CareCloud, Inc S-1/A, filed Jul 16, 2020

CareCloud, Inc. (CCLD)

S-1/A 2020-07-16

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	Emerging growth company [ ]

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price			Amount of Registration Fee ⁽²⁾

Series A Preferred Stock, $0.001 par value per share	$	23,000,000	⁽¹⁾	$	2,985	⁽³⁾

(1)	Includes up to $3.0 million of Series A Preferred Stock to be sold upon exercise of the underwriters’ option to purchase additional shares at an exercise price of the public offering price less the underwriting discount.
(2)	Calculated pursuant to Rule 457(o) based on the proposed maximum aggregate offering price.
(3)	A registration fee of $2,985 was previously paid.

	Total
	Per Share		No Exercise		Full Exercise
Public offering price	$	25.00	$	20,000,000	$	23,000,000
Underwriting discount (1)	$	1.50	$	1,200,000	$	1,380,000
Proceeds, before expenses, to MTBC	$	23.50	$	18,800,000	$	21,620,000

		Page
Special Note Regarding Forward-Looking Statements		ii
Prospectus Summary		1
The Offering		6
Risk Factors		10
Use of Proceeds		30
Capitalization		31
Unaudited Pro Forma Condensed Combined Financial Information		32
Market Price of and Dividends on the Series A Preferred Stock		40
Description of our Capital Stock		41
Description of the Series A Preferred Stock		44
Certain U.S. Federal Income Tax Considerations		51
Underwriting		56
Legal Matters		58
Experts		58
Where You Can Find More Information		58
Incorporation of Information by Reference		59
Disclosure of Commission Position on Indemnification for Securities Act Liabilities		59

	Filed pursuant to Rule 424(b)(3)
PRELIMINARY PROSPECTUS	Registration No. 333-239788

	●	our ability to manage our growth, including acquiring, partnering with, and effectively integrating the recent acquisitions of CareCloud Corporation, Meridian Medical Management and other acquired businesses into our infrastructure and avoiding legal exposure and liabilities associated with acquired companies and assets;

	●	our ability to retain our clients and revenue levels, including effectively migrating new clients and maintaining or growing the revenue levels of our new and existing clients;

	●	our ability to maintain operations in Pakistan and Sri Lanka in a manner that continues to enable us to offer competitively priced products and services;

	●	our ability to keep pace with a rapidly changing healthcare industry;

	●	our ability to consistently achieve and maintain compliance with a myriad of federal, state, foreign, local, payor and industry requirements, regulations, rules, laws and contracts;

	●	our ability to maintain and protect the privacy of confidential and protected Company, client and patient information;

	●	our ability to develop new technologies, upgrade and adapt legacy and acquired technologies to work with evolving industry standards and third-party software platforms and technologies, and protect and enforce all of these and other intellectual property rights;

	●	our ability to attract and retain key officers and employees, and the continued involvement of Mahmud Haq as Executive Chairman and Stephen Snyder as Chief Executive Officer, all of which are critical to our ongoing operations, growing our business and integrating of our newly acquired businesses;

	●	our ability to comply with covenants contained in our credit agreement with our senior secured lender, Silicon Valley Bank and other future debt facilities;

	●	our ability to pay our monthly preferred dividends to the holders of our Series A Preferred Stock;

	●	our ability to compete with other companies developing products and selling services competitive with ours, and who may have greater resources and name recognition than we have;

	●	our ability to respond to the uncertainty resulting from the recent spread of the COVID-19 pandemic and the impact it may have on our operations, the demand for our services, and economic activity in general; and

	●	our ability to keep and increase market acceptance of our products and services.

