CareCloud(CCLD) - 2022 Q1 - Quarterly Report

Forward-Looking Statements Forward-looking statements in this report are subject to substantial risks and uncertainties that may cause actual results to differ materially - Forward-looking statements in this report are predictions subject to substantial known and unknown risks and uncertainties, which may cause actual results to differ materially[9][10] - Key risk factors include managing growth, retaining clients, maintaining offshore operations, adapting to the rapidly changing healthcare industry, regulatory compliance, data privacy, technology development, attracting and retaining key personnel, complying with debt covenants, paying preferred dividends, competition, the impact of the COVID-19 pandemic, and market acceptance of products and services[10] PART I. FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and related management discussion and analysis Item 1. Consolidated Financial Statements (Unaudited) This section presents CareCloud's unaudited consolidated financial statements and detailed notes for Q1 2022 and 2021 Consolidated Balance Sheets Total assets increased slightly, while liabilities decreased, leading to a 4.45% rise in shareholders' equity | Metric | March 31, 2022 ($ in thousands) | December 31, 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :---------------------- | :------------------------------ | :--------------------------------- | :---------------------- | :--------- | | Total Assets | 141,215 | 140,848 | 367 | 0.26% | | Total Liabilities | 38,922 | 42,917 | (3,995) | -9.31% | | Total Shareholders' Equity | 102,293 | 97,931 | 4,362 | 4.45% | - Total assets increased slightly by $367 thousand, while total liabilities decreased by nearly $4 million, leading to a 4.45% increase in total shareholders' equity from December 31, 2021, to March 31, 2022[15][16] Consolidated Statements of Operations Net income of $1.14 million in Q1 2022 marks a significant turnaround from a net loss in Q1 2021 | Metric (Three Months Ended March 31) | 2022 ($ in thousands) | 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net Revenue | 35,341 | 29,768 | 5,573 | 18.72% | | Total Operating Expenses | 34,125 | 31,449 | 2,676 | 8.51% | | Operating Income (Loss) | 1,216 | (1,681) | 2,897 | -172.34% | | Net Income (Loss) | 1,140 | (1,964) | 3,104 | -158.04% | | Net Loss Attributable to Common Shareholders | (2,897) | (5,092) | 2,195 | -43.11% | | Net Loss Per Common Share (Basic & Diluted) | (0.19) | (0.36) | 0.17 | -47.22% | - The company achieved a net income of $1.14 million in Q1 2022, a significant turnaround from a net loss of $1.96 million in Q1 2021, driven by an 18.72% increase in net revenue[20] - Net loss per common share improved by 47.22%, from ($0.36) in Q1 2021 to ($0.19) in Q1 2022[20] Consolidated Statements of Comprehensive Income (Loss) Comprehensive income shifted from a loss in Q1 2021 to an income of $885 thousand in Q1 2022 | Metric (Three Months Ended March 31) | 2022 ($ in thousands) | 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net Income (Loss) | 1,140 | (1,964) | 3,104 | -158.04% | | Foreign Currency Translation Adjustment | (255) | 345 | (600) | -173.91% | | Comprehensive Income (Loss) | 885 | (1,619) | 2,504 | -154.66% | - Comprehensive income shifted from a loss of $1.619 million in Q1 2021 to an income of $885 thousand in Q1 2022, despite a negative foreign currency translation adjustment of $255 thousand[21] Consolidated Statements of Shareholders' Equity Shareholders' equity increased to $102.293 million by March 31, 2022, driven by net income and preferred stock activity | Metric (Three Months Ended March 31, 2022) | Amount ($ in thousands) | | :----------------------------------------- | :---------------------- | | Balance - January 1, 2022 | 97,931 | | Net Income | 1,140 | | Foreign currency translation adjustment | (255) | | Stock-based compensation | 887 | | Redemption of Series A Preferred Stock | (20,000) | | Issuance of Series B Preferred Stock | 26,638 | | Preferred stock dividends | (4,037) | | Balance - March 31, 2022 | 102,293 | - Shareholders' equity increased to $102.293 million by March 31, 2022, primarily due to the net income and the net effect of issuing Series B Preferred Stock ($26.638 million) and redeeming Series A Preferred Stock ($20 million)[24] Consolidated Statements of Cash Flows Operating cash flow significantly increased by 222% in Q1 2022, with financing activities shifting to a net outflow | Metric (Three Months Ended March 31) | 2022 ($ in thousands) | 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net Cash Provided by Operating Activities | 3,087 | 958 | 2,129 | 222.23% | | Net Cash Used in Investing Activities | (2,797) | (2,219) | (578) | 26.05% | | Net Cash (Used in) Provided by Financing