UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-Q/A
Amendment No. 1
(Mark one)
| x | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended September 30, 2014
or
| ¨ | TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition
period from to
Commission File Number
333-192989
MEDICAL
TRANSCRIPTION BILLING, CORP.
(Exact name of registrant
as specified in its charter)
Delaware |
|
22-3832302 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification Number) |
7 Clyde Road
Somerset, New Jersey |
|
08873 |
(Address of principal executive offices) |
|
(Zip Code) |
(732) 873-5133
(Registrant’s
telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x
No ¨
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes x
No ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer ¨ |
Accelerated filer ¨ |
Non-Accelerated filer ¨ (Do not check if a smaller reporting company) |
Smaller reporting company x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨
No x
At November 10, 2014, the registrant had 10,999,133 shares of common
stock, par value $0.001 per share, outstanding.
INDEX
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION
Explanatory Note
We are filing this Amendment No. 1
on Form 10-Q/A to amend and restate in their entirety the following items of our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2014 as originally filed with the Securities and Exchange Commission on November 12, 2014
(the “Original Form 10-Q”): (i) Item 1 of Part I “Financial Information,” (ii) Item 2 of Part
I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and
the certifications of our Chief Executive Officer and Chief Financial Officer in Exhibits 31.1, 31.2, and 32.1 and 32.2, and
our financial statements formatted in Extensible Business Reporting Language (XBRL) in Exhibits 101. No other sections
were affected, but for the convenience of the reader, this report on Form 10-Q/A restates in its entirety, as amended,
our Original Form 10-Q. This report on Form 10-Q/A is presented as of the filing date of the Original Form 10-Q and does
not reflect events occurring after that date, or modify or update disclosures in any way other than as required to reflect
the restatement described below. Therefore, this Form-10-Q/A should be read in conjunction with filings we have made with the
SEC subsequent to November 12, 2014 including the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Background
On March 25, 2015, the Audit Committee of
the Company’s Board of Directors determined that our previously reported results for the three and nine months ended September
30, 2014 on Form 10-Q erroneously included the contingent consideration related to the 2014 business acquisitions in equity, when
a portion of these amounts should have been included as a liability. We have also recognized $425,000 of gain related to the change
in fair value of the contingent consideration during the period from the date of acquisition to September 30, 2014. The condensed
consolidated balance sheet, the related condensed consolidated statements of operations and comprehensive loss for the three and
nine months ended September 30, 2014 and the related condensed consolidated statements of shareholders’ equity and cash
flows for the nine months ended September 30, 2014 included in this Form 10-Q/A have been restated to remove the effects of
$4.6 million of contingent consideration from equity and included as a liability as of the acquisition date, July 28, 2014. This
adjustment is more fully described in Note 2 of the notes to our condensed consolidated financial statements included in this
filing. We have made the necessary conforming changes in “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” resulting from the correction of this error.
In addition, we identified and
corrected an immaterial error within the condensed consolidated statements of comprehensive loss for the three and nine
months ended September 30, 2014 to reflect the effects of recording a valuation allowance against deferred tax assets related
to the foreign currency translation adjustment. Such tax effects increased both other comprehensive loss and comprehensive
loss by $82,000 and $142,000 for the three and nine months ended September 30, 2014, respectively. This immaterial error only
affects the condensed consolidated statements of comprehensive loss and does not affect any other statements.
PART I. FINANCIAL INFORMATION-Restated,
see Note 2
Item 1. Condensed Consolidated Financial
Statements (unaudited).
MEDICAL TRANSCRIPTION
BILLING, CORP.
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
Restated | | |
| |
ASSETS | |
| | | |
| | |
CURRENT ASSETS: | |
| | | |
| | |
Cash | |
$ | 2,493,652 | | |
$ | 497,944 | |
Accounts receivable - net of allowance for doubtful accounts of $115,831 and
$58,183 at September 30, 2014 and December 31, 2013, respectively | |
| 3,050,043 | | |
| 1,009,416 | |
Current assets - related party | |
| 13,200 | | |
| 23,840 | |
Prepaid expenses | |
| 351,730 | | |
| 49,660 | |
Other current assets | |
| 516,935 | | |
| 165,018 | |
Deferred income taxes | |
| - | | |
| 41,829 | |
Total current assets | |
| 6,425,560 | | |
| 1,787,707 | |
| |
| | | |
| | |
PROPERTY AND EQUIPMENT - Net | |
| 1,001,377 | | |
| 505,344 | |
INTANGIBLE ASSETS - Net | |
| 9,990,222 | | |
| 1,534,780 | |
GOODWILL | |
| 7,977,158 | | |
| 344,000 | |
OTHER ASSETS | |
| 46,331 | | |
| 1,600,783 | |
TOTAL ASSETS | |
$ | 25,440,648 | | |
$ | 5,772,614 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Accounts payable | |
$ | 1,139,428 | | |
$ | 200,469 | |
Accrued compensation | |
| 872,866 | | |
| 207,545 | |
Accrued expenses | |
| 805,180 | | |
| 477,351 | |
Accrued IPO costs | |
| - | | |
| 430,125 | |
Deferred rent | |
| 6,688 | | |
| 11,667 | |
Deferred revenue | |
| 41,987 | | |
| 56,686 | |
Accrued liability to related party | |
| 127,859 | | |
| 93,596 | |
Borrowings under line of credit | |
| 1,200,000 | | |
| 1,015,000 | |
Note payable - related party | |
| 470,089 | | |
| - | |
Notes payable - other (current portion) | |
| 839,918 | | |
| 916,104 | |
Contingent consideration | |
| 4,193,622 | | |
| - | |
Total current liabilities | |
| 9,697,637 | | |
| 3,408,543 | |
NOTES PAYABLE | |
| | | |
| | |
Note payable - related party | |
| - | | |
| 735,680 | |
Notes payable - other | |
| 28,422 | | |
| 425,587 | |
Note payable - convertible note | |
| - | | |
| 472,429 | |
| |
| 28,422 | | |
| 1,633,696 | |
OTHER LONG-TERM LIABILITIES | |
| - | | |
| 38,142 | |
DEFERRED RENT | |
| 543,904 | | |
| 519,000 | |
DEFERRED REVENUE | |
| 43,596 | | |
| 54,736 | |
Total liabilities | |
| 10,313,559 | | |
| 5,654,117 | |
COMMITMENTS AND CONTINGENCIES (Note 9) | |
| | | |
| | |
SHAREHOLDERS' EQUITY: | |
| | | |
| | |
Common stock, $0.001 par value - authorized, 19,000,000 shares; issued and outstanding, 9,711,604
shares at September 30, 2014 and 5,101,770 shares at December 31, 2013 | |
| 9,712 | | |
| 5,102 | |
Additional paid-in capital | |
| 18,858,649 | | |
| 251,628 | |
(Accumulated deficit) retained earnings | |
| (3,464,706 | ) | |
| 49,121 | |
Accumulated other comprehensive loss | |
| (276,566 | ) | |
| (187,354 | ) |
Total shareholders' equity | |
| 15,127,089 | | |
| 118,497 | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | |
$ | 25,440,648 | | |
$ | 5,772,614 | |
See notes to condensed consolidated financial statements.
MEDICAL TRANSCRIPTION
BILLING, CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
Restated | | |
| | |
Restated | | |
| |
NET REVENUE | |
$ | 6,012,867 | | |
$ | 2,946,945 | | |
$ | 11,198,546 | | |
$ | 7,489,178 | |
OPERATING EXPENSES: | |
| | | |
| | | |
| | | |
| | |
Direct operating costs | |
| 3,671,029 | | |
| 1,337,302 | | |
| 5,934,319 | | |
| 3,186,566 | |
Selling and marketing | |
| 54,825 | | |
| 64,758 | | |
| 169,660 | | |
| 184,075 | |
General and administrative | |
| 3,709,838 | | |
| 1,355,717 | | |
| 6,441,603 | | |
| 3,537,003 | |
Research and development | |
| 154,063 | | |
| 94,537 | | |
| 396,482 | | |
| 290,878 | |
Change in contingent consideration | |
| (424,885 | ) | |
| - | | |
| (424,885 | ) | |
| - | |
Depreciation and amortization | |
| 1,252,188 | | |
| 311,321 | | |
| 1,793,289 | | |
| 675,415 | |
Total operating expenses | |
| 8,417,058 | | |
| 3,163,635 | | |
| 14,310,468 | | |
| 7,873,937 | |
Operating loss | |
| (2,404,191 | ) | |
| (216,690 | ) | |
| (3,111,922 | ) | |
| (384,759 | ) |
OTHER: | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 7,943 | | |
| 5,647 | | |
| 15,039 | | |
| 19,355 | |
Interest expense | |
| (46,686 | ) | |
| (43,457 | ) | |
| (150,847 | ) | |
| (104,308 | ) |
Other income (expense) - net | |
| 76,271 | | |
| 134,915 | | |
| (108,662 | ) | |
| 235,857 | |
LOSS BEFORE INCOME TAXES | |
| (2,366,663 | ) | |
| (119,585 | ) | |
| (3,356,392 | ) | |
| (233,855 | ) |
INCOME TAX PROVISION | |
| 474,091 | | |
| 18,437 | | |
| 157,435 | | |
| 34,180 | |
NET LOSS | |
$ | (2,840,754 | ) | |
$ | (138,022 | ) | |
$ | (3,513,827 | ) | |
$ | (268,035 | ) |
NET LOSS PER SHARE | |
| | | |
| | | |
| | | |
| | |
Basic and diluted loss per share | |
$ | (0.34 | ) | |
$ | (0.03 | ) | |
$ | (0.57 | ) | |
$ | (0.05 | ) |
Weighted-average basic and diluted shares outstanding | |
| 8,358,718 | | |
| 5,101,770 | | |
| 6,199,350 | | |
| 5,101,770 | |
See notes to condensed consolidated financial statements.
MEDICAL TRANSCRIPTION
BILLING, CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
Restated | | |
| | |
Restated | | |
| |
NET LOSS | |
$ | (2,840,754 | ) | |
$ | (138,022 | ) | |
$ | (3,513,827 | ) | |
$ | (268,035 | ) |
OTHER COMPREHENSIVE LOSS, NET OF TAX | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustment (a) | |
| (206,241 | ) | |
| (71,018 | ) | |
| (89,212 | ) | |
| (121,408 | ) |
| |
| | | |
| | | |
| | | |
| | |
COMPREHENSIVE LOSS | |
$ | (3,046,995 | ) | |
$ | (209,040 | ) | |
$ | (3,603,039 | ) | |
$ | (389,443 | ) |
(a) Net of taxes of $47,345 and $80,939 for the three and
nine months ended September 30, 2013, respectively, and $81,657 and $141,945 for the three and nine months ended September 30,
2014, respectively.
See notes to condensed consolidated financial statements.
MEDICAL TRANSCRIPTION
BILLING, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2014 ( UNAUDITED)
| |
Restated | |
| |
Common Stock | | |
| | |
Retained earnings | | |
| | |
Total | |
| |
Shares | | |
Amount | | |
Additional paid-in
Capital | | |
(Accumulated
deficit) | | |
Accumulated other
comprehensive loss | | |
shareholders'
equity | |
Balance- January 1, 2014 | |
| 5,101,770 | | |
$ | 5,102 | | |
$ | 251,628 | | |
$ | 49,121 | | |
$ | (187,354 | ) | |
$ | 118,497 | |
Net (loss) | |
| - | | |
| - | | |
| - | | |
| (3,513,827 | ) | |
| - | | |
| (3,513,827 | ) |
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| 52,733 | | |
| 52,733 | |
Effect of valuation allowance against deferred tax asset related to foreign
currency translation adjustment. | |
| | | |
| | | |
| | | |
| | | |
| (141,945 | ) | |
| (141,945 | ) |
Issuance of common stock, net of fees and expenses of issuance | |
| 4,080,000 | | |
| 4,080 | | |
| 16,280,488 | | |
| - | | |
| - | | |
| 16,284,568 | |
Shares issued on conversion of note | |
| 117,567 | | |
| 118 | | |
| 587,717 | | |
| - | | |
| - | | |
| 587,835 | |
Shares issued to acquired businesses | |
| 412,267 | | |
| 412 | | |
| 1,601,266 | | |
| - | | |
| - | | |
| 1,601,678 | |
Stock-based compensation expense | |
| - | | |
| - | | |
| 137,550 | | |
| - | | |
| - | | |
| 137,550 | |
Balance- September 30, 2014 | |
| 9,711,604 | | |
$ | 9,712 | | |
$ | 18,858,649 | | |
$ | (3,464,706 | ) | |
$ | (276,566 | ) | |
$ | 15,127,089 | |
See notes to condensed consolidated financial statements.