●	Revenue cycle management (“RCM”) services, which include end-to-end medical billing, eligibility, analytics, and related services, all of which can often be provided either with our technology platform or through a third-party system;
●	Proprietary healthcare IT solutions, which are often bundled with our RCM services, including:
	○	Electronic health records (“EHR”), which are easy to use, integrated with our business services, and allow our healthcare provider clients to reduce paperwork;
	○	Practice management (“PM”) software and related tools, which support our clients’ day-to-day business operations and workflows;
	○	Mobile Health (“mHealth”) solutions, including smartphone applications that assist patients and healthcare providers in the provision of healthcare services;
	○	Telehealth solutions, which allow healthcare providers to conduct remote patient visits;
	○	Healthcare claims clearinghouse, which enables our clients to electronically scrub and submit claims to, and process payments from, insurance companies; and
	○	Business intelligence, customized applications, interfaces and a variety of other technology solutions that support our healthcare clients;
●	Group purchasing services which include our negotiation of discounts with pharmaceutical manufacturers and the extension of those discounts to our physician members; and
●	Comprehensive practice management services, which are offered under long-term management service agreements pursuant to which we provide certain practices with the administrative support, facilities, supplies, equipment, marketing, RCM, accounting, healthcare IT and other non-clinical services required to efficiently operate their practices.

	Actual												Pro Forma ⁽¹⁾
	Year ended December 31,						Three Months ended March 31,						Year ended December 31,			Three Months ended March 31,
	2018			2019			2019			2020			2019			2020
	(in thousands, except per share data)
Net revenue	$	50,546		$	64,439		$	15,080		$	21,867		$	99,860		$	22,485
Operating expenses:
Direct operating costs		31,253			41,186			9,848			13,567			65,071			13,910
Selling and marketing		1,612			1,522			361			1,580			8,304			1,688
General and administrative		16,264			17,912			4,161			5,593			24,822			5,464
Research and development		1,030			871			255			2,333			14,604			2,529
Change in contingent consideration		73			(344	)		(64	)		-			(344	)		-
Depreciation and amortization		2,854			3,006			757			1,333			7,453			1,065
Restructuring and impairment charges		-			219			-			298			219			298
Total operating expenses		53,086			64,372			15,318			24,704			120,129			24,954

Operating (loss) income		(2,540	)		67			(238	)		(2,837	)		(20,269	)		(2,469	)

Interest expense - net		(250	)		(121	)		(17	)		(80	)		(121	)		(80	)
Other income (expense) - net		494			(625	)		(81	)		445			(67	)		444
Loss before income taxes		(2,296	)		(679	)		(336	)		(2,472	)		(20,457	)		(2,105	)
Income tax (benefit) provision		(158	)		193			(40	)		30			211			30
Net loss	$	(2,138	)	$	(872	)	$	(296	)	$	(2,502	)	$	(20,668	)	$	(2,135	)

Preferred stock dividend		4,824			6,386			1,493			2,643			8,476			2,643
Net loss attributable to common shareholders	$	(6,962	)	$	(7,258	)	$	(1,789	)	$	(5,145	)	$	(29,144	)	$	(4,778	)

Net loss per common share, basic and diluted	$	(0.59	)	$	(0.60	)	$	(0.15	)	$	(0.42	)	$	(2.41	)	$	(0.39	)
Weighted average common shares used to compute basic and diluted loss per share		11,721			12,088			11,946			12,311			12,088			12,311

	As of March 31, 2020
	Actual		Pro Forma⁽²⁾		Pro Forma As Adjusted⁽³⁾
	(in thousands)
Cash	$	8,395	$	17,745	$	36,106
Working capital (net) ⁽⁴⁾		5,228		14,578		32,939
Total assets		89,833		99,183		117,544
Total debt		9,978		228		228
Shareholders’ equity		57,197		76,297		94,658

(2)	The pro forma condensed consolidated balance sheet data reflects the issuance of 828,000 shares of Series A Preferred Stock offered by prospectus filed on April 22, 2020, with net proceeds of approximately $19.1 million, after deducting underwriting fees and other offering expenses payable by us, utilizing a portion of the net proceeds to fully repay a $9.75 million outstanding line of credit.

