a cash redemption price of $ 25.00 per share, plus all accrued and unpaid dividends to, but not including, the redemption date. The Series B Preferred Stock is listed on the Nasdaq Global Market under the trading symbol “CCLDO.” Dividends on the Series A and Series B Preferred Stock of $ 2.75 and $ 2.19 , respectively, annually per share are cumulative from the date of issue and are payable each month when, as and if declared by the Company’s Board of Directors. In October, 2023, the Board of Directors had declared monthly dividends on the Series A and Series B Preferred Stock payable through February 2024; however, on December 11, 2023, the Board of Directors suspended the monthly cash dividends for Series A Preferred Stock and Series B Preferred Stock beginning with the payment scheduled for December 15, 2023 together with the remaining dividends that were declared. The suspension of these dividends will defer approximately $ 1.3 million in cash dividend payments each month. During this suspension, dividends will continue to accrue in arrears on the Series A and Series B Preferred Stock. The Board of Directors will regularly review and consider when the suspension should be lifted. F- 23 Warrants The Company has issued 6,603,489 warrants for its common stock, of which 1,128,489 remained outstanding at December 31, 2022. All of these warrants expired unexercised during 2023 and there were no warrants outstanding at December 31, 2023 . During the year ended December 31, 2022, 125,000 warrants were exercised at a $ 3.92 exercise price. The warrants were exercised via a cashless exercise. The Company incurs common and preferred stock offering costs which consist principally of professional fees, primarily legal and accounting, and other costs such as printing and registration costs. In connection with the 2023 and 2022 equity offerings, the Company incurred approximately $ 71,000 and $ 2.3 million, respectively, of such costs, including underwriting commissions and placement agent fees. For the year ended December 31, 2022, there was $ 32,000 of fees paid for comfort letters in connection with the equity offerings. 10. COMMITMENTS AND CONTINGENCIES Legal Proceedings — On December 9, 2022, an arbitrator rendered a decision in favor of MTBC Acquisition Corp. (“MAC”) and dismissed the claims brought against MAC by Randolph Pain Relief and Wellness Center (“RPRWC”), determining that RPRWC failed to prove any breach of the applicable billing services agreement and failed to prove that any alleged damages were due. The deadline for RPRWC to file a summary action in Superior Court of New Jersey seeking to overturn the arbitrator’s decision was April 5, 2023 and no summary action was filed by such deadline. As such, the arbitrator’s decision dismissing RPRWC’s claims is final. On December 22, 2023, an arbitrator rendered a decision in favor of Ramapo Anesthesiologists, PC (“Ramapo”) and granted in part and denied in part certain claims brought against Origin Healthcare Solutions, LLC; Meridian Medical Management, Inc.; and the Company for alleged breach of contract and other allegations. Ramapo was awarded mitigation related costs of $ 117,000 . The payment for such an award was made during the first quarter of 2024. The deadline for Ramapo to file a summary action in New Jersey seeking to overturn the arbitrator’s decision is April 20, 2024. The Company’s portion of the settlement is approximately $ 32,000 and the insurance company will pay the balance. The Company’s portion has been recorded in accrued expenses at December 31, 2023 in the consolidated balance sheet. From time to time, we may become involved in other legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of our management, would individually or taken together have a material adverse effect on our business, consolidated results of operations, financial position or cash flows of the Company. 11. LEASES We determine if an arrangement is a lease at inception. We have operating leases for office and temporary living space as well as for some office equipment. Operating leases are included in operating lease ROU assets, current operating lease liability and non-current operating lease liability in our consolidated balance sheets as of December 31, 2023 and 2022. The Company does not have any finance leases. