CCLD 8-K/A
CareCloud, Inc. (CCLD)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): October 31, 2025 (
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation) |
(Commission
File Number) |
(IRS
Employer Identification No.) |
(Address of principal executive offices, zip code)
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Not
Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory Note
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| Item 9.01 | Financial Statements and Exhibits. |
| (a) | Financial statements of businesses or funds acquired. |
| The financial statements of Medsphere are filed as Exhibit 99.1 and Exhibit 99.2 to this Form 8-K and incorporated by reference herein. | |
| (b) | Pro forma financial information. |
| Pro forma financial information with respect to the acquisition of Medsphere is filed as Exhibit 99.3 to this Form 8-K and incorporated by reference herein. |
| 3 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CareCloud, Inc. | |||
| Date: | October 31, 2025 | By: | /s/ Norman Roth |
| Norman Roth | |||
| Interim Chief Financial Officer and Corporate Controller | |||
| 4 |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated September 23, 2025 with respect to the financial statements of Medsphere Systems Corporation for the years ended December 31, 2024 and 2023, included in this Form 8-K/A of CareCloud, Inc. We consent to the incorporation by reference of said report in the Registration Statement of CareCloud, Inc. on Forms S-8 (File Nos. 333-265536, 333-239781, 333-226685, 333-217317 and 333-203228) and on Form S-3 (File No. 333-286431).
/s/ Tanner LLC
Lehi, UT
October 31, 2025
Exhibit 99.1
MEDSPHERE SYSTEMS CORPORATION
Financial Statements
As of December 31, 2024 and 2023
And for the Years Then Ended
Together With Independent Auditors’ Report
To the Board of Directors of
Medsphere Systems Corporation
Opinion
We have audited the accompanying financial statements of Medsphere Systems Corporation (the Company), which comprise the balance sheets as of December 31, 2024 and 2023, and the related statements of operations, shareholders’ deficit, and cash flows for the years then ended, and the related notes to financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Medsphere Systems Corporation as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America (US GAAP).
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Medsphere Systems Corporation and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company does not currently have sufficient cash and financing commitments to fund past due balances of the Company’s 2021 note payable and 2021 revolving loan of approximately $53,600,000 (balance as of December 31, 2024), which raises substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with US GAAP, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about their ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
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Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with US GAAS, we:
| ● | Exercise professional judgment and maintain professional skepticism throughout the audit. | |
| ● | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. | |
| ● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. | |
| ● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. | |
| ● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audits.
/s/ Tanner LLC
September 23, 2025
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Medsphere Systems Corporation
Balance Sheets
As of December 31,
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,991,109 | $ | 1,951,713 | ||||
| Restricted cash | 165,000 | 165,000 | ||||||
| Accounts receivable, net | 3,368,155 | 3,594,859 | ||||||
| Deferred customer acquisition and fulfillment costs, current portion | 790,681 | 1,957,755 | ||||||
| Prepaid expenses and other assets | 1,573,596 | 2,517,850 | ||||||
| Total current assets | 7,888,541 | 10,187,177 | ||||||
| Property and equipment, net | 73,540 | 328,049 | ||||||
| Goodwill, net | 9,459,930 | 18,803,615 | ||||||
| Intangible assets, net | - | 144,693 | ||||||
| Deferred customer acquisition and fulfillment costs, net of current portion | 568,496 | 1,103,245 | ||||||
| Operating lease right-of-use assets | 203,202 | 282,700 | ||||||
| Other assets | 67,477 | 145,104 | ||||||
| Total assets | $ | 18,261,186 | $ | 30,994,583 | ||||
| Liabilities and Shareholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 5,070,468 | $ | 6,539,829 | ||||
| Current portion of notes payable | 53,890,929 | 47,450,681 | ||||||
| Accrued expenses | 2,395,696 | 2,997,238 | ||||||
| Deferred revenues | 3,176,248 | 4,409,001 | ||||||
| Current portion of operating lease liabilities | 70,731 | 79,246 | ||||||
| Total current liabilities | 64,604,072 | 61,475,995 | ||||||
| Notes payable, net of current portion and discount | 2,775,282 | 1,720,306 | ||||||
| Operating lease liabilities, net of current portion | 137,008 | 207,664 | ||||||
| Total liabilities | 67,516,362 | 63,403,965 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ deficit: | ||||||||
| Convertible preferred stock, par value $0.001 per share; 2,677,320,511 shares authorized; 326,479,332 and 600,389,830 shares issued and outstanding, respectively | 326,479 | 600,390 | ||||||
| Common stock, par value $0.001 per share; 2,868,547,015 shares authorized; 398,015,543 and 404,628,632 shares issued and outstanding, respectively | 398,016 | 404,629 | ||||||
| Additional paid-in capital | 124,639,362 | 124,332,612 | ||||||
| Notes receivable from shareholders | (924,155 | ) | (924,155 | ) | ||||
| Accumulated deficit | (173,694,878 | ) | (156,822,858 | ) | ||||
| Total shareholders’ deficit | (49,255,176 | ) | (32,409,382 | ) | ||||
| Total liabilities and shareholders’ deficit | $ | 18,261,186 | $ | 30,994,583 | ||||
See accompanying notes to financial statements.
| 4 |
Medsphere Systems Corporation
Statements of Operations
For the Years Ended December 31,
| 2024 | 2023 | |||||||
| Revenues: | ||||||||
| Subscription fees | $ | 37,543,686 | $ | 43,843,682 | ||||
| Professional services fees | 1,756,132 | 1,724,946 | ||||||
| Reimbursable expenses | 84,311 | 22,806 | ||||||
| Total revenues | 39,384,129 | 45,591,434 | ||||||
| Cost of revenues: | ||||||||
| Subscription fees | 10,274,978 | 12,328,797 | ||||||
| Professional services fees | 1,050,332 | 1,023,870 | ||||||
| Reimbursable expenses | 84,324 | 22,806 | ||||||
| Total cost of revenues | 11,409,634 | 13,375,473 | ||||||
| Gross profit | 27,974,495 | 32,215,961 | ||||||
| Operating expenses: | ||||||||
| General and administrative | 7,470,545 | 9,972,322 | ||||||
| Sales and marketing | 5,041,414 | 7,970,817 | ||||||
| Operations and development | 14,189,103 | 18,714,551 | ||||||
| Goodwill impairment | 5,103,866 | - | ||||||
| Depreciation and amortization | 4,649,889 | 4,719,776 | ||||||
| Total operating expenses | 36,454,817 | 41,377,466 | ||||||
| Operating loss | (8,480,322 | ) | (9,161,505 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (7,659,896 | ) | (5,822,569 | ) | ||||
| Other expense | (699,602 | ) | (95,611 | ) | ||||
| Non-cash gain on estimated fair value of warrants | - | 795,156 | ||||||
| Interest income | 4,723 | 829 | ||||||
| Total other income (expense), net | (8,354,775 | ) | (5,122,195 | ) | ||||
| Loss before income taxes | (16,835,097 | ) | (14,283,700 | ) | ||||
| Provision for income taxes | 36,923 | 36,759 | ||||||
| Net loss | $ | (16,872,020 | ) | $ | (14,320,459 | ) | ||
See accompanying notes to financial statements.
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MEDSPHERE SYSTEMS CORPORATION
Statements of Shareholders’ Deficit
For the Years Ended December 31, 2024 and 2023
| Notes | ||||||||||||||||||||||||||||||||
| Convertible
Preferred Stock | Common Stock | Receivable From | Additional Paid-in | Accumulated | Total Shareholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shareholders | Capital | Deficit | Deficit | |||||||||||||||||||||||||
| Balances at January 1, 2023 | 600,189,830 | 600,190 | 402,920,382 | 402,921 | (1,049,155 | ) | 114,593,263 | (142,502,399 | ) | (27,955,180 | ) | |||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | - | - | 1,708,250 | 1,708 | - | 15,374 | - | 17,082 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | 99,175 | - | 99,175 | ||||||||||||||||||||||||
| Issuance of Series 6A Preferred Stock, net of issuance costs | 200,000 | 200 | - | - | - | 9,624,800 | - | 9,625,000 | ||||||||||||||||||||||||
| Notes receivable from shareholders write-off | - | - | - | - | 125,000 | - | - | 125,000 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (14,320,459 | ) | (14,320,459 | ) | ||||||||||||||||||||||
| Balances at December 31, 2023 | 600,389,830 | 600,390 | 404,628,632 | 404,629 | (924,155 | ) | 124,332,612 | (156,822,858 | ) | (32,409,382 | ) | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | 26,227 | - | 26,227 | ||||||||||||||||||||||||
| Stock repurchase | (273,910,498 | ) | (273,911 | ) | (6,613,089 | ) | (6,613 | ) | - | 280,523 | - | (1 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | - | (16,872,020 | ) | (16,872,020 | ) | ||||||||||||||||||||||
| Balances at December 31, 2024 | 326,479,332 | $ | 326,479 | 398,015,543 | $ | 398,016 | $ | (924,155 | ) | $ | 124,639,362 | $ | (173,694,878 | ) | $ | (49,255,176 | ) | |||||||||||||||
See accompanying notes to financial statements.
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Medsphere Systems Corporation
Statements of Cash Flows
| For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (16,872,020 | ) | $ | (14,320,459 | ) | ||
| Adjustments to reconcile net loss to net cash, cash equivalents and restricted | ||||||||
| cash used in operating activities: | ||||||||
| Depreciation and amortization | 4,649,889 | 4,719,776 | ||||||
| Non-cash interest expense | 4,734,088 | - | ||||||
| Stock-based compensation | 26,227 | 99,175 | ||||||
| Amortization of debt discount | 384,122 | 151,130 | ||||||
| Amortization of right-of-use assets | 79,498 | 382,772 | ||||||
| Change in fair value of warrants liability | - | (795,156 | ) | |||||
| Amortization of deferred customer acquisition and fulfillment costs | 1,701,823 | 2,183,428 | ||||||
| Provision for losses on accounts receivable | 116,938 | 678,015 | ||||||
| Goodwill impairment | 5,103,866 | - | ||||||
| Loss on note receivable from shareholder | - | 84,000 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | 109,766 | 760,396 | ||||||
| Deferred customer acquisition and fulfillment costs | - | (614,275 | ) | |||||
| Prepaid expenses and other assets | 1,021,881 | 605,687 | ||||||
| Operating lease liabilities | (79,171 | ) | (443,585 | ) | ||||
| Accounts payable | (1,469,361 | ) | (478,690 | ) | ||||
| Accrued expenses | (601,542 | ) | 146,320 | |||||
| Deferred revenues | (1,232,753 | ) | (2,299,686 | ) | ||||
| Net cash, cash equivalents and restricted cash used in operating activities | (2,326,749 | ) | (9,141,152 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (10,868 | ) | (36,574 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of notes payable | 3,852,014 | 6,351,033 | ||||||
| Repurchase of preferred and common stock | (1 | ) | - | |||||
| Proceeds from issuance of common stock | - | 17,082 | ||||||
| Proceeds from issuance of Series 6A preferred stock, net of issuance costs | - | 9,625,000 | ||||||
| Payments on long-term debt | (1,475,000 | ) | (8,015,200 | ) | ||||
| Net cash, cash equivalents and restricted cash provided by financing activities | 2,377,013 | 7,977,915 | ||||||
| Net change in cash, cash equivalents and restricted cash | 39,396 | (1,199,811 | ) | |||||
| Cash, cash equivalents and restricted cash at beginning of year | 2,116,713 | 3,316,524 | ||||||
| Cash, cash equivalents and restricted cash at end of year | $ | 2,156,109 | $ | 2,116,713 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 1,851,040 | $ | 4,390,746 | ||||
| Cash paid for income taxes | 27,748 | 20,921 | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Reduction of accounts payable and shareholder note receivable | $ | - | $ | 41,000 | ||||
See notes to the accompanying financail statements.
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Notes to Financial Statements
| 1. | Description of Organization |
Nature of Operations
Medsphere Systems Corporation (the Company or Medsphere) was incorporated in the state of Delaware on February 12, 2002. The Company is a leading provider of cloud-based and on-premise clinical and technology products and services that delivers, supports, and maintains quality health IT solutions to the healthcare industry under an affordable business model.
| 2. | Summary of Significant Accounting Policies |
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheets and revenues and expenses during the years presented. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity of three months or less at date of purchase to be cash equivalents.
Concentration of Risk
The Company maintains its cash with well-established financial institutions, and, at times, balances may exceed federally insured limits. To date, the Company has not experienced a material loss or lack of access to its cash; however, no assurance can be provided that access to the Company’s cash will not be impacted by adverse conditions in the financial markets.
Accounts Receivable and Allowance for Expected Credit Losses
Accounts receivable are due under contract terms, recorded at the invoiced amount, and generally do not bear interest. Accounts receivable are subject, in the normal course of business, to collection risks. The Company performs ongoing credit evaluations of customers’ financial condition and generally requires no collateral from its customers. Subscription customers are generally billed on a monthly or quarterly basis in advance of subscription fee services being rendered. The contract is considered breached and the Company has the ability to terminate the contract and suspend services if payment is not received within 60 days of the due date. The Company does not have any off-balance sheet credit exposure related to customers. Accounts receivable are pledged as security for certain indebtedness (see Note 7 and Note 8).
Accounts receivable consists of receivables from customers. The Company has tracked historical loss information for its trade receivables and compiled historical credit loss percentages for three different groups: 1) customer balances in dispute, 2) customers in default or with a payment plan and 3) all other customers. Management believes that the historical loss information it has compiled is a reasonable basis on which to determine expected credit losses for trade receivables held at December 31, 2024 because the composition of the trade receivables at that date is consistent with that used in developing the historical credit-loss percentages (i.e., the similar risk characteristics of its customers and its lending practices have not changed significantly over time). Account balances are charged off against the allowance for credit losses when management determines that the potential for recovery is remote. Recoveries of receivables previously charged off are recorded when payment is received. The allowance for expected credit losses was $558,990 and $748,399, as of December 31, 2024 and 2023, respectively. Bad debt expense was $116,938 and $828,722 for the years ended December 31, 2024 and 2023, respectively. Accounts receivable, net was $5,033,270 as of December 31, 2022.
In the normal course of business, the Company provides credit terms to its customers and generally requires no collateral. A major customer is considered to be one that comprises more than 10% of the Company’s accounts receivable or annual revenues. The Company did not have any customers with revenues that exceeded 10% for the years ended December 31, 2024 and 2023.
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Accounts receivables concentrations as of December 31, 2024 and 2023, are as follows:
| 2024 | 2023 | |||||||
| Customer A | 24 | % | * | |||||
| Customer B | 14 | % | * | |||||
| * Customer accounted for less than 10% | ||||||||
Fair Value Measurements
Authoritative guidance establishes a hierarchy for inputs used in measuring fair value that prioritizes the use of observable inputs over the use of unobservable inputs and requires that the most observable inputs be used when available. Observable inputs are market inputs participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability.
The guidance establishes three levels of inputs that may be used to measure fair value:
| ● | Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. |
| ● | Level 2 inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
| ● | Level 3 inputs are unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. |
The Company’s financial liabilities that were accounted for at fair value on a recurring basis as of December 31, 2024 and 2023, are the Company’s warrants liability, which are level 3 within the fair value hierarchy level.
The following table sets forth a summary of changes in the fair value of the Company’s Level 3 warrants liability during the years ended December 31, 2024 and 2023:
| Balance at January 1, 2023 | $ | 795,156 | ||
| Change in fair value of warrants in 2023 | (795,156 | ) | ||
| Payment on warrant | - | |||
| Balance at December 31, 2023 | - | |||
| Change in fair value of warrants in 2024 | - | |||
| Balance at December 31, 2024 | $ | - |
Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Leasehold improvements are amortized over the shorter of their economic useful lives or the lease terms. Upon retirement or sale, the cost of assets disposed of, and the related accumulated depreciation, are removed from the accounts. Major additions and improvements are capitalized, while replacements, repairs and maintenance that do not extend the life of the asset are expensed as incurred.
| 9 |
Business Combinations
Accounting Standards Codification (ASC) 805, Business Combinations, applies to all transactions and other events in which one entity obtains control over one or more other businesses. ASC 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities, and any non-controlling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. ASC 805 requires acquirers to expense acquisition-related costs as incurred.
