CareCloud Inc

Previous wording

The following is a discussion of our condensed consolidated financial condition and results of operations for the three months ended March 31, 2024 and 2023, and other factors that are expected to affect our prospective financial condition. The following discussion and analysis should be read together with our Condensed Consolidated Financial Statements and related notes beginning on page 4 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024.

Current wording

The following is a discussion of our condensed consolidated financial condition and results of operations for the three and six months ended June 30, 2024 and 2023, and other factors that are expected to affect our prospective financial condition. The following discussion and analysis should be read together with our Condensed Consolidated Financial Statements and related notes beginning on page 4 of this Quarterly Report on Form 10-Qand our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024.

Previous wording

The Company maintains cash balances at Silicon Valley Bank (“SVB”), a division of First Citizens Bank & Trust Company in excess of the FDIC insurance coverage limits. The Company performs periodic evaluations of the relative credit standing of this financial institution to ensure its credit worthiness. As of March 31, 2024 and December 31, 2023, the Company held cash of approximately $155,000 and $255,000, respectively, in the name of its subsidiaries at banks in Pakistan and Sri Lanka. The banking systems in these countries do not provide deposit insurance coverage. The Company has not experienced any losses on its cash accounts.

Current wording

The Company maintains cash balances at Silicon Valley Bank (“SVB”), a division of First Citizens Bank & Trust Company in excess of the FDIC insurance coverage limits. The Company performs periodic evaluations of the relative credit standing of this financial institution to ensure its credit worthiness. As of June 30, 2024 and December 31, 2023, the Company held cash of approximately $105,000 and $255,000, respectively, in the name of its subsidiaries at banks in Pakistan and Sri Lanka. The banking systems in these countries do not provide deposit insurance coverage. The Company has not experienced any losses on its cash accounts.

Previous wording

During the three months ended December 31, 2023, the Company suspended its preferred stock dividend and experienced a decline in its market capitalization as a result of a sustained decrease in the Company’s stock price for its common and preferred shares. This was considered a triggering event and resulted in a goodwill impairment charge. During the three months ended March 31, 2024, the Company’s stock price for its common and preferred shares declined from their year-end values. The Company determined there was no impact on the valuation of goodwill. If the stock prices were to continue to decline, it could result in another triggering event that could impact the valuation of goodwill.

Current wording

During the three months ended December 31, 2023, the Company suspended its preferred stock dividend and experienced a decline in its market capitalization as a result of a sustained decrease in the Company’s stock price for its common and preferred shares. This was considered a triggering event and resulted in a goodwill impairment charge. As of June 30, 2024, the Company’s stock price for its common and preferred shares increased from their year-end values. Accordingly, the Company determined there was no impact on the valuation of goodwill. If the stock prices were to decline, it could result in another triggering event that could impact the valuation of goodwill.

Previous wording

We are able to deliver our industry-leading solutions at very competitive prices because we leverage a combination of our proprietary software, which automates our workflows and increases efficiency, together with our team of approximately 350 experienced health industry experts throughout the United States. These experts are supported by our highly educated and specialized offshore workforce of approximately 3,100 team members that are approximately 15% of the cost of comparably educated and skilled workers in the U.S. Our unique business model also allowed us to become a leading consolidator in our industry sector, gaining us a reputation for acquiring and positively transforming distressed competitors into profitable operations of CareCloud.

Current wording

We are able to deliver our industry-leading solutions at very competitive prices because we leverage a combination of our proprietary software, which automates our workflows and increases efficiency, together with our team of approximately 340 experienced health industry experts throughout the United States. These experts are supported by our highly educated and specialized offshore workforce of approximately 3,300 team members that are approximately 14% of the cost of comparably educated and skilled workers in the U.S. Our unique business model also allowed us to become a leading consolidator in our industry sector, gaining us a reputation for acquiring and positively transforming distressed competitors into profitable operations of CareCloud.

Previous wording

Our offshore operations in the Pakistan Offices and Sri Lanka together accounted for approximately 15% and 13% of total expenses for the three months ended March 31, 2024 and 2023, respectively. A significant portion of those foreign expenses were personnel-related costs (approximately 75% and 81% for the three months ended March 31, 2024 and 2023, respectively). Because personnel-related costs are significantly lower in Pakistan and Sri Lanka than in the U.S. and many other offshore locations, we believe our offshore operations give us a competitive advantage over many industry participants. We are able to achieve significant cost reductions and leverage technology to reduce manual work and strategically transition a portion of the remaining manual tasks to our highly-specialized, cost-efficient team in the U.S., the Pakistan Offices and Sri Lanka.