MEDICAL TRANSCRIPTION
BILLING, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED)
| |
2014 | | |
2013 | |
| |
Restated | | |
| |
OPERATING ACTIVITIES: | |
| | | |
| | |
Net loss | |
$ | (3,513,827 | ) | |
$ | (268,035 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 1,793,289 | | |
| 675,415 | |
Deferred rent | |
| 7,056 | | |
| 21,921 | |
Deferred revenue | |
| (25,839 | ) | |
| 66,790 | |
Deferred income taxes | |
| 153,364 | | |
| - | |
Provision for (recovery of) doubtful accounts | |
| 62,451 | | |
| (34,654 | ) |
Foreign exchange loss (gain) | |
| 58,164 | | |
| (278,726 | ) |
Gain from reduction in referral fee | |
| (105,523 | ) | |
| - | |
Interest accretion and other costs on convertible promissory note | |
| 77,263 | | |
| - | |
Stock-based compensation expense | |
| 137,550 | | |
| - | |
Change in contingent consideration | |
| (424,885 | ) | |
| - | |
Other | |
| (13,236 | ) | |
| (12,258 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (2,103,074 | ) | |
| (71,309 | ) |
Other assets | |
| (187,077 | ) | |
| 215,537 | |
Accounts payable and other liabilities | |
| 2,059,820 | | |
| 302,620 | |
Net cash (used in) provided by operating activities | |
| (2,024,504 | ) | |
| 617,301 | |
INVESTING ACTIVITIES: | |
| | | |
| | |
Capital expenditures | |
| (571,217 | ) | |
| (165,913 | ) |
Advances to related party | |
| (2,463 | ) | |
| (365,000 | ) |
Repayment of advances to related party | |
| 2,463 | | |
| 280,209 | |
Acquisitions | |
| (11,536,640 | ) | |
| (275,000 | ) |
Net cash used in investing activities | |
| (12,107,857 | ) | |
| (525,704 | ) |
FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from IPO of common stock, net of costs in 2014 and 2013 | |
| 17,167,295 | | |
| (639,274 | ) |
Proceeds from note payable to related party | |
| 165,000 | | |
| 1,000,000 | |
Repayments of note payable to related party | |
| (430,591 | ) | |
| (110,000 | ) |
Repayments of notes payable - other | |
| (958,400 | ) | |
| (589,452 | ) |
Proceeds from line of credit | |
| 2,685,000 | | |
| 3,162,985 | |
Repayments of line of credit | |
| (2,500,000 | ) | |
| (2,519,302 | ) |
Proceeds from notes payable - convertible note | |
| - | | |
| 500,000 | |
Net cash provided by financing activities | |
| 16,128,304 | | |
| 804,957 | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | |
| (235 | ) | |
| (236,814 | ) |
NET INCREASE IN CASH | |
| 1,995,708 | | |
| 659,740 | |
CASH - Beginning of the period | |
| 497,944 | | |
| 268,323 | |
CASH - End of period | |
$ | 2,493,652 | | |
$ | 928,063 | |
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES: | |
| | | |
| | |
Acquisition through issuance of promissory note | |
$ | - | | |
$ | 1,225,000 | |
Contingent consideration resulting from acquisitions | |
$ | 4,618,508 | | |
$ | - | |
Equity resulting from acquisitions | |
$ | 1,601,678 | | |
$ | - | |
Conversion of note to common stock | |
$ | 587,835 | | |
$ | - | |
Financed assets | |
$ | 37,114 | | |
$ | 6,401 | |
Purchase of insurance through issuance of note | |
$ | 486,858 | | |
$ | - | |
Accrued IPO-related costs | |
$ | - | | |
$ | 15,000 | |
SUPPLEMENTAL INFORMATION - Cash paid during the period for: | |
| | | |
| | |
Income taxes | |
$ | 5,230 | | |
$ | 23,339 | |
Interest | |
$ | 129,857 | | |
$ | 100,644 | |
See notes to condensed consolidated financial statements.
Medical
Transcription Billing, Corp.
Notes to CONDENSED
Consolidated Financial Statements
AS
OF AND FOR THE THREE and NINE MONTHS ENDED September 30, 2014 and 2013 (UnaUDITED)
| 1. | DESCRIPTION OF BUSINESS |
Medical Transcription Billing, Corp. (“MTBC”
or the “Company”) is a healthcare information technology company that offers proprietary electronic health records
and patient management solutions, together with related business services, to healthcare providers. The Company’s integrated
services are designed to help customers increase revenues, streamline workflows and make better business and clinical decisions,
while reducing administrative burdens and operating costs. The Company’s services include full-scale revenue cycle management,
electronic health records, and other technology-driven practice management services to private and hospital-employed healthcare
providers. MTBC has offices in Somerset, New Jersey, Islamabad, Pakistan and Bagh, Pakistan.
On July 28, 2014, the Company completed its
initial public offering (“IPO”) of common stock. The Company sold 4,080,000 shares of common stock at a price to the
public of $5.00 per share, generating net proceeds of $16.3 million. The common stock began trading on the NASDAQ Capital Market
under the ticker symbol “MTBC.” Of the net proceeds received from the IPO, $11.40 million was used to fund the cash
portion of the purchase price of three revenue cycle management companies, Omni Medical Billing Services, LLC, Practicare Medical
Management, Inc. and CastleRock Solutions, Inc., and pay for approximately $600,000 of acquisition costs. See Note 4 for additional
information.
The Company has restated its condensed consolidated
balance sheet as of September 30, 2014, the related condensed consolidated statements of operations and comprehensive loss for
the three and nine months ended September 30, 2014, and the related condensed consolidated statements of shareholders’ equity
and cash flows for the nine months ended September 30, 2014, along with certain related notes to such restated condensed consolidated
financial statements.
The Company determined that the
restatement was necessary after investigating the treatment of contingent consideration in connection with the 2014
acquisitions (see Note 4), and determining that even though such consideration was in the form of shares of the
Company’s common stock, the fair value of a portion of this consideration should be recorded as a liability instead of
as equity until the contingency is resolved and the final number and value of the shares issued is determined. The portion of
the purchase price paid in the form of the Company’s common stock that is subject to the achievement of specified
revenue targets has been recorded as contingent consideration. The balance of the purchase price paid with the
Company’s common stock that is not subject to revenue targets has been recorded as equity. The contingent consideration
is remeasured at fair value at the end of each reporting period until the contingency is resolved and the Company recognizes
changes in fair value in earnings each period.
The Company has also corrected an immaterial
error within the condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2014
to reflect the effects of a valuation allowance against deferred tax assets related to the foreign currency translation adjustment.
The effects of both the material
and immaterial restatements on the condensed consolidated financial statements as of September 30, 2014 and for the three and
nine months then ended, are as follows:
CONDENSED CONSOLIDATED BALANCE SHEET
| |
As Previously Reported | | |
Adjustment | | |
As Restated | |
CURRENT LIABILITIES: | |
| | | |
| | | |
| | |
Contingent consideration | |
$ | - | | |
$ | 4,193,622 | | |
$ | 4,193,622 | |
Total current liabilities | |
| 5,504,015 | | |
| 4,193,622 | | |
| 9,697,637 | |
SHAREHOLDERS' EQUITY: | |
| | | |
| | | |
| | |
Common stock | |
| 11,000 | | |
| (1,288 | ) | |
| 9,712 | |
Additional paid-in capital | |
| 23,475,868 | | |
| (4,617,219 | ) | |
| 18,858,649 | |
Accumulated deficit | |
| (3,889,591 | ) | |
| 424,885 | | |
| (3,464,706 | ) |
Total shareholders' equity | |
| 19,320,711 | | |
| (4,193,622 | ) | |
| 15,127,089 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| |
As
Previously Reported | | |
Adjustment | | |
As
Restated | |
| |
| | |
| | |
| |
| |
Three Months | | |
Nine Months | | |
Three Months | | |
Nine Months | | |
Three Months | | |
Nine Months | |
| |
Ended
September | | |
Ended
September | | |
Ended
September | | |
Ended
September | | |
Ended
September | | |
Ended
September | |
| |
30,
2014 | | |
30,
2014 | | |
30,
2014 | | |
30,
2014 | | |
30,
2014 | | |
30,
2014 | |
OPERATING EXPENSES: | |
| | | |
| | | |
| | | |
| | | |
| | |
|
|
|
Change in contingent
consideration | |
$ | - | | |
$ | - | | |
$ | (424,885 | ) | |
$ | (424,885 | ) | |
$ | (424,885 | ) | |
$ | (424,885 | ) |
Total operating expenses | |
| 8,841,943 | | |
| 14,735,353 | | |
| (424,885 | ) | |
| (424,885 | ) | |
| 8,417,058 | | |
| 14,310,468 | |
LOSS BEFORE INCOME TAXES | |
| (2,791,548 | ) | |
| (3,781,277 | ) | |
| 424,885 | | |
| 424,885 | | |
| (2,366,663 | ) | |
| (3,356,392 | ) |
INCOME TAX PROVISION | |
| 474,091 | | |
| 157,435 | | |
| - | | |
| - | | |
| 474,091 | | |
| 157,435 | |
NET LOSS | |
| (3,265,639 | ) | |
| (3,938,712 | ) | |
| 424,885 | | |
| 424,885 | | |
| (2,840,754 | ) | |
| (3,513,827 | ) |
NET LOSS PER SHARE | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic and diluted net loss per share | |
$ | (0.35 | ) | |
$ | (0.61 | ) | |
$ | 0.01 | | |
$ | 0.04 | | |
$ | (0.34 | ) | |
$ | (0.57 | ) |
Weighted-average basic and diluted
shares outstanding | |
| 9,260,534 | | |
| 6,503,258 | | |
| (901,816 | ) | |
| (303,908 | ) | |
| 8,358,718 | | |
| 6,199,350 | |
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
| |
As Previously
Reported | | |
Adjustment | | |
As Restated | |
OPERATING ACTIVITIES: | |
| | | |
| | | |
| | |
Net loss | |
$ | (3,938,712 | ) | |
$ | 424,885 | | |
$ | (3,513,827 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | | |
| | |
Change in contingent consideration | |
| - | | |
| (424,885 | ) | |
| (424,885 | ) |
Net cash used in operating activities | |
| (2,024,504 | ) | |
| - | | |
| (2,024,504 | ) |
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES: | |
| | | |
| | | |
| | |
Acquisitions through issuance of common stock | |
| 6,610,184 | | |
| (6,610,184 | ) | |
| - | |
Contingent consideration resulting from acquisitions | |
| - | | |
| 4,618,508 | | |
| 4,618,508 | |
Equity resulting from acquisitions | |
| - | | |
| 1,601,678 | | |
| 1,601,678 | |
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
| |
As Previously
Reported | | |
Adjustment | | |
As Restated | |
Shares issued to acquired businesses | |
| 1,699,796 | | |
| (1,287,529 | ) | |
| 412,267 | |
Common Stock | |
$ | 1,700 | | |
$ | (1,288 | ) | |
$ | 412 | |
Additional paid-in capital | |
| 6,218,485 | | |
| (4,617,219 | ) | |
| 1,601,266 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
| |
As Previously Reported | | |
Adjustment | | |
As Restated | |
| |
| | |
| | |
| |
| |
Three Months | | |
Nine Months | | |
Three Months | | |
Nine Months | | |
Three Months | | |
Nine Months | |
| |
Ended September | | |
Ended September | | |
Ended September | | |
Ended September | | |
Ended September | | |
Ended September | |
| |
30, 2014 | | |
30, 2014 | | |
30, 2014 | | |
30, 2014 | | |
30, 2014 | | |
30, 2014 | |
Net loss | |
$ | (3,265,639 | ) | |
$ | (3,938,712 | ) | |
$ | 424,885 | | |
$ | 424,885 | | |
$ | (2,840,754 | ) | |
$ | (3,513,827 | ) |
Foreign currency translation adjustment | |
| (124,584 | ) | |
| 52,733 | | |
| (81,657 | ) | |
| (141,945 | ) | |
| (206,241 | ) | |
| (89,212 | ) |
Comprehensive Loss | |
| (3,390,223 | ) | |
| (3,885,979 | ) | |
| 343,228 | | |
| 282,940 | | |
| (3,046,995 | ) | |
| (3,603,039 | ) |
The accompanying unaudited condensed consolidated
financial statements have been prepared by MTBC in accordance with accounting principles generally accepted in the United States
of America (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they
do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the
Company’s management, the accompanying unaudited condensed consolidated 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 September
30, 2014, the results of operations for the three and nine months ended September 30, 2014 and 2013 and cash flows for the nine
months ended September 30, 2014 and 2013. The results of operations for the three and nine months ended September 30, 2014 and
2013 are not necessarily indicative of the results to be expected for the full year. When preparing financial statements in conformity
with GAAP, we 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
The condensed consolidated balance sheet as
of December 31, 2013 was derived from our audited consolidated financial statements. The accompanying unaudited condensed consolidated
financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the
year ended December 31, 2013, which are included in the Company’s prospectus dated July 22, 2014, filed with the Securities
and Exchange Commission (“SEC”) on July 23, 2014.
On April 4, 2014, the Company split its common
stock 8.65 shares for one. All share and per share amounts have been adjusted for the stock split effective April 4, 2014. All
share data information presented within the condensed consolidated financial statements gives effect to the stock split.
Initial Public Offering Costs —
Initial public offering costs consist primarily of professional fees, principally of legal and accounting costs, and other costs
such as printing and registration costs incurred in connection with the IPO. The Company incurred approximately $4.1 million of
costs directly attributable to the IPO, including $1.4 million of underwriting discounts. These costs were offset against the
offering proceeds in the Company’s condensed consolidated financial statements for the period ended September 30, 2014.
Recent Accounting Pronouncements —
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and
are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently adopted
and recently issued accounting pronouncements will not have a material impact on our consolidated financial position, results
of operations, and cash flows.
In June
2014, the FASB
issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue
from Contracts with Customers,” which contains authoritative guidance
that implements a
common revenue model
that will
enhance comparability across
industries and require
enhanced disclosures. The
new standard
introduces a five-step
principles-based process
to determine the
timing and amount
of revenue ultimately
expected to be
received by the
customer. This
amendment will
be effective
for the Company’s
interim and annual
consolidated financial statements
for the year ended December 31, 2018
with either
retrospective or modified retrospective
treatment applied. The
Company is currently evaluating
the impact that this
guidance may have
on the condensed consolidated
financial statements
upon implementation. Early adoption is not permitted.
In July 2013, the FASB issued ASU No. 2013-11,
“Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar
Tax Loss, or a Tax Credit Carryforward Exists”. This amendment clarifies the guidance on the presentation of an unrecognized
tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for
a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. ASU No. 2013-11 is effective for fiscal periods
beginning after December 15, 2013. The Company’s adoption of this guidance did not have a material impact on the condensed
consolidated financial statements.
On July 28, 2014, the Company completed the
acquisition of three revenue cycle management companies, Omni Medical Billing Services, LLC (“Omni”), Practicare Medical
Management, Inc. (“Practicare”) and CastleRock Solutions, Inc. (“CastleRock”; and collectively with Omni
and Practicare, the “Acquired Businesses”). The Company expects that these acquisitions will add a significant number
of clients to the Company’s customer base and similar to other acquisitions, will broaden the Company’s presence in
the healthcare information technology industry through geographic expansion of its customer base and by increasing available customer
relationship resources and specialized trained staff.
Subsequent to the acquisition, the Company
agreed to accept 10% of the cash collected related to July 2014 revenue and pay 10% of the July 2014 expenses for July 2014 for
two of the Acquired Businesses and to forego any collections related to July 2014 revenue and pay no expenses related to July
2014 for the remaining Acquired Business.