Goodwill
The Company has elected the private company alternative which allows goodwill to be amortized on a straight-line basis over ten years, or less than ten years if the Company demonstrates another useful life is more appropriate. Goodwill is to be tested for impairment when a triggering event occurs that indicates the fair value of the entity may be below its carrying value. The Company has elected to test impairment at the reporting unit. For the year ended December 31, 2024, an impairment charge of $5,103,866 was deemed necessary by management. For the year ended December 31, 2023, no impairment charge was deemed necessary by management.
Intellectual Property
In accordance with ASC 805, the Company capitalizes costs related to acquiring intellectual property, including related legal costs, and amortizes such costs over their estimated useful lives.
Impairment of Long Lived-Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition are less than their carrying amounts. Impairment, if any, shall be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. Management does not consider any of the Company’s long-lived assets to be impaired as of December 31, 2024 and 2023.
Restricted Cash
The Company uses certain credit cards issued by a third party. As part of the credit agreement, the Company is required to hold cash reserves in the amount of $165,000 as of December 31, 2024 and 2023.
Deferred Customer Acquisition Costs
Costs capitalized to obtain revenue contracts consist of the costs that are directly associated with acquiring subscription contracts with customers. These costs consist of sales commissions and related payroll taxes paid to the Company’s sales force upon the inception of a contract. U.S. GAAP requires the capitalization of these incremental contract acquisition costs and subsequent amortization over the term of the expected customer’s benefit period, which management has determined to range between three and ten years depending on the contract. For the years ended December 31, 2024 and 2023, $799,035 and $1,055,170, respectively, in incremental costs to acquire revenue contracts with customers were capitalized and included in deferred customer acquisition and fulfillment costs in the balance sheets and $708,808 and $860,066, respectively, of related amortization is included in operations and development in the statements of operations. Deferred customer acquisition costs were $1,153,374 as of December 31, 2022.
Deferred Contract Fulfillment Costs
Costs incurred related to the fulfillment of contracts directly associated with subscription contracts with customers are required to be capitalized and amortized over the contract term, which ranges three to ten years. For the years ended December 31, 2024 and 2023, $560,142 and $2,005,830, respectively, in fulfillment costs related to revenue contracts with customers were capitalized and included in deferred customer acquisition and fulfillment costs on the balance sheets, and $993,015 and $1,323,362, respectively, was amortized and is included in cost of revenues: subscription fees in the statements of operations. Deferred contract fulfillment costs were $3,476,799 as of December 31, 2022.
| 10 |
Leases
The Company leases office space and equipment. The Company assesses whether an arrangement qualifies as a lease (i.e., conveys the right to control the use of an identified asset for a period of time in exchange for consideration) at inception and only reassesses its determination if the terms and conditions of the arrangement are changed. For all arrangements where it is determined that a lease exists, the related right-of-use assets and lease liabilities are recorded within the consolidated balance sheets as either operating or finance leases. At inception or modification, the Company calculates the present value of lease payments using its risk-free rate similar to a term of the lease. The present value is adjusted for prepaid lease payments, lease incentives, and initial direct costs (e.g. commissions). The Company’s leases may require fixed rental payments, variable lease payments based on usage or sales and fixed non-lease costs relating to the leased asset. Variable lease payments are generally not included in the measurement of the right-of-use assets and lease liabilities. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets. Lease expense is recognized for these leases on a straight-line basis over the lease term. Fixed non-lease costs, for example common-area maintenance costs, taxes, insurance, and maintenance, are not included in the measurement of the right-of-use asset and lease liability as the Company separates lease and non-lease components.
Most leases include one or more options to renew, with renewal terms that can extend the lease term. The exercise of lease renewal options is at the Company’s sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.
Revenue Recognition
The Company primarily generates its revenues from three main sources: (1) subscription fees; (2) professional services fees; and (3) reimbursable expenses. Revenues are recognized when control of these services is transferred to customers in an amount that reflects the consideration expected to be received by the Company in exchange for those services. The Company determines revenue recognition through the following steps:
| ● | Identification of the contract, or contracts, with a customer | |
| ● | Identification of the performance obligations in the contract | |
| ● | Determination of the transaction price | |
| ● | Allocation of the transaction price to the performance obligations in the contract | |
| ● | Recognition of revenue when, or as, each performance obligation is satisfied |
The Company’s contracts with customers often contain multiple performance obligations. The Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (SSP) basis. The Company determines the standalone selling prices based on the Company’s overall pricing objectives by reviewing the Company’s significant pricing practices, including discounting practices, geographical locations, the size and volume of the Company’s transactions, the customer type, price lists, pricing strategy, and historical standalone sales. Standalone selling price is analyzed on a periodic basis to identify if the Company has experienced significant changes in selling prices.
Subscription Fees
Subscription fees include the licensing of computer software, upgrades, installation, integration services, software support, consulting and implementation services that are bundled under a license and subscription agreement. The primary source of the Company’s subscription fees is from license and subscription agreements to provide its products to healthcare providers. The predominant model includes a software license, implementation and integration services, training, and software support that are combined as a single performance obligation.
| 11 |
The Company’s subscription contracts are generally 3-10 years in length and are either billed at the start of the contract or on a monthly or quarterly basis. The revenue from these services are recognized ratably over the term of the contract, from the contract effective date through the cancellation or renewal date. The underlying arrangements typically do not provide the customer with an option to take delivery of the software at any time during or after the subscription term ends.
In the case of all CareVue contracts, the software is deemed delivered when the customer achieves “go-live” status (date of customer’s first productive use of any portion of the software in the customer’s production environment utilizing actual patient data). Once the customer goes live, the total subscription fee for the contract is recognized ratably over the remaining service term of the contract. The software and documentation is deemed accepted by the customer on delivery.
License and subscription arrangements include optional extensions after initial contract termination. Such extensions, which include software updates and product support, and are entered into at the customer’s option, and are recognized ratably over the term of the arrangement. Software license updates provide customers with rights to unspecified software product upgrades, maintenance releases and patches released during the term of the support period.
Professional Services
Professional services include works-for-hire contracts where services are provided to a customer on an hourly or fixed-fee basis. Revenues for these professional services, primarily from governmental entities, are generally recognized as the services are performed and are primarily based on the negotiated hourly rate in the consulting arrangement and the number of hours worked during the period. If there is a significant uncertainty about the project completion or receipt of payment for the consulting services, revenues are deferred until the uncertainty is sufficiently resolved.
Reimbursable Expenses
Reimbursable expenses include certain expenses related to services provided to customers, such as out-of-pocket travel, which are reimbursed by the customer. These expenses are accounted for as both revenue and expense in the period the cost is incurred.
Product Warranty
The Company warrants that the software will perform substantially in accordance with the documentation provided to the customer for the term of the agreement. To date, the Company has not accrued any warrants costs, as they are estimated to not be material. If actual warranty costs differ significantly from estimates, such differences would be accounted for in the period in which they become known.
Stock-Based Compensation
Stock-based compensation expense is recognized over the period during which the employee is required to perform services in exchange for the award, which generally represents the scheduled vesting period. The Company has no awards with market or performance conditions. Equity awards to non-employees are accounted for the same as employees.
Stock Purchase Warrants and Other Derivative Financial Instruments
The issuance of preferred stock purchase warrants and other freestanding derivative financial instruments are accounted for in accordance with the provisions of ASC 815, Derivatives and Hedging — Contracts in Entity’s Own Equity. The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). Management assesses the classification of existing freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
Income Taxes
The Company uses the asset/liability method of accounting for income taxes. Deferred income tax assets and liabilities are determined based on temporary differences between the financial statement and tax reporting bases of assets and liabilities and net operating loss and credit carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date. Valuation allowances are established when necessary to reduce deferred income tax assets to the amounts more likely than not to be realized.
| 12 |
Tax positions for the Company are subject to income tax audits by tax jurisdictions in the United States. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the tax authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the tax authority. The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if any, in its tax provision.
Reclassifications
Certain reclassifications have been made to the 2023 financial statement presentation to conform to the 2024 presentation. This resulted in a decrease to cash and cash equivalents and an increase to restricted cash as of December 31, 2023.
| 3. | Going Concern |
On August 22, 2025, CareCloud Holdings, Inc purchased certain of the Company’s assets, representing essentially all of the Company’s operations (see Note 14). The aggregate purchase price for the acquisition was $16,500,000, plus the assumption of certain liabilities. After receipt of the purchase price, the Company does not have sufficient cash and financing commitments to fund the Company’s 2021 note payable and 2021 revolving loan of approximately $53,600,000 (balance as of December 31, 2024). The Company is currently in default and accruing interest related to these notes payable and still does not have sufficient cash to pay amounts due (see Note 7). Management has agreed with its creditors to wind down the Company, and the filing is anticipated to occur before December 31, 2025.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
| 4. | Property and Equipment |
Property and equipment consist of the following as of December 31:
| 2024 | 2023 | |||||||
| Computer equipment | $ | 3,404,586 | $ | 3,393,718 | ||||
| Furniture | 71,838 | 71,838 | ||||||
| Marketing displays | 58,576 | 58,576 | ||||||
| Leasehold improvements | 110,545 | 110,545 | ||||||
| 3,645,545 | 3,634,677 | |||||||
| Less: accumulated depreciation | (3,572,005 | ) | (3,306,628 | ) | ||||
| Property and equipment, net | $ | 73,540 | $ | 328,049 | ||||
Depreciation and amortization expense for the years ended December 31, 2024 and 2023 was $265,377 and $238,756 respectively.
| 13 |
| 5. | Goodwill and Other Intangible Assets |
The Company has merged with, or acquired the assets of, the following entities that have resulted in the recording of goodwill and other intangible assets:
| ● | 2005 - Clinical Informatics Associates, Inc. (CIAI) | |
| ● | 2015 - Phoenix Health Systems, Inc. (Phoenix) | |
| ● | 2016 - MBS/NET, Inc. (MBS) | |
| ● | 2016 - ChartLogic, Inc. (ChartLogic) | |
| ● | 2017 - Stockell Healthcare Systems, Inc. (Stockell) | |
| ● | 2018 - HealthLine Solutions, Inc. (Healthline) | |
| ● | 2019 - Wellsoft Corporation (Wellsoft) | |
| ● | 2020 - Kellison & Co. | |
| ● | 2020 - Micro-Office Systems, Inc. | |
| ● | 2021 - Marketware Inc. (Marketware) | |
| ● | 2021 - Systeem Medical Information Systems, LLC (Systeem) |
Goodwill and other intangible assets consist of the following as of December 31:
| 2024 | 2023 | |||||||
| Goodwill | $ | 38,240,383 | $ | 43,344,249 | ||||
| Software | 2,418,383 | 2,418,383 | ||||||
| Tradenames | 1,079,550 | 1,079,550 | ||||||
| 41,738,316 | 46,842,182 | |||||||
| Less accumulated amortization | (32,278,386 | ) | (27,893,874 | ) | ||||
| $ | 9,459,930 | $ | 18,948,308 | |||||
As of December 31, 2024, the Company determined that triggering events occurred, such as the decline in revenues, lack of marketability, and decrease in value of the Company, which resulted in an impairment of goodwill totaling $5,103,866. This impairment was applied to specific units of the business that had been acquired in previous years that did not have remaining supportable value. The goodwill remaining after impairment as of December 31, 2024, related to Chartlogic, Marketware, and Systeem. After analysis and evaluation and receiving third-party offers, management determined the goodwill related to these acquisitions was not impaired.
Amortization expense related to goodwill and intangible assets was $4,384,512 and $4,481,020 for the years ended December 31, 2024 and 2023, respectively.
| 14 |
The future aggregate amounts of amortization expense to be recognized related to goodwill and definite-lived intangible assets as of December 31, 2024 is as follows:
| For the years ending December 31: | ||||
| 2025 | $ | 2,732,258 | ||
| 2026 | 2,013,950 | |||
| 2027 | 1,129,090 | |||
| 2028 | 1,129,090 | |||
| 2029 | 1,129,090 | |||
| Thereafter | 1,326,452 | |||
| $ | 9,459,930 |
| 6. | Commitments and Contingencies |
Operating Leases
The Company leases office space in Warrensville Heights, Ohio, under an operating lease agreement expiring in September 2027. The Company performed evaluations of its contracts and determined each of its identified leases are operating leases. The Company recognized $148,753 and $402,140 of rent expense for the years ended December 31, 2024 and 2023, respectively.
The components of lease expense were as follows for the years ended December 31:
| Lease Cost | Classification | 2024 | 2023 | |||||||
| Operating | General and administrative | $ | 78,045 | $ | 398,173 | |||||
| Short-term lease cost | General and administrative | 70,708 | 3,967 | |||||||
| Total lease cost | $ | 148,753 | $ | 402,140 | ||||||
The discount rate used to compute the present value of minimal rental payments is the Company’s risk-free borrowing rate of 4.06%. The weighted-average remaining lease term is 2.75 years as of December 31, 2024.
The following table reconciles the undiscounted future cash flows for the next three years to the operating lease liabilities recorded within the consolidated balance sheets as of December 31, 2024:
| Maturities of Lease Liabilities | ||||
| Year ending December 31: | Operating | |||
| 2025 | $ | 78,423 | ||
| 2026 | 79,936 | |||
| 2027 | 60,802 | |||
| Total lease payments | 219,161 | |||
| Less: interest | (11,422 | ) | ||
| Present value of lease liabilities | $ | 207,739 | ||
Cash paid for amounts included in the measurement of lease liabilities, for operating cash flows from operating leases, was $76,911 and $457,443 for the years ended December 31, 2024 and 2023, respectively.
| 15 |
Litigation
From time to time, the Company may become involved in claims and other legal matters arising in the ordinary course of business. Management is not currently aware of any matters that will have a material adverse effect on the financial position, results of operations or cash flows of the Company.
| 7. | Notes Payable |
Notes payable consist of the following as of December 31:
| 2024 | 2023 | |||||||
| 2020 note payable | $ | 1,052,080 | $ | 1,052,080 | ||||
| 2020 related-party note payable | 142,087 | 137,904 | ||||||
| 2021 note payable | 44,447,770 | 44,412,113 | ||||||
| 2021 revolving loan | 9,200,183 | 2,949,679 | ||||||
| 2023 subordinated note payable | 1,824,091 | 1,003,333 | ||||||
| 56,666,211 | 49,555,109 | |||||||
| Current portion | (53,890,929 | ) | (47,450,681 | ) | ||||
| Debt discount | - | (384,122 | ) | |||||
| $ | 2,775,282 | $ | 1,720,306 | |||||
Minimum future principal payments and amortization of debt discounts under the Company’s notes payable for each of the next five years and thereafter are as follows:
| For the years ending December 31: | Principal | |||
| 2025 | $ | 53,890,929 | ||
| 2026 | 247,580 | |||
| 2027 | 179,560 | |||
| 2028 | 2,007,278 | |||
| 2029 | 186,870 | |||
| Thereafter | 153,994 | |||
| $ | 56,666,211 | |||
2020 Note Payable
On June 30, 2020, in conjunction with the acquisition of Kellison & Co., the Company executed a promissory note in the amount of $1,900,000 with the former owner of Kellison & Co. The note bears annual interest of 2.00% and matures as certain performance obligations are met.