Current wording

Our offshore operations in the Pakistan Offices and Sri Lanka together accounted for approximately 14% and 13% of total expenses for the six months ended June 30, 2024 and 2023, respectively. A significant portion of those foreign expenses were personnel-related costs (approximately 76% and 79% for the six months ended June 30, 2024 and 2023, respectively). Because personnel-related costs are significantly lower in Pakistan and Sri Lanka than in the U.S. and many other offshore locations, we believe our offshore operations give us a competitive advantage over many industry participants. We are able to achieve significant cost reductions and leverage technology to reduce manual work and strategically transition a portion of the remaining manual tasks to our highly-specialized, cost-efficient team in the U.S., the Pakistan Offices and Sri Lanka.

Previous wording

Set forth below is a presentation of our adjusted EBITDA for the three months ended March 31, 2024 and 2023:

Current wording

Set forth below is a presentation of our adjusted EBITDA for the three and six months ended June 30, 2024 and 2023:

Previous wording

Set forth below is a presentation of our adjusted operating income and adjusted operating margin, which represents adjusted operating income as a percentage of net revenue, for the three months ended March 31, 2024 and 2023:

Current wording

Set forth below is a presentation of our adjusted operating income and adjusted operating margin, which represents adjusted operating income as a percentage of net revenue for the three and six months ended June 30, 2024 and 2023:

Previous wording

No tax effect has been provided in computing non-GAAP adjusted net income and non-GAAP adjusted net income per share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes. The following table shows our reconciliation of GAAP net loss to non-GAAP adjusted net income for the three months ended March 31, 2024 and 2023:

Current wording

No tax effect has been provided in computing non-GAAP adjusted net income and non-GAAP adjusted net income per share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes. The following table shows our reconciliation of GAAP net income (loss) to non-GAAP adjusted net income for the three and six months ended June 30, 2024 and 2023:

Previous wording

*Revenue:*We primarily derive our revenues from subscription-based technology-enabled business solutions, reported in our Healthcare IT segment, which are typically billed as a percentage of payments collected by our customers. This fee includes technology-enabled RCM, as well as the ability to use our EHR, practice management system and other software as part of the bundled fee. These solutions accounted for approximately 67% and 65% for the three months ended March 31, 2024 and 2023, respectively. Other healthcare IT services, including printing and mailing operations, group purchasing and professional services, represented approximately 21% and 25% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

*Revenue:*We primarily derive our revenues from subscription-based technology-enabled business solutions, reported in our Healthcare IT segment, which are typically billed as a percentage of payments collected by our customers. This fee includes technology-enabled RCM, as well as the ability to use our EHR, practice management system and other software as part of the bundled fee. These solutions accounted for approximately 68% and 67% for the three months ended June 30, 2024 and 2023, respectively, and 67% and 66% for the six months ended June 30, 2024 and 2023, respectively. Other healthcare IT services, including printing and mailing operations, group purchasing and professional services, represented approximately 20% and 22% of revenues for the three months ended June 30, 2024 and 2023, respectively, and 21% and 23% for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

We earned approximately 12% and 10% of our revenue from medical practice management services during the three months ended March 31, 2024 and March 31, 2023, respectively. This revenue represents fees based on our actual costs plus a percentage of the operating profit and is reported in our Medical Practice Management segment.

Current wording

We earned approximately 12% and 11% of our revenue from medical practice management services during the three and six months ended June 30, 2024 and 2023, respectively. This revenue represents fees based on our actual costs plus a percentage of the operating profit and is reported in our Medical Practice Management segment.

Previous wording

The critical accounting policies and estimates used in the preparation of our condensed consolidated financial statements that we believe affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements presented in this Report are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

The critical accounting policies and estimates used in the preparation of our condensed consolidated financial statements that we believe affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements presented in this Report are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the condensed consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

As of March 31, 2024 and December 31, 2023, the carrying amounts of internally-developed capitalized software in use was $16.1 million and $17.1 million, respectively. The decrease was due to the current period amortization exceeding the amounts being capitalized.