The aggregate preliminary purchase price for
the Acquired Businesses amounted to approximately $17.8 million, based on the common stock price of $3.89 per share, consisting
of cash in the amount of approximately $11.4 million, which was funded from the net proceeds from the Company’s IPO on that
date and 1,699,796 shares of common stock with a fair value of approximately $6.2 million based on the common stock price, subject
to certain adjustments. Included in the consideration paid is $590,302 of cash and 1,699,796 shares of common stock with a value
of approximately $6.6 million that the Company deposited into escrow under the purchase agreements, less a fair value adjustment
of $390,000 which reflects the estimated value of shares in escrow which might be forfeited by the Acquired Businesses based on
changes in revenue during the 12 months after the acquisitions. The cash escrow will be released 120 days after the acquisitions
were completed, unless required to satisfy certain indemnification claims. 254,970 shares will be released to the sellers after
six months, 157,298 shares will be released after nine months, and the remaining shares will be released after 12 months, subject
to adjustments for changes in revenue.
With respect to Omni, following the closing
date an upward purchase price adjustment was made to the cash consideration payable to Omni to pay for the annualized revenue
from new customers who executed one-year contracts prior to the closing, instead of the trailing 12 months’ revenue. This
resulted in additional consideration of $100,582 and 15,700 shares, which are included in the amounts above.
The difference between the Acquired Businesses’
operating results for the period July 28 through 31, 2014 and the amount of net funds received by the Company from the previous
owners for that period was accounted for as additional preliminary purchase price (“Acquired Backlog”). This intangible
(approximately $148,000) was fully amortized from the date of acquisition to September 30, 2014. This amortization is included
in depreciation and amortization in the condensed consolidated statements of operations for the three and nine months ended September
30, 2014.
Under each purchase agreement, the Company
may be required to issue or entitled to cancel shares issued to the Acquired Businesses in the event acquired customer revenues
for the 12 months following the close are below or above a specified threshold. In the case of Practicare, the Company may also
be required to make an additional cash payment, in the event post-closing revenues from customers acquired exceed a specified
threshold.
The adjustments to the contingent consideration
for each of the Acquired Businesses will be based on the revenues generated from the acquired customers in the 12 months following
the closing, as compared to the revenues generated by each of the Acquired Businesses in the four quarters ended March 31, 2014.
For each of Omni, Practicare and CastleRock,
no adjustment will be made unless the variance is greater than 10%, 5% and 20%, respectively.
For each of the Acquired Businesses, the number
of shares to be cancelled or issued as applicable will be calculated using a pre-determined formula in each of the purchase agreements.
As of the acquisition date, the Company recorded
$4.6 million as the preliminary fair value of the contingent consideration liability as additional purchase price. During the
three and nine months ended September 30, 2014, the Company recorded a fair value reduction of $425,000 to the contingent consideration
primarily due to a decrease in the Company’s stock price. Subsequent adjustments to the fair value of the contingent consideration
liability will continue to be recorded in the Company’s results of operations. The portion of purchase price paid with the
Company’ common stock that is not contingent upon achieving specified revenue targets has been recorded in equity.
If the performance measures required by the
2014 purchase agreements are not achieved, the Company may pay less than the recorded amount, depending on the terms of the agreement.
If the price of the Company’s common stock increases, the Company may pay more than the recorded amount. Settlements will
be exclusively in the form of the Company’s common stock.
As part of the acquisitions, the Company entered
into short-term employee, office space and equipment customer lease agreements with each of the respective Acquired Businesses.
These arrangements allow the Company to utilize certain personnel from the Acquired Businesses, as well as certain space and equipment
located at the Acquired Business’ premises for a negotiated period of time.
As of the date of this Quarterly Report on
Form 10-Q and in accordance with the terms set forth in the purchase agreements, the preliminary purchase price and purchase price
allocation as it relates to the tangible and intangible assets acquired and goodwill have not been finalized. The preliminary
purchase price is expected to be finalized by the end of the first quarter in 2015. The following table summarizes the preliminary
consideration and the allocation of the purchase price to the net assets acquired:
| |
Common Stock | | |
| | |
Acquired | | |
Contingent
Consideration | | |
Total | |
| |
Shares | | |
Value | | |
Cash | | |
Backlog | | |
Adjustment | | |
Consideration | |
| |
(in thousands) | |
Omni | |
| 1,049 | | |
$ | 4,079 | | |
$ | 6,655 | | |
$ | 103 | | |
$ | (129 | ) | |
$ | 10,708 | |
Practicare | |
| 292 | | |
| 1,137 | | |
| 2,394 | | |
| 17 | | |
| (260 | ) | |
| 3,288 | |
CastleRock | |
| 359 | | |
| 1,395 | | |
| 2,339 | | |
| 28 | | |
| (1 | ) | |
| 3,761 | |
Total | |
| 1,700 | | |
$ | 6,611 | | |
$ | 11,388 | | |
$ | 148 | | |
$ | (390 | ) | |
$ | 17,757 | |
We engaged a third-party valuation specialist
to assist the Company in valuing the assets from our acquisition of the Acquired Businesses. The results of the valuation analysis
are presented below:
Customer contracts and relationships | |
$ | 8,943,000 | |
Non-compete agreements | |
| 971,000 | |
Tangible assets | |
| 61,256 | |
Acquired backlog | |
| 148,408 | |
Goodwill | |
| 7,633,159 | |
Total purchase consideration | |
$ | 17,756,823 | |
The weighted average amortization period of
the intangible assets is three years.
The fair value of the customer relationships
was established using a form of the income approach known as the excess earnings method. Under the excess earnings method, value
is estimated as the present value of the benefits anticipated from ownership of the subject intangible asset in excess of the
returns required on the investment in the contributory assets necessary to realize those benefits. The fair value of the
non-compete agreements were determined based on the difference in the expected cash flows for the business with the non-compete
agreement in place and without the non-compete agreement in place.
The goodwill is deductible ratably for income
tax purposes over 15 years and represents the Company’s ability to have a local presence in several markets throughout the
United States and the further ability to expand in those markets.
The revenue from former customers of Acquired
Businesses whose contracts were acquired has been included in the Company’s condensed consolidated statement of operations
since the date of acquisition. Revenues of $3,635,033 related to Acquired Businesses are included in the condensed consolidated
statements of operations for the three and nine months ended September 30, 2014.
Transaction-related costs associated with
the acquisitions of the Acquired Businesses of $627,136 and $704,638 during the three and nine months ended September 30, 2014,
respectively, and $51,175 for the nine months ended September 30, 2013, were expensed as incurred, and included in general and
administrative expenses in the condensed consolidated statements of operations.
Metro Medical Management Services Acquisition
Effective at the close of business on June
30, 2013, the Company executed an Asset Purchase Agreement (the “Agreement”) to acquire Metro Medical Management Services,
Inc. (“Metro Medical”). Metro Medical is a New York-based company that offers full-scale revenue cycle management
services to small-to-medium sized healthcare practices. Metro Medical broadened the Company’s presence in the healthcare
information technology industry through geographic expansion of its customer base and by increasing available marketing resources
and specialized trained staff. Under the terms of the Agreement, the Company paid cash consideration of $275,000 at closing and
issued a promissory note to Metro Medical for $1,225,000. The principal amount of the promissory note is payable in monthly installments
over a twenty-four month period from September 2013, and bears interest at the rate of 5% per year.
Cash paid on date of acquisition | |
$ | 275,000 | |
Promissory note payable to Metro Medical | |
| 1,225,000 | |
Total purchase consideration | |
$ | 1,500,000 | |
Under purchase price accounting, we recognize
the assets and liabilities acquired at their fair value on the acquisition date, with any excess in purchase price over these
values being allocated to goodwill.
We engaged a third-party valuation specialist
to assist the Company in valuing the assets from our acquisition of Metro Medical. The results of the valuation are presented
below:
Customer contracts and relationships | |
$ | 904,000 | |
Non-compete agreement | |
| 252,000 | |
Goodwill | |
| 344,000 | |
| |
$ | 1,500,000 | |
The revenue from former customers of Metro
Medical whose contracts were acquired has been included in the Company’s statement of operations for each reporting period
since the date of acquisition. Revenues of approximately $499,974 and $1,702,662 related to Metro Medical are included in the
condensed consolidated statements of operations for the three months and nine months ended September 30, 2014, respectively.
Transaction-related costs associated with
the acquisition of Metro Medical of approximately $111,500 and $181,500 during the three and nine months ended September 30, 2013,
respectively were expensed as incurred, and included in general and administrative expenses in the condensed consolidated statements
of operations.
The pro forma information below represents
condensed consolidated results of operations as if the acquisition of the Acquired Businesses occurred on January 1, 2013 and
Metro Medical occurred on January 1, 2012. The pro forma information has been included for comparative purposes and is not indicative
of results of operations of the Company had the acquisitions occurred on the above respective dates, nor is it necessarily indicative
of future results. For Metro Medical and each of the Acquired Businesses, we have identified revenue from customers who cancelled
their contracts prior to MTBC’s acquisition of such customers’ contracts. Such revenue is excluded from the pro forma
information below, since MTBC did not pay for these customers and will not generate revenues from those customers. The 2014 pro
forma net (loss) was adjusted in exclude $29,000 and $134,000 of acquisition-related costs incurred during the three and nine
months ended September 30, 2014. The 2013 pro forma net loss for the three and nine months ended September 30, 2013 was adjusted
to include these charges. The pro forma net loss for the three and nine months ended September 30, 2014 includes the effect of
the change in the contingent consideration of $425,000.
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
| | |
| |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Total revenue | |
$ | 7,359,464 | | |
$ | 7,622,033 | | |
$ | 22,110,379 | | |
$ | 22,357,301 | |
Net (loss) | |
$ | (2,351,144 | ) | |
$ | (1,629,098 | ) | |
$ | (4,821,622 | ) | |
$ | (6,011,913 | ) |
Net (loss) per share | |
$ | (0.28 | ) | |
$ | (0.32 | ) | |
$ | (0.78 | ) | |
$ | (1.18 | ) |
| 5. | Intangible Assets – NET |
Intangible assets-net as of September 30,
2014 and December 31, 2013 consist of the following:
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
Contracts and relationships acquired | |
$ | 11,882,988 | | |
$ | 2,939,988 | |
Non-compete agreements | |
| 1,252,272 | | |
| 281,272 | |
Software purchased | |
| 44,348 | | |
| 85,588 | |
Total intangible assets | |
| 13,179,608 | | |
| 3,306,848 | |
Less: accumulated amortization | |
| (3,189,386 | ) | |
| (1,772,068 | ) |
Intangible assets - net | |
$ | 9,990,222 | | |
$ | 1,534,780 | |
Amortization expense was $1,620,528 and $496,462
for the nine months ended September 30, 2014 and 2013, respectively, and $1,185,890 and $254,287 for the three months ended September
30, 2014 and 2013, respectively. The weighted-average amortization period is three years.
As of September 30, 2014, future amortization expense scheduled
to be expensed is as follows:
Years Ending | |
| |
December 31 | |
| |
2014 (three months) | |
$ | 1,037,392 | |
2015 | |
| 3,828,395 | |
2016 | |
| 3,470,547 | |
2017 | |
| 1,653,888 | |
Total | |
$ | 9,990,222 | |
Financial Risks — As of September
30, 2014 and December 31, 2013, the Company held Pakistani rupees of 83,616,623 (approximately USD $815,772) and Pakistani rupees
of 46,232,463 (approximately USD $440,309), respectively, in the name of its subsidiary at a bank in Pakistan. Funds are wired
to Pakistan near the end of each month to cover payroll at the beginning of the next month and operating expenses throughout the
month. The banking system in Pakistan does not provide deposit insurance coverage. Additionally, from time to time, the Company
maintains cash balances at financial institutions in the United States of America in excess of federal insurance limits. The Company
has not experienced any losses on such accounts.
Concentrations of credit risk with respect
to trade accounts receivable are managed by periodic credit evaluations of customers. The Company does not require collateral
for outstanding trade accounts receivable. No one customer accounts for a significant portion of the Company’s trade accounts
receivable portfolio and write-offs have been minimal. During the nine months ended September 30, 2014, there were no customers
with sales of 3% or more of the total.
Geographical Risks — The Company’s
offices in Islamabad and Bagh, Pakistan, conduct significant back-office operations for the Company. The Company has no revenue
earned outside of the United States of America. The office in Bagh is located in a different territory of Pakistan from the Islamabad
office. The Bagh office was opened in 2009 for the purpose of providing operational support and operating as a backup to the Islamabad
office. The Company’s operations in Pakistan are subject to special considerations and significant risks not typically associated
with companies in the United States. The Company’s business, financial condition and results of operations may be influenced
by the political, economic, and legal environment in Pakistan and by the general state of Pakistan’s economy. The Company’s
results may be adversely affected by, among other things, changes in governmental policies with respect to laws and regulations,
changes in Pakistan’s telecommunications industry, regulatory rules and policies, anti-inflationary measures, currency conversion
and remittance abroad, and rates and methods of taxation.
Carrying amounts of net assets located in
Pakistan were $888,359 and $114,997 as of September 30, 2014 and December 31, 2013, respectively. These balances exclude intercompany
receivables of $2,325,164 and $2,552,280 as of September 30, 2014 and December 31, 2013, respectively. The following is a summary
of the net assets located in Pakistan as of September 30, 2014 and December 31, 2013:
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
Current assets | |
$ | 1,100,594 | | |
$ | 529,260 | |
Non-current assets | |
| 840,877 | | |
| 448,397 | |
| |
| 1,941,471 | | |
| 977,657 | |
Current liabilities | |
| (1,051,480 | ) | |
| (859,062 | ) |
Non-current liabilities | |
| (1,632 | ) | |
| (3,598 | ) |
| |
$ | 888,359 | | |
$ | 114,997 | |
The following table reconciles the weighted-average shares outstanding
for basic and diluted net loss per share for the three and nine months ended September 30, 2014 and 2013:
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Basic: | |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (2,840,754 | ) | |
$ | (138,022 | ) | |
$ | (3,513,827 | ) | |
$ | (268,035 | ) |
Weighted-average shares used in computing basic earnings per share | |
| 8,358,718 | | |
| 5,101,770 | | |
| 6,199,350 | | |
| 5,101,770 | |
Net loss per share - Basic | |
$ | (0.34 | ) | |
$ | (0.03 | ) | |
$ | (0.57 | ) | |
$ | (0.05 | ) |
Diluted: | |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (2,840,754 | ) | |
$ | (138,022 | ) | |
$ | (3,513,827 | ) | |
$ | (268,035 | ) |
Weighted-average shares used in computing diluted earnings per share | |
| 8,358,718 | | |
| 5,101,770 | | |
| 6,199,350 | | |
| 5,101,770 | |
Net loss per share - Diluted | |
$ | (0.34 | ) | |
$ | (0.03 | ) | |
$ | (0.57 | ) | |
$ | (0.05 | ) |
During the three and nine months ended September
30, 2014, 171,000 and 388,500 restricted share units (“RSUs”) respectively, were granted and have been excluded from
the above calculation as they were anti-dilutive. The net loss per share - basic excludes 1,287,529 of contingently issuable shares.