2020 Related-party Note Payable
On October 30, 2020, in conjunction with the acquisition of Micro-Office Systems, Inc., the Company executed a promissory note in the amount of $329,030 with an employee. The note bears annual interest of 2.75% and matures as certain performance obligations are met.
| 16 |
2021 Note Payable and 2021 Revolving Loan
On July 16, 2021, the Company entered into a Credit Agreement with a lender, whereby the lender advanced $42.5 million (term loan), with an additional $2.5 million advanced on November 5, 2021 (delayed draw term loan) (collectively, 2021 note payable). Principal and interest payments on the term loans are due quarterly beginning September 30, 2021, until maturity. Additionally, as outlined in the Credit Agreement, the Company received $5 million through a revolving loan (2021 revolving loan), with unpaid principal due at maturity. All unpaid principal and interest were due July 16, 2026. As of May 31, 2023, these agreements were amended to have a maturity date of June 30, 2024. As of December 31, 2024, these agreements were in default and included in the current portion of notes payable in the accompanying balance sheet.
Interest on the 2021 note payable and 2021 revolving loan is due quarterly at a per annum rate equal to the Base Rate, which is defined in the agreement until May 4, 2022, as the greatest of (a) 2%, (b) Federal Funds Rate plus .05%, (c) LIBOR plus 1%, or (d) Wells Fargo Prime Rate. On May 4, 2022, the Base rate was changed to the greatest of (a) 2%, (b) Federal Funds rate plus 0.5%, (c) Term SOFR for a one-month tenor in effect on such day plus 1%, provided that this clause (c) shall not be applicable during any period in which Term SOFR is unavailable or unascertainable. The Base Rate was 10.8% as of December 31, 2024. Upon defaulting on the loan obligations, the Company is being charged an additional 2% interest per annum. As the Company has defaulted on this note, all interest is accruing and added to the total outstanding balance. The Company paid certain debt issuance costs totaling $755,650 which were amortized as interest expense over the term of the agreement.
The line of credit requires the Company to meet certain affirmative and negative covenants, including maintenance of specified financial ratios. The Company was not in compliance with some of these covenants as of December 31, 2024 and the related debt balances covered by these covenants have been included in current liabilities. The 2021 note payable and 2021 revolving loan are collateralized by substantially all of the Company’s assets and contain cross-default provisions.
2023 Subordinated Note Payable
On December 26, 2023, the Company entered into a subordinated note payable agreement with a lender that gives the Company the ability to request funds up to $1,000,000 three times, which has a maturity date of December 31, 2027. The note payable accrues interest at a per annum rate of 20%, which is included in the outstanding amount and is due at maturity. If there is an event of default, all obligations shall bear interest at a rate per annum of 24%. If the balance is paid off before maturity, a prepayment penalty equal to interest that would have been charged from the date of prepayment to the date of maturity plus an exit fee of 10% of the principal balance. The 2023 subordinated note payable is collateralized by a second-position lien on substantially all of the Company’s assets.
| 8. | Warrants |
The Company had the following warrants outstanding as of December 31, 2024:
| Date Issued | Shares
of Common Stock | Shares
of Preferred Stock | Expiration Dates | |||||||
| June 8, 2015 | 7,097,792 | June 5, 2025 | ||||||||
| December 14, 2016 | 2,517,571 | December 14, 2026 | ||||||||
| December 6, 2017 | 25,187,133 | December 6, 2027 | ||||||||
| March 6, 2019 | 5,695,897 | March 6, 2029 | ||||||||
| November 7, 2019 | 6,000,000 | November 20, 2031 | ||||||||
| 17 |
As of December 31, 2024 and 2023, the fair value of all warrants was estimated to be $0, and was estimated using the Black-Scholes option pricing model with the following assumptions:
| 2024 | 2023 | |||||||
| Expected stock price volatility | 35.0 | % | 30.0 | % | ||||
| Weighted-average risk-free interest rate | 4.7 | % | 5.4 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Expected term (in years) | 1.0 | 1.0 | ||||||
2015 Term Loan Warrants
On June 8, 2015, the Company issued warrants to a previous lender. The warrants are exercisable for current round or next round preferred stock, as defined in the warrant agreements, and the number of shares for which the warrants are exercisable is determined by dividing $450,000 (“warrant coverage amount”) by the warrant price, as defined in the agreements.
For the years ended December 31, 2024 and 2023, no gain or loss was recorded based on the change in estimated fair value of warrants in the accompanying financial statements.
2016 Warrants
On December 14, 2016, the Company issued warrants to a previous lender to purchase 2,517,571 shares of Series 2 Preferred Stock. The warrants are exercisable through ten years after the date of grant. The number of shares for which the warrants are exercisable is determined by dividing $240,000 by the warrant price, as defined in the agreements. Upon the expiration date, if the fair market value, as defined in the agreement, is greater than the exercise price of $0.09533, then the warrant will be automatically exercised. If the Company issues additional stock below the exercise price, the conversion price will be adjusted to the per share value of the additional stock issued.
For the years ended December 31, 2024 and 2023, no gain or loss was recorded based on the change in estimated fair value of warrants in the accompanying financial statements.
2017 Series 3 Preferred Stock Warrants
In conjunction with a Series 3 Preferred Stock and Warrant Purchase Agreement (SPA) in December 2017, all recipients of the Series 3 Preferred Stock received 0.33 Series 3 Preferred Stock Warrants (the 2017 Series 3 Warrants) for each share of Preferred Stock issued. The 2017 Series 3 Warrants have an exercise price of $0.09533, and a term of 10 years, and can be exercised on a “cashless” basis. The Series 3 Preferred Stock underlying the 2017 Series 3 Warrants is contingently redeemable and the shares can be put back to the Company in accordance with the redemption terms; therefore, the 2017 Series 3 Preferred Stock Warrants are accounted for as a liability and marked to market at each reporting period.
For the years ended December 31, 2024 and 2023, no gain or loss was recorded based on the change in estimated fair value of warrants in the accompanying financial statements.
2019 Series 3 Preferred Stock Warrants
On March 6, 2019, as part of a subsequent closing in conjunction with a Series 3 Preferred Stock and Warrant Purchase Agreement (SPA) (see Note 9), the recipient of the Series 3 Preferred Stock received 0.33 Series 3 Preferred Stock Warrants (the 2019 Series 3 Warrants) for each share of Preferred Stock issued, a total of 5,695,987 shares. The 2019 Series 3 Warrants have an exercise price of $0.09533, and a term of 10 years, and can be exercised on a “cashless” basis. The Series 3 Preferred Stock underlying the 2019 Series 3 Warrants are contingently redeemable and the shares can be put back to the Company in accordance with the redemption terms; therefore, the 2019 Series 3 Preferred Stock Warrants are accounted for as a liability and marked to market at each reporting period.
| 18 |
For the years ended December 31, 2024 and 2023, no gain or loss was recorded based on the change in estimated fair value of warrants in the accompanying financial statements.
2019 Line of Credit Warrants
On November 7, 2019, the Company issued warrants to a lender to purchase 6,000,000 shares of common stock. The warrants are exercisable through ten years after the date of grant with a exercise price of $0.06 per share. As of the date of grant and as of December 31, 2020, the fair value of the warrants granted was immaterial. On February 22, 2021, the Company signed an agreement that extended the expiration date of these warrants to November 20, 2031.
For the years ended December 31, 2024 and 2023, no gain or loss was recorded based on the change in estimated fair value of warrants in the accompanying financial statements.
| 9. | Shareholders’ Deficit |
The Company is authorized to issue two classes of shares of capital stock designated, respectively, “common stock” and “preferred stock”. As of December 31, 2024 and 2023, the Company had total authorized shares of 5,545,867,526 of which 2,868,547,015 were common and 2,677,320,511 were preferred.
Common Stock
Through December 31, 2024, the Company has issued 398,015,543 shares of common stock at prices per share ranging from $0.01 to $1.01.
Convertible Preferred Stock
During 2024, the Company repurchased 111,758,342 shares of Series 1, 117,368,620 shares of Series 1-B, 31,093,114 shares of Series 2, 5,215,846 shares of Series 3, and 8,474,576 shares of Series 5 Preferred Stock (along with 6,613,089 shares of common stock) in exchange for cash of $1. During 2023, the Company issued 200,000 shares of Series 6-A Preferred Stock in exchange for cash of $10,000,000.
The liquidation preference, in order of liquidation preference, is as follows, as of December 31, 2024 and 2023:
| Series | Shares Authorized | Shares
Issued and Outstanding | Amount | |||||||||
| December 31, 2024 | ||||||||||||
| Series 6-A | 200,000 | 200,000 | $ | 15,000,000 | ||||||||
| Series 6-B | 15,000 | - | - | |||||||||
| Series 6-C | 1,200,574,495 | - | - | |||||||||
| Series 4-A | 800,000 | 800,000 | 87,908,197 | |||||||||
| Series 4-D | 100,000 | 100,000 | 6,750,000 | |||||||||
| Series 4-B | 800,000 | - | - | |||||||||
| Series 4-E | 100,000 | - | - | |||||||||
| Series 5 | 84,745,762 | 6,355,932 | 750,000 | |||||||||
| Series 3 | 149,200,680 | 20,728,286 | 4,347,261 | |||||||||
| Series 4-C | 71,649,145 | - | - | |||||||||
| Series 4-F | 9,685,320 | - | - | |||||||||
| Series 2 | 129,458,043 | 29,823,756 | 2,843,099 | |||||||||
| Series 1-A | 60,312,592 | 29,553,170 | 2,955,317 | |||||||||
| Series 1-B | 440,698,039 | 98,573,419 | 12,323,641 | |||||||||
| Series 1 | 528,981,435 | 140,344,769 | 8,897,858 | |||||||||
| 2,677,320,511 | 326,479,332 | $ | 141,775,373 | |||||||||
| 19 |
| Series | Shares Authorized | Shares
Issued and Outstanding | Amount | |||||||||
| December 31, 2023 | ||||||||||||
| Series 6-A | 200,000 | 200,000 | $ | 15,000,000 | ||||||||
| Series 6-B | 15,000 | - | - | |||||||||
| Series 6-C | 1,200,574,495 | - | - | |||||||||
| Series 4-A | 800,000 | 800,000 | 82,308,197 | |||||||||
| Series 4-D | 100,000 | 100,000 | 6,750,000 | |||||||||
| Series 4-B | 800,000 | - | - | |||||||||
| Series 4-E | 100,000 | - | - | |||||||||
| Series 5 | 84,745,762 | 14,830,508 | 1,750,000 | |||||||||
| Series 3 | 149,200,680 | 25,944,132 | 5,185,015 | |||||||||
| Series 4-C | 71,649,145 | - | - | |||||||||
| Series 4-F | 9,685,320 | - | - | |||||||||
| Series 2 | 129,458,043 | 60,916,870 | 5,807,205 | |||||||||
| Series 1-A | 60,312,592 | 29,553,170 | 2,955,317 | |||||||||
| Series 1-B | 440,698,039 | 215,942,039 | 26,997,056 | |||||||||
| Series 1 | 528,981,435 | 252,103,111 | 15,983,337 | |||||||||
| 2,677,320,511 | 600,389,830 | $ | 162,736,127 | |||||||||
The rights, preferences, privileges and restrictions of holders of Series 1-A, Series 1-B, Series 1, Series 2, Series 3, Series 4, Series 5, and Series 6 Preferred Stock are set forth in the Company’s eleventh Amended and Restated Certificate of Incorporation, and are summarized as follows:
Dividends
Holders of Series 6-A Preferred Stock shall be entitled to annual (noncumulative) dividends at the rate of $4.00 per share payable annually, as and if declared by the Board of Directors (Board). Holders of Series 4-A Convertible Preferred Stock shall be entitled to cumulative dividends at the rate of $7 per share per annum whether or not such dividends are declared by the Company’s Board. Holders of Series 4-B Convertible Preferred Stock shall be entitled to cumulative dividends at the rate of $140 per share per annum whether or not such dividends are declared by the Board. Holders of Series 5 Convertible Preferred Stock shall be entitled to annual dividends (not cumulative), subject to Board of Directors’ approval, at a rate of $0.00944 per share. If the Board declares and distributes dividends to the holders of Series 3 Preferred Stock, the holders of Series 4-C and Series 4-F Preferred Stock shall be entitled to participate on a pari passu basis in any such dividends with the holders of Series 3 Preferred Stock on an as-if converted to Series 3 Preferred Stock basis. Holders of Series 3 Convertible Preferred Stock shall be entitled to receive out of funds legally available, when, as and if declared by the Board, cash dividends at the rate of $0.007626 (as adjusted for stock splits, stock dividends, combinations, reclassifications and the like) are declared. Holders of Series 1-A, Series 1-B, Series 1, and Series 2 Convertible Preferred Stock shall be entitled to receive out of funds legally available, when, as and if declared by the Board, cash dividends at the rate of $0.008 per share, $0.01 per share, $0.0051 per share, and $0.007626 per share, respectively (as adjusted for stock splits, stock dividends, combinations, reclassifications and the like). No distribution shall be made with respect to the common stock until all declared dividends on Convertible Preferred Stock have been paid or set aside for payment to the Preferred Shareholders. Dividends on shares of Convertible Preferred Stock, other than Series 4-A and Series 4-B, are non-cumulative. As of December 31, 2024 and 2023, the Company had not declared any dividends to its shareholders; however, the Company had a Series 4-A cumulative dividend of $27,908,197 and $22,308,197 as of December 31, 2024 and 2023, respectively, that will be paid if declared by the Board or in other certain circumstances, such as liquidation of the Company. These cumulative dividends have been included in the liquidation preference tables above.
| 20 |
Liquidation Preference
Series 1, 1-A, 1-B, 2, 3, 4, 5 and 6
Initial Preference
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, including a Liquidation Transaction, (collectively, a Liquidation), the holders of Series 6-A Preferred Stock shall be entitled to receive in cash, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Series 5 Preferred Stock, Series 4 Preferred Stock, Series 3 Preferred Stock, Series 2 Preferred Stock, Series 1-A Preferred Stock, Series 1-B Preferred Stock, Series 1 Preferred Stock, or Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (A) $75.00 and (B) the sum of (i) the liquidation preferences in the secondary preference below in respect of such shares of Preferred Stock that a share of Series 6-A Preferred Stock would be converted into (after subsequent conversion of the Series 6-C Preferred Stock), assuming conversion and calculation as of the date of determination, and (ii) the Fair Market Value of the shares of Common Stock that a share of Series 6-A Preferred Stock would be converted into (after subsequent conversion of the Series 6-C Preferred Stock), assuming conversion and calculation as of the date of determination.
In the event of any Liquidation, the holders of the Series 6-B Preferred Stock shall be entitled to receive in cash, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Series 5 Preferred Stock, Series 4 Preferred Stock, Series 3 Preferred Stock, Series 2 Preferred Stock, Series 1-A Preferred Stock, Series 1-B Preferred Stock, Series 1 Preferred Stock or Common Stock, by reason of their ownership thereof, and amount per share equal to (the “Series 6-B Preference amount): $1,000 (such amount to be adjusted appropriately for stock splits, dividends, combinations, recapitalizations and the like).
In the event of any Liquidation, the holders of Series 6-C Preferred Stock shall be entitled to receive in cash, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Series 5 Preferred Stock, Series 4 Preferred Stock, Series 3 Preferred Stock, Series 2 Preferred Stock, Series 1-A Preferred Stock, Series 1-B Preferred Stock, Series 1 Preferred Stock, Series 1 Preferred Stock or Common Stock, by reason of their ownership thereof, an amount per share equal to the sum of (such sum, adjusted appropriately for stock splits, dividends, combinations, recapitalizations and the like, the Series 6-C Preference Amount”): (i) the liquidations preference set forth in this section in respect of such shares of Preferred Stock that a share of Series 6-C Preferred Stock would be converted into, assuming conversion and calculation as of the date of determination, and (ii) the Fair Market Value of the shares of Common Stock that a share of Series 6-C Preferred Stock would be converted into, assuming conversion and calculation as of the date of determination.