(3)	The pro forma as adjusted condensed combined balance sheet data gives effect to our issuance and sale of 800,000 shares of Series A Preferred Stock in this offering at $25.00 per share, assuming net proceeds of approximately $18.4 million, after deducting the underwriting discount and estimated offering expenses payable by us.

(4)	Working capital is defined as current assets less current liabilities.

(5)	To provide investors with additional insight and allow for a more comprehensive understanding of the information used by management in its financial and operational decision-making, we supplement our consolidated financial statements presented on a basis consistent with U.S. generally accepted accounting principles, or GAAP, with adjusted EBITDA, a non-GAAP financial measure of earnings. Management uses adjusted EBITDA to provide an understanding of aspects of operating results before the impact of investing and financing charges and income taxes. Adjusted EBITDA may be useful to an investor in evaluating our operating performance and liquidity because this measure excludes non-cash expenses as well as expenses pertaining to investing or financing transactions. Management defines “adjusted EBITDA” as the sum of GAAP net income (loss) before provision for (benefit from) income taxes, net interest expense, foreign currency gains and losses, asset impairment charges and other non-operating expenses, stock-based compensation expense, depreciation and amortization including amortization of purchased intangible assets, integration costs, transaction costs, restructuring costs and changes in contingent consideration.

Issuer		MTBC, Inc.

Securities Offered		800,000 shares of 11% Series A Cumulative Redeemable Perpetual Preferred Stock (or “Series A Preferred Stock”). We have granted the underwriters the option for a period of up to 30 days to purchase up to an additional 120,000 shares at the public offering price less the underwriting discount.

Series A Preferred Stock to be outstanding after this offering ⁽¹⁾		5,162,383 shares of Series A Preferred Stock

Offering Price		$25.00 per share of Series A Preferred Stock

Dividends		Holders of the Series A Preferred Stock will be entitled to receive cumulative cash dividends at a rate of 11% per annum of the $25.00 per share liquidation preference (equivalent to $2.75 per annum per share). Dividends will be payable monthly on the 15^th day of each month (each, a “dividend payment date”), provided that if any dividend payment date is not a business day, then the dividend that would otherwise have been payable on that dividend payment date may be paid on the next succeeding business day without adjustment in the amount of the dividend. Dividends will be payable to holders of record as they appear in our stock records for the Series A Preferred Stock at the close of business on the corresponding record date, which shall be the last day of the calendar month, whether or not a business day, immediately preceding the month in which the applicable dividend payment date falls (each, a “dividend record date”). As a result, holders of shares of Series A Preferred Stock will not be entitled to receive dividends on a dividend payment date if such shares were not issued and outstanding on the applicable dividend record date. Any dividend payable on the Series A Preferred Stock, including dividends payable for any partial dividend period, will be computed on the basis of a 360-day year consisting of twelve 30-day months; however, the shares of Series A Preferred Stock offered hereby will be credited as having accrued dividends since the first day of the calendar month in which they are issued.

No Maturity, Sinking Fund or Mandatory Redemption		The Series A Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption. Shares of the Series A Preferred Stock will remain outstanding indefinitely unless we decide to redeem or otherwise repurchase them. We are not required to set aside funds to redeem the Series A Preferred Stock.

Optional Redemption		The Series A Preferred Stock is not redeemable by us prior to November 4, 2020. On and after November 4, 2020, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the redemption date. Please see the section entitled “Description of the Series A Preferred Stock—Redemption—Optional Redemption.”

Special Optional Redemption		Upon the occurrence of a Change of Control, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the redemption date. A “Change of Control” is deemed to occur when the following have occurred and are continuing: the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the “Exchange Act (other than Mahmud Haq, the chairman of our board of directors and our principal shareholder, any member of his immediate family, and any “person” or “group” under Section 13(d)(3) of the Exchange Act, that is controlled by Mr. Haq or any member of his immediate family, any beneficiary of the estate of Mr. Haq, or any trust, partnership, corporate or other entity controlled by any of the foregoing), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of our stock entitling that person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in the election of our directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and following the closing of any transaction referred to above, neither we nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE MKT or Nasdaq or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE MKT or Nasdaq.