The net loss per share - diluted does not include any contingently issuable shares as the effect would be dilutive and no shares
would be released based on the revenue to date generated by the Acquired Businesses.
Revolving Line of Credit
— The Company has an agreement with TD Bank for a revolving line of credit maturing on November 30, 2015 for up to $1,215,000.
The line of credit has a variable rate of interest per annum at the Wall Street Journal prime rate plus 1% (4.25% as of September
30, 2014 and December 31, 2013). The line of credit is collateralized by all of the Company’s assets and is guaranteed by
the CEO of the Company. The outstanding balance as of September 30, 2014 and December 31, 2013 was $1,200,000 and $1,015,000,
respectively.
Santander Bank (formerly Sovereign Bank)
Loan Agreement — The Company had a term loan, originally established to provide the Company revolving advances up to
$100,000, with an interest rate of 7.74% per annum. The term loan was repaid during the quarter ended September 30, 2014. The
amount outstanding under this term loan was $11,667 as of December 31, 2013.
Convertible Note — On September
23, 2013, the Company issued a convertible promissory note in the amount of $500,000 to an accredited investor, AAMD LLC, with
a maturity date of March 23, 2016, and bearing interest at the rate of 7.0% per annum. Pursuant to the terms of the note, the
principal and interest outstanding thereunder automatically converted into 117,567 shares of common stock upon the closing of
the IPO at a conversion price equal to 90% of the per-share issuance price of the common stock in the IPO. This conversion resulted
in additional common stock and paid in capital amounts of $118 and $587,717, respectively, at the conversion date. Interest and
other expense of $51,809 and $77,263 were recorded in connection with this convertible note for the three and nine months ended
September 30, 2014, respectively, and are included in interest expense and other income (expense)-net in the condensed consolidated
statements of operations.
As of December 31, 2013, the carrying value
of the convertible note payable was $472,429, including $11,767 of accrued interest.
The Company reviewed the terms of convertible
debt and equity instruments issued to determine whether there are embedded derivative instruments, including embedded conversion
options that are required to be bifurcated and accounted for separately as a derivative financial instrument. The automatic conversion
feature of this promissory note has the economic characteristics of a contingent redemption because the total fair value of shares
delivered to settle this feature will always be equal to a fixed amount regardless of the IPO price. Consequently, in substance,
the automatic conversion feature has the economic characteristics of a contingent early redemption of the convertible note using
shares rather than cash (i.e., stock-settled debt), and represents an embedded derivative instrument under Accounting Standards
Codification 815-15-25 that is required to be accounted for separately from the debt instruments.
The Company accounted for the automatic conversion
feature as a derivative liability to be recorded at fair value at each reporting period. The fair value of the automatic conversion
feature at December 31, 2013 was estimated to be $38,142 and is included in other long-term liabilities on the condensed consolidated
balance sheet at that date.
Maturities of notes payable as of September
30, 2014 are as follows:
Year Ending December 31 | |
Liability Against
Assets Subject to Finance Lease | | |
Metro Medical | | |
Loan from Related
Party | | |
Bank Direct Capital
Finance | | |
Honda Financial Services | | |
Total | |
2014 (three months) | |
$ | 1,786 | | |
$ | 154,662 | | |
$ | - | | |
$ | 97,211 | | |
$ | 904 | | |
$ | 254,563 | |
2015 | |
| 2,632 | | |
| 421,989 | | |
| 470,089 | | |
| 156,893 | | |
| 5,926 | | |
| 1,057,529 | |
2016 | |
| 1,053 | | |
| - | | |
| - | | |
| - | | |
| 6,192 | | |
| 7,245 | |
Thereafter | |
| - | | |
| - | | |
| - | | |
| - | | |
| 19,092 | | |
| 19,092 | |
Total | |
$ | 5,471 | | |
$ | 576,651 | | |
$ | 470,089 | | |
$ | 254,104 | | |
$ | 32,114 | | |
$ | 1,338,429 | |
| 9. | Commitments and Contingencies |
Legal Proceedings — The Company
is subject to legal proceedings and claims which have arisen in the ordinary course of business and have not been fully adjudicated.
These actions, when ultimately concluded and determined, will not, in the opinion of management, have a material adverse effect
upon the condensed consolidated financial position, results of operations, or cash flows of the Company.
At December 31, 2013, the Company had accrued
a liability of $161,137 for a referral fee payable to a former owner of Sonix Medical Technologies, Inc. During the nine months
ended September 30, 2014, the Company agreed to settle the liability for $55,614 and reversed an accrued expense of $105,523,
which reduced general and administrative expenses in the condensed consolidated statements of operations.
Leases — The Company leases certain
office space and other facilities under operating leases expiring through 2021.
Future minimum lease payments under non-cancelable
operating leases with related parties as of September 30, 2014 are as follows (leases with non-related parties are all cancellable):
Years Ending | |
| |
December 31 | |
Total | |
2014 (three months) | |
$ | 39,385 | |
2015 | |
| 72,750 | |
2016 | |
| 75,750 | |
2017 | |
| 58,500 | |
Total | |
$ | 246,385 | |
Total rental expense, included in direct operating
costs and general and administrative expense in the condensed consolidated statements of operations, including amounts for related
party leases described in Note 10, amounted to $492,578 and $311,023 for the nine months ended September 30, 2014 and 2013, respectively,
and $284,313 and $108,654 for the three months ended September 30, 2014 and 2013, respectively.
Acquisitions — In connection
with the acquisition of the Acquired Businesses, contingent consideration is payable in the form of common stock during the third
quarter of 2015. If the performance measures are not achieved, the Company may pay less than the recorded amount, depending on
the terms of the arrangement. If the price of the Company’s common stock increases, the Company may pay more than the recorded
amount.
In February 2013, the CEO advanced a loan
of $1,000,000 to the Company, of which a portion was used to repay the outstanding balance on the revolving credit line with TD
Bank; $470,089 and $735,680 was outstanding on this loan as of September 30, 2014 and December 31, 2013, respectively. The loan
bears an annual interest rate of 7.0%. The total principal and outstanding interest are due upon maturity of the loan on July
5, 2015. The Company recorded interest expense on the loan from the CEO of $36,735 and $41,907 for the nine months ended September
30, 2014 and 2013, respectively, and $11,197 and $15,703 for the three months ended September 30, 2014 and 2013, respectively.
During the nine months ended September 30, 2014, the Company paid principal amount of $265,591 and accrued interest of $55,807.
During the nine months ended September 30,
2014, the CEO advanced the Company $165,000 toward IPO expenses, all of which was repaid during the same period.
The Company had sales to a related party,
a physician who is related to the CEO. Revenue from this customer was approximately $14,583 and $12,077 for the nine months ended
September 30, 2014 and 2013, respectively, and $4,523 and $3,924 for the three months ended September 30, 2014 and 2013, respectively.
As of September 30, 2014 and December 31, 2013, the receivable balance due from this customer was $1,572 and $1,746, respectively.
The Company is a party to a nonexclusive aircraft
dry lease agreement with Kashmir Air, Inc. (“KAI”), which is owned by the CEO. The Company recorded expenses
of $96,300 for both the nine months ended September 30, 2014 and 2013, respectively, and $32,100 for both the three months ended
September 30, 2014 and 2013, respectively. As of September 30, 2014 and December 31, 2013, the Company had a liability outstanding
to KAI of $91,124 and $37,789, respectively.
The Company leases its corporate offices in
New Jersey and its backup operations center in Bagh, Pakistan, from the CEO. The related party rent expense for the nine months
ended September 30, 2014 and 2013 was $83,568 and $84,471, respectively, and $27,898 and $26,906 for the three months ended September
30, 2014 and 2013, respectively, and is included in direct operating costs and general and administrative expense in the condensed
consolidated statements of operations. Current assets-related party on the condensed consolidated balance sheets includes security
deposits related to the leases of the Company’s corporate offices in the amount of $13,200 as of September 30, 2014 and
December 31, 2013, respectively. Other assets include prepaid rent that has been paid to the CEO in the amount of $10,640 as of
December 31, 2013.
The CEO of the Company guaranteed the Company’s
existing line of credit with the TD Bank and the loan with Santander Bank (see Note 8).
The Company advanced $1,000 and $365,000 to
the CEO during the nine months ended September 30, 2014 and 2013, respectively. The CEO repaid $1,000 and $280,209 during the
nine months ended September 30, 2014 and 2013, respectively. In addition, the Company previously advanced $1,463 to a contractor
in Pakistan, on behalf of the CEO. This amount is shown on the Company’s condensed consolidated cash flow statement as an
advance to the CEO, and was repaid during the three months ended September 30, 2014.
| 11. | Employee Benefit PlanS |
The Company has a qualified 401(k) plan
covering all U.S. employees who have completed three months of service. The plan provides for matching contributions by the Company
equal to 100% of the first 3% of the qualified compensation, plus 50% of the next 2%. Employer contributions to the plan for the
nine months ended September 30, 2014 and 2013 were $90,559 and $10,799, respectively, and $63,510 and $5,167 for the three months
ended September 30, 2014 and 2013, respectively.
Additionally, the Company has a defined contribution
retirement plan covering all employees located in Pakistan who have completed 90 days of service. The plan provides for monthly
contributions by the Company which are the lower of 10% of qualified employees’ basic monthly compensation or 750 Pakistani
rupees. The Company’s contributions for nine months ended September 30, 2014 and 2013 were $65,692 and $58,142, respectively,
and $22,852 and $18,883 for the three months ended September 30, 2014 and 2013, respectively.
| 12. | STOCK-BASED COMPENSATION |
In April 2014, the Company adopted the Medical
Transcription Billing, Corp. 2014 Equity Incentive Plan (the “2014 Plan,”), reserving a total of 1,351,000 shares
of common stock for grants to employees, officers, directors and consultants. Permissible awards include incentive stock options,
non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock and cash settled
awards and other stock-based awards in the discretion of the Compensation Committee, including unrestricted stock grants.
During September 2014, the Company awarded
171,000 restricted stock units (“RSUs”) in the aggregate under the 2014 Plan to its four independent directors, two
named officers and six employees. During April 2014, the Company awarded 217,500 RSUs in the aggregate under the 2014 Plan to
two named executive officers and three of its independent directors. One third of these RSUs will vest annually over three years
as long as the employee or executive continues to be employed by the Company on the applicable vesting date or the director remains
a member of the Company’s Board of Directors. As a result, the Company recognized stock-based compensation cost beginning
in April 2014. The Company’s policy election for these graded-vesting RSUs is to recognize compensation expense on a straight-line
basis over the total requisite service period for the entire award.
Effective September 15, 2014, the Compensation
Committee of the Board of Directors authorized an additional 125,000 RSUs in the aggregate that will vest ratably beginning in
the fourth quarter of 2014 through the third quarter of 2015 based on whether certain performance measures are attained in each
of those quarters. Shares that do not vest in any quarter because the performance measures were not attained are forfeited. No
expense was recorded in the third quarter of 2014 related to these performance based RSUs.
The RSUs, other than the performance-based
RSUs, contain a provision in which the units shall immediately vest and become converted into the right to receive a cash payment
payable on the original vesting date after a change in control as defined in the award agreement.
The market price of our common stock on the
date of grant for the RSUs awarded in September 2014 was $3.83 and was used in recording the fair value of the award. We engaged
a third-party valuation specialist to assist us in valuing the RSUs granted in April 2014, who determined the fair value of the
RSUs was $3.60 per share at the time of grant. The aggregate compensation cost for RSUs recorded under the stock-based compensation
plans was $75,396 and $137,550 for the three and nine months ended September 30, 2014, respectively.
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Stock-based compensation charged to Condensed Consolidated Statements of Operations: | |
| | | |
| | | |
| | | |
| | |
Direct operating costs | |
$ | 754 | | |
$ | - | | |
$ | 754 | | |
$ | - | |
General and administrative | |
| 74,642 | | |
| - | | |
| 136,796 | | |
| - | |
Total stock-based compensation expense | |
$ | 75,396 | | |
$ | - | | |
$ | 137,550 | | |
$ | - | |
For the three and nine months ended September
30 2013, the Company estimated its effective income tax rate based upon the annual projected pre-tax loss. Although the Company
is forecasting a return to profitability, it incurred cumulative losses which make realization of a deferred tax asset difficult
to support in accordance with ASC 740. Accordingly, a valuation allowance has been recorded against all federal deferred tax assets
as of September 30, 2014. This resulted in a federal tax provision of $474,091 and $157,435 for the three and nine months ended
September 30, 2014, respectively.
The Company’s plan to repatriate
earnings in Pakistan to the United States requires that U.S. Federal taxes be provided on the Company’s earnings in Pakistan.