Current wording

As of June 30, 2024 and December 31, 2023, the carrying amounts of internally-developed capitalized software in use was $15.0 million and $17.1 million, respectively. The decrease was due to the current year amortization exceeding the amounts being capitalized.

Previous wording

Comparison of the three months ended March 31, 2024 and 2023:

Current wording

Comparison of the three and six months ended June 30, 2024 and 2023:

Previous wording

*Net Revenue.*Net revenue of $26.0 million for the three months ended March 31, 2024, decreased by $4.0 million or 13% from net revenue of $30.0 million for the three months ended March 31, 2023. Revenue for the three months ended March 31, 2024 includes $17.3 million relating to technology-enabled business solutions, $4.4 million related to professional services and $3.2 million for medical practice management services.

Current wording

*Net Revenue.*Net revenue of $28.1 million and $54.1 million for the three and six months ended June 30, 2024, respectively, decreased by $1.3 million or 4% and $5.3 million or 9% from net revenue of $29.4 million and $59.4 million for the three and six months ended June 30, 2023, respectively. Revenue for the three and six months ended June 30, 2024 includes $19.0 million and $36.3 million relating to technology-enabled business solutions, $4.5 million and $8.9 million related to professional services and $3.5 million and $6.8 million for medical practice management services, respectively.

Previous wording

There was a $2.1 million decrease in project-based professional services revenue for the three months ended March 31, 2024 compared to the same period in the prior year. The 2024 revenue was also negatively impacted by two large accounts that had each been previously acquired prior to our beginning to serve them after a 2020 acquisition. The services provided to them were each winding down at the time of our acquisition and they both transitioned to the systems of their acquirers during 2022. Revenue from these two customers for the three months ended March 31, 2024 and 2023 was $186,000 and $1.0 million, respectively, accounting for approximately $800,000 of the decline in revenue. Revenue from these customers is expected to be approximately $90,000 for the remainder of 2024. (Refer to Forward-Looking Statements disclosure on page 2 of this Form 10-Q.)

Current wording

There was a $1.0 million and $3.2 million decrease in project-based professional services revenue for the three and six months ended June 30, 2024 compared to the same periods in the prior year. The 2024 revenue was also negatively impacted by two large accounts that had each been previously acquired prior to our beginning to serve them after a 2020 acquisition. The services provided to them were each winding down at the time of our acquisition and they both transitioned to the systems of their acquirers during 2022. Revenue from these two customers for the three months ended June 30, 2024 and 2023 was $113,000 and $1.0 million, respectively. Revenue from these customers for the six months ended June 30, 2024 and 2023 was $299,000 and $2.0 million, respectively, accounting for approximately $1.7 million of the decline in revenue.

Previous wording

*Direct Operating Costs.*Direct operating costs of $15.2 million for the three months ended March 31, 2024 decreased by $2.9 million or 16% compared to direct operating costs of $18.1 million for the three months ended March 31, 2023. During the three months ended March 31, 2024, salary costs decreased by $1.9 million, outsourcing and processing costs decreased by $658,000 and billable expenses decreased by $435,000. The decrease in the salary costs was due to a decrease in the U.S. and Pakistan headcount and due to lower revenue, the redeployment of employees performing functions that were previously classified as direct operating costs to functions classified as research and development expense for the three months ended March 31, 2024.

Current wording

*Direct Operating Costs.*Direct operating costs of $15.2 million and $30.4 million for the three and six months ended June 30, 2024, respectively, decreased by $2.2 million or 13% and $5.2 million or 15% compared to direct operating costs of $17.5 million and $35.6 million for the three and six months ended June 30, 2023, respectively. During the three and six months ended June 30, 2024, salary costs decreased by $1.6 million and $3.4 million, outsourcing and processing costs decreased by $207,000 and $865,000 and billable expenses decreased by $258,000 and $692,000, respectively. The decrease in the salary costs was due to a decrease in the U.S. and Pakistan headcount, lower revenue and the redeployment of employees performing functions that were previously classified as direct operating costs to functions classified as research and development expense for the six months ended June 30, 2024.