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rates, which are derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our bank financing arrangements, geographical location and collateralization of assets when calculating our incremental borrowing rates. Our lease terms include options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of less than 12 months are not recorded in the consolidated balance sheets. Our lease agreements do not contain any residual value guarantees. For real estate leases, we account for the lease and non-lease components as a single lease component. Some leases include escalation clauses and termination options that are factored in the determination of the lease payments when appropriate. F- 24 If a lease is modified after the effective date, the operating lease ROU asset and liability is re-measured using the current incremental borrowing rate. There was one lease modification during the year ended December 31, 2023 and none during the year ended December 31, 2022. We review our incremental borrowing rate for our portfolio of leases on a quarterly basis. During the years ended December 31, 2023 and 2022, there were approximately $ 169,000 and $ 1.0 million, respectively, of unoccupied lease charges for two of the Company’s facilities. There were no lease impairments recorded for the years ended December 31, 2023 and 2022. During the year ended December 31, 2022, there was a gain on lease termination of approximately $ 105,000 . Additionally, a facility lease was terminated in conjunction with the Company ceasing its document storage services resulting in additional costs of approximately $ 203,000 . These amounts are included in the net loss on lease terminations, unoccupied lease charges and restructuring costs in the consolidated statements of operations. Lease expense is included in direct operating costs, general and administrative expense, selling and marketing expense and research and development expense in the consolidated statements of operations based on the nature of the expense. As of December 31, 2023, we had 32 leased properties, five in Medical Practice Management and 27 in Healthcare IT, with the remaining terms ranging from less than one year to twelve years. Our lease terms are determined taking into account lease renewal options, the Company’s anticipated operating plans and leases that are on a month-to-month basi s. We also have some related party leases – see Note 12. The components of lease expense were as follows: SCHEDULE OF LEASE EXPENSE 2023 2022 Year Ended December 31, 2023 2022 ($ in thousands) Operating lease cost $ 2,669 $ 3,714 Short-term lease cost - 92 Variable lease cost 32 29 Total - net lease cost $ 2,701 $ 3,835 Short-term lease cost represents leases that were not capitalized as the lease term as of the later of January 1, 2023 or the beginning of the lease was less than 12 months. Variable lease costs include utilities, real estate taxes and common area maintenance costs. Supplemental balance sheet information related to leases was as follows: SCHEDULE OF SUPPLEMENTAL BALANCE SHEET INFORMATION RELATED TO LEASES December 31, 2023 December 31, 2022 ($ in thousands) Operating leases: Operating lease ROU assets, net $ 4,365 $ 4,921 Operating lease liabilities (current portion) $ 1,888 $ 2,273 Operating lease liabilities 2,516 3,207 Total operating lease liabilities $ 4,404 $ 5,480 Operating leases: ROU assets $ 6,571 $ 8,293 Asset lease expense ( 2,152 ) ( 3,286 ) Foreign exchange loss ( 54 ) ( 86 ) ROU assets, net $ 4,365 $ 4,921 Operating lease right-of-use assets $ 4,365 $ 4,921 Weighted average remaining lease term (in years): Operating leases 4.5 5.1 Weighted average discount rate: Operating leases 13.3 % 7.9 % Operating leases, Weighted average discount rate: 13.3 % 7.9 % F- 25 Supplemental cash flow and other information related to leases was as follows: SCHEDULE OF SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION RELATED TO LEASES 2023 2022 Year Ended December 31, 2023 2022 ($ in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 3,244 $ 4,743 ROU assets obtained in exchange for lease liabilities: Operating leases, excluding impairments and terminations $ 1,682 $ 1,569 Maturities of lease liabilities are as follows: SCHEDULE OF MATURITIES OF LEASE LIABILITIES Operating leases - Years ending December 31, ($ in thousands) 2024 $ 2,304 2025 1,295 2026 538 2027 416 2028 347 Thereafter 1,427 Total lease payments 6,327 Less: imputed interest ( 1,923 ) Total lease obligations 4,404 Less: current obligations ( 1,888 ) Long-term lease obligations $ 2,516 F- 26 12. RELATED PARTIES The Company had sales to a related party, a physician who is the wife of the Executive Chairman. Revenues from this customer were approximately $ 125,000 and $ 58,000 for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the accounts receivable balance due from this customer was approximately $ 18,000 and $ 10,000 , respectively, an d is included in accounts receivable - net in the consolidated balance sheets. The Company leases its corporate offices in New Jersey, its temporary housing for its foreign visitors, a storage facility, its backup operations center in Bagh, Pakistan and an apartment for temporary housing in Dubai, the UAE, from the Executive Chairman. The related party rent expense for the years ended December 31, 2023 and 2022 was approximately $ 256,000 and $ 198,000 , respectively, and is included in direct operating costs and general and administrative expense in the consolidated statements of operations. During the years ended December 31, 2023 and 2022, the Company spent approximately $ 1.8 million and $ 941,000 , respectively, to upgrade the related