Secondary Preference
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, including a Liquidation Transaction, (collectively, a Liquidation), the holders of Series 4-A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of Series 5 Preferred Stock, Series 4-C Preferred Stock, Series 4-F Preferred Stock, Series 3 Preferred Stock, Series 2 Preferred Stock, Series 1-A Preferred Stock, Series 1-B Preferred Stock, Series 1 Preferred Stock, or Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (A) the greater of (i) the Series 4-A Original Issue Price plus an amount equal to all accrued, but unpaid Series 4-A dividends on such share of Series 4-A Preferred Stock or (ii) $75 and (B) the Redemptive Price for the shares of Series 4-C Preferred Stock that would have been issuable upon conversion of such share of Series 4-A Preferred Stock.
In the event of any liquidation, the holders of Series 4-D Preferred Stock shall be entitled to receive in cash on a pari passu basis with the Series 4-A Preferred Stock, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Series 5 Preferred Stock, Series 4-C Preferred Stock, Series 4-F Preferred Stock, Series 3 Preferred Stock, Series 2 Preferred Stock, Series 1-A Preferred Stock, Series 1-B Preferred Stock, Series 1 Preferred Stock or Common Stock, by reason of their ownership thereof, an amount equal to the greater of the amount in (A) the series 4-B Original Issue Price plus an amount equal to the Series 4-B Accrued Dividends, or (B) an amount equal to $60 million divided by the aggregate number of shares of Series 4-B Preferred Stock immediately after a conversion to Series 4-B Preferred Stock.
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Tertiary Preference
Upon the completion of the distribution above, the holders of Series 5 Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holder of Series 4-C Preferred Stock, Series 4-F Preferred Stock, Series 3 Preferred Stock, Series 2 Preferred Stock, Series 1-A Preferred Stock, Series 1-B Preferred Stock, Series 1 Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to 1.0 times $0.118, the original Series 5 purchase price then held by them, plus declared but unpaid dividends (Series 5 Initial Preference). If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series 5 Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, the entire assets and funds of the Company legally available for distribution shall be distributed ratably with equal priority among the holders of the Series 5 Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive.
Quaternary Preference
Upon the completion of the distribution above, the holders of Series 3 Preferred Stock (in each case together with the holders of any Series 4-C Preferred Stock and Series 4-F Preferred Stock on an as-if converted to Series 3 Preferred Stock basis) shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holder of Series 2 Preferred Stock, Series 1-A Preferred Stock, Series 1-B Preferred Stock, Series 1 Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to 1.5 (Series 3 Multiplication Factor) times $0.09533, the original Series 3 purchase price then held by them, plus declared but unpaid dividends (Series 3 Initial Preference). If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series 3 Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, the entire assets and funds of the Company legally available for distribution shall be distributed ratably with equal priority among the holders of the Series 3 Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive.
On each anniversary of December 6, 2017, the Series 3 Multiplication Factor shall increase by 0.1. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series 3 Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, subject to the rights of series of Preferred Stock, the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series 3 Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. The liquidation preference of the Series 3 Preferred Stock is adjusted to its redemption amount at every reporting period in the liquidation preference tables above.
Quinary Preference
Upon the completion of the distributions above, the holders of Series 2 Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holder of Series 2 Preferred Stock, Series 1-A Preferred Stock, Series 1-B Preferred Stock, Series 1 Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to $0.09533 per share, plus declared but unpaid dividends. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series 2 Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, the entire assets and funds of the Company legally available for distribution shall be distributed ratably with equal priority among the holders of the Series 2 Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive.
Senary Preference
Upon the completion of the distributions above, the holders of Series 1-A Preferred Stock, Series 1-B Preferred Stock, and Series 1 Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to (A) $0.10 per share for each share of Series 1-A Preferred Stock then held by them, plus declared but unpaid dividends, (B) $0.125 per share for each share of Series 1-B Preferred Stock then held by them, plus declared but unpaid dividends, and (C) $0.0634 per share for each share of Series 1 Preferred Stock then held by them, plus declared but unpaid dividends. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series 1-A Preferred Stock, Series 1-B Preferred Stock and Series 1 Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, the entire assets and funds of the Company legally available for distribution shall be distributed ratably with equal priority among the holders of the Series 1-A Preferred Stock, Series 1-B Preferred Stock and Series 1 Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive.
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Remaining Assets
The balance of any proceeds shall be distributed to holders of Series 1, 1-A, 1-B, 2, 3, 4C, 4F, 5 and common shareholders pro-rata based on the number of common shares held by each, assuming conversion of all Convertible Preferred Stock into common stock, until holders of Series 1-A Preferred Stock have received an aggregate of $0.20 for each share of Series A-1 held, holders of Series 1-B Preferred Stock have received an aggregate of $0.25 for each share of Series B Preferred Stock held, holders of Series 1 Preferred Stock have received an aggregate of $0.1902 for each share of Series 1 held, holders of Series 2 Preferred Stock have received an aggregate of $0.28599 for each share of Series 2 held, holders of Series 3 Preferred Stock have received an aggregate of $0.47665 for each share of Series 3 held, holders of Series 4-C Preferred Stock have received an aggregate of $0.31465 for each share of Series 4-C held, and holders of Series 5 Preferred Stock have received an aggregate of $0.118 for each share of Series 5 held; thereafter, if assets remain in the Corporation, the holders of Common Stock of the Company shall receive all of the remaining assets of the Company pro rata based on the number of shares of Common Stock held by each.
Conversion
Upon the written election of a Series 4 Majority, and without payment of any additional consideration, all of the outstanding shares of Series 4-A Preferred Stock shall be converted into fully paid and nonassessable shares of Series 4-B Preferred Stock and Series 4-C Preferred Stock as follows: (i) that number of shares of Series 4-B Preferred Stock equal to (A) the aggregate Series 4-A Accrued Base Return Amount for all such shares of Series 4-A Preferred Stock, divided by (B) $1,000, shall convert at a one-to-one ratio (each such amount appropriately adjusted for any stock splits, dividends, combinations, recapitalization and the like) into fully paid and nonassessable shares of Series 4-B Preferred Stock (the Series 4-B Conversion Rate), and (ii) each remaining share of Series 4-A Preferred Stock after the conversion set forth in (i) above is complete (collectively, such shares, the Remaining Series 4-A Preferred Stock) shall be converted into a number of shares of Series 4-C Preferred Stock equal to (A) Series 4-C Preferred Stock Number, divided by (B) the number of shares of Remaining Series 4-A Preferred Stock (the Series 4-C Conversion Rate).
Upon the written election of a Series 4 Majority, and without payment of any additional consideration, all of the outstanding shares of Series 4-D Preferred Stock shall be converted into fully paid and nonassessable shares of Series 4-E Preferred Stock and Series 4-F Preferred Stock as follows: (i) that number of shares of Series 4-E Preferred Stock equal to (A) the aggregate Series 4-D Original Issue Price for all such shares of Series 4-D Preferred Stock, divided by (B) $1,000, shall convert at a one-to-one ratio (each such amount appropriately adjusted for any stock splits, dividends, combinations, recapitalization and the like) into fully paid and nonassessable shares of Series 4-E Preferred Stock (the Series 4-E Conversion Rate), and (ii) each remaining share of Series 4-D Preferred Stock after the conversion set forth in (i) above is complete (collectively, such shares, the Remaining Series 4-D Preferred Stock) shall be converted into a number of shares of Series 4-F Preferred Stock equal to (A) Series 4-F Preferred Stock Number, divided by (B) the number of shares of Remaining Series 4-D Preferred Stock (the Series 4-F Conversion Rate).
Each share of Series 4-C Preferred Stock shall be convertible, at the option of the holder thereof and without payment of any additional consideration, at the office of the Corporation or any transfer agent for such stock, into the number of fully paid and nonassessable shares (or that portion of a share) of Series 3 Preferred Stock equal to (x) the Redemption Price for Series 4-C Preferred Stock (for the avoidance of doubt, as calculated pursuant to Section 3(a) using the date of conversion for such calculations as the Redemption Date), divided by (y) the Fair Market Value of a share of Series 3 Preferred Stock on the date of such conversion.
Each share of Series 4-F Preferred Stock shall be convertible, at the option of the holder thereof and without payment of any additional consideration, at the office of the Corporation or any transfer agent for such stock, into the number of fully paid and nonassessable shares (or that portion of a share) of Series 3 Preferred Stock equal to (x) the Redemption Price for Series 4-F Preferred Stock (for the avoidance of doubt, as calculated pursuant to Section 3(a) using the date of conversion for such calculations as the Redemption Date), divided by (y) the Fair Market Value of a share of Series 3 Preferred Stock on the date of such conversion.
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Upon the written election of a Series 6 Majority, and without payment of any additional consideration, all of the outstanding shares of Series 6-A Preferred Stock shall be converted into fully paid and nonassessable shares of Series B Preferred Stock and Series 6-C Preferred Stock as follows: (i) that number of shares of Series 6-B Preferred Stock equal to (A) the aggregate Series 6-A Base Preference Amount for all such shares of Series 6-A Preferred Stock, divided by (B) $1,000, shall convert at a one-to-one ratio into fully paid and nonassessable shares of Series 6-B Preferred Stock, and (ii) each remaining share of Series 6-A Preferred Stock and (ii) each remaining share of Series 6-A Preferred Stock after the conversion set forth in (i) above is complete shall be converted into a number of shares of Series 6-C Preferred Stock equal to (A) Series 6-C Preferred Stock, divided by (B) the number of shares of Remaining Series 6-A Preferred Stock. The Series 6-C Preferred Stock Number” initially equals 1,200,574,495. Any election by a Series 6 Majority shall be made by written notice to the Corporation and the other holders of Series 6-A Preferred Stock, and such notice may be given at any time through and including the time which is immediately prior to the closing of any Liquidation. Upon such election, all holders of the Series 6-A Preferred Stock shall be deemed to have elected to voluntarily convert all outstanding shares of Series 6-A Preferred Stock into shares of Series 6-B Preferred Stock and Series 6-C Preferred Stock and such election shall bind all holders of Series 6-A Preferred Stock.
Each share of Series 6-C Preferred Stock shall be convertible, at the option of the holder thereof and without payment of any additional consideration, at the office of the Corporation or any transfer agent for such stock, into (x) the following specified number of fully paid and nonassessable shares (or that portion of a share) of the following series, in each case divided by (y) the Series 6-C Preferred Stock Number: (A) 30,759,422 shares of Series 1-A Preferred Stock, (B) 224,756,000 shares of Series 1-B Preferred Stock, (C) 269,780,532 shares of Series 1 Preferred Stock, (D) 66,023,602 shares of Series 2 Preferred Stock, (E) 15,435,835 shares of Common Stock.
Each share of Series 1-A, Series 1-B, Series 1, Series 2, Series 3 and Series 5 Preferred Stock is convertible at any time after the issuance date, at the option of the holder, into such shares of common stock as is determined by dividing (i) $0.10 in the case of the Series 1-A Preferred Stock, (ii) $0.125 in the case of the Series 1-B Preferred Stock, (iii) $0.0634 in the case of the Series 1 Preferred Stock, (iv) $0.09533 in the case of the Series 2 Preferred Stock, (v) $0.09533 in the case of the Series 3 Preferred Stock, and (vi) $0.118 in the case of the Series 5 Preferred Stock, by the conversion price applicable to such share , in effect at the time of conversion. The initial conversion price per share is $0.10, $0.125, $0.634, $0.09533, $0.09533 and $0.118 for Series 1-A, Series 1-B, Series 1, Series 2, Series 3 and Series 5, respectively.
Series 4-A and Series 4-D Automatic Conversion: At the earlier of (x) the written request by a Series 4-A Majority to redeem Series 4-B Preferred Stock, or (y) the written request of the Corporation provided it is delivered simultaneously with an irrevocable redemption request with respect to Series 4-B Preferred Stock, such conversion to be conditioned on the consummation of such redemption immediately after such conversion, upon such written request all shares of Series 4-A Preferred Stock shall automatically be converted, without the payment of any additional consideration, into fully paid and nonassessable shares of Series 4-B Preferred Stock and Series 4-C Preferred Stock as follows: (I) that number of shares of Series 4-A Preferred Stock equal to (A) the aggregate Series 4-A Accrued Base Return Amount for all such shares of Series 4-A Preferred Stock, divided by (B) $1,000, shall convert into Series 4-B Preferred Stock at the Series 4-B Conversion Rate, and (II) each share of Remaining Series 4-A Preferred Stock shall be converted into shares of Series 4-C Preferred Stock at the Series 4-C Conversion Rate. At the earlier of (x) the written request by a Series 4 Majority to redeem Series 4-E Preferred Stock, or (y) the written request of the Corporation provided it is delivered simultaneously with an irrevocable redemption request with respect to Series 4-E Preferred Stock, such conversion to be conditioned on the consummation of such redemption immediately after such conversion, upon such written request all shares of Series 4-D Preferred Stock shall automatically be converted, without the payment of any additional consideration, into fully paid and nonassessable shares of Series 4-E Preferred Stock and Series 4-F Preferred Stock as follows: (I) that number of shares of Series 4-D Preferred Stock equal to (A) the aggregate Series 4-D Accrued Base Return Amount for all such shares of Series 4-D Preferred Stock, divided by (B) $1,000, shall convert into Series 4-E Preferred Stock at the Series 4-E Conversion Rate, and (II) each share of Remaining Series 4-D Preferred Stock shall be converted into shares of Series 4-F Preferred Stock at the Series 4-F Conversion Rate.
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Series 4-C and Series 4-F Automatic Conversion: Immediately prior to any liquidation, if the shares of Series 4-C Preferred Stock are not redeemed in connection with such events, then each outstanding share of Series 4-C Preferred Stock shall be converted into, without payment of any additional consideration, the number of fully paid and nonassessable shares (or that portion of a share) of Series 3 Preferred Stock equal to (x) the Redemption Price for Series 4-C Preferred Stock, divided by (y) the Fair Market Value of a share of Series 3 Preferred Stock on the date of such conversion. Immediately prior to any liquidation, if the shares of Series 4-F Preferred Stock are not redeemed in connection with such events, then each outstanding share of Series 4-F Preferred Stock shall be converted into, without payment of any additional consideration, the number of fully paid and nonassessable shares (or that portion of a share) of Series 3 Preferred Stock equal to (x) the Redemption Price for Series 4-F Preferred Stock, divided by (y) the Fair Market Value of a share of Series 3 Preferred Stock on the date of such conversion.
Other Series Automatic Conversion: Each share of Series 1-A, Series 1-B, Series 1, Series 2, Series 3 and Series 5 Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share, and each share of Series 6-A Preferred Stock and Series 6-C Preferred Stock shall automatically be converted into shares of Preferred Stock and Common Stock , immediately upon the earlier of, except as provided below, (i) the Corporation’s sale of its Common Stock in its first firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, with Common Stock listed for trading on the New York Stock Exchange or the NASDAQ National Market, (y) where the public per-share offering price of Common Stock is not less than three times the Series 3 Initial Preference (as adjusted for stock splits, stock dividends, combinations, reclassification and the like) and (z) which results in aggregate cash proceeds to the Corporation in excess of $100,000,000 (net of underwriting discounts and commissions) and a minimum public float for the Common Stock of at least 20% (on a fully-diluted basis) (a “Qualified Public Offering”), or (ii) the date specified by written consent or agreement of the holders of a series 6 Majority.
Voting
The holders of Convertible Preferred Stock have one vote for each full share of common stock into which their respective shares of Convertible Preferred Stock would be convertible.