Previous wording

*Selling and Marketing Expense.*Selling and marketing expense of $1.8 million for the three months ended March 31, 2024 decreased by $842,000 or 32% from selling and marketing expense of $2.6 million for the three months ended March 31, 2023. The decrease for the three months ended March 31, 2024 was due to lower spending on salaries and selling and marketing activities.

Current wording

*Selling and Marketing Expense.*Selling and marketing expense of $1.7 million and $3.4 million for the three and six months ended June 30, 2024, respectively, decreased by $916,000 or 36% and $1.8 million or 34% from selling and marketing expense of $2.6 million and $5.2 million for the three and six months ended June 30, 2023, respectively. The decrease for the three and six months ended June 30, 2024 was due to a reduction in headcount and lower spending on selling and marketing activities.

Previous wording

*General and Administrative Expense.*General and administrative expense of $3.7 million for the three months ended March 31, 2024 decreased by $1.4 million or 27% compared to general and administrative expense of $5.1 million for the three months ended March 31, 2023. During the three months ended March 31, 2024, salary costs decreased by $1.2 million and legal and professional fees decreased by $90,000. The decrease in salary costs was due to lower headcount. Also, there was a decrease in the Company’s contributions to community-based projects in Pakistan.

Current wording

*General and Administrative Expense.*General and administrative expense of $4.0 million and $7.7 million for the three and six months ended June 30, 2024, respectively, decreased by $1.9 million or 32% and $3.3 million or 30% compared to general and administrative expense of $5.9 million and $11.0 million for the three and six months ended June 30, 2023, respectively. During the three and six months ended June 30, 2024, salary costs decreased by $958,000 and $2.1 million, respectively and legal and professional fees decreased by $368,000 and $459,000, respectively. The decrease in salary costs was due to lower headcount. Also, there was a decrease in the Company’s contributions to community-based projects in Pakistan.

Previous wording

Research and Development Expense. Research and development expense of $913,000 for the three months ended March 31, 2024 decreased by approximately $165,000 or 15% from research and development expense of $1.1 million for the three months ended March 31, 2023. During the three months ended March 31, 2024 and 2023, the Company capitalized approximately $1.6 million and $2.2 million, respectively, of development costs in connection with its internal-use software.

Current wording

Research and Development Expense. Research and development expense of $1.1 million and $2.0 million for the three and six months ended June 30, 2024, respectively, decreased by approximately $130,000 or 11% and $295,000 or 13% from research and development expense of $1.2 million and $2.3 million for the three and six months ended June 30, 2023, respectively. During the six months ended June 30, 2024 and 2023, the Company capitalized approximately $3.0 million and $4.5 million, respectively, of development costs in connection with its internal-use software.

Previous wording

*Amortization Expense.*Amortization expense of $3.4 million for the three months ended March 31, 2024 increased by $881,000 or 35% from amortization expense of $2.5 million for the three months ended March 31, 2023. The increase in amortization expense was due to the placement of additional internal-use software into production and beginning the related amortization.

Current wording

*Amortization Expense.*Amortization expense of $3.2 million and $6.6 million for the three and six months ended June 30, 2024, respectively, increased by $381,000 or 13% and increased by $1.3 million or 23% from amortization expense of $2.8 million and $5.4 million for the three and six months ended June 30, 2023, respectively. The increase in amortization expense was due to the placement of additional internal-use software into production and beginning the related amortization.

Previous wording

*Net Loss on Lease Terminations, Unoccupied Lease Charges and Restructuring Costs.*Net loss on lease terminations represents the write-off of leasehold improvements and gains or losses as the result of lease terminations. During the three months ended March 31, 2023, the Miami office lease that we assumed in connection with an acquisition ended and we entered into a new lease arrangement with the landlord for significantly less space. Charges of $71,000 for the three months ended March 31, 2023 were incurred as a result of vacating the former premises. During the year ended December 31, 2022, a facility lease was terminated in conjunction with the Company ceasing its document storage services resulting in additional costs for the three months ended March 31, 2023, of approximately $45,000. During the three months ended March 31, 2023, there were $153,000 of unoccupied lease charges. There were $322,000 of restructuring costs being recorded for the three months ended March 31, 2024, whereas in the same period for 2023, there were no restructuring costs. Restructuring costs consists of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements. There were no net losses on lease terminations or unoccupied lease charges during the three months ended March 31, 2024.