For state tax purposes, the Company’s Pakistan earnings generally are not taxed due to a subtraction modification available
in most states. As a result, the Company has reported cumulative losses at the state level for the last three years, and has determined
that it is more likely than not that it will not be able to utilize its state deferred tax assets. A valuation allowance has been
recorded against all state deferred tax assets as of September 30, 2014.
| 14. | OTHER INCOME (EXPENSE)
– NET |
Other income (expense)-net for the three
and nine months ended September 30, 2014 and 2013 consisted of the following:
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Foreign exchange gains (losses) | |
$ | 112,764 | | |
$ | 131,652 | | |
$ | (74,006 | ) | |
$ | 218,297 | |
Other | |
| (36,493 | ) | |
| 3,263 | | |
| (34,656 | ) | |
| 17,560 | |
Other income (expense) - net | |
$ | 76,271 | | |
$ | 134,915 | | |
$ | (108,662 | ) | |
$ | 235,857 | |
Foreign currency transaction gains (losses)
result from transactions related to the intercompany receivable for which transaction adjustments are recorded in the condensed
consolidated statements of operations as they are not deemed to be permanently reinvested. An increase in the exchange rate of
Pakistan rupees per U.S. dollar in the third quarter of 2014 of approximately 3% and a decline in the exchange rate by approximately
3% from December 31, 2013 to September 30, 2014 caused a foreign exchange gain of $112,764 and a foreign exchange
loss of $74,006 for the three months and nine months ended September 30, 2014, respectively. An increase in the exchange rate
of Pakistan rupees per U.S. dollar by 9% from December 31, 2012 to September 30, 2013, caused a foreign exchange
gain of $131,652 and $218,297 for the three and nine months ended September 30, 2013, respectively.
| 15. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
As of September 30, 2014 and December
31, 2013, the carrying amounts of cash, receivables, accounts payable and accrued expenses approximated their estimated fair values
because of the short term nature of these financial instruments.
The following table summarizes the Company’s
financial instruments that are not measured at fair value on a recurring basis by fair value hierarchy as of September 30, 2014
and December 31, 2013:
| |
Carrying Value at | | |
Fair Value as of September 30, 2014, using, | |
| |
September 30, 2014 | | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Financial Assets | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash | |
$ | 2,493,652 | | |
$ | 2,493,652 | | |
$ | - | | |
$ | - | | |
$ | 2,493,652 | |
Financial Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Borrowings under line of credit | |
| 1,200,000 | | |
| - | | |
| 1,200,000 | | |
| - | | |
| 1,200,000 | |
Notes payable - Other(1) | |
| 868,340 | | |
| - | | |
| - | | |
| 873,500 | | |
| 873,500 | |
| |
Carrying Value at | | |
Fair Value as of December 31, 2013, using, | |
| |
December 31, 2013 | | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Financial Assets | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash | |
$ | 497,944 | | |
$ | 497,944 | | |
$ | - | | |
$ | - | | |
$ | 497,944 | |
Financial Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Borrowings under line of credit | |
| 1,015,000 | | |
| - | | |
| 1,015,000 | | |
| - | | |
| 1,015,000 | |
Notes payable - Other(1) | |
| 1,341,691 | | |
| - | | |
| - | | |
| 1,349,308 | | |
| 1,349,308 | |
Convertible note | |
| 472,429 | | |
| - | | |
| - | | |
| 473,042 | | |
| 473,042 | |
(1) Excludes note payable to the CEO.
Note Payable-Related Party - The
CEO advanced a loan of $1,000,000 to the Company, of which $470,089 and $735,680 was outstanding as of September 30, 2014 and
December 31, 2013, respectively. The loan bears an annual interest rate of 7.0%. The total principal and cumulative interest are
due upon maturity of the loan on July 5, 2015. The fair value of related party transactions, including note payable to the CEO,
cannot be determined based upon the related party nature of the transaction.
Borrowings under Revolving Line of
Credit – The Company’s outstanding borrowings under the line of credit with TD Bank had a carrying value of $1,200,000
and $1,015,000 as of September 30, 2014 and December 31, 2013, respectively. The fair value of the outstanding borrowings under
the line of credit with TD Bank approximated the carrying value at September 30, 2014 and December 31, 2013, respectively, as
these borrowings bear interest based on prevailing variable market rates currently available. As a result, the Company categorizes
these borrowings as Level 2 in the fair value hierarchy.
Notes Payable-Other – Notes
payable-other consists of fixed rate term loans from TD Bank, Santander Bank, Bank Direct Capital Finance, auto loans and promissory
notes from prior acquisitions.
The fixed interest-bearing term loans
had an aggregate carrying value of $254,104 (Bank Direct Capital Finance) and $11,667 (Santander Bank) as of September 30, 2014
and December 31, 2013, respectively. Collectively, the fair value of these term loans was approximately $257,788 (Bank Direct
Capital Finance) and $11,801 (Santander Bank) at September 30, 2014 and December 31, 2013, respectively, and is categorized as
Level 3 in the fair value hierarchy. The fair value of the term loans was determined based on internally-developed valuations
that use current interest rates in developing a present value of these term loans. The outstanding fixed interest bearing auto
loans had a carrying value of $37,585 and $13,279 as of September 30, 2014 and December 31, 2013, respectively. The fair value
of these auto loans was approximately $36,917 and $12,485 at September 30, 2014 and December 31, 2013, respectively, and is categorized
as Level 3 in the fair value hierarchy. The fair value of the auto loans was determined based on internally-developed valuations
that use current interest rates in developing a present value of these notes payable.
The Company issued fixed interest-bearing
notes payable to the former owners of UPMS, GNet, MM, Metro Medical and Sonix Medical Technologies, Inc. The aggregate carrying
value of these notes payable was $576,651 and $1,316,746 at September 30, 2014 and December 31, 2013, respectively. Collectively,
the fair value of these notes payable was approximately $578,795 and $1,325,022 at September 30, 2014 and December 31, 2013, respectively,
and is categorized as Level 3 in the fair value hierarchy. The fair value of the notes payable to the former owners of businesses
acquired was determined based on internally-developed valuations that use current interest rates in developing a present value
of these notes payable.
Convertible Note – The Company
issued a fixed interest bearing convertible promissory note to an accredited investor on September 23, 2013. The carrying value
of the convertible promissory note was $472,429 at December 31, 2013. The fair value of the convertible promissory note was approximately
$473,042 at December, 31, 2013, and is categorized as Level 3 in the fair value hierarchy. The fair value was determined based
on internally-developed valuations that use current interest rates in developing a present value of the convertible note.
Financial instruments measured at fair
value on a recurring basis:
The automatic conversion feature for the
convertible promissory note was measured at fair value on a recurring basis. The fair value of the automatic conversion feature
had been estimated at $38,142 at December 31, 2013, with the decrease in value recorded in the condensed consolidated statement
of operations as other expense. The fair value of the automatic conversion feature of the promissory note was measured using Level
3 inputs based on internally-developed valuations that use current interest rates and assumptions about the timing of the Company’s
IPO. At the date of the IPO, this promissory note was converted into 117,567 shares of the Company's common stock.
Contingent Consideration
The Company’s potential contingent
consideration of $4,193,622 as of September 30, 2014 relating to the 2014 acquisitions are Level 3 liabilities. The fair value
of the contingent consideration is primarily driven by the price of the Company’s common stock on the Nasdaq Capital Market,
an estimate of revenue to be recognized by the Company from the Acquired Businesses during the first twelve months after acquisition
compared to the trailing twelve months’ revenue from customers in good standing as of March 31, 2014 shown in the Company’s
prospectus dated July 22, 2014, the passage of time and the associated discount rate. If revenue from an acquisition exceeds the
trailing revenue shown in the Company’s prospectus, or the Company’s stock price exceeds the price on July 28, 2014,
the date of the acquisitions, the consideration could exceed the original estimated contingent consideration. Discount rates are
estimated by using government bond yields.
The following table provides a reconciliation
of the beginning and ending balances for the contingent consideration measured at fair value using significant unobservable inputs
(Level 3):
| |
Fair Value Measurement | |
Balance at December 31, 2013 | |
$ | - | |
Contingent consideration from 2014 acquisitions | |
| 4,618,507 | |
Change in fair value | |
| (424,885 | ) |
Balance at September 30, 2014 | |
$ | 4,193,622 | |
| 16. | Accumulated OTHER COMPREHENSIVE
LOSS |
The components of changes in accumulated
other comprehensive loss for the nine months ended September 30, 2014 are as follows:
| |
Foreign Currency
Translation Adjustment | | |
Accumulated Other
Comprehensive Loss | |
Balance - January 1, 2014 | |
$ | (187,354 | ) | |
$ | (187,354 | ) |
Other comprehensive loss during the period | |
| (89,212 | ) | |
| (89,212 | ) |
Balance - September 30, 2014 | |
$ | (276,566 | ) | |
$ | (276,566 | ) |
| Item 2. | Management’s
Discussion and Analysis of Financial Conditions and Results of Operations. |
Forward Looking Statements
This Quarterly Report on Form 10-Q/A
contains forward-looking statements. All statements other than statements of historical fact contained in this Quarterly Report
on Form 10-Q/A are forward-looking statements. These statements, among other things, relate to our business strategy, goals and
expectations concerning our products, future operations, prospects, plans and objectives of management. The words "anticipate",
"believe", "could", "estimate", "expect", "intend", "may", "plan",
"predict", "project", "will" and similar terms and phrases are used to identify forward-looking
statements in this presentation. Our operations involve risks and uncertainties, many of which are outside our control, and any
one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements
ultimately prove to be correct. Forward-looking statements in this Item 2 include, without limitation, statements reflecting
management’s expectations for future financial performance and operating expenditures, expected growth, profitability and
business outlook, increased sales and marketing expenses, and the expected results from the integration of our acquisitions.
Forward-looking statements are only
current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results,
levels of activity, performance, or achievements to be materially different from those anticipated by such statements. These factors
include the challenges of acquiring and integrating other businesses into our infrastructure; risks associated with our operations
in Pakistan and; our inability to evolve to the changes in the highly competitive industry in which we currently operate, as well
as other factors set forth in our prospectus dated July 22, 2014, filed with the SEC on July 23, 2014, under the heading, “Risk
Factors.”
Although we believe that the expectations
reflected in the forward-looking statements contained in this Quarterly Report on Form 10-Q/A are reasonable, we cannot guarantee
future results, levels of activity, performance, or achievements. Except as required by law, we are under no duty to update or
revise any of such forward-looking statements, whether as a result of new information, future events, or otherwise, after the
date of this Quarterly Report on Form 10-Q/A.
All references to “MTBC,”
“Medical Transcription Billing, Corp.,” “we,” “us,” “our” or the “Company”
mean Medical Transcription Billing, Corp. and its subsidiaries, except where it is made clear that the term means only the parent
company.
Restatement
As discussed in the Explanatory Note to
this Form 10-Q/A and in Note 2 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this
Form 10-Q/A, we are restating our condensed consolidated financial statements and related disclosures as of September 30, 2014
and for the three and nine months ended September 30, 2014. The following discussion and analysis of our financial condition and
results of operations incorporates the restated amounts.
Overview
MTBC is a healthcare information technology
company that provides a fully integrated suite of proprietary web-based solutions, together with related business services, to
healthcare providers practicing in ambulatory settings. Our integrated Software-as-a-Service (or SaaS) platform is designed to
help our customers increase revenues, streamline workflows and make better business and clinical decisions, while reducing administrative
burdens and operating costs. We employ a highly educated workforce of more than 1,600 people in Pakistan, where we believe labor
costs are approximately one-half the cost of comparable India-based employees, thus enabling us to deliver our solutions at competitive
prices.
Our flagship offering, PracticePro, empowers
healthcare practices with the core software and business services they need to address industry challenges, including the Affordable
Care Act, on one unified SaaS platform. We deliver powerful, integrated and easy-to-use ‘big practice solutions’ to
small and medium practices, which enable them to efficiently operate their businesses, manage clinical workflows and receive timely
payment for their services. PracticePro consists of:
| · | Practice management
software and related tools, which facilitate the day-to-day operation of a medical practice; |
| · | Electronic health
records (or EHR), which are easy to use, highly ranked, and allow our customers to reduce
paperwork and qualify for government incentives; |
| · | Revenue cycle
management (or RCM) services, which include end-to-end medical billing, analytics, and
related services; and |
| · | Mobile Health (or
mHealth) solutions, including smartphone applications that assist patients and healthcare
providers in the provision of healthcare services. |
Adoption of our
solutions requires only a modest upfront expenditure by a provider. Additionally, our financial performance is linked directly
to the financial performance of our clients because the vast majority of our revenues is based on a percentage of our clients'
collections. The standard fee for our complete, integrated, end-to-end solution is 5% of a practice’s healthcare-related
revenues plus a one-time setup fee, and is among the lowest in the industry.
Our growth strategy involves two approaches:
acquiring smaller RCM companies and then migrating the customers of those companies to our solutions, as well as partnering with
EHR and other vendors that lack an integrated solution and integrating our solutions with their offerings. The RCM service industry
is highly fragmented, with many local and regional RCM companies serving small medical practices. We believe that the industry
is ripe for consolidation and that we can achieve significant growth through acquisitions. We further believe that it is becoming
increasingly difficult for traditional RCM companies to meet the growing technology and business service needs of healthcare providers
without a significant investment in information technology infrastructure.
We believe we will also be able to accelerate
organic growth by partnering with industry participants, utilizing them as channel partners to offer integrated solutions to their
customers. We have recently entered into arrangements with industry participants from which we began to derive revenue starting
in mid-2014, including emerging EHR providers and other healthcare vendors that lack a full suite of solutions. We are in the
midst of developing application interfaces with two EHR systems, as well as a provider of paper-based clinical forms to create
integrated offerings.
Our Pakistan
operations accounted for approximately 48% of total expenses for the nine months ended September 30, 2013 and 34% of expenses
for the nine months ended September 30, 2014. A significant portion of those expenses were personnel-related costs (approximately
73% for the nine months ended September 30, 2013 and 78% for the nine months ended September 30, 2014). Because personnel-related
costs are significantly lower in Pakistan than in the U.S. and many other offshore locations, we believe our Pakistan operations
give us a competitive advantage over many industry participants. All of the medical billing companies that we acquired, including
Omni Medical Billing Services, LLC, Practicare Medical Management, Inc. and CastleRock Solutions, Inc. (the “Acquired Businesses”)
use domestic labor or labor from higher cost locations to provide all or a substantial portion of their services. We are able
to achieve significant cost reductions as we shift these domestic labor costs to Pakistan.