party leased facilities. During the years ended December 31, 2023 and 2022, the Company temporarily advanced the Executive Chairman approximately $ 330,000 and $ 42,000 , respectively, to purchase vacant land surrounding the Bagh facility for the sole use and benefit of the Company in order to expedite the purchase on the Company’s behalf as only individuals with citizenship in Kashmir are allowed to purchase land in this region. All advanced amounts were repaid shortly after the advance was made. Current assets-related party in the consolidated balance sheets includes security deposits related to the leases of the Company’s corporate offices in the amount of approximately $ 16,000 for both the years ended December 31, 2023 and 2022 . The Company also leases two facilities used for temporary housing from a management employee for approximately $ 6,200 per month. Included in the ROU asset at December 31, 2023 is approximately $ 331,000 applicable to the related party leases. Included in the current and non-current operating lease liability at December 31, 2023 is approximately $ 182,000 and $ 142,000 , respectively, applicable to the related party leases. Included in the ROU asset at December 31, 2022 is approximately $ 467,000 applicable to the related party leases. Included in the current and non-current operating lease liability at December 31, 2022 is approximately $ 158,000 and $ 301,000 , respectively, applicable to the related party leases. During June 2022, the Company entered into a one-year consulting agreement with an entity owned and controlled by one of its former non-independent directors whereby that director received 10,000 shares of the Company’s 8.75 % Series B Cumulative Redeemable Perpetual Preferred Stock (“Series B Preferred Stock”) in exchange for assisting the Company to identify and acquire additional companies, including performing due diligence. In addition, the Company may make additional payments under the agreement for any successful acquisitions by the Company based on the purchase price of the transaction. No such additional payments were made in 2022. During February 2023, the agreement was amended and extended through December 2024 whereby the former director received 14,000 shares of Series B Preferred Stock in February 2023 and received an additional 14,000 shares in January 2024. All of the payments made were expensed during the year ended December 31, 2023. The amortization is recorded as stock compensation in general and administrative expense in the consolidated statement of operations. All such shares of the Series B Preferred Stock were issued in accordance with the Company’s Amended and Restated 2014 Equity Incentive Plan. In addition to the extension of the consulting agreement, the amendment provides that any transaction fees due will be offset against the last two above payments before any amounts are due to that former director. There were no transaction fees through December 31, 2023. (See Note 20.) During 2020, a New Jersey corporation, talkMD Clinicians, PA (“talkMD”), was formed by the wife of the Executive Chairman, who is a licensed physician, to provide telehealth services. talkMD was determined to be a variable interest entity (“VIE”) for financial reporting purposes because the entity will be controlled by the Company. As of December 31, 2023, talkMD had not yet commenced operations. Cumulatively, the Company has paid approximately $ 5,000 on behalf of talkMD for income taxes. 13. RESTRUCTURING COSTS On October 2, 2023, the Company committed to effectively align resources with business priorities and improve profitability through a reduction in the workforce for the Healthcare IT segment. The Company identified opportunities for improvements in its workforce realignment, strategy and staffing, and increased its focus on performance management, to ensure it has the right skillsets and number of employees to execute its long-term vision. In addition, the Company instituted certain other expense reductions. F- 27 The difference between the free cash flow and the expense savings represents amounts which were previously capitalized as part of software capitalization. A majority of the impacted employees exited in the fourth quarter of 2023. The Company estimates that it will incur expenses of approximately $ 900,000 related to the reduction in workforce of which approximately $ 645,000 was incurred in 2023, with the remaining expenses to be incurred in 2024. These restructuring expenses consisted of one-time termination benefits, including but not limited to, severance payments and healthcare benefits. Also as previously noted, the dividends on the Preferred Stock have been suspended in order to increase cash flow. The following table summarizes restructuring costs which are included in net loss on lease termination, unoccupied lease charges and restructuring costs in the December 31, 2023 consolidated statement of operations: SCHEDULE OF RESTRUCTURING COSTS Year ended December 31, 2023 ($ in thousands) Severance and separation costs $ 439 Equity awards acceleration costs associated with severance 170 Other exit related costs 36 Total restructuring and other costs $ 645 The expense associated with the restructuring is included in net loss on lease terminations, unoccupied lease charges and restructuring cost in the consolidated statement of operations for the year ended December 31, 2023. This line also includes $ 291,000 for net loss on lease terminations and $ 169,000 for unoccupied lease charges. The liabilities associated with restructuring costs are included in accrued expenses and other current liabilities in the December 31, 2023 consolidated balance sheet. The following table summarizes activity related to liabilities associated with restructuring costs: SCHEDULE OF LIABILITIES ASSOCIATED WITH RESTRUCTURING COSTS Severance and separation costs Equity awards acceleration costs Other exit related costs Total restructuring and other costs ($ in thousands) Balance as of January 1, 2023 $ - $ - $ - $ - Additions 439 170 36 645 Payments and other adjustments ( 294 ) ( 170 ) ( 10 ) ( 474 ) Balance as of December 31, 2023 $ 145 $ - $ 26 $ 171 14. EMPLOYEE BENEFIT PLANS The Company has qualified 401(k) plans covering all U.S. employees who have completed one month of service. The plans provide for matching contributions by the Company for employees of the Company and most U.S. subsidiaries, although there is no match for CPM employees. Employer contributions to the plans for the years ended December 31, 2023 and 2022 were approximately $ 587,000 and $ 549,000 , respectively. Additionally, the Company has a defined contribution retirement plan covering all employees located in our Pakistan Offices who have completed three months of service. The plan provides for monthly contributions by the Company which are equal to 10% of qualified employees’ basic monthly compensation . The Company’s contributions for the years ended December 31, 2023 and 2022 were approximately $ 394,000 and $ 329,000 , respectively. The Company maintains a defined contribution retirement plan covering all employees in Sri Lanka. The employee and employer contribute 8 % and 12 %, respectively, of the employee’s gross salary. The Company’s contribution for the years ended December 31, 2023 and 2022 was approximately $ 24,000 and $ 22,000 , respectively . The contributions are required to be deposited with the Employees’ Provident Fund Organization, a government owned entity. F- 28 15. STOCK-BASED COMPENSATION In April 2014, the Company adopted the Medical Transcription Billing, Corp. 2014 Equity Incentive Plan (the “Original Plan”), reserving a total of 1,351,000 shares of common stock for grants to employees, officers, directors and consultants. On April 14, 2017, the Original Plan was amended and restated whereby an additional 1,500,000 shares of common stock and 100,000 shares of Series A Preferred Stock were added to the plan for future issuance (the “A&R Plan”). During 2018, an additional 200,000 shares of Series A Preferred Stock were added to the A&R Plan for future issuance. In May 2020, an additional 2,000,000 shares of common stock and an additional 300,000 shares of Series A Preferred Stock were added to the A&R Plan for future issuance. During 2022, an additional 1,000,000 shares of common stock and 200,000 shares of Series B Preferred Stock were added to the A&R Plan for future issuance. As of December 31, 2023, 493,579 shares of common stock, 33,769 shares of Series A Preferred Stock and 38,000 shares of Series B Preferred Stock are available for grant. Permissible awards include incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance stock and cash-settled awards and other stock-based awards in the discretion of the Compensation Committee of the Board of Directors including unrestricted stock grants. The equity based RSUs contain a provision in which the units shall immediately vest and become converted into common shares at the rate of one common share per RSU, immediately after a change in control, as defined in the award agreement. Common stock During 2023, 1,098,976 RSUs of common stock were granted to employees and independent contractors to vest at different dates during the years 2023 through 2025. Included therein were 30,000 RSUs of common stock granted over two years equally to the five outside members of the Board of Directors with 25 % of the shares vesting every six months. During 2022, 777,715 RSUs of common stock were granted to employees and independent contractors to vest at different dates during the years 2022 through 2024. Included therein were 80,000 shares of common stock granted over two years equally to the four outside members of the Board of Directors with 25 % of the shares vesting every six months. During December 2022, it was agreed that certain bonuses to employees of medSR that were originally going to be paid in cash would be paid in common stock. The change of paying the bonuses in common stock resulted in