Current wording

*Net Loss on Lease Terminations, Unoccupied Lease Charges and Restructuring Costs.*Net loss on lease terminations represents the write-off of leasehold improvements and gains or losses as the result of lease terminations. During the six months ended June 30, 2023, the Miami office lease that we assumed in connection with an acquisition ended and we entered into a new lease arrangement with the landlord for significantly less space. Charges of $71,000 were incurred as a result of vacating the former premises. In addition, during the three months ended June 30, 2023, the Company paid approximately $27,000 to settle a claim regarding a lease termination in India. During the year ended December 31, 2022, a facility lease was terminated in conjunction with the Company ceasing its document storage services resulting in additional costs for the three and months ended June 30, 2023, of approximately $115,000 and $161,000, respectively. During the three and six months ended June 30, 2023, there were $11,000 and $163,000 of unoccupied lease charges, respectively. There were $116,000 and $438,000 of restructuring costs being recorded for the three and six months ended June 30, 2024, respectively, whereas in the same period for 2023, there were no restructuring costs. Restructuring costs consists of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements. There were no net losses on lease terminations or unoccupied lease charges during the six months ended June 30, 2024.

Previous wording

*Interest Income.*Interest income of $27,000 for the three months ended March 31, 2024 increased by $7,000 from interest income of $20,000 for the three months ended March 31, 2023. The interest income represents late fees from customers and interest earned on temporary cash investments, which increased due to rising interest rates.

Current wording

*Interest Income.*Interest income of $24,000 and $51,000 for the three and six months ended June 30, 2024, respectively, decreased by $28,000 and $21,000 from interest income of $52,000 and $72,000 for the three and six months ended June 30, 2023, respectively. The interest income represents late fees from customers and interest earned on temporary cash investments, which decreased due to less funds being temporarily invested.

Previous wording

*Interest Expense.*Interest expense of $365,000 for the three months ended March 31, 2024 increased by $215,000 from interest expense of $150,000 for the three months ended March 31, 2023. The increase in interest expense was due to the increased use of the line of credit and the impact of a higher interest rate in 2024. Interest expense on the line of credit was $289,000 and $72,000 during the three months ended March 31, 2024 and 2023, respectively.

Current wording

*Interest Expense.*Interest expense of $288,000 and $653,000 for the three and six months ended June 30, 2024, respectively, decreased by $39,000 and increased by $176,000 from interest expense of $327,000 and $477,000 for the three and six months ended June 30, 2023, respectively. The increase in interest expense during the six months ended June 30, 2024 was due to the impact of a higher borrowing rate in 2024. Interest expense on the line of credit was $518,000 and $338,000 during the six months ended June 30, 2024 and 2023, respectively.

Previous wording

*Other Income – net.*Other income – net was $7,000 for the three months ended March 31, 2024 compared to other income – net of $17,000 for the three months ended March 31, 2023. Other expense or income primarily represents foreign currency transaction losses or gains. These transaction losses or gains result from revaluing intercompany accounts which are denominated in U.S. dollars that represent amounts payable/receivable between the entities. Whenever the exchange rate varies, the losses or gains are recorded in the condensed consolidated statements of operations.

Current wording

*Other Expense – net.*Other Expense – net was $294,000 and $287,000 for the three and six months ended June 30, 2024, respectively, compared to other expense – net of $186,000 and $169,000 for the three and six months ended June 30, 2023, respectively. Other expense or income primarily represents foreign currency transaction losses or gains. These transaction losses or gains result from revaluing intercompany accounts which are denominated in U.S. dollars that represent amounts payable/receivable between the entities. Whenever the exchange rate varies, the losses or gains are recorded in the condensed consolidated statements of operations.

Previous wording

*Income Tax Provision.*The provision for income taxes was $39,000 for the three months ended March 31, 2024 compared to the provision for income taxes of $65,000 for the three months ended March 31, 2023. As a result of the Company having certain net operating losses with an indefinite life under the current federal tax rules, the federal and state deferred tax liability was offset against the net operating loss to the extent allowable in 2023. Through December 31, 2023, the state deferred tax liability has also been offset against state net operating losses to the extent allowable. There were no deferred income taxes for the three months ended March 31, 2024.