Key Performance Measures
We consider numerous
factors in assessing our performance. Key performance measures used by management, including Adjusted EBITDA, Adjusted EBITDA
Margin, Adjusted Net Income and Adjusted Net Income per Share, are non-GAAP financial measures, which we believe better enable
management and investors to analyze and compare the underlying business results from period to period.
These non-GAAP
financial measures should not be considered in isolation, or as a substitute for or superior to, financial measures calculated
in accordance with accounting principles generally accepted in the United States of America (“GAAP.”) Moreover, these
non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of our business
as determined in accordance with GAAP. We compensate for these limitations by analyzing current and future results on a GAAP basis
as well as a non-GAAP basis, and we provide reconciliations from the most directly comparable GAAP financial measures to the non-GAAP
financial measures. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other
companies, including companies in our industry, may calculate similarly titled non-GAAP financial measures differently than we
do, limiting the usefulness of those measures for comparative purposes.
Adjusted EBITDA,
Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Net Income per Share provide an alternative view of performance used
by management and we believe that an investor’s understanding of our performance is enhanced by disclosing these adjusted
performance measures.
Adjusted EBITDA
and Adjusted EBITDA Margin exclude the following elements which are included in GAAP Net Income (Loss):
| · | Adjusted
EBITDA does not reflect our income tax expense or the cash requirements to pay our taxes; |
| · | Adjusted
EBITDA does not reflect our interest expense, or the cash requirements necessary to service
interest or principal payments, on our debt; |
| · | Adjusted
EBITDA does not reflect foreign currency gains and losses, whether realized or unrealized,
and asset impairment charges and other non-cash non-operating expenditures; |
| · | Adjusted
EBITDA does not reflect the value of stock-based compensation expense; |
| · | Adjusted
EBITDA does not reflect non-cash depreciation and amortization charges, and does not
reflect any cash requirements for replacement for capital expenditures; and |
| · | Adjusted
EBITDA does not reflect nonrecurring transaction or acquisition-related costs, such as
brokerage fees, pre-acquisition accounting costs and legal fees, and certain acquisition
accounting impacts. |
| · | Adjusted
EBITDA does not reflect changes in contingent consideration. |
Set forth below is a presentation of our
“Non-GAAP Adjusted EBITDA” and “Non-GAAP Adjusted EBITDA Margin,” which represents Non-GAAP Adjusted EBITDA
as a percentage of net revenue: for the three and nine months ended September 30, 2014 compared to the three and nine months ended
September 30, 2013:
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Net Revenue | |
$ | 6,012,867 | | |
$ | 2,946,945 | | |
$ | 11,198,546 | | |
$ | 7,489,178 | |
| |
| | | |
| | | |
| | | |
| | |
GAAP net loss | |
$ | (2,840,754 | ) | |
$ | (138,022 | ) | |
$ | (3,513,827 | ) | |
$ | (268,035 | ) |
| |
| | | |
| | | |
| | | |
| | |
Provision for income taxes | |
| 474,091 | | |
| 18,437 | | |
| 157,435 | | |
| 34,180 | |
Net interest expense | |
| 38,743 | | |
| 37,810 | | |
| 135,808 | | |
| 84,953 | |
Other (income) expense- net | |
| (76,271 | ) | |
| (134,915 | ) | |
| 108,662 | | |
| (235,857 | ) |
Stock-based compensation expense | |
| 75,396 | | |
| - | | |
| 137,550 | | |
| - | |
Depreciation and amortization | |
| 1,252,188 | | |
| 311,321 | | |
| 1,793,289 | | |
| 675,415 | |
Nonrecurring transaction costs | |
| 623,513 | | |
| 111,500 | | |
| 712,061 | | |
| 252,735 | |
Changes in contingent consideration | |
| (424,885 | ) | |
| - | | |
| (424,885 | ) | |
| - | |
Adjusted EBITDA | |
$ | (877,979 | ) | |
$ | 206,131 | | |
$ | (893,907 | ) | |
$ | 543,391 | |
| |
| | | |
| | | |
| | | |
| | |
Adjusted EBITDA Margin | |
| (14.6 | )% | |
| 7.0 | % | |
| (8.0 | )% | |
| 7.3 | % |
Adjusted Net
Income and Adjusted Net Income per Share exclude the following elements which are included in GAAP Net Income (Loss):
| · | Adjusted
Net Income does not reflect foreign currency gains and losses, whether realized or unrealized,
and asset impairment charges and other non-cash non-operating expenditures; |
| · | Adjusted
Net Income does not reflect the value of stock-based compensation expense; |
| · | Adjusted
Net Income does not reflect the amortization of purchased intangible assets; |
| · | Adjusted
Net Income does not reflect nonrecurring transaction or acquisition-related costs, such
as brokerage fees, pre-acquisition accounting costs and legal fees, and certain acquisition
accounting impacts. |
| · | Adjusted
Net Income does not reflect changes in contingent consideration. |
The following
table shows our reconciliation of GAAP Net Loss to Non-GAAP Adjusted Net Income for the three and nine month periods ended September
30, 2014 compared to the three and nine month periods ended September 30, 2013:
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
GAAP net loss | |
$ | (2,840,754 | ) | |
$ | (138,022 | ) | |
$ | (3,513,827 | ) | |
$ | (268,035 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other (income) expense- net | |
| (76,271 | ) | |
| (134,915 | ) | |
| 108,662 | | |
| (235,857 | ) |
Stock-based compensation expense | |
| 75,396 | | |
| - | | |
| 137,550 | | |
| - | |
Amortization of purchased intangible assets | |
| 1,035,913 | | |
| 250,565 | | |
| 1,466,811 | | |
| 489,658 | |
Nonrecurring transaction costs | |
| 623,513 | | |
| 111,500 | | |
| 712,061 | | |
| 252,735 | |
Changes in contingent consideration | |
| (424,885 | ) | |
| - | | |
| (424,885 | ) | |
| - | |
Non-GAAP Adjusted Net Income | |
$ | (1,607,088 | ) | |
$ | 89,128 | | |
$ | (1,513,628 | ) | |
$ | 238,501 | |
| |
| | | |
| | | |
| | | |
| | |
End of period shares-diluted | |
| 10,999,133 | | |
| 5,101,770 | | |
| 10,999,133 | | |
| 5,101,770 | |
| |
| | | |
| | | |
| | | |
| | |
Non-GAAP Adjusted Net Income per Diluted Share | |
$ | (0.15 | ) | |
$ | 0.02 | | |
$ | (0.14 | ) | |
$ | 0.04 | |
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
GAAP net loss per share | |
$ | (0.26 | ) | |
$ | (0.03 | ) | |
$ | (0.32 | ) | |
$ | (0.05 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other (income) expense- net | |
| (0.01 | ) | |
| (0.03 | ) | |
| 0.01 | | |
| (0.05 | ) |
Stock-based compensation expense | |
| 0.01 | | |
| - | | |
| 0.01 | | |
| - | |
Amortization of purchased intangible assets | |
| 0.09 | | |
| 0.06 | | |
| 0.14 | | |
| 0.09 | |
Nonrecurring transaction costs | |
| 0.06 | | |
| 0.02 | | |
| 0.06 | | |
| 0.05 | |
Changes in contingent consideration | |
| (0.04 | ) | |
| - | | |
| (0.04 | ) | |
| - | |
Non-GAAP Adjusted Net Income per Diluted Share | |
$ | (0.15 | ) | |
$ | 0.02 | | |
$ | (0.14 | ) | |
$ | 0.04 | |
| |
| | | |
| | | |
| | | |
| | |
End of period shares-diluted | |
| 10,999,133 | | |
| 5,101,770 | | |
| 10,999,133 | | |
| 5,101,770 | |
For purposes of determining non-GAAP adjusted
net income per share, the Company used the number of common shares outstanding at the end of the period September 30, 2014, including
the shares which were issued but are subject to forfeiture and considered contingent consideration, in order to provide comparability
between periods in 2014. No tax effect has been provided in computing non-GAAP adjusted net income and non-GAAP adjusted net income
per diluted share as the Company has sufficient carryforward losses to offset the applicable income taxes.
Key Metrics
In addition to
the line items in our consolidated financial statements, we regularly review the following key metrics to evaluate our business,
measure our performance, identify trends in our business, prepare financial projections, make strategic business decisions, and
assess market share trends and working capital needs. We believe information on these metrics is useful for investors to understand
the underlying trends in our business.
Set forth below
are our key operating and financial metrics for customers using our platform, which excludes acquired customers who have not migrated
to our platform. Practices using our platform accounted for approximately 90% of our revenue for the year ended December 31, 2013
and approximately 61% for the nine months ended September 30, 2014, due to three acquisitions during the three months ended September
30, 2014.
First Pass
Acceptance Rate: We define first pass acceptance rate as the percentage of claims submitted electronically by us to insurers
and clearinghouses that are accepted on the first submission and are not rejected for reasons such as insufficient information
or improper coding. Clearinghouses are third parties that process the submission of claims to insurers and require compliance
with insurance companies’ formatting and other submission rules before submitting those claims. For the purposes of calculating
first pass acceptance rate, consistent with industry practice, we exclude claims submitted under real-time adjudication procedures,
which are procedures that allow a healthcare provider to determine, at the point of care, if a service they are rendering will
be paid. Our first-time acceptance rate is 98% for the twelve months ended September 30, 2014, which compares favorably to the
average of the top twelve payers of approximately 94%, as reported by the American Medical Association.
First Pass
Resolution Rate: First pass resolution rate measures the percentage of primary claims that are favorably adjudicated and
closed upon a single submission. Our first pass resolution rate was approximately 96% for the twelve months ended September 30,
2014.
Days in
Accounts Receivable: Days in accounts receivable measures the median number of days between the day a claim is submitted
by us on behalf of our customer, and the date the claim is paid to our customer. Our clients’ median days in accounts receivable
was 33 days for primary care and 36 days for combined specialties for the twelve months ended September 30, 2014, as compared
to the national average of 38, as reported by the Medical Group Management Association, an association for professional administrators
and leaders of medical group practices. Higher first pass resolution rates and effective follow-up helped us to achieve this rate,
which reduces our customers’ collection cycle of claims, leading to increased revenue and customer satisfaction.
Customer
Renewal Rate. Our customer renewal rate measures the percentage of our clients who were a party to a services agreement
with us on January 1 of a particular year and continued to operate and be a client on December 31 of the same year. It also includes
acquired accounts, if they are a party to a services agreement with the company we acquired and are generating revenue for us,
so long as the risk of client loss under the respective purchase agreement has fully shifted to us by January 1 of the particular
year. The renewal rate for our PracticePro customers for 2012 and 2013 was 85% each year. The renewal rate for our customers who
are also users of our EHR for 2012 and 2013 was 90% each year. The renewal rate for our customers who are meaningful users (i.e.,
those who successfully attested for meaningful use and earned a bonus) of our EHR for 2012 and 2013 was at least 95% each year.
The percentage of our revenue we generated during the years ended December 31, 2012 and 2013 which came from (i) PracticePro clients,
was 90% in each year, (ii) all users of our EHR, was 49% and 50%, respectively, and (iii) from meaningful users of our EHR, was
25%, and 27%, respectively.
Providers
and Practices Served. As of September 30, 2014, we served over 2,000 providers (which we define as physicians, nurses,
nurse practitioners, physician assistants and other clinical staff that render bills for their services), representing approximately
1,000 practices.
Sources of
Revenue
Revenue:
We derive our revenues primarily as a percentage of payments collected by our customers that use our comprehensive product suite,
which includes revenue cycle management as well as the ability to use our electronic health records and practice management software
as part of the bundled fee. These payments accounted for approximately 91% and 89% of our revenues during the three and nine months
ended September 30, 2013, respectively, and approximately 93% and 92% of our revenues during the three and nine months ended September
30, 2014, respectively. This includes customers utilizing our proprietary product suite, PracticePro, as well as customers from
acquisitions which we are servicing utilizing third-party software. Key drivers of our revenue include growth in the number of
providers we are servicing, the number of patients served by those providers, and collections by those providers. We also generate
revenues from one-time setup fees we charge for implementing PracticePro; the sale of our stand-alone web-based EHR solution,
ChartsPro; and from transcription, coding, indexing and other ancillary services. Our plan is to move customers acquired through
acquisitions to our operating platform in order to increase efficiencies. During the third quarter of 2014, we have already moved
several of the acquired practices to our operating platform.
Operating Expenses
Direct Operating Costs. Direct
operating cost consists primarily of salaries and benefits related to personnel who provide services to our customers, claims
processing costs, and other direct costs related to our services. Costs associated with the implementation of new customers are
expensed as incurred. The reported amounts of direct operating costs do not include depreciation and amortization, which are broken
out separately in the condensed consolidated statements of operations. Our Pakistan operations accounted for approximately 56%
and 40% of direct operating costs for the nine months ended September 30, 2013 and 2014, respectively. As we grow, we expect to
achieve further economies of scale and to see our direct operating costs decrease as a percentage of revenue.
Selling and
Marketing Expense. Selling and marketing expense consists primarily of compensation and benefits, commissions, travel and
advertising expenses. These have been relatively low in the past (under 3% of our revenue), as we have often found it to be more
economical to grow by the acquisition of other medical billing companies than by engaging in directed marketing efforts to prospective
customers. However, going forward, we intend to invest in marketing, business development and sales resources to expand our market
share, building on our existing customer base. As a result, we expect that sales and marketing expenses will increase as a percentage
of revenue in the future.
Research and
Development Expense. Research and development expense consists primarily of personnel-related costs and third-party contractor
costs. Because we incorporate our technology into our services as soon as technological feasibility is established, such costs
are currently expensed as incurred. We expect our research and development expense to increase in the future in absolute terms,
but decrease as a percentage of revenue. Consistent with our growth plans, we are hiring developers, analysts and project managers
in an effort to streamline our operational processes and further develop our products. We believe that the continued automation
of our workflow will lead to an increase in our revenue through the efficient submission of insurance claims for our customers,
as well as a reduction in our operating costs.
General and
Administrative Expense. General and administrative expenses consists primarily of personnel-related expense for administrative
employees, including compensation, benefits, travel, occupancy and insurance, software license fees and outside professional fees.