Redemption
On or after September 30, 2025, the Series 4 Majority may elect to have all of the then outstanding shares of Series 4-B and 4-E Preferred Stock redeemed for an amount in cash per share equal to the Series 4-B or Series 4-E Redemption Price, as applicable. At the earlier of a liquidation or September 30, 2025, the holders of at least a majority of the then outstanding shares of Series 4-C and Series 4-F Preferred Stock or Series 4-A and Series 4-D Preferred Stock (in the event that the Series 4-A and 4-D Preferred Stock have not yet been converted pursuant to Section 3(a)), voting as a separate class (a Series 4-C/F Majority) may elect to have all of the then outstanding shares (or the to-be outstanding shares, in the event that the Series 4-A and 4-D Preferred Stock has not yet been converted pursuant to Section 4(a) and shall be automatically converted prior to redemption pursuant to Section 4(b)) of Series 4-C and 4-F Preferred Stock redeemed. In such event, the Corporation shall, to the extent not prohibited by applicable law, redeem that number of shares of Series 4-C and 4-F Preferred Stock as requested for an amount in cash per share equal to the Series 4-C and 4-F Redemption Price. The price for each share of Series 4-B Preferred Stock (the Series 4-B Redemption Price) shall be an amount equal to the Series 4-B Preference Amount. The price for each share of Series 4-C Preferred Stock (the Series 4-C Redemption Price and together with the Series 4-B Redemption Price, each a Redemption Price) shall be an amount equal to the difference between (A) the Fair Market Value (as defined below) per share of Series 3 Preferred Stock as of the Redemption Date and (B) $0.162 (appropriately adjusted for any stock splits, dividends, combinations, recapitalizations and the like).
At any time after the later of September 30, 2025 or six months from the date no shares of Series 4 Preferred Stock are outstanding, at the election of the holders of at least a majority of the then outstanding shares of Series 3 Preferred Stock, the Corporation shall redeem the shares of Series 3 Preferred Stock, on a pro rata basis amount the holders, by paying in cash an amount per share equal to the Series 3 Initial Preference.
Other than in a liquidation, dissolution or winding up of the Company or the occurrence of a deemed liquidation event, the Series 1, 1-A, 1-B, 2 and 5 Preferred Stock are not redeemable.
Preferred Stock Price Adjustment
The Company’s articles of incorporation contain “down-round” protection for the Series 5, 3, 2 ,1, 1-B, and 1-A preferred stock. When additional shares of common stock are issued or sold, other than as a dividend or other distribution, for an effective price less than the then-existing conversion price, then and in each such case the then-existing conversion price is reduced to a price equal to the price per share received by the Company for the common stock issuance or sale.
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| 10. | Stock Option Plan and Share-Based Compensation |
In 2003, the Company adopted the 2003 Stock Incentive Plan (the Plan) pursuant to which 8,061,084 shares of common stock were originally authorized for issuance of stock awards to employees, directors and consultants. Stock awards granted under the Plan may be (i) Incentive Stock Options (ISOs), (ii) Nonqualified Stock Options (NSOs), (iii) Restricted Stock Awards or (iv) Stock Appreciation Rights, as determined by the Board at the time of grant. ISOs may be granted only to employees. Stock awards other than ISOs may be granted to employees, directors and consultants. An ISO or NSO generally expires no later than 10 years from the date of grant (five years for ISOs when the grantee owns more than 10% of the voting power of all classes of stock). Options generally vest 25% one year from the vesting commencement date and 1/48th per month thereafter.
The deemed fair value per share is determined by the Board at each grant date, based on input from management and a third-party valuation firm. Options may be granted at an exercise price not less than 100% of fair market value for ISOs (110% of fair market value for grants to individuals holding more than 10% of the voting rights of all classes of stock) or 85% of the fair market value for NSOs. Subject to certain restrictions as defined in the Plan and the option agreement, the Company may repurchase any or all of the unvested shares acquired by the option holder and has a right of first refusal on any or all of the vested shares acquired by the option holder.
In 2012, the Company adopted the 2012 Equity Incentive Plan (the 2012 Plan) pursuant to which the original maximum aggregate number of shares that may be subject to award is (i) any shares that have been reserved but not issued from the Plan, and (ii) any shares subject to stock options granted in the Plan that expire without being exercised in full and shares that are forfeited up to 105,039,928 shares to employees, directors and consultants. Stock awards granted under the Plan may be (i) Incentive Stock Options (ISOs), (ii) Nonstatutory Stock Options, (iii) Restricted Stock, (iv) Restricted Stock Units or (v) Stock Appreciation Rights, as determined by the Company’s Board of Directors (the Board) at the time of grant. ISOs may be granted only to employees. Stock awards other than ISOs may be granted to service providers. The term of each Option will be no more than 10 years from the date of grant (five years for ISOs when the grantee owns more than 10% of the voting power of all classes of stock). Options generally vest 25% one year from the vesting commencement date and 1/48th per month thereafter.
The Board may, from time to time and at its sole discretion, increase the number of shares of common stock authorized under the Plan. At both December 31, 2024 and 2023, 240,405,648 shares of common stock are authorized under the plans.
The following table summarizes the activity under the Plans for the indicated periods:
| Number of Options Outstanding | Weighted Average Exercise Price Per Share | |||||||
| Balance at January 1, 2023 | 138,364,797 | $ | 0.01 | |||||
| Granted | - | $ | 0.00 | |||||
| Exercised | (1,708,250 | ) | $ | 0.01 | ||||
| Forfeited | (69,319,686 | ) | $ | 0.01 | ||||
| Balance at December 31, 2023 | 67,336,861 | $ | 0.01 | |||||
| Granted | - | $ | 0.00 | |||||
| Exercised | - | $ | 0.00 | |||||
| Forfeited | (18,318,371 | ) | $ | 0.01 | ||||
| Balance at December 31, 2024 | 49,018,490 | $ | 0.01 | |||||
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There were 114,181,226 and 95,862,855 shares available for grant under the Plans as of December 31, 2024 and 2023, respectively. There were 45,187,162 and 54,414,501 options exercisable as of December 31, 2024 and 2023, respectively.
The weighted average remaining contractual life of outstanding options as of December 31, 2024 and 2023, was 1.74 years and 2.52 years, respectively.
The intrinsic value of options outstanding and exercisable as of December 31, 2024 and 2023 was $0.
The assumptions used in the Black-Scholes option pricing model were determined as follows:
| 2024 | 2023 | |||||||
| Expected stock price volatility | 35.0 | % | 30.0 | % | ||||
| Weighted-average risk-free interest rate | 4.7 | % | 5.4 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Expected term (in years) | 1.0 | 1.0 | ||||||
Volatility. Since the Company is not a publicly-traded entity and therefore has limited historical data on volatility of its stock, expected volatility is based on the volatility of the stock of similar publicly-traded entities. In evaluating similarity, the Company considered factors such as industry, stage of life cycle, size, and financial leverage.
Risk-free interest rate. The risk-free rate that the Company uses is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.
Expected life. As the Company does not have sufficient historical exercise activity to estimate expected life, the expected life of options granted was determined using the “simplified” method, as illustrated in the Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) No. 107, as amended by SAB No. 110. Under this approach, the expected term is presumed to be the average of the weighted average vesting term and the contractual term of the option.
Dividend yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero.
ASC 718, Stock Compensation, also requires the Company to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.
The stock-based employee compensation expense recorded for awards under the stock option plans, net of estimated forfeitures, was $26,227 and $99,175 for the years ended December 31, 2024 and 2023, respectively, and was recorded in general and administrative expense in the accompanying financial statements. No tax benefit was recognized related to share-based compensation expense since the Company has incurred operating losses and has established a full valuation allowance to offset all the potential tax benefits associated with its net deferred income tax assets.
As of December 31, 2024, there was $81,331 of total unrecognized compensation expense related to unvested stock options for employees. This expense is expected to be recognized over a weighted-average period of 1.74 years.
In January 2023, the Company adopted an Executive Retention and Change of Control Bonus Plan and a Long-Term Service Change of Control Bonus Plan in which certain key individuals can receive bonuses upon a change in ownership.
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| 11. | Notes Receivable from Shareholders |
The Company has an outstanding note receivable from a shareholder totaling $262,939 at December 31, 2024 and 2023, for the purpose of assisting the individual in purchasing shares of common stock of the Company. The note is recorded in shareholders’ deficit as the note is secured by the common stock purchased. The note bears an annual interest rate of 2%, and principal and interest are due in lump sums beginning on August 2017, the earlier of January 2027 or a change of control in the Company. The 2017 maturity date payments are delinquent and have not yet been paid as of the date of this report; however, management deems the notes to be 100% collectible.
In connection with the merger of Phoenix in 2015, the Company assumed a note receivable from a certain former employee of Phoenix, who is currently employed with the Company. The promissory note totals $661,216 at both December 31, 2024 and 2023, and bears interest at 0.48% per annum. The note is due on the earlier of (i) December 20, 2026, (ii) a change in control of the Company, (iii) the Company effecting an IPO, or (iv) the closing of any private sale of the pledged common stock. The note is recorded in shareholders’ deficit.
| 12. | Income Taxes |
The income tax provision presented in the statements of operations is $36,923 and $36,759 for the years ended December 31, 2024 and 2023, respectively, of which $0 and $0, respectively, is a deferred tax provision (benefit).
Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income tax assets (liabilities) are as follows as of December 31:
| 2024 | 2023 | |||||||
| Net operating loss carryforwards | $ | 26,094,740 | $ | 25,742,549 | ||||
| Interest limitation | 5,568,203 | 3,427,596 | ||||||
| Deferred revenue | 85,542 | 1,084,595 | ||||||
| Operating lease liability | 51,486 | 70,579 | ||||||
| Operating lease right-of-use asset | (50,361 | ) | (69,543 | ) | ||||
| Deferred customer acquisition and fulfillment costs | (336,855 | ) | (752,993 | ) | ||||
| Other, net | 835,831 | 382,557 | ||||||
| Valuation allowance | (32,248,586 | ) | (29,885,340 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
Realization of net deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $2,363,246 and $2,613,761 during 2024 and 2023, respectively.
As of December 31, 2024 and 2023, the Company has federal net operating loss carryforwards of approximately $108 million and $106 million, respectively. As of December 31, 2024 and 2023, the Company has state net operating loss carryforwards of approximately $59 million and $64 million, respectively. The NOL carryforwards began to expire in 2026.
Current federal and California tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change of a corporation. Accordingly, the Company’s ability to utilize net operating loss and tax credit carryforwards may be limited as a result of such ownership changes.
The Company follows Financial Accounting Standards Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB No. 109, as codified in FASB ASC 740-10, Income Taxes. As of December 31, 2024 and 2023, the Company did not have any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. Because no tax liabilities exist, no tax-related interest and penalties have been expensed in the statements of operations during 2024 and 2023 or accrued as a liability in the balance sheets as of December 31, 2024 and 2023. The Company does not expect significant change in the next twelve months.
| 28 |
The Company considers the need to file tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company files the U.S. federal and multi-state tax returns. In the normal course of business, the Company is subject to examination by federal, state and local jurisdictions, where applicable. All of the Company’s tax years will remain open for examination by federal and state authorities for three and four years, respectively, from the date of utilization of any net operating losses.
| 13. | Employee 401(k) Plan |
All eligible employees of the Company are covered under the qualified 401(k) Plan of Medsphere. The Plan is a defined contribution plan which provides for voluntary employee contributions as well as discretionary matching allocations by the employer as set forth by the Plan. The Plan covers substantially all full-time employees who meet the Plan’s eligibility requirements as defined by the Plan. The Company recorded $0 of discretionary contributions for the years ended December 31, 2024 and 2023, respectively.
| 14. | Subsequent Events |
The Company has evaluated events and transactions that have occurred from January 1, 2025 through September 23, 2025, the date these financial statements were available to be issued.
On June 30, 2025, the Company reorganized into a holding company structure, pursuant to which the Company became a wholly-owned subsidiary of Medsphere Intermediate Holdings, LLC (Intermediate), which is a wholly-owned subsidiary of Medsphere Holdco Inc. (Holdco). The designations, rights, powers and preferences, and the qualifications, limitations and restrictions, of the Holdco common stock and each series of the Holdco preferred stock are the same as those of the Company’s prior common stock and the corresponding series of the Company’s prior preferred stock, respectively. All prior outstanding warrants and options to purchase the Company’s stock became options and warrants to purchase Holdco stock for the same number of shares (and type) of Holdco stock. As of June 30, 2025, the Company has 100 shares of common stock ($.001 par value) authorized, issued and outstanding, all 100 shares of which are owned by Intermediate.
On August 22, 2025, CareCloud Holdings, Inc (Holdings), a wholly-owned subsidiary of CareCloud, Inc., purchased certain of the Company’s assets. The aggregate purchase price for the acquisition was $16,500,000, plus the assumption of certain liabilities. The purchase price was comprised of: (i) $8,250,000 in cash, subject to provisions as set forth in the agreement and (ii) $8,250,000 payable by Holdings to the Company’s secured bank lender pursuant to a deferred payment agreement, bearing interest at a rate of 12% per year with a maturity date of February 20, 2026 (which was paid on September 3, 2025).
On June 2, 2025, July 7, 2025, August 11, 2025 and August 22, 2025, the Company entered into forbearance agreements related to the 2021 Note Payable and 2021 Revolving Loan. In two of these agreements the Company agreed to an additional $5,000,000 exit fee, totaling $10,000,000. The forbearance agreements also extended the forbearance periods, and the most recent forbearance agreement extends the forbearance period to October 24, 2025.
| 29 |
Exhibit 99.2
MEDSPHERE SYSTEMS CORPORATION
Condensed Financial Statements (Unaudited)
As of June 30, 2025 and December 31, 2024
And for the Six Month Periods Ended June 30, 2025 and 2024
Medsphere Systems Corporation
Condensed Balance Sheets As of
| June 30, 2025 | December 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,450,648 | $ | 1,991,109 | ||||
| Restricted cash | 165,000 | 165,000 | ||||||
| Accounts receivable, net | 2,435,131 | 3,368,155 | ||||||
| Deferred customer acquisition and fulfillment costs, current portion | 341,010 | 790,681 | ||||||
| Prepaid expenses and other assets | 1,652,620 | 1,573,596 | ||||||
| Total current assets | 6,044,409 | 7,888,541 | ||||||
| Property and equipment, net | 51,177 | 73,540 | ||||||
| Goodwill, net | 8,104,932 | 9,459,930 | ||||||
| Deferred customer acquisition and fulfillment costs, net of current portion | 521,350 | 568,496 | ||||||
| Operating lease right-of-use assets | 167,871 | 203,202 | ||||||
| Other assets | 29,806 | 67,477 | ||||||
| Total assets | $ | 14,919,545 | $ | 18,261,186 | ||||
| Liabilities and Shareholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,514,002 | $ | 5,070,468 | ||||
| Current portion of notes payable | 59,807,337 | 53,890,929 | ||||||
| Accrued expenses | 1,728,877 | 2,395,696 | ||||||
| Notes payable exit fee (Note 6) | 5,000,000 | - | ||||||
| Deferred revenues | 3,783,883 | 3,176,248 | ||||||
| Current portion of operating lease liabilities | 73,805 | 70,731 | ||||||
| Total current liabilities | 73,907,904 | 64,604,072 | ||||||
| Notes payable, net of current portion | 1,078,157 | 2,775,282 | ||||||
| Operating lease liabilities, net of current portion | 98,604 | 137,008 | ||||||
| Total liabilities | 75,084,665 | 67,516,362 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ deficit: | ||||||||
| Convertible preferred stock, par value $0.001 per share; 0 and 2,677,320,511 shares authorized, respectively; 0 and 326,479,322 shares issued and outstanding, respectively | - | 326,479 | ||||||
| Common stock, par value $0.001 per share; 100 and 2,868,547,015 shares authorized, respectively; 100 and 398,015,543 shares issued and outstanding, respectively | - | 398,016 | ||||||
| Additional paid-in capital | 124,439,702 | 124,639,362 | ||||||
| Notes receivable from shareholders | - | (924,155 | ) | |||||
| Accumulated deficit | (184,604,822 | ) | (173,694,878 | ) | ||||
| Total shareholders’ deficit | (60,165,120 | ) | (49,255,176 | ) | ||||
| Total liabilities and shareholders’ deficit | $ | 14,919,545 | $ | 18,261,186 | ||||
See accompanying notes to condensed financial statements.