Current wording

*Income Tax Provision.*The provision for income taxes was $39,000 and $78,000 for the three and six months ended June 30, 2024, respectively, compared to the provision for income taxes of $82,000 and $147,000 for the three and six months ended June 30, 2023, respectively. As a result of the Company having certain net operating losses with an indefinite life under the current federal tax rules, the federal and state deferred tax liability was offset against the net operating loss to the extent allowable in 2023. Through December 31, 2023, the state deferred tax liability has also been offset against state net operating losses to the extent allowable. There were no deferred income taxes for the six months ended June 30, 2024.

Previous wording

The current income tax expense for the three months ended March 31, 2024 was approximately $39,000 and includes state minimum taxes and foreign income taxes. The Company has incurred cumulative losses historically and there is uncertainty regarding future U.S. taxable income, which makes realization of a deferred tax losses difficult to support in accordance with ASC 740. Accordingly, a valuation allowance was recorded against all deferred tax assets at March 31, 2024 and December 31, 2023.

Current wording

The current income tax expense for the three and six months ended June 30, 2024 was approximately $39,000 and $78,000, respectively, which represents state minimum taxes and foreign income taxes. The Company has incurred cumulative losses historically and there is uncertainty regarding future U.S. taxable income, which makes realization of a deferred tax losses difficult to support in accordance with ASC 740. Accordingly, a valuation allowance was recorded against all deferred tax assets at June 30, 2024 and December 31, 2023.

Previous wording

As of March 31, 2024, the Company had total cash of $4.1 million and net working capital of $474,000. For the three months ended March 31, 2024, cash provided by operations was $4.1 million offset by cash used in investing and financing activities of $3.2 million resulting in an increase in cash of $807,000 after accounting for the effect of $17,000 of exchange rate changes. During the quarter ended March 31, 2024, the Company repaid $1.0 million on its line of credit borrowings. Subsequent to March 31, 2024, an additional $1.0 million was repaid on the line of credit.

Current wording

As of June 30, 2024, the Company had total cash of $2.6 million and net working capital of $674,000. For the six months ended June 30, 2024, cash provided by operations was $8.3 million offset by cash used in investing and financing activities of $9.0 million resulting in a decrease in cash of $714,000 after accounting for the effect of $76,000 of exchange rate changes. During the six months ended June 30, 2024, the Company repaid $5.0 million on its line of credit borrowings. Subsequent to June 30, 2024, an additional $2.5 million was repaid on the line of credit.

Previous wording

In fiscal year 2023, the Company incurred a net loss of $48.7 million compared to $5.4 million of net income in fiscal year 2022, and at December 31, 2023, had cash of $3.3 million and a working capital deficit of $57,000. The decrease in cash for fiscal 2023 was $9 million compared to an increase in cash of $2 million in fiscal 2022. The Company also had $10 million drawn on its line of credit. Together, at December 31, 2023 these factors raised substantial doubt regarding the Company’s ability to continue as a going concern.

Current wording

In fiscal year 2023, the Company incurred a net loss of $48.7 million compared to $5.4 million of net income in fiscal year 2022, and at December 31, 2023, had cash of $3.3 million and a working capital deficit of $57,000. The decrease in cash for fiscal 2023 was $9.0 million compared to an increase in cash of $2.0 million in fiscal 2022. The Company also had $10.0 million drawn on its line of credit. Together, at December 31, 2023 these factors raised substantial doubt regarding the Company’s ability to continue as a going concern.

Previous wording

However, management has considered its plans to continue the Company as a going concern and believes substantial doubt is alleviated by focusing on cost-control. Management developed a plan that was substantially implemented during fiscal 2023 to improve liquidity in its operations through reductions in payroll and operating expenses. After the reductions are implemented and through employee attrition, the Company expects an improvement of approximately $20 million in annualized cost savings, of which approximately $14 million will be realized in 2024. The Company also suspended its Preferred Stock dividends in December 2023 resulting in cash savings of $1.3 million per month. Additional headcount reductions occurred in 2024 and further cost reductions will continue throughout the year. The Company is focused on reducing costs, returning to profitability, generating positive cash flow and maintaining compliance with its debt covenants. Although there are no guarantees that the Company will be successful, it believes that such initiatives will enable it to continue as a going concern through at least the next twelve months.