Liquidation Preference		If we liquidate, dissolve or wind up, 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 our common stock. Please see the section entitled “Description of the Series A Preferred Stock—Liquidation Preference.”

Ranking		The Series A Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up, (1) senior to all classes or series of our common stock and to all other equity securities issued by us other than equity securities referred to in clauses (2) and (3); (2) on a parity with all equity securities issued by us with terms specifically providing that those equity securities rank on a parity with the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up; (3) junior to all equity securities issued by us with terms specifically providing that those equity securities rank senior to the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up; and (4) effectively junior to all of our existing and future indebtedness (including indebtedness convertible into our common stock or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries and any future subsidiaries. Please see the section entitled “Description of the Series A Preferred Stock–Ranking.”

Limited Voting Rights		Holders of Series A Preferred Stock will generally have no voting rights. However, if we do not pay dividends on the Series A Preferred Stock for eighteen or more monthly dividend periods (whether or not consecutive), the holders of the Series A Preferred Stock (voting separately as a class with the holders of all other classes or series of our preferred stock we may issue upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series A Preferred Stock in the election referred to below) will be entitled to vote for the election of two additional directors to serve on our board of directors until we pay, or declare and set aside funds for the payment of, all dividends that we owe on the Series A Preferred Stock, subject to certain limitations described in the section entitled “Description of the Series A Preferred Stock—Voting Rights.” In addition, the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock (voting together as a class with all other series of parity preferred stock we may issue upon which like voting rights have been conferred and are exercisable) is required at any time for us to authorize or issue any class or series of our capital stock ranking senior to the Series A Preferred Stock with respect to the payment of dividends or the distribution of assets on liquidation, dissolution or winding up, to amend any provision of our certificate of incorporation so as to materially and adversely affect any rights of the Series A Preferred Stock or to take certain other actions. Please see the section entitled “Description of the Series A Preferred Stock—Voting Rights.”

Information Rights		During any period in which we are not subject to Section 13 or 15(d) of the Exchange Act and any shares of Series A Preferred Stock are outstanding, we will use our best efforts to (i) transmit by mail (or other permissible means under the Exchange Act) to all holders of Series A Preferred Stock, as their names and addresses appear on our record books and without cost to such holders, copies of the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject thereto (other than any exhibits that would have been required) and (ii) promptly, upon request, supply copies of such reports to any holders or prospective holder of Series A Preferred Stock, subject to certain exceptions described in this prospectus. We will use our best efforts to mail (or otherwise provide) the information to the holders of the Series A Preferred Stock within 15 days after the respective dates by which a periodic report on Form 10-K or Form 10-Q, as the case may be, in respect of such information would have been required to be filed with the SEC, if we were subject to Section 13 or 15(d) of the Exchange Act, in each case, based on the dates on which we would be required to file such periodic reports if we were a “non-accelerated filer” within the meaning of the Exchange Act.

Listing		Our Series A Preferred Stock is listed on the Nasdaq Global Market under the symbol “MTBCP.”

Use of Proceeds		We plan to use the net proceeds from this offering for working capital, general corporate purposes and growth initiatives, including potential future acquisitions, although the Company has no present plans, arrangements, commitments or agreements for any such acquisitions.

Risk Factors		Please read the section entitled “Risk Factors” beginning on page 10 for a discussion of some of the factors you should carefully consider before deciding to invest in our Series A Preferred Stock.

Transfer Agent		The registrar, transfer agent and dividend and redemption price disbursing agent in respect of the Series A Preferred Stock will be VStock Transfer, LLC.