Activities | (342) | 1,157 | (1,499) | -129.56% | | Net (Decrease) Increase in Cash and Restricted Cash | (204) | 70 | (274) | -391.43% | - Net cash provided by operating activities significantly increased by 222% to $3.087 million in Q1 2022, compared to $958 thousand in Q1 2021[29][217] - Financing activities shifted from providing $1.157 million in cash in Q1 2021 to using $342 thousand in Q1 2022, primarily due to the net effect of Series B Preferred Stock issuance and Series A redemption[29][221] Notes to Consolidated Financial Statements Detailed notes explain the company's organization, accounting policies, acquisitions, debt, leases, and other financial disclosures 1. ORGANIZATION AND BUSINESS CareCloud, Inc. is a healthcare IT company providing cloud-based solutions and services, expanded through strategic acquisitions - CareCloud, Inc. is a healthcare information technology company providing proprietary cloud-based solutions (RCM, PM, EHR, telehealth, PXM) and related business services to healthcare providers and hospitals in the U.S., with offshore offices in Pakistan and Sri Lanka[31] - The company has expanded through acquisitions, including CareCloud Corporation (2020), Meridian Billing Management Co. (2020), and MedMatica Consulting Associates Inc. / Santa Rosa Staffing, Inc. (2021)[33][34] 2. BASIS OF PRESENTATION Unaudited consolidated financial statements are prepared under GAAP for interim reporting, relying on management's estimates and assumptions - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim reporting, relying on management's estimates and assumptions[35] - The company adopted ASU 2019-12 (Simplifying the Accounting for Income Taxes) effective January 1, 2021, with no material impact on financial statements[40] - The company is currently evaluating the potential impact of ASU 2016-13 (Credit Losses) and ASU 2021-08 (Business Combinations) for future fiscal years[39][42] 3. ACQUISITIONS The MedMatica and SRS acquisition in June 2021 for $10 million cash expanded consulting services, contributing $7.3 million in Q1 2022 revenue - In June 2021, CareCloud acquired MedMatica and SRS for $10 million cash plus a $3.8 million working capital adjustment, with potential earn-outs up to $13 million based on EBITDA and revenue targets[43] - The acquisition expanded consulting services in healthcare IT, practice management, and RCM, contributing approximately $7.3 million in revenue for the three months ended March 31, 2022[45][50] | Metric | March 31, 2022 ($ in thousands) | December 31, 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------- | :------------------------------ | :--------------------------------- | :---------------------- | :--------- | | Contingent Consideration (Fair Value) | 2,490 | 3,090 | (600) | -19.42% | 4. GOODWILL AND INTANGIBLE ASSETS-NET Goodwill remained stable, while net intangible assets decreased slightly due to approximately $2.5 million in Q1 2022 amortization expense | Metric | March 31, 2022 ($ in thousands) | December 31, 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------- | :------------------------------ | :--------------------------------- | :---------------------- | :--------- | | Goodwill (Ending Gross Balance) | 61,186 | 61,186 | 0 | 0.00% | | Intangible Assets - Net | 30,487 | 30,778 | (291) | -0.94% | | Accumulated Amortization | 42,129 | 39,647 | 2,482 | 6.26% | - Amortization expense for intangible assets was approximately $2.5 million for Q1 2022, with a weighted-average amortization period of three years[55] | Year Ending December 31 | Scheduled Amortization ($ in thousands) | | :---------------------- | :-------------------------------------- | | 2022 (nine months) | 10,272 | | 2023 | 10,786 | | 2024 | 6,765 | | 2025 | 1,314 | | 2026 | 300 | | Thereafter | 1,050 | | Total | 30,487 | 5. NET LOSS PER COMMON SHARE Net loss per common share (basic and diluted) improved to ($0.19) in Q1 2022 from ($0.36) in Q1 2021 | Metric (Three Months Ended March 31) | 2022 ($ in thousands, except per share) | 2021 ($ in thousands, except per share) | Change ($) | Change (%) | | :----------------------------------- | :-------------------------------------- | :-------------------------------------- | :--------- | :--------- | | Net Loss Attributable to Common Shareholders | (2,897) | (5,092) | 2,195 | -43.11% | | Weighted-Average Common Shares | 14,992,147 | 14,084,749 | 907,398 | 6.44% | | Net Loss Per Common Share (Basic & Diluted) | (0.19) | (0.36) | 0.17 | -47.22% | - The net loss per common share (basic and diluted) improved to ($0.19) in Q1 2022 from ($0.36) in Q1 2021[57] 6. DEBT The company has a $20 million revolving line of credit with SVB, with $6 million borrowed in Q1 2022 and subsequently repaid - The company has a $20 million revolving line of credit with Silicon