approximately 135,000 shares being issued in February 2023. This change resulted in approximately $ 404,000 of stock compensation expense, which offset the amounts previously accrued. The following table summarizes the RSU and restricted stock transactions related to the common and Preferred Stock under the A&R Plan for the years ended December 31, 2023 and 2022: DISCLOSURE OF SHARE-BASED COMPENSATION ARRANGEMENTS BY SHARE-BASED PAYMENT AWARD Common Stock Series A Preferred Stock Series B Preferred Stock Outstanding and unvested shares at January 1, 2023 645,475 - 80,462 Granted 1,098,976 - 62,000 Vested ( 896,893 ) - ( 85,263 ) Forfeited ( 94,063 ) - - Outstanding and unvested shares at December 31, 2023 753,495 - 57,199 Outstanding and unvested shares at January 1, 2022 418,039 34,000 - Granted 777,715 8,644 100,000 Vested ( 465,455 ) ( 42,644 ) ( 19,538 ) Forfeited ( 84,824 ) - - Outstanding and unvested shares at December 31, 2022 645,475 - 80,462 As of December 31, 2023 and 2022, there was approximately $ 1.3 million and $ 1.4 million, respectively, of total unrecognized compensation cost related to the common stock RSUs classified as equity that will be expensed through 2025. As of December 31, 2023 and 2022, there was approximately $ 351,000 and $ 557,000 , respectively, of total unrecognized compensation cost related to the Series B Preferred Stock RSUs classified as equity that will be, or was, expensed through the following year. There was no unrecognized compensation cost related to the Series A Preferred Stock RSUs for both the years ended December 31, 2023 and 2022. Of the total outstanding and unvested common stock RSUs at December 31, 2023 and 2022, 733,908 and 598,245 RSUs, respectively, are classified as equity and 19,587 and 47,230 RSUs, respectively, are classified as a liability. For both 2023 and 2022, all of the Preferred Stock RSUs are classified as equity. F- 29 The following table summarizes the share activity during the years ended December 31, 2023 and 2022 and the amount of common and preferred shares available for grant at December 31, 2023 and 2022: SCHEDULE OF SHARE-BASED COMPENSATION, RESTRICTED STOCK UNITS AWARD ACTIVITY Common Stock Series A Preferred Stock Series B Preferred Stock Shares available for grant at January 1, 2023 1,498,492 33,769 100,000 RSUs granted ( 1,098,976 ) - ( 62,000 ) RSUs forfeited 94,063 - - Shares available for grant at December 31, 2023 493,579 33,769 38,000 Shares available for grant at January 1, 2022 1,191,383 320,065 - Shares added to plan 1,000,000 - 200,000 RSUs granted ( 777,715 ) ( 8,644 ) ( 100,000 ) Shares redesignated as Series B - ( 277,652 ) - RSUs forfeited 84,824 - - Shares available for grant at December 31, 2022 1,498,492 33,769 100,000 The liability for the cash-settled awards and accrued payroll taxes on equity awards was approximately $ 767,000 and $ 1.0 million at December 31, 2023 and 2022, respectively, and is included in accrued compensation in the consolidated balance sheets. During the years ended December 31, 2023 and 2022, approximately $ 19,000 and $ 105,000 , respectively, was paid in connection with the cash-settled awards. Series A Preferred Stock In 2021, the Compensation Committee granted executive bonuses to be paid in 34,000 shares of Series A Preferred Stock with the final number of shares and the amount based on specified performance criteria being achieved during 2021. Also in 2021, 16,010 shares of Series A Preferred Stock were granted as performance bonuses and in lieu of sales commissions. During January 2022, the Compensation Committee determined that the financial objectives were attained and all of the performance bonus shares were issued. Series B Preferred Stock In February 2023, the Compensation Committee granted executive bonuses to be paid in 34,000 shares of Series B Preferred Stock, with the number of shares and the amount based on specified criteria being achieved during the year 2023. During October, the Compensation Committee approved for issuance 10,000 of the above shares to one of the executives who retired. The remaining shares will not be issued. Stock-based compensation expense The Company recognizes compensation expense on a straight-line basis over the total requisite service period for the entire award. For stock awards classified as equity, the market price of our common stock or Preferred Stock on the date of grant is used to record the fair value of the award and includes the related taxes. For stock awards classified as a liability, the earned amount is marked to market based on the end of period common stock price. The weighted average grant date fair value of the common stock price in connection with the RSUs classified as equity was $ 3.40 and $ 4.27 for the years ended December 31, 2023 and 2022, respectively. The weighted average grant date fair value of the Series A Preferred Stock in connection with the RSUs was $ 26.69 for the year ended December 31, 2022. There were no grants of the Series A Preferred Stock