We expect that general and administrative expense will increase in absolute terms for the foreseeable future as we incur additional
expense inherent in becoming a publicly-traded company, including increased legal fees, accounting fees, and investor relations
costs. Our Pakistan office accounted for approximately 43% and 31% of general and administrative expenses in the nine months ended
September 30, 2013 and 2014, respectively. Though expenses are expected to continue to rise in absolute terms, we expect general
and administrative expense to decline as a percentage of overall revenues as revenues increase.
Contingent
Consideration. Contingent consideration represents the amount payable to the sellers of the Acquired Businesses based on the
achievement of defined performance measures contained in the purchase agreements. Contingent consideration is remeasured at fair
value at the end of each reporting period until the contingency is resolved. The Company recognizes changes in fair value in earnings
each period.
Depreciation
and Amortization Expense. Depreciation expense is charged using the straight-line method over the estimated lives of the assets
ranging from three to five years. Depreciation for computers is calculated over three years, while remaining assets (except leasehold
improvements) are depreciated over five years. Leasehold improvements are depreciated over the lesser of the lease term or the
economic life of those assets.
Amortization
expense is charged on a straight-line basis over a period of three years for most intangible assets acquired in connection with
acquisitions, including customer contracts and relationships and covenants not to compete, as well as purchased software. We concluded
that three years reflects the period during which the economic benefits are expected to be realized, and that the straight-line
method is appropriate as the majority of the cash flows are expected to be recognized ratably over that period without significant
degradation.
Our acquisition
of Metro Medical during 2013 added $1,156,000 of intangibles to our balance sheet, and our acquisitions of Omni, Practicare and
CastleRock during 2014 added $10,062,408 of intangibles, resulting in amortization which was $1,124,066 higher for the first nine
months of 2014 compared to the first nine months of 2013.
Interest and
Other Income (Expense). Interest expense consists primarily of interest costs related to our working capital line of credit,
term loans and notes issued in connection with acquisitions, offset by interest income on investments. Our other income (expense)
results primarily from foreign currency transaction gains (losses), and amounted to $235,857 of other income and $108,662 of other
expense in the first nine months of 2013 and 2014, respectively.
Income Tax.
In preparing our financial statements, we estimate income taxes in each of the jurisdictions in which we operate. This process
involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment
of items for tax and financial reporting purposes. These differences result in deferred income tax assets and liabilities. Although
the Company is forecasting a return to profitability, it incurred cumulative losses which make realization of a deferred tax asset
difficult to support in accordance with ASC 740. Accordingly, a valuation allowance has been recorded against all deferred tax
assets as of September 30, 2014.
Critical Accounting
Policies and Estimates
We prepare our
financial statements in accordance with accounting principles generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and assumptions about future events, and apply judgments that affect the reported
amounts of assets, liabilities, revenue, expense and related disclosures. We base our estimates, assumptions and judgments on
historical experience, current trends and various other factors that we believe to be reasonable under the circumstances. On a
regular basis, we review our accounting policies, estimates, assumptions and judgments to ensure that our financial statements
are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty,
actual results could differ from our assumptions and estimates, and such differences could be material.
We believe that
the accounting policies are those policies that involve the greatest degree of complexity and exercise of judgment by our management.
The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results
of operations. For a more detailed discussion of our critical accounting policies, please refer to our prospectus dated July 22,
2014, filed with the SEC on July 23, 2014.
As a result of
the 2014 acquisitions, the Company adjusts the contingent consideration liability at the end of each reporting period based on
fair value inputs representing both changes in the fair value of the Company’s common stock and the probability of an adjustment
to the purchase price. The fair value of the contingent consideration is primarily driven by the price of the Company’s
common stock on the Nasdaq Capital Market, an estimate of revenue to be recognized by the Company from the Acquired Businesses
during the first twelve months after acquisition compared to the trailing twelve months’ revenue from customers in good
standing as of March 31, 2014 shown in the Company’s prospectus dated July 22, 2014, the passage of time and the associated
discount rate. If revenue from an acquisition exceeds the trailing revenue shown in the Company’s prospectus, or the Company’s
stock price exceeds the price on July 28, 2014, the date of the acquisitions, the consideration could exceed the original estimated
contingent consideration. Discount rates are estimated by using government bond yields.
Recent Accounting
Pronouncements
In June 2014,
the FASB issued authoritative guidance that implements a common revenue model that will enhance comparability across industries
and require enhanced disclosures. The new standard introduces a five-step principles based process to determine the timing and
amount of revenue ultimately expected to be received by the customer. This amendment will be effective for the Company’s
interim and annual consolidated financial statements for fiscal 2018 with either retrospective or modified retrospective treatment
applied. The Company is currently evaluating the impact that this may have on the condensed consolidated financial statements
upon implementation.
Results of
Operations
The following table sets forth our consolidated results of
operations as a percentage of total revenue for the periods shown.
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Net revenue | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Direct operating costs | |
| 61.1 | % | |
| 45.4 | % | |
| 53.0 | % | |
| 42.5 | % |
Selling and marketing | |
| 0.9 | % | |
| 2.2 | % | |
| 1.5 | % | |
| 2.5 | % |
General and administrative | |
| 61.7 | % | |
| 46.0 | % | |
| 57.5 | % | |
| 47.2 | % |
Change in contingent consideration | |
| (7.1 | )% | |
| 0.0 | % | |
| (3.8 | )% | |
| 0.0 | % |
Research and development | |
| 2.6 | % | |
| 3.2 | % | |
| 3.5 | % | |
| 3.9 | % |
Depreciation and amortization | |
| 20.8 | % | |
| 10.6 | % | |
| 16.0 | % | |
| 9.0 | % |
Total operating expenses | |
| 140.0 | % | |
| 107.4 | % | |
| 127.7 | % | |
| 105.1 | % |
| |
| | | |
| | | |
| | | |
| | |
Operating loss | |
| (40.0 | )% | |
| (7.4 | )% | |
| (27.7 | )% | |
| (5.1 | )% |
| |
| | | |
| | | |
| | | |
| | |
Interest expense — net | |
| 0.6 | % | |
| 1.3 | % | |
| 1.2 | % | |
| 1.1 | % |
Other income — net | |
| 1.3 | % | |
| 4.6 | % | |
| (1.0 | )% | |
| 3.1 | % |
Loss before for income taxes | |
| (39.3 | )% | |
| (4.1 | )% | |
| (29.9 | )% | |
| (3.1 | )% |
Income tax provision | |
| 7.9 | % | |
| 0.6 | % | |
| 1.4 | % | |
| 0.5 | % |
Net loss | |
| (47.2 | )% | |
| (4.8 | )% | |
| (31.3 | )% | |
| (3.5 | )% |
Comparison of the Three and
Nine Months ended September 30, 2013 and 2014
| |
Three Months Ended | | |
| | |
| | |
Nine Months Ended | | |
| | |
| |
| |
September 30, | | |
Change | | |
September 30, | | |
Change | |
| |
2014 | | |
2013 | | |
Amount | | |
Percent | | |
2014 | | |
2013 | | |
Amount | | |
Percent | |
Revenues | |
$ | 6,012,867 | | |
$ | 2,946,945 | | |
$ | 3,065,922 | | |
| 104 | % | |
$ | 11,198,546 | | |
$ | 7,489,178 | | |
$ | 3,709,368 | | |
| 50 | % |
Revenue. Total revenue of $6.0 million
and $11.2 million for the three months and nine months ended September 30, 2014 increased by $3.1 million or 104% and $3.7 million
or 50% from revenue of $2.9 million and $7.5 million for the three and nine months ended September 30, 2013, respectively.
Total revenue for the three and nine months ended September 30, 2014 included $3.6 million of revenue each from customers we acquired
from Omni, Practicare and CastleRock on July 28, 2014. Revenue for the three and nine months ended September 30, 2014 included
$2.4 million and $7.6 million, respectively, of revenue from MTBC’s customers prior to the acquisition of the Acquired Businesses.
The acquired customers from the Acquired Businesses were the primary source of new revenue during the first nine months of 2014.
| |
Three Months Ended | | |
| | |
| | |
Nine Months Ended | | |
| | |
| |
| |
September 30, | | |
Change | | |
September 30, | | |
Change | |
| |
2014 | | |
2013 | | |
Amount | | |
Percent | | |
2014 | | |
2013 | | |
Amount | | |
Percent | |
Direct operating costs | |
$ | 3,671,029 | | |
$ | 1,337,302 | | |
$ | 2,333,727 | | |
| 175 | % | |
$ | 5,934,319 | | |
$ | 3,186,566 | | |
$ | 2,747,753 | | |
| 86 | % |
Selling and marketing | |
| 54,825 | | |
| 64,758 | | |
| (9,933 | ) | |
| (15 | )% | |
| 169,660 | | |
| 184,075 | | |
| (14,415 | ) | |
| (8 | )% |
General and administrative | |
| 3,709,838 | | |
| 1,355,717 | | |
| 2,354,121 | | |
| 174 | % | |
| 6,441,603 | | |
| 3,537,003 | | |
| 2,904,600 | | |
| 82 | % |
Research and development | |
| 154,063 | | |
| 94,537 | | |
| 59,526 | | |
| 63 | % | |
| 396,482 | | |
| 290,878 | | |
| 105,604 | | |
| 36 | % |
Change in contingent consideration | |
| (424,885 | ) | |
| - | | |
| (424,885 | ) | |
| | | |
| (424,885 | ) | |
| - | | |
| (424,885 | ) | |
| | |
Depreciation | |
| 66,298 | | |
| 57,034 | | |
| 9,264 | | |
| 16 | % | |
| 172,761 | | |
| 178,953 | | |
| (6,192 | ) | |
| (3 | )% |
Amortization | |
| 1,185,890 | | |
| 254,287 | | |
| 931,603 | | |
| 366 | % | |
| 1,620,528 | | |
| 496,462 | | |
| 1,124,066 | | |
| 226 | % |
Total operating expenses | |
$ | 8,417,058 | | |
$ | 3,163,635 | | |
$ | 5,253,423 | | |
| 166 | % | |
$ | 14,310,468 | | |
$ | 7,873,937 | | |
$ | 6,436,531 | | |
| 82 | % |
Direct Operating
Costs. Direct operating costs of $3.7 million and $5.9 million for the three months and nine months ended September 30,
2014, respectively, increased by $2.3 million or 175% and $2.7 million or 86% from direct operating costs of $1.3 million and
$3.2 million for the three and nine months ended September 30, 2013, respectively, including $163,000 of one-time bonuses at the
time of the IPO. Salary cost in the U.S. increased by $1.7 million or 337% for the three months ended September 30, 2014 and by
$1.9 million or 225% for the nine months ended September 30, 2014 due to the addition of 255 U.S. employees who are classified
in direct operating costs, primarily from the Acquired Businesses. Salary cost in Pakistan increased by $342,000 or 61% for the
three months ended September 30, 2014 and by $571,000 or 35% for the nine months ended September 30, 2014 as a result of the addition
of 560 employees in Pakistan who were hired primarily to service customers of the Acquired Businesses.
Selling and
Marketing Expense. Selling and marketing expense of $55,000 and $170,000 for the three and nine months ended September 30,
2014, respectively, decreased by $10,000 or 15% and $14,000 or 8% from selling and marketing expense of $65,000 and $184,000 for
the three and nine months ended September 30, 2013, respectively, as the Company focused its efforts on servicing the new customers
from the Acquired Businesses.
General and
Administrative Expense. General and administrative expense of $3.7 million and $6.4 million for the three and nine months
ended September 30, 2014, respectively, increased by $2.4 million or 174% and $2.9 million or 82% from general and administrative
expense of $1.4 million and $3.5 million for the three and nine months ended September 30, 2013, respectively, with additional
expenses resulting primarily from the Acquired Businesses plus $282,000 of one-time bonuses at the time of the IPO. Salary expense
in the U.S. increased by $682,000 or 174% for the three months ended September 30, 2014 and by $884,000 or 113% for the nine months
ended September 30, 2014. Salary expense in Pakistan increased by $205,000 or 74% for the three months ended September 30, 2014
and by $266,000 or 33% for the nine months ended September 30, 2014, as a result of the addition of 83 administrative employees
in Pakistan. Facilities costs increased by $183,000 or 95% for the three months ended September 30, 2014 and by $198,000 or 38%
for the nine months ended September 30, 2014, primarily due to the facilities of the Acquired Businesses. Legal and professional
fees increased by $732,000 or 494% for the three months ended September 30, 2014 and by $814,000 or 194% for the nine months ended
September 30, 2014, including $600,000 of acquisition costs and additional costs of being a public company during for the three
months ended September 30, 2014.
Research and
Development Expense. Research and development expense of $154,000 and $396,000 for the three months and nine months ended
September 30, 2014, respectively, increased by $60,000 or 63% and $106,000 or 36% from research and development expense of $94,000
and $291,000 for the three and nine months ended September 30, 2013, respectively, as a result of $32,000 of one-time bonuses
at the time of the IPO plus the addition of seven employees in Pakistan engaged in research and development.
Contingent
Consideration. The decrease in the contingent consideration liability of $425,000 for the three and nine months ended September
30, 2014 primarily resulted from a decrease in the price of the Company’s common stock from the date of acquisition to September
30, 2014.
Depreciation.
Depreciation of $66,000 and $173,000 for the three months and nine months ended September 30, 2014, respectively, increased
by $9,000 or 16% and decreased by $6,000 or 3% from depreciation of $57,000 and $179,000 for the three and nine months ended September
30, 2013, respectively.