| 1 |
Medsphere Systems Corporation
Condensed Statements of Operations (Unaudited)
| For the Six Month Periods Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Revenues: | ||||||||
| Subscription fees | $ | 15,359,077 | $ | 20,277,541 | ||||
| Professional services fees | 925,432 | 910,365 | ||||||
| Reimbursable expenses | 5,865 | 68,010 | ||||||
| Total revenues | 16,290,374 | 21,255,916 | ||||||
| Cost of revenues: | ||||||||
| Subscription fees | 3,652,190 | 5,062,844 | ||||||
| Professional services fees | 514,793 | 522,291 | ||||||
| Reimbursable expenses | 5,865 | 68,023 | ||||||
| Total cost of revenues | 4,172,848 | 5,653,158 | ||||||
| Gross profit | 12,117,526 | 15,602,758 | ||||||
| Operating expenses: | ||||||||
| General and administrative | 4,722,542 | 3,734,423 | ||||||
| Sales and marketing | 2,157,554 | 2,666,018 | ||||||
| Operations and development | 6,357,836 | 7,451,940 | ||||||
| Depreciation and amortization | 1,377,361 | 2,296,934 | ||||||
| Total operating expenses | 14,615,293 | 16,149,315 | ||||||
| Operating loss | (2,497,767 | ) | (546,557 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (3,872,626 | ) | (5,472,535 | ) | ||||
| Notes payable exit fee (Note 6) | (5,000,000 | ) | - | |||||
| Other expense | (19,316 | ) | - | |||||
| Other income | 490,661 | 238 | ||||||
| Total other income (expense), net | (8,401,281 | ) | (5,472,297 | ) | ||||
| Loss before income taxes | (10,899,048 | ) | (6,018,854 | ) | ||||
| Provision for income taxes | 10,896 | 2,197 | ||||||
| Net loss | $ | (10,909,944 | ) | $ | (6,021,051 | ) | ||
See accompanying notes to condensed financial statements.
| 2 |
MEDSPHERE SYSTEMS CORPORATION
Condensed Statements of Shareholders’ Deficit (Unaudited)
For the Six Months Ended June 30, 2025 and 2024
| Convertible Preferred Stock | Common Stock | Notes Receivable From | Additional Paid-in | Accumulated | Total Shareholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shareholders | Capital | Deficit | Deficit | |||||||||||||||||||||||||
| Balances at January 1, 2024 | 600,389,830 | $ | 600,390 | 404,628,632 | $ | 404,629 | $ | (924,155 | ) | $ | 124,332,612 | $ | (156,822,858 | ) | $ | (32,409,382 | ) | |||||||||||||||
| Stock-based compensation | - | - | - | - | - | 21,809 | - | 21,809 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (6,021,051 | ) | (6,021,051 | ) | ||||||||||||||||||||||
| Balances at June 30, 2024 | 600,389,830 | $ | 600,390 | 404,628,632 | $ | 404,629 | $ | (924,155 | ) | $ | 124,354,421 | $ | (162,843,909 | ) | $ | (38,408,624 | ) | |||||||||||||||
Balances at January 1, 2025 | 326,479,332 | $ | 326,479 | 398,015,543 | $ | 398,016 | $ | (924,155 | ) | $ | 124,639,362 | $ | (173,694,878 | ) | $ | (49,255,176 | ) | |||||||||||||||
| Restructuring | (326,479,332 | ) | (326,479 | ) | (398,015,543 | ) | (398,016 | ) | - | 724,495 | - | - | ||||||||||||||||||||
| Write off of uncollectible notes receivable from shareholders | - | - | - | - | 924,155 | (924,155 | ) | - | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (10,909,944 | ) | (10,909,944 | ) | ||||||||||||||||||||||
| Balances at June 30, 2025 | - | $ | - | - | $ | - | $ | - | $ | 124,439,702 | $ | (184,604,822 | ) | $ | (60,165,120 | ) | ||||||||||||||||
See accompanying notes to condensed financial statements.
| 3 |
Medsphere Systems Corporation
Condensed Statements of Cash Flows (Unaudited)
| For the Six Month Periods Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (10,909,944 | ) | $ | (6,021,051 | ) | ||
| Adjustments to reconcile net loss to net cash, cash equivalents and restricted cash used in operating activities: | ||||||||
| Depreciation and amortization | 1,377,361 | 2,296,934 | ||||||
| Non-cash interest expense | 3,848,886 | 2,547,026 | ||||||
| Stock-based compensation | - | 21,809 | ||||||
| Amortization of debt discount | - | 50,376 | ||||||
| Amortization of right-of-use assets | 35,331 | 44,967 | ||||||
| Amortization of deferred customer acquisition and fulfillment costs | 519,805 | 753,984 | ||||||
| Provision for losses on accounts receivable | 586,773 | 85,248 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | 346,251 | (1,855,861 | ) | |||||
| Deferred customer acquisition and fulfillment costs | (22,988 | ) | (248,895 | ) | ||||
| Prepaid expenses and other assets | (41,353 | ) | (44,062 | ) | ||||
| Operating lease liabilities | (35,330 | ) | (45,018 | ) | ||||
| Accounts payable | (1,556,466 | ) | (347,042 | ) | ||||
| Accrued expenses | 4,333,181 | (411,113 | ) | |||||
| Deferred revenues | 607,635 | 235,821 | ||||||
| Net cash, cash equivalents and restricted cash used in operating activities | (910,858 | ) | (2,936,877 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | - | (4,988 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of notes payable | 370,397 | 3,864,130 | ||||||
| Payments on long-term debt | - | (2,037,500 | ) | |||||
| Net cash, cash equivalents and restricted cash provided by financing activities | 370,397 | 1,826,630 | ||||||
| Net change in cash, cash equivalents and restricted cash | (540,461 | ) | (1,115,235 | ) | ||||
| Cash, cash equivalents and restricted cash at beginning of period | 2,156,109 | 2,116,713 | ||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 1,615,648 | $ | 1,001,478 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 23,741 | $ | 1,851,040 | ||||
| Cash paid for income taxes | 10,311 | 17,661 | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Reduction of shareholder notes receivable and additional paid-in capital | $ | 924,155 | $ | - | ||||
See accompanying notes to condensed financial statements.
| 4 |
Notes to Condensed Financial Statements (Unaudited)
1. Description of Organization
Medsphere Systems Corporation (the Company or Medsphere) was incorporated in the state of Delaware on February 12, 2002. The Company is a leading provider of cloud-based and on-premise clinical and technology products and services that delivers, supports, and maintains quality health IT solutions to the healthcare industry under an affordable business model.
On June 30, 2025, the Company reorganized into a holding company structure which resulted in the Company becoming a wholly-owned subsidiary of Medsphere Intermediate Holdings, LLC (Intermediate), which is a wholly owned subsidiary of Medsphere Holdco Inc. (Holdco).
2. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the Company’s financial position as of June 30, 2025, the results of operations for the six months ended June 30, 2025 and 2024 and cash flows for the six months ended June 30, 2025 and 2024. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.
The accompanying unaudited condensed financial statements and notes thereto should be read in conjunction with the audited financial statements for the year ended December 31, 2024.
Concentrations
In the normal course of business, the Company provides credit terms to its customers and generally requires no collateral. A major customer is considered to be one that comprises more than 10% of the Company’s accounts receivable or annual revenues. The Company did not have any customers with revenues that exceeded 10% for the six months ended June 30, 2025 and 2024.
Accounts receivables concentrations as of June 30, 2025, and December 31, 2024, are as follows:
June 30, 2025 | December 31, 2024 | |||||||
| Customer A | 34 | % | 24 | % | ||||
| Customer B | * | 14 | % | |||||
| * Customer accounted for less than 10% | ||||||||
Significant Accounting Policies
During the six months ended June 30, 2025, there were no changes to the Company’s significant accounting policies from its disclosures in its audited financial statements as of and for the year ended December 31, 2024.
| 5 |
3. Going Concern
On August 22, 2025, CareCloud Holdings, Inc purchased certain of the Company’s assets, representing essentially all of the Company’s operations (see Note 9). The aggregate purchase price for the acquisition was $16,500,000, plus the assumption of certain liabilities. After receipt of the purchase price, the Company does not have sufficient cash and financing commitments to fund the Company’s 2021 note payable and 2021 revolving loan of approximately $62,500,000 (balance as of June 30, 2025). The Company is currently in default and accruing interest related to these notes payable and still does not have sufficient cash to pay amounts due (see Note 6). Subsequent to June 30, 2025, management has agreed with its creditors to wind down the Company, and the filing is anticipated to occur before December 31, 2025; however, no plans or approvals were in place as of June 30, 2025.
The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial doubt about the Company’s ability to do so. The condensed financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
4. Goodwill and Other Intangible Assets
Goodwill and other intangible assets consist of the following as of:
| June 30, 2025 | December 31, 2024 | |||||||
| Goodwill | $ | 38,240,383 | $ | 38,240,383 | ||||
| Software | 2,418,383 | 2,418,383 | ||||||
| Tradenames | 1,079,550 | 1,079,550 | ||||||
| 41,738,316 | 41,738,316 | |||||||
| Less accumulated amortization | (33,633,384 | ) | (32,278,386 | ) | ||||
| $ | 8,104,932 | $ | 9,459,930 | |||||
Amortization expense related to goodwill and intangible assets was $1,354,998 and $2,149,595 for the six months ended June 30, 2025 and 2024, respectively.
| 6 |
The future aggregate amounts of amortization expense to be recognized related to goodwill and definite-lived intangible assets as of June 30, 2025, is as follows:
| For the years ending December 31: | ||||
| 2025 (July - December) | $ | 1,354,997 | ||
| 2026 | 2,036,214 | |||
| 2027 | 1,129,090 | |||
| 2028 | 1,129,090 | |||
| 2029 | 1,129,090 | |||
| Thereafter | 1,326,451 | |||
| $ | 8,104,932 |
For each six-month period ended June 30, 2025 and 2024, no impairment charge was deemed necessary by management. For the year ended December 31, 2024, an impairment charge of $5,103,866 was deemed necessary by management.
5. Commitments and Contingencies
Operating Leases
The Company leases office space in Warrensville Heights, Ohio, under an operating lease agreement expiring in September 2027. The Company performed evaluations of its contracts and determined each of its identified leases are operating leases. The Company recognized $60,349 and $73,620 of rent expense for the six months ended June 30, 2025 and 2024, respectively.
The components of lease expense were as follows for the six months ended June 30:
| Lease Cost | Classification | 2025 | 2024 | |||||||
| Operating | General and administrative | $ | 39,023 | $ | 38,266 | |||||
| Short-term lease cost | General and administrative | 21,326 | 35,354 | |||||||
| Total lease cost | $ | 60,349 | $ | 73,620 | ||||||
| 7 |
The discount rate used to compute the present value of minimal rental payments is the Company’s risk-free borrowing rate of 4.06%. The weighted-average remaining lease term is 2.25 years as of June 30, 2025.
The following table reconciles the undiscounted future cash flows for the next three fiscal years to the operating lease liabilities recorded within the condensed balance sheet as of June 30, 2025:
| Maturities of Lease Liabilities | ||||
| Year ending December 31: | Operating | |||
| 2025 (July - December) | $ | 39,401 | ||
| 2026 | 79,936 | |||
| 2027 | 60,802 | |||
| Total lease payments | 180,139 | |||
| Less: interest | (7,730 | ) | ||
| Present value of lease liabilities | $ | 172,409 | ||
Cash paid for amounts included in the measurement of lease liabilities, for operating cash flows from operating leases, was $39,023 and $38,266 for the six months ended June 30, 2025 and 2024, respectively.
Litigation
From time to time, the Company may become involved in claims and other legal matters arising in the ordinary course of business. Management is not currently aware of any matters that will have a material adverse effect on the financial position, results of operations or cash flows of the Company.
6. Notes Payable
Notes payable consist of the following as of:
| June 30, 2025 | December 31, 2024 | |||||||
| 2020 note payable | $ | 1,055,599 | $ | 1,052,080 | ||||
| 2020 related-party note payable | 144,046 | 142,087 | ||||||
| 2021 note payable | 57,295,878 | 44,447,770 | ||||||
| 2021 revolving loan | 248,420 | 9,200,183 | ||||||
| 2023 subordinated note payable | 2,009,034 | 1,824,091 | ||||||
| 2025 note payable | 132,517 | - | ||||||
| 60,885,494 | 56,666,211 | |||||||
| Current portion | (59,807,337 | ) | (53,890,929 | ) | ||||
| $ | 1,078,157 | $ | 2,775,282 | |||||
Minimum future principal payments and amortization of debt discounts under the Company’s notes payable for each of the next five years are as follows:
| For the fiscal years ending December 31: | Principal | |||
| 2025 | $ | 59,807,337 | ||
| 2026 | 284,795 | |||
| 2027 | 179,560 | |||
| 2028 | 183,187 | |||
| 2029 | 186,870 | |||
| Thereafter | 243,745 | |||
| $ | 60,885,494 | |||
| 8 |
2020 Note Payable
On June 30, 2020, in conjunction with the acquisition of Kellison & Co., the Company executed a promissory note in the amount of $1,900,000 with the former owner of Kellison & Co. The note bears annual interest of 2.00% and matures as certain performance obligations are met.
2020 Related-party Note Payable
On October 30, 2020, in conjunction with the acquisition of Micro-Office Systems, Inc., the Company executed a promissory note in the amount of $329,030 with an employee. The note bears annual interest of 2.75% and matures as certain performance obligations are met.
2021 Note Payable and 2021 Revolving Loan
On July 16, 2021, the Company entered into a Credit Agreement with a lender, whereby the lender advanced $42.5 million (term loan), with an additional $2.5 million advanced on November 5, 2021 (delayed draw term loan) (collectively, 2021 note payable). Principal and interest payments on the term loans are due quarterly beginning September 30, 2021, until maturity. Additionally, as outlined in the Credit Agreement, the Company received $5 million through a revolving loan (2021 revolving loan), with unpaid principal due at maturity. All unpaid principal and interest were due July 16, 2026. As of May 31, 2023, these agreements were amended to have a maturity date of June 30, 2024. As of June 30, 2025, these agreements were in default and included in the current portion of notes payable in the accompanying balance sheet.
Interest on the 2021 note payable and 2021 revolving loan is due quarterly at a per annum rate equal to the Base Rate, which is defined in the agreement until May 4, 2022, as the greatest of (a) 2%, (b) Federal Funds Rate plus .05%, (c) LIBOR plus 1%, or (d) Wells Fargo Prime Rate. On May 4, 2022, the Base rate was changed to the greatest of (a) 2%, (b) Federal Funds rate plus 0.5%, (c) Term SOFR for a one-month tenor in effect on such day plus 1%, provided that this clause (c) shall not be applicable during any period in which Term SOFR is unavailable or unascertainable. The Base Rate was 11.4% as of June 30, 2025. Upon defaulting on the loan obligations, the Company is being charged an additional 2% interest per annum. As the Company has defaulted on this note, all interest is accruing and added to the total outstanding balance. The Company paid certain debt issuance costs totaling $755,650 which were amortized as interest expense over the term of the agreement.