in 2023. For the Series B Preferred Stock, the weighted average grant date fair value was $ 25.07 and $ 25.24 for the years ended December 31, 2023 and 2022, respectively. The following table summarizes the components of stock-based compensation expense for the years ended December 31, 2023 and 2022: SCHEDULE OF EMPLOYEE SERVICE SHARE-BASED COMPENSATION, ALLOCATION OF RECOGNIZED PERIOD COSTS Year Ended December 31, Stock-based compensation included in the consolidated statements of operations: 2023 2022 ($ in thousands) Direct operating costs $ 891 $ 1,047 General and administrative 2,835 2,598 Research and development 135 245 Selling and marketing 855 1,024 Net loss on lease terminations, unoccupied lease charges and restructuring costs 170 - Total stock-based compensation expense $ 4,886 $ 4,914 F- 30 16. INCOME TAXES For the years ended December 31, 2023 and 2022, the Company estimated its income tax provision based upon the annual pre-tax income or loss. Although the Company reported GAAP earnings in 2022 and 2023, it incurred losses historically and there is uncertainty regarding future U.S. taxable income, which makes realization of a deferred tax asset difficult to support in accordance with ASC 740. Accordingly, a valuation allowance has been recorded against all federal and state deferred tax assets as of December 31, 2023 and December 31, 2022, with the exception of a net deferred tax liability relating to the amortization of intangibles for tax purposes. The annual adjusted earnings and profits of our foreign affiliates pass through to the U.S. as federal and state taxable income under the Global Intangible Low-Taxed Income (“GILTI”) regime. For the tax years ended December 31, 2023 and 2022, the net GILTI from our foreign affiliates was absorbed against our current year U.S. consolidated loss. For state tax purposes, the Company’s foreign earnings may be taxable depending on each individual state’s legislative stance on the recent tax reform legislation. The activity in the deferred tax valuation allowance was as follows for the years ended December 31, 2023 and 2022: SCHEDULE OF DEFERRED TAX VALUATION ALLOWANCE Year Ended December 31, 2023 2022 ($ in thousands) Beginning balance $ 92,091 $ 86,728 Current year valuation allowance (decrease) increase ( 4,494 ) 5,363 Ending balance $ 87,597 $ 92,091 The (loss) income before tax for financial reporting purposes during the years ended December 31, 2023 and 2022 consisted of the following: SCHEDULE OF INCOME BEFORE INCOME TAX, DOMESTIC AND FOREIGN Year Ended December 31, 2023 2022 ($ in thousands) United States $ ( 48,985 ) $ 6,137 Foreign ( 53 ) ( 528 ) Total $ ( 49,038 ) $ 5,609 F- 31 The (benefit) provision for income taxes for the years ended December 31, 2023 and 2022 consisted of the following: SCHEDULE OF COMPONENTS OF INCOME TAX PROVISION (BENEFIT) Year Ended December 31, 2023 2022 ($ in thousands) Current: Federal $ - $ - State 123 80 Foreign 38 21 Current Income Tax Expense (Benefit) 161 101 Deferred: Federal ( 252 ) 63 State ( 273 ) 13 Deferred Income Tax Expense (Benefit) ( 525 ) 76 Total income tax (benefit) provision $ ( 364 ) $ 177 The components of the Company’s deferred income taxes as of December 31, 2023 and 2022 are as follows: SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES December 31, December 31, 2023 2022 ($ in thousands) Deferred tax assets: Allowance for expected credit losses $ 228 $ 221 Deferred revenue 68 97 Property and intangible assets 1,933 2,213 State net operating loss (“NOL”) carryforwards 19,749 27,262 Federal net operating loss (“NOL”) carryforwards 57,562 57,179 Section 163(j) interest limitation 2,731 2,525 Stock based compensation - 173 ASC 842 - ROU asset ( 1,026 ) ( 1,243 ) Prepaid commissions ( 303 ) ( 253 ) Cumulative balance translation adjustment 988 819 Section 267 limitation 6 7 Credit carryovers 2,498 2,498 ASC 842 - Lease liability 1,031 1,386 Accrued compensation 80 171 Other ( 59 ) 69 Section 174 Costs 3,799 - Valuation allowance ( 87,597 ) ( 92,091 ) Total deferred tax assets 1,688 1,033 Deferred tax liabilities: Goodwill amortization ( 1,688 ) ( 1,558 ) Net deferred tax liability $ - $ ( 525 ) Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss carryforwards. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. The Company has recorded goodwill as a result of its acquisitions. Goodwill is generally not amortized for financial reporting purposes. However, in 2023 the Company recorded a $ 42 million goodwill impairment charge, which partially reduced the basis of the tax-deductible goodwill. For tax purposes, goodwill from asset acquisitions is tax deductible and amortized over 15 years. As such, deferred income tax expense and a deferred tax liability arise as a result of the tax-deductibility of this indefinitely lived asset (also known as a naked credit). The resulting deferred tax liability, which is expected to continue to increase over the amortization period, will have an indefinite life. As a result of the