Valley Bank (SVB); $6 million was borrowed as of March 31, 2022, and subsequently repaid in early April[59] - The SVB credit agreement was modified in January 2022 to allow for the issuance of Series B Preferred Stock and the redemption of Series A Preferred Stock[61] - The company was in compliance with all SVB debt covenants as of March 31, 2022, and 2021[60] 7. LEASES Total net lease cost decreased by 5.90% in Q1 2022, with cash paid for operating leases also showing a reduction | Metric (Three Months Ended March 31) | 2022 ($ in thousands) | 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total Net Lease Cost | 1,021 | 1,085 | (64) | -5.90% | | Metric (Operating Leases) | March 31, 2022 | December 31, 2021 | | :------------------------------------ | :------------- | :---------------- | | Operating Lease ROU Assets, Net ($ in thousands) | 6,507 | 6,940 | | Total Operating Lease Liabilities ($ in thousands) | 7,732 | 8,508 | | Weighted Average Remaining Lease Term (years) | 4.54 | 4.26 | | Weighted Average Discount Rate | 6.74% | 6.76% | - Cash paid for operating leases decreased to $1.212 million in Q1 2022 from $1.396 million in Q1 2021[74] 8. COMMITMENTS AND CONTINGENCIES A subsidiary faces an arbitration claim for $9.8 million to $10.8 million related to a billing services agreement breach - MAC, a subsidiary, is involved in an arbitration proceeding with RPRWC, which alleges breach of a billing services agreement and claims damages ranging from $9.8 million to $10.8 million; MAC plans to vigorously defend against the claim[79][80] - The company settled a pre-acquisition civil investigation related to CareCloud Health, Inc. for $4.2 million in April 2021, which was substantially covered by escrowed funds[81] 9. RELATED PARTIES Related party transactions include sales of $5,000 and rent expense of $51,000 in Q1 2022, primarily with the Executive Chairman's wife - The company had sales of approximately $5,000 to a related party (wife of the Executive Chairman) in Q1 2022[83] - Related party rent expense for Q1 2022 was approximately $51,000 for corporate offices and other facilities leased from the Executive Chairman[86] - talkMD Clinicians, PA, a variable interest entity controlled by the company and formed by the Executive Chairman's wife for telehealth services, has not yet commenced operations[89] 10. SHAREHOLDERS' EQUITY In Q1 2022, the company generated $26.6 million from Series B Preferred Stock issuance, using $20 million to redeem Series A Preferred Stock - In Q1 2022, the company sold 1,150,372 shares of Series B Preferred Stock, generating $26.6 million in net proceeds[90] - A portion of the proceeds ($20 million) was used to redeem 800,000 shares of Series A Preferred Stock at $25.00 per share[90] - The company has 'at-the-market' facilities to sell up to $35 million of Series B Preferred Stock and $50 million of common stock[92] 11. REVENUE Revenue is recognized from five primary sources, with professional services revenue seeing a substantial 1247.49% increase in Q1 2022 - Revenue is recognized in accordance with ASC 606 from five primary sources: technology-enabled business solutions, professional services, printing and mailing, group purchasing, and medical practice management services[95][98] | Revenue Source (Three Months Ended March 31) | 2022 ($ in thousands) | 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Technology-enabled business solutions | 23,242 | 25,845 | (2,603) | -10.07% | | Professional services | 8,314 | 617 | 7,697 | 1247.49% | | Printing and mailing services | 463 | 383 | 80 | 20.89% | | Group purchasing services | 134 | 188 | (54) | -28.72% | | Medical practice management services | 3,188 | 2,735 | 453 | 16.56% | | Total Net Revenue | 35,341 | 29,768 | 5,573 | 18.72% | - Professional services revenue saw a substantial increase of 1247.49% year-over-year, reaching $8.314 million in Q1 2022[102] 12. STOCK-BASED COMPENSATION Total stock-based compensation expense decreased by 29.99% to $887 thousand in Q1 2022, despite new RSU grants - In Q1 2022, 360,398 common stock RSUs and 34,000 Series B Preferred Stock RSUs were granted under the Equity Incentive Plan[126] | Stock-Based Compensation Expense (Three Months Ended March 31) | 2022 ($ in thousands) | 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Direct operating costs | 217 | 305 | (88) | -28.85% | | General and administrative | 380 | 624 | (244) | -39.10% | | Research and development | 70 | 137 | (67) | -48.91% | | Selling and marketing | 220 | 201 | 19 | 9.45% | | Total Stock-Based Compensation Expense | 887 | 1,267 | (380) | -29.99% | - Total stock-based compensation expense decreased by 29.99% to $887 thousand in Q1 2022 from $1.267 million in Q1 2021[128] 13. INCOME TAXES The company recorded an income tax expense of $64 