Certain U.S. Federal Income Tax Considerations		For a discussion of the federal income tax consequences of purchasing, owning and disposing of the Series A Preferred Stock, please see the section entitled “Certain U.S. Federal Income Tax Considerations.” You should consult your tax advisor with respect to the U.S. federal income tax consequences of owning the Series A Preferred Stock in light of your own particular situation and with respect to any tax consequences arising under the laws of any state, local, foreign or other taxing jurisdiction.

Book Entry and Form		The Series A Preferred Stock will be represented by one or more global certificates in definitive, fully registered form deposited with a custodian for, and registered in the name of, a nominee of The Depository Trust Company (“DTC”).

	●	demand and pricing for our products and services;

	●	the encounter volumes of our customer base;

	●	government or commercial healthcare reimbursement policies;

	●	physician and patient acceptance of any of our current or future products;

	●	introduction of competing products;

	●	our operating expenses which fluctuate due to growth of our business;

	●	timing and size of any new product or technology acquisitions we may complete; and

	●	variable sales cycle and implementation periods for our products and services.

	●	prevailing interest rates, changes in which may have an adverse effect on the market price of the Series A Preferred Stock;

	●	trading prices of similar securities;

	●	our history of timely dividend payments;

	●	the annual yield from dividends on the Series A Preferred Stock as compared to yields on other financial instruments;

	●	general economic and financial market conditions;

	●	government action or regulation;

	●	changes to the market and industry conditions as a result of the recent global outbreak of the COVID-19 coronavirus;

	●	the financial condition, performance and prospects of our competitors;

	●	changes in financial estimates or recommendations by securities analysts with respect to us or our competitors in our industry;

	●	our issuance of additional preferred equity or debt securities; and

	●	actual or anticipated variations in quarterly operating results of us and our competitors.

	●	reduction of customer revenue as a result of changes to the ACA;

	●	a rollback of the expansion of Medicaid or other governmental programs;

	●	reduction of customer revenue resulting from increased competition or other changes in the marketplace for physician services;

	●	failure of our customers to adopt or maintain effective business practices;

	●	actions by third-party payers of medical claims to reduce reimbursement;

	●	government regulations and government or other payer actions or inaction reducing or delaying reimbursement;

	●	interruption of customer access to our system; and

	●	our failure to provide services in a timely or high-quality manner.

	●	be time-consuming and expensive to defend, whether meritorious or not;

	●	require us to stop providing products or services that use the technology that allegedly infringes the other party’s intellectual property;

	●	divert the attention of our technical and managerial resources;

	●	require us to enter into royalty or licensing agreements with third parties, which may not be available on terms that we deem acceptable;

	●	prevent us from operating all or a portion of our business or force us to redesign our products, services or technology platforms, which could be difficult and expensive and may make the performance or value of our product or service offerings less attractive;

	●	subject us to significant liability for damages or result in significant settlement payments; and/or

	●	require us to indemnify our customers.

	●	on an actual basis;
	●	on a pro forma basis, reflecting the issuance and sale of 828,000 shares of Series A Preferred Stock offered by a prospectus filed on April 22, 2020 with total net proceeds of approximately $19.1 million, after deducting underwriting fees and other offering expenses payable by us, and utilizing a portion of the net proceeds to fully repay a $9.75 million outstanding line of credit; and
	●	on a pro forma as adjusted basis, reflecting the issuance and sale of 800,000 shares of Series A Preferred Stock offered by this prospectus, at $25.00 per share, assuming net proceeds of approximately $18.4 million, after deducting underwriting fees and other offering expenses payable by us, and assuming no exercise of the underwriter’s option to purchase additional shares from us.