The line of credit requires the Company to meet certain affirmative and negative covenants, including maintenance of specified financial ratios. The Company was not in compliance with some of these covenants as of June 30, 2025, and the related debt balances covered by these covenants have been included in current liabilities. The 2021 note payable and 2021 revolving loan are collateralized by substantially all of the Company’s assets and contain cross-default provisions.
On June 2, 2025, July 7, 2025, August 11, 2025 and August 22, 2025, the Company entered into forbearance agreements related to the 2021 Note Payable and 2021 Revolving Loan. A $5,000,000 exit fee was recorded as of June 30, 2025 in the accompanying balance sheet and statement of operations related to the June 2, 2025 forbearance agreement. In the August 11, 2025 forbearance agreement the Company agreed to an additional $5,000,000 exit fee, totaling $10,000,000 of exit fees. The forbearance agreements also extended the forbearance periods, and the most recent forbearance agreement extends the forbearance period to October 24, 2025.
2023 Subordinated Note Payable
On December 26, 2023, the Company entered into a subordinated note payable agreement with a lender that gives the Company the ability to request funds up to $1,000,000 three times, which has a maturity date of December 31, 2027. The note payable accrues interest at a per annum rate of 20%, which is included in the outstanding amount and is due at maturity. If there is an event of default, all obligations shall bear interest at a rate per annum of 24%. If the balance is paid off before maturity, a prepayment penalty equal to interest that would have been charged from the date of prepayment to the date of maturity plus an exit fee of 10% of the principal balance. The 2023 subordinated note payable is collateralized by a second-position lien on substantially all of the Company’s assets.
| 9 |
7. Common Stock
On June 30, 2025, the Company reorganized into a holding company structure, pursuant to which the Company became a wholly-owned subsidiary of Intermediate, which is a wholly-owned subsidiary of Holdco. The designations, rights, powers and preferences, and the qualifications, limitations and restrictions, of the Holdco common stock and each series of the Holdco preferred stock are the same as those of the Company’s prior common stock and the corresponding series of the Company’s prior preferred stock, respectively. All outstanding warrants and options to purchase the Company’s stock became options and warrants to purchase Holdco stock for the same number of shares (and type) of Holdco stock.
As of June 30, 2025, the Company has 100 shares of common stock ($.001 par value) authorized, issued and outstanding, all 100 shares of which are owned by Intermediate.
8. Notes Receivable from Shareholders
The Company had an outstanding note receivable from a shareholder totaling $262,939 as of December 31 2024, for the purpose of assisting the individual in purchasing shares of common stock of the Company. The note is recorded in shareholders’ deficit as the note is secured by the common stock purchased. The note bears an annual interest rate of 2%, and principal and interest are due in lump sums beginning on August 2017, the earlier of January 2027 or a change of control in the Company. The 2017 maturity date payments are delinquent and have not yet been paid as of the date of this report; however, as of June 30, 2025, management deemed this note to be uncollectible and, as such, it was reduced against additional paid-in-capital.
In connection with the merger of Phoenix in 2015, the Company assumed a note receivable from a certain former employee of Phoenix. The promissory note totals $661,216 as of December 31 2024, and bears interest at 0.48% per annum. The note is due on the earlier of (i) December 20, 2026, (ii) a change in control of the Company, (iii) the Company effecting an IPO, or (iv) the closing of any private sale of the pledged common stock. The note is recorded in shareholders’ deficit. As of June 30, 2025, management deemed this note to be uncollectible and, as such, it was reduced against additional paid-in-capital.
9. Subsequent Events
The Company has evaluated events and transactions that have occurred from July 1, 2025, through October 15, 2025, the date these condensed financial statements were available to be issued.
On August 22, 2025, CareCloud Holdings, Inc (CareCloud Holdings), a wholly-owned subsidiary of CareCloud, Inc., purchased certain of the Company’s assets. The aggregate purchase price for the acquisition was $16,500,000, plus the assumption of certain liabilities. The purchase price was comprised of: (i) $8,250,000 in cash, subject to provisions as set forth in the agreement and (ii) $8,250,000 payable by CareCloud Holdings to the Company’s secured bank lender pursuant to a deferred payment agreement, bearing interest at a rate of 12% per year with a maturity date of February 20, 2026 (which was paid on September 3, 2025).
| 10 |
Exhibit 99.3
CARECLOUD, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
We prepared the following unaudited pro forma condensed combined financial statements in accordance with Article 11 of Regulation S-X based on the historical consolidated financial statements of CareCloud, Inc. (“CareCloud” or the “Company”) as adjusted to give effect to the following transactions (the “Transactions”):
| ● | Our acquisition of Medsphere Systems Corporation (“Medsphere”), which consisted of certain assets and the assumption of certain liabilities of Medsphere with an effective date of August 22, 2025; |
| ● | Our acquisition of RevNu Medical Management (“RevNu”), which consisted of certain assets of RevNu with an effective date of April 1, 2025; and |
| ● | Our acquisition of Mesa, LLC (“Mesa”), which consisted of certain assets of Mesa with an effective date of February 27, 2025. |
Medsphere, RevNu and Mesa are collectively referred to as the “Acquired Companies.”
The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2024 and the six months ended June 30, 2025 give effect to the Transactions as if each of them had occurred on January 1, 2024. The unaudited pro forma condensed combined balance sheet as of June 30, 2025 gives effect to the Transactions as if they had occurred on June 30, 2025.
The pro forma condensed combined statements of operations include adjustments for our acquisitions under Article 11 of Regulation S-X. The results of the Transactions are shown for the periods prior to the acquisition of the Acquired Companies by CareCloud and should be read together with the accompanying notes (the “Notes”). Such Notes describe the assumptions and estimates related to the adjustments to the pro forma financial information.
The Medsphere audited financial statements as of December 31, 2024 and 2023 and for the years then ended, and the unaudited interim financial statements as of June 30, 2025 and for the six months then ended and the unaudited pro forma condensed combined financial statements, appear elsewhere in the Form 8-K/A.
We have based the pro forma adjustments upon available information and certain assumptions that we believe are reasonable under the circumstances. We describe in greater detail the assumptions underlying the pro forma adjustments in the accompanying notes, which should be read in conjunction with these unaudited pro forma condensed combined financial statements. In many cases, we based these assumptions on estimates. The actual adjustments to our audited consolidated financial statements will depend upon a number of factors. Accordingly, the actual adjustments that will appear in our consolidated financial statements will differ from these pro forma adjustments and those differences may be material.
We account for our acquisitions using the acquisition method of accounting for business combinations pursuant to the provisions of ASC 805 under generally accepted accounting principles used in the United States (“GAAP”), with CareCloud being considered the acquiring entity. Under the acquisition method of accounting, the total consideration paid is allocated to an acquired company’s tangible and intangible assets, net of liabilities, based on their estimated fair values as of the acquisition date.
We provide these unaudited pro forma condensed combined financial statements for informational purposes only. These unaudited pro forma condensed combined financial statements do not purport to represent what our results of operations or financial condition would have been had the Transactions actually occurred on the assumed dates, nor do they purport to project our consolidated results of operations or financial condition for any future period or future date.
The unaudited pro forma condensed combined financial information and related notes are based on and should be read in conjunction with the audited consolidated financial statements of CareCloud included in the Annual Report on Form 10-K/A filed on April 3, 2025, the unaudited condensed consolidated financial statements included in the Quarterly Report on Form 10-Q filed on August 5, 2025 and the Current Report on Form 8-K filed on August 25, 2025.
| 1 |
CARECLOUD, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2024
| CareCloud
+ Previously | |||||||||||||||||||||||||||||
| Acquired | Pro Forma | Pro Forma | |||||||||||||||||||||||||||
| CareCloud | Mesa | RevNu | Subtotal | Medsphere | Adjustments | Combined | |||||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||||||||
| Net revenue | $ | 110,837 | $ | 281 | $ | 1,880 | $ | 112,998 | $ | 39,384 | $ | - | $ | 152,382 | |||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Direct operating costs | 60,842 | 277 | 1,701 | 62,820 | 11,410 | - | 74,230 | ||||||||||||||||||||||
| Selling and marketing | 6,232 | - | 36 | 6,268 | 5,041 | - | 11,309 | ||||||||||||||||||||||
| General and administrative | 16,123 | - | 225 | 16,348 | 7,470 | - | (1) | 23,818 | |||||||||||||||||||||
| Research and development | 3,781 | - | - | 3,781 | 14,189 | - | 17,970 | ||||||||||||||||||||||
| Goodwill impairment | - | - | - | - | 5,104 | (5,104 | ) | (6) | - | ||||||||||||||||||||
| Depreciation and amortization | 14,142 | - | - | 14,142 | 4,650 | (1,024 | ) | (2) | 17,768 | ||||||||||||||||||||
| Lease termination and restructuring costs | 596 | - | - | 596 | - | - | 596 | ||||||||||||||||||||||
| Total operating expenses | 101,716 | 277 | 1,962 | 103,955 | 47,864 | (6,128 | ) | 145,691 | |||||||||||||||||||||
| Operating income (loss) | 9,121 | 4 | (82 | ) | 9,043 | (8,480 | ) | 6,128 | 6,691 | ||||||||||||||||||||
| Interest expense - net | (812 | ) | - | - | (812 | ) | (7,655 | ) | 7,057 | (3) | (1,410 | ) | |||||||||||||||||
| Other expense - net | (298 | ) | - | - | (298 | ) | (700 | ) | - | (998 | ) | ||||||||||||||||||
| Income (loss) before income taxes | 8,011 | 4 | (82 | ) | 7,933 | (16,835 | ) | 13,185 | 4,283 | ||||||||||||||||||||
| Income tax provision | 160 | - | - | 160 | 37 | - | (5) | 197 | |||||||||||||||||||||
| Net income (loss) | $ | 7,851 | $ | 4 | $ | (82 | ) | $ | 7,773 | $ | (16,872 | ) | $ | 13,185 | $ | 4,086 | |||||||||||||
| Preferred stock dividend | 12,310 | - | - | 12,310 | - | - | 12,310 | ||||||||||||||||||||||
| Net (loss) income attributable to common shareholders | $ | (4,459 | ) | $ | 4 | $ | (82 | ) | $ | (4,537 | ) | $ | (16,872 | ) | $ | 13,185 | $ | (8,224 | ) | ||||||||||
| Weighted-average common shares outstanding basic and diluted | 16,147 | 16,147 | |||||||||||||||||||||||||||
| Net loss per common share basic and diluted | $ | (0.28 | ) | $ | (0.51 | ) | |||||||||||||||||||||||
| 2 |
CARECLOUD, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2025
| January 1 to February 26, | January 1 to March 31, | CareCloud
+ Previously | |||||||||||||||||||||||||||
| 2025 | 2025 | Acquired | Pro Forma | Pro Forma | |||||||||||||||||||||||||
| CareCloud | Mesa | RevNu | Subtotal | Medsphere | Adjustments | Combined | |||||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||||||||
| Net revenue | $ | 55,009 | $ | 44 | $ | 477 | $ | 55,530 | $ | 16,290 | $ | - | $ | 71,820 | |||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Direct operating costs | 29,944 | 43 | 317 | 30,304 | 4,173 | - | 34,477 | ||||||||||||||||||||||
| Selling and marketing | 2,249 | - | 9 | 2,258 | 2,158 | - | 4,416 | ||||||||||||||||||||||
| General and administrative | 8,690 | - | 57 | 8,747 | 4,722 | - | (1) | 13,469 | |||||||||||||||||||||
| Research and development | 2,255 | - | - | 2,255 | 6,358 | - | 8,613 | ||||||||||||||||||||||
| Depreciation and amortization | 6,719 | - | - | 6,719 | 1,377 | (174 | ) | (2) | 7,922 | ||||||||||||||||||||
| Restructuring costs | 137 | - | - | 137 | - | - | 137 | ||||||||||||||||||||||
| Total operating expenses | 49,994 | 43 | 383 | 50,420 | 18,788 | (174 | ) | 69,034 | |||||||||||||||||||||
| Operating income (loss) | 5,015 | 1 | 94 | 5,110 | (2,498 | ) | 174 | 2,786 | |||||||||||||||||||||
| Interest expense - net | (33 | ) | - | - | (33 | ) | (3,873 | ) | 3,574 | (3) | (332 | ) | |||||||||||||||||
| Other expense - net | (49 | ) | - | - | (49 | ) | (4,528 | ) | 5,000 | (4) | 423 | ||||||||||||||||||
| Income (loss) before provision for income taxes | 4,933 | 1 | 94 | 5,028 | (10,899 | ) | 8,748 | 2,877 | |||||||||||||||||||||
| Income tax provision | 83 | - | - | 83 | 11 | - | (5) | 94 | |||||||||||||||||||||
| Net income (loss) | $ | 4,850 | $ | 1 | $ | 94 | $ | 4,945 | $ | (10,910 | ) | $ | 8,748 | $ | 2,783 | ||||||||||||||
| Preferred stock dividend | 4,176 | - | - | 4,176 | - | - | 4,176 | ||||||||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | 674 | $ | 1 | $ | 94 | $ | 769 | $ | (10,910 | ) | $ | 8,748 | $ | (1,393 | ) | |||||||||||||
| Weighted-average common shares outstanding basic and diluted | 33,119 | 33,119 | |||||||||||||||||||||||||||
| Net income (loss) per common share basic and diluted | $ | 0.02 | $ | (0.04 | ) | ||||||||||||||||||||||||
| 3 |
CARECLOUD, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2025
| Adjustments | Acquisition | ||||||||||||||||||||
| for Assets | Related | ||||||||||||||||||||
| not | Pro Forma | Pro Forma | |||||||||||||||||||
| CareCloud | Medsphere | Acquired | Adjustments | Results | |||||||||||||||||
| (in thousands) | |||||||||||||||||||||
| Cash | $ | 10,440 | $ | 1,616 | $ | (1,616 | ) | $ | (7,750 | ) | (7) | $ | 2,690 | ||||||||
| Accounts receivable - net | 13,563 | 2,435 | - | (343 | ) | (7) | 15,655 | ||||||||||||||
| Contract asset | 3,955 | - | - | 52 | (7) | 4,007 | |||||||||||||||
| Inventory | 523 | - | - | - | 523 | ||||||||||||||||
| Current assets - related party | 16 | - | - | - | 16 | ||||||||||||||||
| Other current assets | 2,593 | 1,993 | (1,993 | ) | - | 2,593 | |||||||||||||||
| Current assets | 31,090 | 6,044 | (3,609 | ) | (8,041 | ) | 25,484 | ||||||||||||||
| Property and equipment - net | 5,828 | 51 | - | 189 | (7) | 6,068 | |||||||||||||||
| Operating lease right-of-use assets | 3,058 | 168 | (168 | ) | - | 3,058 | |||||||||||||||
| Intangible assets - net | 15,512 | - | - | 8,270 | (6) | 23,782 | |||||||||||||||
| Goodwill | 19,192 | 8,105 | (8,105 | ) | 11,219 | (6) | 30,411 | ||||||||||||||
| Other assets | 564 | 552 | (552 | ) | - | 564 | |||||||||||||||
| Total assets | $ | 75,244 | $ | 14,920 | $ | (12,434 | ) | $ | 11,637 | $ | 89,367 | ||||||||||
| Accounts payable | $ | 4,215 | $ | 3,514 | $ | - | $ | (2,573 | ) | (7) | $ | 5,156 | |||||||||
| Accrued compensation | 3,324 | - | - | - | 3,324 | ||||||||||||||||
| Accrued expenses | 4,909 | 1,729 | - | (1,185 | ) | (7) | 5,453 | ||||||||||||||
| Operating lease liability (current portion) | 1,294 | 74 | (74 | ) | - | 1,294 | |||||||||||||||
| Deferred revenue | 1,232 | 3,784 | - | 104 | (7) | 5,120 | |||||||||||||||
| Notes payable - other (current portion) | 222 | 59,807 | (59,807 | ) | - | 222 | |||||||||||||||
| Notes payable exit fee | - | 5,000 | (5,000 | ) | - | - | |||||||||||||||
| Contingent consideration (current portion) | 330 | - | - | 500 | (7) | 830 | |||||||||||||||
| Dividend payable | 714 | - | - | - | 714 | ||||||||||||||||
| Total current liabilities | 16,240 | 73,908 | (64,881 | ) | (3,154 | ) | 22,113 | ||||||||||||||
| Notes payable - other | 86 | 1,078 | (1,078 | ) | 8,250 | (7) | 8,336 | ||||||||||||||
| Contingent consideration | 426 | - | - | 426 | |||||||||||||||||
| Operating lease liability | 1,785 | 99 | (99 | ) | - | 1,785 | |||||||||||||||
| Deferred revenue | 631 | - | - | - | 631 | ||||||||||||||||
| Total liabilities | 19,168 | 75,085 | (66,058 | ) | 5,096 | 33,291 | |||||||||||||||
| Preferred stock | 2 | - | - | - | 2 | ||||||||||||||||
| Common stock | 43 | - | - | - | 43 | ||||||||||||||||
| Additional paid-in capital | 122,635 | 124,440 | (124,440 | ) | - | 122,635 | |||||||||||||||
| Accumulated deficit | (61,780 | ) | (184,605 | ) | 184,605 | - | (61,780 | ) | |||||||||||||
| Accumulated other comprehensive loss | (4,162 | ) | - | - | - | (4,162 | ) | ||||||||||||||
| Common shares held in treasury | (662 | ) | - | - | - | (662 | ) | ||||||||||||||
| Total shareholders’ equity (deficiency) | 56,076 | (60,165 | ) | 60,165 | - | 56,076 | |||||||||||||||
| Total liabilities and shareholders’ equity (deficiency) | $ | 75,244 | $ | 14,920 | $ | (5,893 | ) | $ | 5,096 | $ | 89,367 | ||||||||||
| 4 |
CARECLOUD, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On August 22, 2025, CareCloud Holdings (“Holdings”), a wholly-owned subsidiary of CareCloud, entered into an Asset Purchase Agreement (“APA”) with Medsphere, a Delaware corporation, pursuant to which CareCloud purchased certain assets from Medsphere for total consideration of $16,500,000 and the assumption of certain liabilities. The purchase price was comprised of: (i) $8,250,000 in cash and (ii) $8,250,000 payable by Holdings to Medsphere’s secured bank lender Wells Fargo Bank, N.A. (“Wells Fargo”).