Current wording

However, management has considered its plans to continue the Company as a going concern and believes substantial doubt is alleviated by focusing on cost-control. Management developed a plan that was substantially implemented during fiscal 2023 to improve liquidity in its operations through reductions in payroll and operating expenses. After the reductions are implemented and through employee attrition, the Company expects an improvement of approximately $22.0 million in annualized cost savings, of which approximately $16.0 million will be realized during 2024. The Company also suspended its Preferred Stock dividends in December 2023 resulting in cash savings of $1.3 million per month. Additional headcount reductions occurred in 2024 and further cost reductions will continue throughout the year. Through June 30, 2024, $5.0 million was repaid on the Company’s outstanding line of credit. The Company is focused on reducing costs, returning to profitability, generating positive cash flow and maintaining compliance with its debt covenants. Although there are no guarantees that the Company will be successful, it believes that such initiatives will enable it to continue as a going concern through at least the next twelve months.

Previous wording

As of March 31, 2024, the Company has not identified any compromise or unauthorized access of its systems or networks due to this third party incident. As of the end of the first quarter of 2024, the Company reconnected to certain applications maintained by Change Healthcare and resumed claims submission to several payors and utilized alternative platforms for the majority of its claims. The Company continues to work through accumulated unprocessed claims and to establish full recovery with Change Healthcare’s applications.

Current wording

As of June 30, 2024, the Company has not identified any compromise or unauthorized access of its systems or networks due to this third party incident. As of the end of the second quarter of 2024, the Company reconnected to certain applications maintained by Change Healthcare and resumed claims submission to several payors and utilized alternative platforms for the majority of its claims. The Company continues to work through accumulated unprocessed claims and to establish full recovery with Change Healthcare’s applications.

Previous wording

During the first quarter of 2024, the Company did not experience a material financial impact from the Change Healthcare Cybersecurity Incident on the financial results as reported. The impact to the first quarter financial results was primarily related to decreased cash flows from operations, which are expected to be recognized later in 2024. The Company continues to maintain its liquidity and, having substantially resumed submission of claims to payors, has determined that the Change Healthcare Cybersecurity Incident is not reasonably likely to materially impact the Company, including its business operations, financial condition or results of operations.

Current wording

During the six months ended June 30, 2024, the Company did not experience a material financial impact from the Change Healthcare Cybersecurity Incident on the financial results as reported. The impact to the first quarter financial results was primarily related to decreased cash flows from operations, which were substantially recognized during the second quarter. The Company continues to maintain its liquidity and, having substantially resumed submission of claims to payors, has determined that the Change Healthcare Cybersecurity Incident is not reasonably likely to materially impact the Company, including its business operations, financial condition or results of operations.

Previous wording

We have not been adversely affected by inflation as typically we receive a percentage of the fees our clients collect from our revenue cycle management services. Additionally, our medical practice management contracts are based on our costs plus a percentage of the medical practice’s operating income. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. In the event of inflation, we believe that we will be able to pass on any price increases for fixed rate contracts to our customers, as the prices that we charge are not governed by long-term contracts. The interest rate on our line of credit is based on prime rate which had been increasing through 2023 but has remained the same in 2024.

Current wording

We have not been adversely affected by inflation as typically we receive a percentage of the fees our clients collect from our revenue cycle management services. Additionally, our medical practice management contracts are based on our costs plus a percentage of the medical practice’s operating income. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. In the event of inflation, we believe that we will be able to pass on any price increases for fixed rate contracts to our customers, as the prices that we charge are not governed by long-term contracts. The interest rate on our line of credit is based on the prime rate which had been increasing through 2023 but has remained the same in 2024.

Previous wording

The Company has a revolving line of credit, and as of March 31, 2024, there was $9 million outstanding. During April 2024, an additional $1.0 million was repaid on the line of credit. As of March 31, 2024, the unused borrowing base was approximately $3.6 million.

Current wording

The Company has a revolving line of credit, and as of June 30, 2024, there was $5.0 million outstanding. As of June 30, 2024, the unused borrowing base was approximately $10.7 million.

Previous wording

The loss before income tax was $202,000 for the three months ended March 31, 2024, which included $3.9 million of non-cash depreciation and amortization. The loss before income taxes was $336,000 for the three months ended March 31, 2023, which included $3.0 million of non-cash depreciation and amortization.