	As of March 31, 2020
	Actual			Pro Forma			Pro Forma As Adjusted
	(in thousands, except share data)
Cash	$	8,395		$	17,745		$	36,106
Debt, current portion		183			183			183
Long-term debt, net of current portion		9,795			45			45
Total debt		9,978			228			228
Shareholders’ equity
Preferred stock, $0.001 par value, authorized 7,000,000 shares; issued and outstanding, 3,328,195 shares actual, 4,156,195 shares pro forma and 5,162,383 as adjusted		3			4			5
Common stock, $0.001 par value - authorized, 29,000,000 shares; issued, 13,108,092 shares actual, pro forma and as adjusted; outstanding, 12,367,293 actual, pro forma and as adjusted		13			13			13
Additional paid-in capital		86,853			105,952			124,312
Accumulated deficit		(27,577	)		(27,577	)		(27,577	)
Accumulated other comprehensive loss		(1,433	)		(1,433	)		(1,433	)
Less: 740,799 common shares held in treasury, at cost		(662	)		(662	)		(662	)
Total shareholders’ equity		57,197			76,297			94,658
Total capitalization	$	67,175		$	76,525		$	94,886

	●	187,398 shares of common stock issued under our Equity Incentive Plan subsequent to that date;

	●	554,968 shares of common stock reserved for issuance pursuant to grants under our Equity Incentive Plan;

	●	94,522 shares of common stock reserved for future issuance under our Equity Incentive Plan;

	●	2,353,489 shares of common stock underlying existing warrants, of which 2,000,000 shares of common stock underlying warrants that were issued as a portion of the consideration for the acquisition of CareCloud; and

	●	2,250,000 shares of common stock underlying warrants that were issued as a portion of the consideration for the acquisition of Meridian subsequent to that date.

	●	44,000 shares of Series A Preferred Stock reserved for issuance pursuant to grants under our Equity Incentive Plan;

	●	85,157 shares of Series A Preferred Stock reserved for future issuance under our Equity Incentive Plan; and

	●	1,034,188 shares of Series A Preferred Stock issued subsequent to that date, of which 828,000 shares represented a public offering and 200,000 shares represented a portion of the consideration for the acquisition of Meridian.

	●	Our acquisition of CareCloud, which consists of all of the assets and liabilities of CareCloud with an effective date of January 8, 2020, and

	●	Our acquisition of Etransmedia, which consist of substantially all of the assets and the assumption of certain liabilities of Etransmedia with an effective date of April 1, 2019.

				January 1, 2019 to			MTBC +
				March 31, 2019			Previously Acquired						Pro Forma				Pro Forma
	MTBC			ETM			Subtotal			CareCloud			Adjustments				Combined
	(in thousands, except per share data)
Net revenue	$	64,439		$	2,067		$	66,506		$	33,354		$	-			$	99,860
Operating expenses:
Direct operating costs		41,186			2,716			43,902			21,169			-				65,071
Selling and marketing		1,522			-			1,522			6,782			-				8,304
General and administrative		17,912			1,141			19,053			6,501			(732	)	(1)		24,822
Research and development		871			-			871			13,733			-				14,604
Change in contingent consideration		(344	)		-			(344	)		-			-				(344	)
Depreciation and amortization		3,006			20			3,026			3,208			1,219		(2)		7,453
Restructuring and impairment charges		219			-			219			-			-				219
Total operating expenses		64,372			3,877			68,249			51,393			487				120,129

Operating income (loss)		67			(1,810	)		(1,743	)		(18,039	)		(487	)			(20,269	)

Interest expense - net		(121	)		-			(121	)		(4,212	)		4,212		(3)		(121	)
Other (expense) income - net		(625	)		-			(625	)		558			-				(67	)
(Loss) income before income taxes		(679	)		(1,810	)		(2,489	)		(21,693	)		3,725				(20,457	)
Income tax provision		193			2			195			16			-		(4)		211
Net (loss) income	$	(872	)	$	(1,812	)	$	(2,684	)	$	(21,709	)	$	3,725			$	(20,668	)

Preferred stock dividend		6,386			-			6,386			-			2,090		(3)		8,476
Net (loss) income attributable to common shareholders	$	(7,258	)	$	(1,812	)	$	(9,070	)	$	(21,709	)	$	1,635			$	(29,144	)