thousand in Q1 2022, primarily due to state minimum and foreign income taxes | Income Tax (Three Months Ended March 31) | 2022 ($ in thousands) | 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :--------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Income Tax Provision (Benefit) | 64 | (1) | 65 | -6500.00% | - The company recorded an income tax expense of $64 thousand in Q1 2022, compared to a benefit of $1 thousand in Q1 2021, primarily due to state minimum and foreign income taxes[129][131] - A valuation allowance is maintained against federal and state deferred tax assets due to historical cumulative losses and uncertainty regarding future U.S. taxable income[133][186] 14. FAIR VALUE OF FINANCIAL INSTRUMENTS Contingent consideration, a Level 3 financial instrument, was valued at $2.49 million as of March 31, 2022, using a Monte Carlo simulation - The company's Level 3 financial instrument, contingent consideration related to acquisitions, was valued at $2.49 million as of March 31, 2022, using a Monte Carlo simulation model[136][138] | Contingent Consideration (Level 3) | March 31, 2022 ($ in thousands) | January 1, 2022 ($ in thousands) | Change ($ in thousands) | Change (%) | | :--------------------------------- | :------------------------------ | :------------------------------- | :---------------------- | :--------- | | Balance | 2,490 | 3,090 | (600) | -19.42% | 15. SEGMENT REPORTING The company operates in two segments: Healthcare IT and Medical Practice Management, with Healthcare IT generating most revenue and operating income - The company operates in two reportable segments: Healthcare IT (revenue cycle management, SaaS solutions) and Medical Practice Management (management of three medical practices)[140][141] | Segment (Three Months Ended March 31, 2022) | Net Revenue ($ in thousands) | Operating Income (Loss) ($ in thousands) | | :------------------------------------------ | :--------------------------- | :--------------------------------------- | | Healthcare IT | 32,153 | 2,971 | | Medical Practice Management | 3,188 | (7) | | Unallocated Corporate Expenses | — | (1,748) | | Total | 35,341 | 1,216 | | Segment (Three Months Ended March 31, 2021) | Net Revenue ($ in thousands) | Operating Income (Loss) ($ in thousands) | | :------------------------------------------ | :--------------------------- | :--------------------------------------- | | Healthcare IT | 27,033 | (55) | | Medical Practice Management | 2,735 | 52 | | Unallocated Corporate Expenses | — | (1,678) | | Total | 29,768 | (1,681) | 16. SUBSEQUENT EVENT Effective April 1, 2022, the company established a new wholly-owned subsidiary, MTBC Bagh (Private) Limited, in Azad Jammu and Kashmir - Effective April 1, 2022, the company created a new wholly-owned subsidiary, MTBC Bagh (Private) Limited, in Azad Jammu and Kashmir to manage local operations[144] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 financial condition and results, highlighting revenue growth, operating income shift, and key performance measures COVID-19 Pandemic The COVID-19 pandemic did not materially adversely affect Q1 2022 financial results, though economic and health conditions remain uncertain - The COVID-19 pandemic did not materially adversely affect the company's consolidated financial results and operations during Q1 2022, but economic and health conditions remain uncertain[148][150] - The company expanded its telehealth operations as an alternative to office visits, though the extent of its use by physicians varies[148] Overview CareCloud provides an integrated SaaS platform to approximately 40,000 providers, leveraging proprietary software and a global workforce for competitive pricing - CareCloud provides an integrated SaaS platform including RCM, PM, EHR, business intelligence, telehealth, and PXM solutions to healthcare providers and hospitals[151] - The company serves an estimated 40,000 providers across approximately 2,600 independent medical practices and hospitals, and 200 non-medical practice clients[158] - Competitive pricing is achieved by leveraging proprietary software and a global workforce, including approximately 3,400 offshore team members in Pakistan and Sri Lanka, whose labor costs are significantly lower than in the U.S[157][164] Key Performance Measures (Non-GAAP) Management uses non-GAAP metrics like Adjusted EBITDA and Adjusted Operating Income to analyze underlying business results, showing significant increases in Q1 2022 - Management uses non-GAAP financial measures such as Adjusted EBITDA, Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income, and Adjusted Net Income Per Share to analyze underlying business results, excluding specific non-operating and non-cash items[165][168][169][171] | Non-GAAP Metric (Three Months Ended March 31) | 