Company having indefinite life net operating losses 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. Due to the fact that the aforementioned deferred tax liability could have an indefinite life, it is not netted against the Company’s deferred tax assets when determining the required valuation allowance in accordance with ASC 740 guidelines. Doing so would result in the understatement of the valuation allowance and related deferred income tax expense. F- 32 A reconciliation of the federal statutory income tax rate ( 21 %) to the Company’s effective income tax rate (determined in dollars) for the years ended December 31, 2023 and 2022 is as follows: SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION Year Ended December 31, 2023 2022 ($ in thousands) Federal (benefit) provision at statutory rate $ ( 10,298 ) $ 1,178 Increase (decrease) in income taxes resulting from: State tax expense, net of federal benefit 7,383 77 Non-deductible items 26 20 Impact of foreign operations 50 ( 137 ) Subpart F GILTI inclusion 804 62 Stock based compensation 18 239 Change in contingent consideration - ( 649 ) Goodwill impairment charges 5,692 - Deferred true-up 455 858 Valuation allowance ( 4,494 ) ( 1,471 ) Total income tax (benefit) provision $ ( 364 ) $ 177 At December 31, 2023 and 2022, the Company did not record any uncertain tax positions based on the technical merits. Therefore, a tabular roll forward was excluded and there has been no accrued interest and penalties. The Company is subject to taxation in the United States, various states, Pakistan and Sri Lanka. As of December 31, 2023, all tax years since 2014 remain open to examination due to the carryover of unused net operating losses and tax credits in the United States by major taxing jurisdictions in which the Company is subject to tax. For the first six months of 2022, the Pakistan Federal Board of Revenue allowed a 100 % tax credit against earnings from IT activities, which precludes the Pakistan subsidiaries from being subject to income taxes. A new tax became effective July 1, 2022, whereby IT companies are subject to a 0.25% tax deducted at the source on receipts received from foreign sources with no further tax being due . It is the Company’s policy that any assessed penalties and interest on uncertain tax positions would be charged to income tax expense. The former Pakistan tax credit and foreign receipts tax does not have a significant impact on the Company’s effective tax rate as all of its earnings in Pakistan have been fully included in the U.S. federal tax rate reconciliation at 21 % for 2023 and 2022. The Pakistan statutory corporate tax rate is 29 % before consideration of the aforementioned tax credit and the foreign receipts tax. As of December 31, 2023, the Company has a total federal NOL carry forward of approximately $ 274 million of which approximately $ 198 million will expire between 2034 and 2037, and the balance of approximately $ 76 million has an indefinite life. Out of the total federal NOL carry forward, approximately $ 238 million is from the CareCloud and Meridian acquisitions and is subject to the federal Section 382 NOL annual usage limitations. The Company has state NOL carry forwards of approximately $ 199 million, of which $ 86 million relates to the State of New Jersey. These NOLs expire starting in 2025. The Company has a full valuation allowance on its deferred tax assets in the U.S. which results in there being no U.S. deferred tax assets or liabilities recorded on the consolidated balance sheet at December 31, 2023. As of December 31, 2022, the Company recorded a deferred tax liability related to the amortization of goodwill. 17. OTHER EXPENSE – NET Other expense - net for the years ended December 31, 2023 and 2022 consisted of the following: SCHEDULE OF OTHER (EXPENSE) INCOME - NET 2023 2022 Year Ended December 31, 2023 2022 ($ in thousands) Foreign exchange losses $ ( 790 ) $ ( 610 ) Other expense ( 93 ) ( 27 ) Other expense - net $ ( 883 ) $ ( 637 ) F- 33 Foreign currency transaction gains and losses primarily result 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. 18. SEGMENT REPORTING The Company’s Chief Executive Officer and Executive Chairman serve as the CODM, organize the Company, manage resource allocations and measure performance among two operating and reportable segments: (i) Healthcare IT and (ii) Medical Practice Management. The Healthcare IT segment includes technology-assisted revenue cycle management, SaaS solutions and other services. The Medical Practice Management segment includes the management of three medical practices. Each segment is considered a reporting unit. The CODM evaluates the financial performance of the business units on the basis of revenue and direct operating costs excluding unallocated amounts, which are mainly corporate overhead costs. Our CODM does not evaluate operating segments using asset or liability information. The accounting policies of the segments are the same as those disclosed in the summary