Weighted-average common shares outstanding:
Basic and diluted		12,088																12,088
Loss per share:
Basic and diluted	$	(0.60	)														$	(2.41	)

				January 1 to 8, 2020			Pro Forma				Pro Forma
	MTBC			CareCloud			Adjustments				Combined
	(in thousands, except per share data)
Net revenue	$	21,867		$	618		$	-			$	22,485
Operating expenses:
Direct operating costs		13,567			343			-				13,910
Selling and marketing		1,580			108			-				1,688
General and administrative		5,593			148			(277	)	(1)		5,464
Research and development		2,333			196			-				2,529
Depreciation and amortization		1,333			124			(392	)	(2)		1,065
Restructuring and impairment charges		298			-			-				298
Total operating expenses		24,704			919			(669	)			24,954

Operating (loss) income		(2,837	)		(301	)		669				(2,469	)

Interest expense - net		(80	)		-			-				(80	)
Other income (expense) - net		445			(1	)		-				444
(Loss) income before income taxes		(2,472	)		(302	)		669				(2,105	)
Income tax provision		30			-			-				30
Net (loss) income	$	(2,502	)	$	(302	)	$	669			$	(2,135	)

Preferred stock dividend		2,643			-			-				2,643
Net (loss) income attributable to common shareholders	$	(5,145	)	$	(302	)	$	669			$	(4,778	)

Weighted-average common shares outstanding:
Basic and diluted		12,311										12,311
Loss per share:
Basic and diluted	$	(0.42	)								$	(0.39	)

	MTBC		ETM		CareCloud		Pro Forma Adjustments
	(in thousands)
Year ended December 31, 2019	$	337	$	-	$	395	$	732
Three months ended March 31, 2020		277		-		-		277

(2)	Amortization of Purchased Intangible Assets — We amortize intangible assets over their estimated useful lives. We based the estimated useful lives of acquired intangible assets on the amount and timing in which we expect to receive an economic benefit. We typically assign these intangible assets a useful life of between 3-4 years based upon a number of factors, including contractual agreements and economic factors pertaining to the combined companies.

	The estimates of fair value and weighted-average useful lives could be impacted by a variety of factors including legal, regulatory, contractual, competitive, economic or other factors. Increased knowledge about these factors could result in a change to the estimated fair value of these intangible assets and/or the weighted-average useful lives from what we have assumed in these unaudited pro forma condensed combined financial statements. In addition, the combined effect of any such changes could result in a significant increase or decrease to the related amortization expense estimates.

	The amortization of intangible assets of our acquisitions, shown below, assumes that the assets were acquired on January 1, 2019.

	ETM		CareCloud		Total Expense
	(in thousands)
Pro forma amortization expense/adjustment for the period prior to acquisition	$	70	$	4,065	$	4,135
As recorded in the historical financial statements		3		2,913		2,916
Pro forma adjustment	$	67	$	1,152	$	1,219

(3)	Interest and Dividends— The interest expense incurred by CareCloud of approximately $4.2 million for the year 2019 has been eliminated to reflect the full payment of CareCloud’s outstanding debt balance as of the acquisition date. Dividends of approximately $2.1 million have been included as an adjustment to reflect the amounts that would have been recorded as a result of the issuance of the Company’s Preferred Stock as part of the consideration for the acquisition for the year 2019.

(4)	Benefit for Income Tax — The income tax effects reflected in the pro forma adjustments are based on an estimated Federal statutory rate of 21% for the year ended December 31, 2019 and the three months ended March 31, 2020. We did not record a benefit for income taxes for the year ended December 31, 2019 and the three months ended March 31, 2020, in the unaudited pro forma condensed combined statement of operations since the Company has a valuation allowance recorded against its Federal and state deferred tax assets as of December 31, 2019 and March 31, 2020.