2022 ($ in thousands, except per share) | 2021 ($ in thousands, except per share) | Change ($ in thousands) | Change (%) | | :-------------------------------------------- | :-------------------------------------- | :-------------------------------------- | :---------------------- | :--------- | | Adjusted EBITDA | 4,730 | 3,691 | 1,039 | 28.15% | | Non-GAAP Adjusted Operating Income | 3,568 | 2,971 | 597 | 20.09% | | Non-GAAP Adjusted Operating Margin | 10.1% | 10.0% | 0.1% | 1.00% | | Non-GAAP Adjusted Net Income | 3,472 | 2,896 | 576 | 19.90% | | Non-GAAP Adjusted Diluted Earnings Per Share | 0.22 | 0.17 | 0.05 | 29.41% | - Adjusted EBITDA increased by 28.15% to $4.73 million, and Non-GAAP Adjusted Operating Income increased by 20.09% to $3.568 million in Q1 2022[169] Key Metrics As of March 31, 2022, the company served an estimated 40,000 providers across 2,600 medical practices and hospitals, plus 200 non-medical clients - As of March 31, 2022, the company provided services to an estimated 40,000 providers across approximately 2,600 independent medical practices and hospitals, and served about 200 non-medical practice clients[176] Sources of Revenue Subscription-based technology solutions accounted for 66% of Q1 2022 revenues, with medical practice management consistently contributing 9% - Subscription-based technology-enabled business solutions (RCM, EHR, PM) accounted for 66% of Q1 2022 revenues, while other healthcare IT services (professional services, printing/mailing, group purchasing) contributed 25%[178] - Medical practice management services consistently generated 9% of total revenue in both Q1 2022 and Q1 2021[179] Operating Expenses Operating expenses primarily include salaries, benefits, claims processing, and R&D, with amortization charged over three to twelve years for intangible assets - Direct operating costs primarily include salaries, benefits, claims processing, and costs to operate managed practices[180] - Research and development expense consists mainly of personnel-related costs, software expense, and third-party contractor costs[182] - Amortization expense is charged over three to twelve years for most intangible assets, including customer contracts and medical practice management clients[183] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgments for leases and capitalized software costs, with $13.1 million in internally-developed software in use - Critical accounting policies involve significant judgments and estimates for leases (ROU assets, lease liabilities, incremental borrowing rates) and capitalized software costs (capitalization criteria, useful lives)[187][189][193][195] - Costs for internally-developed software are capitalized during the application development stage when new or additional functionality is probable and amortized over an estimated three-year useful life[194][195] - As of March 31, 2022, the carrying amount of internally-developed capitalized software in use was $13.1 million, reflecting continued investment in proprietary technology[197] Results of Operations (Comparison of the three months ended March 31, 2022 and 2021) Net revenue increased by 19% to $35.341 million, with a significant decrease in research and development expense due to capitalization | Metric (Three Months Ended March 31) | 2022 ($ in thousands) | 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net Revenue | 35,341 | 29,768 | 5,573 | 19% | | Direct Operating Costs | 22,673 | 18,060 | 4,613 | 26% | | Selling and Marketing | 2,384 | 1,890 | 494 | 26% | | General and Administrative | 5,585 | 5,624 | (39) | -1% | | Research and Development | 985 | 2,026 | (1,041) | -51% | | Change in Contingent Consideration | (600) | 0 | (600) | -100% | | Depreciation and Amortization | 2,940 | 2,831 | 109 | 4% | | Net Loss on Lease Termination, Impairment and Unoccupied Lease Charges | 158 | 1,018 | (860) | -84% | | Total Operating Expenses | 34,125 | 31,449 | 2,676 | 9% | | Operating Income (Loss) | 1,216 | (1,681) | 2,897 | -172% | - Net revenue increased by 19% to $35.341 million, with approximately $7.3 million attributed to the medSR acquisition[201] - Research and development expense decreased by 51% due to a shift from maintenance to new technology development, with $2.3 million capitalized in Q1 2022[206] Liquidity and Capital Resources As of March 31, 2022, the company had $10.1 million in cash and $8.7 million in positive working capital, with significant preferred stock transactions - As of March 31, 2022, the company had $10.1 million in cash and restricted cash and $8.7 million in positive working capital[215] | Cash Flow (Three Months Ended March 31) | 2022 ($ in thousands) | 2021 ($ in thousands) | Change ($ in thousands) | Change (%) | | :-------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net Cash