of significant accounting policies. The following tables present revenues, operating expenses and operating income (loss) by reportable segment for the years ended December 31, 2023 and 2022: SCHEDULE OF REVENUES, OPERATING EXPENSES AND OPERATING INCOME (LOSS) BY REPORTABLE SEGMENT Healthcare IT Medical Practice Management Unallocated Corporate Expenses Total Year Ended December 31, 2023 ($ in thousands) Healthcare IT Medical Practice Management Unallocated Corporate Expenses Total Net revenue $ 103,683 $ 13,376 $ - $ 117,059 Operating expenses: Direct operating costs 60,319 10,498 - 70,817 Selling and marketing 9,614 36 - 9,650 General and administrative 10,992 1,854 8,618 21,464 Research and development 4,736 - - 4,736 Change in contingent consideration Depreciation and amortization 14,046 356 - 14,402 Goodwill impairment charges 42,000 - - 42,000 Loss on lease terminations, unoccupied lease charges and restructuring costs 1,105 - - 1,105 Total operating expenses 142,812 12,744 8,618 164,174 Operating (loss) income $ ( 39,129 ) $ 632 $ ( 8,618 ) $ ( 47,115 ) Healthcare IT Medical Practice Management Unallocated Corporate Expenses Total Year Ended December 31, 2022 ($ in thousands) Healthcare IT Medical Practice Management Unallocated Corporate Expenses Total Net revenue $ 125,276 $ 13,550 $ - $ 138,826 Operating expenses: Direct operating costs 73,702 10,732 - 84,434 Selling and marketing 9,760 28 - 9,788 General and administrative 12,558 1,802 9,460 23,820 Research and development 4,401 - - 4,401 Change in contingent consideration ( 3,090 ) - - ( 3,090 ) Depreciation and amortization 11,368 357 - 11,725 Net loss on lease terminations and unoccupied lease charges 1,138 - - 1,138 Loss on lease terminations, unoccupied lease charges and restructuring costs 1,138 - - 1,138 Total operating expenses 109,837 12,919 9,460 132,216 Operating income (loss) $ 15,439 $ 631 $ ( 9,460 ) $ 6,610 F- 34 19. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market participant assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair values of assets and liabilities required to be measured at fair value are categorized based upon the level of judgement associated with the inputs used to measure their value in one of the following three categories: Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. We held no Level 1 financial instruments at December 31, 2023 or December 31, 2022. Level 2: Quoted prices for similar instruments in active markets with inputs that are observable, either directly or indirectly. Our Level 2 financial instruments include notes payable which are carried at cost and approximate fair value since the interest rates being charged approximate market rates. Level 3: Unobservable inputs are significant to the fair value of the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Our Level 3 instruments include the fair value of contingent consideration related to completed acquisitions. There was no contingent consideration recorded at December 31, 2023 and 2022. The following table provides a reconciliation of the beginning and ending balances for the contingent consideration measured at fair value using significant unobservable inputs (Level 3): SCHEDULE OF FAIR VALUE, LIABILITIES MEASURED ON RECURRING BASIS, UNOBSERVABLE INPUT RECONCILIATION Fair Value Measurement at Reporting Date Using Significant Unobservable Inputs, Level 3 Year Ended December 31, 2023 2022 ($ in thousands) Balance - January 1, $ - $ 3,090 Acquisitions - - Change in fair value - ( 3,090 ) Payments - - Balance - December 31, $ - $ - The following table provides the assets and liabilities carried at fair value measured on a non-recurring basis as of December 31, 2023. Refer to Note 2 - Basis of Presentation and Significant Accounting Policies, for a description of the valuation techniques used to determine the fair value of the assets measured on a non-recurring basis in the table below. FAIR VALUE OF THE ASSETS MEASURED ON A NON-RECURRING BASIS Fair Value Measurement at December 31, 2023 Expense for the year ended Carrying Value Level 1 Level 2 Level 3 December 31, 2023 ($ in thousands) Goodwill - Healthcare IT $ 19,186 $ - $ - $ 19,186 $ 42,000 20. SUBSEQUENT EVENTS Effective January 9, 2024, and as amended February 12, 2024, the Company entered into a Consulting Agreement with an entity owned and controlled by a member of its Board of Directors to provide investor relations services for $ 8,000 per month and other services as requested by the Company to be paid on an hourly basis. The Consulting Agreement is cancelable with ten days’ notice. Effective February 1, 2024, MAC and its wholly owned subsidiary were merged into CCI. Also effective February 1, 2024, the Company added an additional Statement of Work (“SOW”) to the Consulting Agreement with an entity owned and controlled by one of its former non-independent directors. As compensation for the SOW, the entity will receive $ 25,000 per month. The SOW is cancelable with ten days’ notice. (See Note 12.) F- 35