(5)	Intangible Assets — We based our estimates of each intangible asset type/category that we expect to recognize as part of the CareCloud acquisition on the nature of the business and the fair value of contracts that we have entered into with the sellers. We based our estimates on experiences from our prior acquisitions and the types of intangible assets that we recognized as part of those acquisitions. In particular, our experience with our prior acquisitions indicates that customer contracts and customer relationships compose the significant majority of intangible assets for these types of businesses. We based the estimated useful lives of these intangible assets on the useful lives that we have experienced for similar intangible assets in prior acquisitions and on the nature of the assets.

			Estimated
			useful life
	(in thousands)
Customer relationships	$	8,000	4 years
Trademark		800	3 years
Software		4,800	3 years *
Goodwill		22,868
Total intangible assets	$	36,468

(6)	Preliminary Purchase Price Allocation — We recognize the assets and liabilities acquired at their fair value on the acquisition date, and if there is any excess in purchase price over these values, it is allocated to goodwill.

	The Company has engaged a third-party valuation specialist to assist in determining the fair value of the assets and liabilities acquired in the CareCloud acquisition. The allocations of the purchase price for the CareCloud acquisition are preliminary and are subject to revision and may be adjusted in future filings. The final purchase price will be determined when the third-party valuation specialist and the Company have completed the detailed valuations and necessary calculations.

	The acquisition of CareCloud includes the transfer of all customer relationships and agreements, accounts receivable, property and equipment and the assumption of all trade liabilities. We determined the fair value of the property and equipment acquired by reference to current market prices for such assets, and the value of the assumed liabilities were already stated at fair value or were contractually specified. An adjustment of $29,000 was required to adjust the property and equipment to fair value. The fair value of the accounts receivable was determined based on the subsequent collections and the customers’ payment history.

	Included in the purchase price allocation are amounts for customer relationships determined by the Company using the multi-period excess earnings approach which was utilized in previous acquisitions.

	If CareCloud’s 2020 revenues exceed $36 million, there will be an earn-out payment to the seller equal to such excess, up to $3 million. The preliminary estimate for the contingent consideration is $1 million and has been included in the purchase price below. Once the contingent consideration amount is finalized, it will be adjusted to fair value at the end of each reporting period with the change being recorded in earnings.

	The following table shows the preliminary purchase price allocation and the estimated fair values of the acquired assets and liabilities as of December 31, 2019.

							MTBC +
							Previously
							Acquired						Pro Forma			Pro Forma
	MTBC			ETM			Subtotal			CareCloud			Adjustments			Combined
	(in thousands)
Net revenue	$	64,439		$	2,067		$	66,506		$	33,354		$	-		$	99,860

GAAP net loss	$	(872	)	$	(1,812	)	$	(2,684	)	$	(21,709	)	$	3,725		$	(20,668	)

Provision for income taxes		193			2			195			16			-			211
Net interest expense		121			-			121			4,212			(4,212	)		121
Foreign exchange / other expense		827			-			827			-			-			827
Stock-based compensation expense		3,215			-			3,215			-			-			3,215
Depreciation and amortization		3,006			20			3,026			3,208			1,219			7,453
Integration and transaction costs (1)		1,736			-			1,736			-			(732	)		1,004
Restructuring and impairment charges (2)		219			-			219			-			-			219
Change in contingent consideration		(344	)		-			(344	)		-			-			(344	)
Adjusted EBITDA	$	8,101		$	(1,790	)	$	6,311		$	(14,273	)	$	-		$	(7,962	)

	(1)	The integration and transactions costs for MTBC include severance amounts paid to employees from acquired businesses, transactions costs, such as brokerage fees, pre-acquisition accounting costs and legal fees and exit costs related to contractual agreements.

	(2)	The restructuring charges represent the remaining lease costs for a facility no longer used by the Company as the employees were transferred to another Company facility. Impairment charges represent charges recorded for a leased facility no longer being used by the Company.