Provided by Operating Activities | 3,087 | 958 | 2,129 | 222% | | Net Cash Used in Investing Activities | (2,797) | (2,219) | (578) | 26% | | Net Cash (Used in) Provided by Financing Activities | (342) | 1,157 | (1,499) | -130% | - The company received $26.6 million in net proceeds from the sale of Series B Preferred Stock and used $20 million to redeem Series A Preferred Stock[215][221] Contractual Obligations and Commitments The company has contractual obligations under its SVB line of credit and operating leases, remaining in compliance with all covenants - The company has contractual obligations under its SVB line of credit and operating leases for property and equipment, and was in compliance with all SVB covenants as of March 31, 2022[222] Off-Balance Sheet Arrangements As of March 31, 2022, the company had no off-balance sheet arrangements, though a controlled variable interest entity has not yet commenced operations - As of March 31, 2022, the company had no relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements, though talkMD Clinicians, PA, a controlled variable interest entity, has not yet commenced operations[223] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, CareCloud, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - The company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[224] Item 4. Controls and Procedures Disclosure controls were ineffective as of March 31, 2022, due to a material weakness in internal control over financial reporting, though remediation was completed Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures were deemed ineffective as of March 31, 2022, due to a material weakness in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to a material weakness in internal control over financial reporting[228] - The material weakness was attributed to a lack of controls over the completeness and accuracy of key inputs related to non-routine transactions[228] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting occurred during the most recent fiscal quarter - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[229] Remediation of a Material Weakness in Internal Control over Financial Reporting Remediation measures, including enhanced processes and controls for non-routine transactions, were completed as of March 31, 2022 - Remediation measures, including enhanced processes and controls with more detailed reviews and increased communication for non-routine transactions, were completed as of March 31, 2022, to address the material weakness[230] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other miscellaneous information and exhibits Item 1. Legal Proceedings Legal proceedings are incorporated by reference from Note 8, Commitments and Contingencies, in the Consolidated Financial Statements - Legal proceedings are detailed in Note 8 of the Consolidated Financial Statements, primarily concerning an arbitration claim against a subsidiary (MAC)[233] Item 1A. Risk Factors Readers are referred to the comprehensive discussion of risk factors in the Annual Report on Form 10-K, which may be impacted by the pandemic - Readers should carefully consider the risk factors discussed in the Annual Report on Form 10-K, which may be further impacted by the coronavirus pandemic[234] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In March 2022, the company redeemed 800,000 shares of Series A Preferred Stock at an average price of $25.1375 per share | Metric (March 2022) | Value | | :----------------------------------- | :----------- | | Total Series A Preferred Stock Redeemed | 800,000 shares | | Average Price Paid Per Share | $25.1375 | - The redemption of 800,000 shares of Series A Preferred Stock was announced on February 15, 2022, and completed on March 18, 2022[235] Item 3. Defaults Upon Senior Securities This item is not applicable to the company - This item is not applicable to the company[236] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[237] Item 5. Other Information This item is not applicable to the company - This item is not applicable to the company[238] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Sixth Loan Modification Agreement with SVB and various XBRL interactive data files - Exhibits include the Sixth Loan Modification Agreement with SVB (Exhibit 10.19) and certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2)[240] - XBRL Instance, Taxonomy Extension Schema, Calculation Linkbase, Label Linkbase, Presentation Linkbase, and Definition Linkbase are included as exhibits[240] Signatures The report was signed on May 9, 2022, by the Chief Executive Officer and Chief Financial Officer of CareCloud, Inc - The report was signed on May 9, 2022, by A. Hadi Chaudhry, Chief Executive Officer, and Bill Korn, Chief Financial Officer, on behalf of CareCloud, Inc[245]