Current wording

The income before income taxes was $1.7 million and $1.5 million for the three and six months ended June 30, 2024, respectively, which included $3.7 million and $7.6 million of non-cash depreciation and amortization, respectively. The loss before income taxes was $1.8 million and $2.1 million for the three and six months ended June 30, 2023, respectively, which included $3.3 million and $6.4 million of non-cash depreciation and amortization, respectively.

Previous wording

Net cash provided by operating activities was $4.1 million and $1.0 million during the three months ended March 31, 2024 and 2023, respectively. This increase was primarily the result of the decrease in the net loss of $160,000 which included the following changes in non-cash items: an increase in depreciation and amortization of $815,000 offset by a net decrease in stock-based compensation of $1.8 million. Accounts receivable decreased $111,000 for the three months ended March 31, 2024, compared with a decrease of $156,000 for the three months ended March 31, 2023. Accounts payable, accrued compensation and accrued expenses increased by $721,000 during the three months ended March 31, 2024, compared with a decrease of $2.6 million for the three months ended March 31, 2023. The contract asset decreased by $258,000 during the three months ended March 31, 2024 compared to the prior period.

Current wording

Net cash provided by operating activities was $8.3 million and $7.4 million during the six months ended June 30, 2024 and 2023, respectively. This increase was primarily the result of the decrease in the net loss of $3.7 million which included the following changes in non-cash items: an increase in depreciation and amortization of $1.2 million offset by a net decrease in stock-based compensation of $3.0 million. Accounts receivable increased $1.3 million for the six months ended June 30, 2024, compared with a decrease of $2.3 million for the six months ended June 30, 2023. Accounts payable, accrued compensation and accrued expenses increased by $41,000 during the six months ended June 30, 2024, compared with a decrease of $3.0 million for the six months ended June 30, 2023. The contract asset decreased by $729,000 during the six months ended June 30, 2024 compared to the prior period.

Previous wording

Net cash used in investing activities was $1.9 million and $3.0 million for the three months ended March 31, 2024 and 2023, respectively. Capital expenditures were $298,000 and $835,000 for the three months ended March 31, 2024 and 2023, respectively. The capital expenditures for the three months ended March 31, 2024 and 2023 primarily represented computer equipment purchased and leasehold improvements for the Pakistan Offices. Software development costs of $1.6 million and $2.2 million for the three months ended March 31, 2024 and 2023, respectively, were capitalized in connection with the development of software for providing technology-enabled business solutions.

Current wording

Net cash used in investing activities was $3.5 million and $6.1 million for the six months ended June 30, 2024 and 2023, respectively. Capital expenditures were $425,000 and $1.6 million for the six months ended June 30, 2024 and 2023, respectively. The capital expenditures for the six months ended June 30, 2024 and 2023 primarily represented computer equipment purchased and leasehold improvements for the Pakistan Offices. Software development costs of $3.0 million and $4.5 million for the six months ended June 30, 2024 and 2023, respectively, were capitalized in connection with the development of software for providing technology-enabled business solutions.

Previous wording

Net cash used in financing activities was $1.4 million and $1.8 million during the three months ended March 31, 2024 and 2023, respectively. Cash used in financing activities during the three months ended March 31, 2024 included $223,000 of repayments for debt obligations and $151,000 of tax withholding obligations paid in connection with stock awards issued to employees. Cash used in financing activities during the three months ended March 31, 2023 included $3.9 million of preferred stock dividends, $1.4 million of proceeds from issuance of Series B Preferred Stock, $236,000 of repayments for debt obligations and $1.1 million of tax withholding obligations paid in connection with stock awards issued to employees. Repayments and net proceeds on the line of credit were $1.0 million and $2.0 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Net cash used in financing activities was $5.5 million and $5.8 million during the six months ended June 30, 2024 and 2023, respectively. Cash used in financing activities during the six months ended June 30, 2024 included $328,000 of repayments for debt obligations and $184,000 of tax withholding obligations paid in connection with stock awards issued to employees. Cash used in financing activities during the six months ended June 30, 2023 included $7.8 million of preferred stock dividends, $1.4 million of proceeds from issuance of Series B Preferred Stock, $316,000 of repayments for debt obligations and $1.2 million of tax withholding obligations paid in connection with stock awards issued to employees. Repayments and net proceeds on the line of credit were $5.0 million and $2.0 million for the six months ended June 30, 2024 and 2023, respectively.