On April 1, 2025, CareCloud Acquisition Corp. (“CAC”), a Delaware corporation and wholly-owned subsidiary of CareCloud, entered into an Asset Purchase Agreement to acquire certain assets of RevNu, a California corporation. The purchase price consisted of quarterly payments of 20% of the Revenue generated from the medical billing agreements for 42 months.
On February 27, 2025, CAC entered into an Asset Purchase Agreement with Mesa, a Wisconsin limited liability company. The purchase price was comprised of: (i) approximately $40,000 paid in cash and (ii) quarterly payments of 21% of the gross revenue earned and received from all clients in good standing for 36 months following the closing date.
The pro forma financial information does not reflect any expected cost savings, operating synergies, or revenue enhancements that the combined companies may achieve as a result of the Transactions or any integration costs that may be incurred.
We are currently in the process of evaluating the Acquired Companies’ accounting policies, and our review will be finalized during the measurement period, which is up to one year from the date of acquisition, or as more information becomes available. As a result of our review, additional differences could be identified between the accounting policies of the acquired companies. There have not been any material accounting policy differences identified as of the date of this filing between the Acquired Companies that require adjustment in the pro forma financial information.
The transaction accounting adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. The preliminary transaction accounting adjustments have been made solely for the purpose of providing the unaudited pro forma financial information. The transaction accounting adjustments are based upon available information and certain assumptions considered reasonable, and may be revised as additional information becomes available.
NOTES:
| (1) | Expenses Directly Attributable to the Transactions— There were no non-recurring transaction expenses for professional and other fees incurred by the Company during the year ended December 31, 2024, and the six months ended June 30, 2025, associated with the Transactions. These fees were approximately $277,000 during the quarter ended September 30, 2025. |
| (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 Acquired Companies, shown below, assumes that the assets were acquired on January 1, 2024.
| 5 |
Depreciation and amortization expense for the year ended December 31, 2024
| Mesa | RevNu | Medsphere | Total Expense | |||||||||||||
| Pro forma depreciation and amortization expense | $ | 64 | $ | 312 | $ | 3,250 | $ | 3,626 | ||||||||
| As recorded in the historical financial statements - CareCloud | - | - | - | - | ||||||||||||
| As recorded in the historical financial statements - Pre-acquisition | - | - | (4,650 | ) | (4,650 | ) | ||||||||||
| Pro forma adjustments | $ | 64 | $ | 312 | $ | (1,400 | ) | $ | (1,024 | ) | ||||||
Depreciation and amortization expense for the six months ended June 30, 2025
| Mesa | RevNu | Medsphere | Total Expense | |||||||||||||
| Pro forma depreciation and amortization expense | $ | 19 | $ | 92 | $ | 1,223 | $ | 1,334 | ||||||||
| As recorded in the historical financial statements - CareCloud | (32 | ) | (99 | ) | - | (131 | ) | |||||||||
| As recorded in the historical financial statements - Pre-acquisition | - | - | (1,377 | ) | (1,377 | ) | ||||||||||
| Pro forma adjustments | $ | (13 | ) | $ | (7 | ) | $ | (154 | ) | $ | (174 | ) | ||||
The adjustments for depreciation and amortization include both purchased intangible assets and property and equipment.
| (3) | Interest — The interest expense incurred by Medsphere of approximately $7.7 million and $3.9 million for the year ended December 31, 2024 and the six months ended June 30, 2025, respectively has been eliminated and replaced with interest expense of approximately $600,000 and $300,000 for the year ended December 31, 2024 and the six months ended June 30, 2025, respectively, to reflect the debt incurred by the Company in connection with the Medsphere acquisition. |
| (4) | Other (Expense) Income – Net — There were debt exit fees of $5 million for the six months ended June 30, 2025 that have been reversed. |
| (5) | Provision for Income Tax — The income taxes effects recorded in the unaudited pro forma condensed combined statements of operations reflect current state tax expense and foreign tax expense. We did not record a benefit for income taxes for the year ended December 31, 2024 and the six months ended June 30, 2025, 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, 2024 and June 30, 2025. |
| (6) | Intangible Assets — We based our estimates of each intangible asset type/category that we expect to recognize as part of the acquisitions 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. |
There was a goodwill impairment of approximately $5.1 million that has been reversed.
The amounts set forth below reflect the fair value of the intangible assets of the Acquired Companies and their estimated useful lives.
Intangible Assets
| Mesa | RevNu | Medsphere | Total | Estimated useful life | ||||||||||||||
| (in thousands) | ||||||||||||||||||
| Customer relationships | $ | 129 | $ | 629 | $ | 6,210 | $ | 6,968 | 3-4 years | |||||||||
| Technology and trademarks | - | - | 2,060 | 2,060 | 3 years | |||||||||||||
| Goodwill | - | 6 | 11,219 | 11,225 | ||||||||||||||
| Total intangible assets | $ | 129 | $ | 635 | $ | 19,489 | $ | 20,253 | ||||||||||
| (7) | Preliminary Purchase Price Allocations — We recognize the assets and liabilities acquired at their fair value on the acquisition date, and if there is any excess in the purchase price over these values, it is allocated to goodwill. |
| 6 |
For the RevNu and Mesa acquisitions, management has made a fair value estimate of the assets acquired and liabilities assumed as of the respective closing dates. Our model includes assumptions such as revenue growth rates, profitability rates, attrition rates and weighted average costs of capital, where applicable.
The acquisitions, where applicable, include the transfer of all customer relationships and agreements, accounts receivable, intangible assets, property and equipment and the assumption of some trade liabilities. 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. The fair value of the technology was determined using techniques to assess the fair value considering the highest and best use by market participants. The fair value of the technology and trademarks is based on the present value of the expected after-tax royalty savings.
The Company has engaged a third-party valuation specialist to assist in determining the fair value of the intangible assets acquired in the Medsphere acquisition. The remaining fair values of the assets and liabilities acquired were determined by the Company. The allocations of the purchase price for the Acquired Companies are preliminary and are subject to revision and will be adjusted in future filings. The final purchase price for Medsphere will be determined when the third-party valuation specialist and the Company have completed the detailed valuations and necessary calculations. The remaining purchase price allocations will be finalized by year-end when additional information is obtained regarding customer attrition.
The following table shows the preliminary purchase price allocations and the estimated fair values of the acquired assets and liabilities as of the respective acquisition dates.
Preliminary Purchase Price Allocations
| Mesa | RevNu | Medsphere | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
| Cash | $ | 40 | $ | - | $ | 7,750 | $ | 7,790 | ||||||||
| Note payable | - | - | 8,250 | 8,250 | ||||||||||||
| Contingent consideration/escrow | 106 | 649 | 500 | 1,255 | ||||||||||||
| Total purchase price | $ | 146 | $ | 649 | $ | 16,500 | $ | 17,295 | ||||||||
| Accounts receivable | $ | - | $ | - | $ | 2,092 | $ | 2,092 | ||||||||
| Contract asset | 17 | 14 | 52 | 83 | ||||||||||||
| Property and equipment | - | - | 240 | 240 | ||||||||||||
| Customer relationships | 129 | 629 | 6,210 | 6,968 | ||||||||||||
| Technology and trademarks | - | - | 2,060 | 2,060 | ||||||||||||
| Goodwill | - | 6 | 11,219 | 11,225 | ||||||||||||
| Accounts payable | - | - | (941 | ) | (941 | ) | ||||||||||
| Accrued expenses | - | - | (544 | ) | (544 | ) | ||||||||||
| Deferred revenue | - | - | (3,888 | ) | (3,888 | ) | ||||||||||
| Total preliminary purchase price allocations | $ | 146 | $ | 649 | $ | 16,500 | $ | 17,295 | ||||||||
| 7 |
Exhibit 99.4
Supplemental Information
For the Acquired Companies, we identified revenue from customers who cancelled their contracts prior to the acquisitions of such customers’ contracts. Such revenue is included in the unaudited pro-forma condensed combined statements of operations, even though CareCloud will not generate revenues from those customers.
Estimated revenue from customers who cancelled prior to our acquisitions
| Mesa | RevNu | Medsphere | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
| Year ended December 31, 2024 | $ | 4 | $ | 4 | $ | 3,584 | $ | 3,592 | ||||||||
| Six months ended June 30, 2025 | - | 2 | 111 | 113 | ||||||||||||
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 surrounding pro forma operations, we supplement our condensed combined financial statements presented on a basis consistent with GAAP, with adjusted EBITDA, a non-GAAP financial measure of earnings. Adjusted EBITDA represents the sum of GAAP net income (loss) before provision for income taxes, net interest expense, foreign exchange/other expense, stock-based compensation expense, depreciation and amortization, transaction and integration costs, goodwill impairment charges and lease termination and restructuring costs. Our management uses adjusted EBITDA as a financial measure to evaluate the profitability and efficiency of our business model. We use this non-GAAP financial measure to assess the strength of the underlying operations of our business. These adjustments, and the non-GAAP financial measure that is derived from them, provide supplemental information to analyze our operations between periods and over time. We find this especially useful when reviewing pro forma results of operations which include large non-cash amortization of intangibles assets from acquisitions. Investors should consider this non-GAAP financial measure in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.
The following tables contain a reconciliation of GAAP net income (loss) to adjusted EBITDA for the year ended December 31, 2024, and the six months ended June 30, 2025:
Reconciliation of GAAP net income (loss) for the year ended
December 31, 2024 to Adjusted EBITDA
($000)
| CareCloud + Previously | ||||||||||||||||||||||||||||
| Acquired | Pro Forma | Pro Forma | ||||||||||||||||||||||||||
| CareCloud | Mesa | RevNu | Subtotal | Medsphere | Adjustments | Combined | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
| Net revenue | $ | 110,837 | $ | 281 | $ | 1,880 | $ | 112,998 | $ | 39,384 | $ | - | $ | 152,382 | ||||||||||||||
| GAAP net income (loss) | 7,851 | 4 | (82 | ) | 7,773 | (16,872 | ) | 13,185 | 4,086 | |||||||||||||||||||
| Provision for income taxes | 160 | - | - | 160 | 37 | - | 197 | |||||||||||||||||||||
| Net interest expense | 812 | - | - | 812 | 7,655 | (7,057 | ) | 1,410 | ||||||||||||||||||||
| Foreign exchange / other expense | 335 | - | - | 335 | 700 | - | 1,035 | |||||||||||||||||||||
| Stock-based compensation expense | 115 | - | - | 115 | - | - | 115 | |||||||||||||||||||||
| Depreciation and amortization | 14,142 | - | - | 14,142 | 4,650 | (1,024 | ) | 17,768 | ||||||||||||||||||||
| Transaction and integration costs (1) | 46 | - | - | 46 | - | - | 46 | |||||||||||||||||||||
| Goodwill impairment charges | - | - | - | - | 5,104 | (5,104 | ) | - | ||||||||||||||||||||
| Lease termination and restructuring costs (2) | 596 | - | - | 596 | - | - | 596 | |||||||||||||||||||||
| Adjusted EBITDA | $ | 24,057 | $ | 4 | $ | (82 | ) | $ | 23,979 | $ | 1,274 | $ | - | $ | 25,253 | |||||||||||||
| 1 |
Reconciliation of GAAP net income (loss) for the six months ended
June 30, 2025 to Adjusted EBITDA
($000)
| January 1 to February 26, | January 1 to March 31, | CareCloud + Previously | ||||||||||||||||||||||||||
| 2025 | 2025 | Acquired | Pro Forma | Pro Forma | ||||||||||||||||||||||||
| CareCloud | Mesa | RevNu | Subtotal | Medsphere | Adjustments | Combined | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
| Net revenue | $ | 55,009 | $ | 44 | $ | 477 | $ | 55,530 | $ | 16,290 | $ | - | $ | 71,820 | ||||||||||||||
| GAAP net income (loss) | 4,850 | 1 | 94 | 4,945 | (10,910 | ) | 8,748 | 2,783 | ||||||||||||||||||||
| Provision for income taxes | 83 | - | - | 83 | 11 | - | 94 | |||||||||||||||||||||
| Net interest expense | 33 | - | - | 33 | 3,873 | (3,574 | ) | 332 | ||||||||||||||||||||
| Foreign exchange / other expense | 60 | - | - | 60 | 4,528 | (5,000 | ) | (412 | ) | |||||||||||||||||||
| Stock-based compensation expense | 219 | - | - | 219 | - | - | 219 | |||||||||||||||||||||
| Depreciation and amortization | 6,719 | - | - | 6,719 | 1,377 | (174 | ) | 7,922 | ||||||||||||||||||||
| Transaction and integration costs (1) | 23 | - | - | 23 | - | - | 23 | |||||||||||||||||||||
| Restructuring costs (2) | 137 | - | - | 137 | - | - | 137 | |||||||||||||||||||||
| Adjusted EBITDA | $ | 12,124 | $ | 1 | $ | 94 | $ | 12,219 | $ | (1,121 | ) | $ | - | $ | 11,098 | |||||||||||||
| (1) | The transaction and integration costs include severance amounts paid to employees from the Acquired Companies, transaction and financing costs, pre-acquisition accounting costs and legal fees and exit costs related to contractual agreements. | |
| (2) | The Company’s lease termination and restructuring costs represent a gain on an early termination of a lease. The Company’s restructuring costs primarily consists of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements. |
| 2 |