Amortization
Expense. Amortization expense of $1.2 million and $1.6 million for the three months and nine months ended September 30, 2014,
respectively, increased by $932,000 or 366% and $1.1 million or 226% from amortization expense of $254,000 and $496,000 for the
three and nine months ended September 30, 2013, respectively. This increase resulted from our intangible assets acquired in connection
with our acquisition of Metro Medical on June 30, 2013 and our acquisitions of Omni, Practicare and CastleRock on July 28, 2014,
which are primarily being amortized over three years. The Acquired Businesses included $148,000 of acquired backlog, an intangible
asset resulting from the treatment of revenue and expenses from July 28 through July 31, 2014, which was amortized in full by
September 30, 2014, because virtually all the cash was received or disbursed over the 60 days from the date of the acquisition.
| |
Three Months Ended | | |
| | |
| | |
Nine Months Ended | | |
| | |
| |
| |
September 30, | | |
Change | | |
September 30, | | |
Change | |
| |
2014 | | |
2013 | | |
Amount | | |
Percent | | |
2014 | | |
2013 | | |
Amount | | |
Percent | |
Interest income | |
$ | 7,943 | | |
$ | 5,647 | | |
$ | 2,296 | | |
| 41 | % | |
$ | 15,039 | | |
$ | 19,355 | | |
$ | (4,316 | ) | |
| (22 | )% |
Interest expense | |
| (46,686 | ) | |
| (43,457 | ) | |
| (3,229 | ) | |
| 7 | % | |
| (150,847 | ) | |
| (104,308 | ) | |
| (46,539 | ) | |
| 45 | % |
Other income (expense) - net | |
| 76,271 | | |
| 134,915 | | |
| (58,644 | ) | |
| (43 | )% | |
| (108,662 | ) | |
| 235,857 | | |
| (344,519 | ) | |
| (146 | )% |
Income tax provision | |
| 474,091 | | |
| 18,437 | | |
| 455,654 | | |
| 2,471 | % | |
| 157,435 | | |
| 34,180 | | |
| 123,255 | | |
| 361 | % |
Interest Income.
Interest income of $8,000 and $15,000 for the three months and nine months ended September 30, 2014, respectively, increased
by $2,000 or 41% and decreased by $4,000 or 22% from interest income of $6,000 and $19,000 for the three and nine months ended
September 30, 2013, respectively, due to lower late payment fees from customers.
Interest Expense.
Interest expense of $47,000 and $151,000 for the three months and nine months ended September 30, 2014, respectively, increased
by $3,000 or 7% and $47,000 or 45% from interest expense of $43,000 and $104,000 for the three and nine months ended September
30, 2013, respectively. This increase was primarily due to interest on borrowings under our line of credit as well as the note
payable from the purchase of Metro Medical on June 30, 2013.
Other Income
(Expense) - net. Other income - net of $76,000 for the three months ended September 30, 2014 decreased by $59,000 or 43% from
other income - net of $135,000 for the three months ended September 30, 2013. Other expense - net was $109,000 for the nine months
ended September 30, 2014 compared to other income - net of $236,000 for the nine months ended September 30, 2013. An increase
in the exchange rate of Pakistan rupees per U.S. dollar by 9% from July 1, 2013 to December 31, 2013 was followed by a decline
of 8% from January 1, 2014 to March 31, 2014 and a 5% increase from April 1, 2014 to September 30, 2014. This caused an exchange
loss of $203,000 for the three months ended March 31, 2014 followed by an exchange gain of $16,000 for the three months ended
June 30, 2014 and an additional $113,000 exchange gain for the three months ended September 30, 2014, resulting in an exchange
loss of $74,000 for the nine months ended September 30, 2014. This compared to an exchange gain of $132,000 and $218,000 for the
three months and nine months ended September 30, 2013, respectively.
Income Tax Provision. There was
a $474,000 and $157,000 provision for income taxes for the three months and nine months ended September 30, 2014, respectively,
compared to $18,000 and $34,000 for the three and nine months ended September 30, 2013, respectively. The pre-tax loss increased
from $120,000 and $234,000 for the three months and nine months ended September 30, 2013 to $2.8 million and $3.8 million for
the three and nine months ended September 30, 2014, respectively. Although the Company is forecasting a return to profitability,
it incurred cumulative losses which make realization of a deferred tax asset difficult to support in accordance with ASC 740.
Accordingly, a valuation allowance has been recorded against all deferred tax assets as of September 30, 2014.
Liquidity and Capital Resources
The following table summarizes our
cash flows for the periods presented.
| |
Nine Months Ended September
30, | |
| |
2014 | | |
2013 | |
Net cash (used in) provided by operating activities | |
$ | (2,024,504 | ) | |
$ | 617,301 | |
Net cash used in investing activities | |
| (12,107,857 | ) | |
| (525,704 | ) |
Net cash provided by financing activities | |
| 16,128,304 | | |
| 804,957 | |
Effect of exchange rate changes on cash | |
| (235 | ) | |
| (236,814 | ) |
Net increase in cash | |
| 1,995,708 | | |
| 659,740 | |
We completed our initial public offering
in July 2014, which provided us with approximately $4.3 million in additional cash after giving effect to the underwriter’s
discount, offering and acquisition expenses, and cash used to fund the purchase of the Acquired Businesses. In addition, we increased
capital expenditures to $571,000 during the three months ended September 30, 2014 to increase the capacity of our facilities in
Pakistan and increased expenses in Pakistan by $430,000 during the three months ended September 30, 2014 as we grew our team in
Pakistan by 561 employees, with the goal of reducing domestic expenses and spending on subcontractors from the Acquired Businesses
during future periods.
We believe the cash provided by the IPO
plus our cash flow from operations will be sufficient to meet our working capital and capital expenditures requirements for at
least the next 12 months, since we are proceeding to significantly reduce costs from the Acquired Businesses as planned, which
will provide positive cash from operating activities beginning with the first quarter of 2015.
In addition, although the IPO provided
us with sufficient funding to continue as a going concern for the foreseeable future, in order for us to grow and successfully
execute our business plan which includes future acquisitions, we may require additional financing which may not be available or
may not be available on acceptable terms. If such financing is available in the form of equity, existing stockholders may see
their percentage ownership diluted. Failure to obtain financing when needed may have a material adverse effect on our financial
position. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability
to continue to support the operation or growth of our business could be significantly impaired and our operating results may be
harmed.
Operating
Activities
Cash used in operating activities was
$2.0 million during the nine months ended September 30, 2014, compared to $617,000 cash provided by operating activities during
the nine months ended September 30, 2013. The net loss increased by $3.2 million, of which $1.1 million was additional depreciation
and amortization, $123,000 was additional provision for taxes and $138,000 was stock-based compensation. Cash operating expenses
grew $2.3 million faster than revenue during the nine months ended September 30, 2014. Most of the incremental expense occurred
during the three months ended September 30, 2014 compared to the three months ended September 30, 2013, and primarily consisted
of $483,000 of one-time bonuses paid to employees with at least a year of service at the time of the IPO, transaction costs of
$712,000, $420,000 of incremental expenses due to the growth of the team in Pakistan which will offset costs in the United States
in future periods, and $433,000 of additional costs of being a public company, including audit fees, compensation for outside
directors and increased premiums for liability insurance.
Accounts receivable increased by $2.0
million, compared with an increase in accounts receivable of $71,000 in the nine months ended September 30, 2013, and accounts
payable, accrued compensation and accrued expenses grew by $1.9 million, compared with an increase of $277,000 in the nine months
ended September 30, 2013. Both of these increases result from the Acquired Businesses, since these were asset purchases, and accounts
receivable, accounts payable, accrued expenses and other liabilities were not acquired. Other current assets and prepaid expenses
grew by $654,000, compared with an increase of $82,000 in the nine months ended September 30, 2013, primarily due to the purchase
of certain insurance with a one-year term.
Investing Activities
We have grown through acquisitions, and
historically have structured acquisitions in a way that minimizes upfront cash outlays and relies primarily on promissory notes
payable to the sellers. The acquisition of the Acquired Businesses was financed with a combination of cash and stock, issued upon
the closing of the IPO.
After completion of each previous acquisition,
we have generally restructured operations of the acquired company, reducing costs by shifting labor costs from the U.S. to Pakistan.
This has allowed us to minimize the cash used in investing activities and provides us with financing largely serviced by cash
flow from the businesses acquired. We decided to proceed more slowly with the three Acquired Businesses in order to minimize disruption
to clients and improve customer retention, but have begun the process. This will result in lower operating expenses in future
quarters.
We anticipate that there will be additional
opportunities to acquire similar businesses in the future, and management will evaluate each opportunity for future profitability
and cash flow potential. Future acquisitions may be financed by a combination of equity, debt, promissory notes issued to the
sellers and/or cash on hand. There is no assurance that we will be able to achieve the same level of cost savings in the future
or do so as quickly as we have in the past.
Cash used in investing activities during
the nine months ended September 30, 2014 was $12.1 million, an increase of $11.6 million compared to $526,000 during the nine
months ended September 30, 2013. We spent $11.4 million as the cash portion of the purchase prices of the Acquired Businesses,
compared to $275,000 for the initial cash portion of the purchase of Metro Medical during the nine months ended in September 30,
2013. Capital expenditures during the nine months ended September 30, 2014 were $571,000, an increase of $405,000 compared to
$166,000 during the nine months ended September 30, 2013, primarily to increase the capacity of our Pakistan facilities.
Financing Activities
Cash provided
by financing activities during the nine months ended September 30, 2014 was $16.1 million, compared to $805,000 of in the nine
months ended September 30, 2013. During the nine months ended September 30, 2014, we completed our IPO, generating net cash of
$4.3 million after paying offering expenses, acquisition expenses and paying the cash portion of the purchase price for the Acquired
Businesses. We repaid $958,000 of notes payable from acquisitions made in prior years as well as $266,000 borrowed from our CEO.
Average monthly borrowings from our $1.2 million revolving line of credit with TD Bank were $1.0 million in the nine months ended
September 30, 2014 compared to $238,000 in the nine months ended September 30, 2013.
Our line of credit
renews annually at the option of the lender, and currently matures on November 30, 2015. As of September 30, 2014, $1.2 million
was drawn on the line.
Contractual Obligations and Commitments
We have contractual
obligations under our line of credit, notes issued in connection with our pre-2014 acquisitions and contingent consideration in
connection with the 2014 acquisitions. We also maintain operating leases for property and certain office equipment. There have
been no other significant developments with respect to our contractual obligations since December 31, 2013. For additional information,
see Contractual Obligations and Commercial Commitments under Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”, in the Company’s prospectus dated July 22, 2014, and filed with the SEC on July
23, 2014.
Off-Balance
Sheet Arrangements
As of September 30,
2013 and 2014, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited purposes. Other than our operating leases for office space,
computer equipment and other property, we do not engage in off-balance sheet financing arrangements.
Item 3. Qualitative
and Quantitative Disclosures About Market Risks
Foreign currency
exchange risk. Our results of operations and cash flows are subject to fluctuations due to changes in the Pakistan rupee.
None of our consolidated revenues are earned outside the United States. In the nine months ended September 30, 2014 and 2013,
35% and 48%, respectively, of our total expenses occurred in our subsidiary in Pakistan and were incurred in Pakistan rupees.
Fluctuations in currency exchange rates could harm our business in the future. Because a significant portion of our expenses is
incurred outside the United States but our revenue is denominated in U.S. dollars, a 10% adverse change in foreign exchange rates
would have a 4% adverse impact on our costs, which would cause our margins to differ materially from expectations.
As our scale
grows, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach
to managing this risk. To date, we have not entered into any foreign currency hedging contracts, and we have no immediate plans
to do so.
Liquidity
risk. As of December 31, 2013, we held approximately $440,000 of cash in a bank in Pakistan and we held approximately $816,000
of cash in this bank on September 30, 2014. The banking system in Pakistan does not provide deposit insurance coverage. We generally
wire funds to Pakistan from the U.S. near the end of each month to be used for payroll and other operating expenses in the following
month, with the payroll payments being made by our Pakistani subsidiary in the first week of such month. The balance as of September
30, 2014 was unusually large due to the capital expenditures related to our facility expansion in Pakistan.
We have a transfer
pricing agreement with our Pakistani subsidiary, and our Pakistani subsidiary is required under applicable law to generate an
arms-length profit. Accordingly, monthly payments due from us to our Pakistani subsidiary for the services it provides to us are
in an amount sufficient for it to generate a profit. However, our actual payments to our Pakistani subsidiary for these services
are in a lesser amount, which covers just the actual costs incurred by our subsidiary. The excess amount owed by us but not paid
to our Pakistani subsidiary is treated as a dividend from the Pakistani subsidiary to us. Accordingly, we record a current tax
liability on our financial statements to cover U.S. taxes on that dividend. We plan to repatriate all earnings and profits generated
by our Pakistani subsidiary. Therefore, we recognize a deferred tax liability on the cumulative balance of earnings and profits,
as reduced by the amount treated as a dividend, at the federal tax rate. As of September 30, 2014, the Company recorded a valuation
allowance against its net federal deferred tax asset.
Impact of
inflation. We do not believe that inflation has had a material effect on our business, financial condition or results of operations.
To date, inflationary pressures experienced by our operations in Pakistan, which are funded by revenues we generate in the U.S.,
have been offset by declines in the Pakistan rupee to U.S. dollar exchange rate. However, if our costs were to become subject
to significant inflationary pressures, we might not be able to offset these higher costs through price increases. Our inability
or failure to do so could harm our business, operating results and financial condition.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and
Procedures
Our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures
as of September 30, 2014 as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. The term “disclosure controls
and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures
of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s
rules and forms.
Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal
executive and principal financial officer to allow timely decisions regarding required disclosure. Management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
Based on the evaluation of our disclosure
controls and procedures as of September 30, 2014, our Chief Executive Officer and Chief Financial Officer concluded that, as of
such date, our disclosure controls and procedures were not effective for the reasons set forth below.
Our management has identified a material
weakness in our internal control related to the lack of sufficient personnel and processes to adequately and timely record certain
complex financial transactions and the use of an accounting system which lacks the level of controls necessary for a public company.
Management’s remediation efforts will include the hiring of additional accounting personnel, upgrading our accounting system
with multi-company and multi-currency capabilities, and implementing additional controls, which process has already begun. Remediation
efforts are expected to continue through the next few quarterly periods until such time as management is able to conclude that
its remediation efforts are operating and effective.
Changes in Internal Control over Financial
Reporting
There have not been any changes in our
internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended September 30, 2014, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company is currently integrating its
business processes and information systems with those of the Acquired Businesses, including evaluating and enhancing the internal
controls of all companies. This work commenced upon the closing of the acquisitions on July 28, 2014 and will continue throughout
calendar year 2014.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved
in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that,
in the opinion of our management, would individually or taken together have a material adverse effect on our business, operating
results, financial condition or cash flows.
Regardless of outcome, litigation can
have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational
harm, and other factors.
Item 1A. Risk Factors
The risks described in "Risk Factors,"
in the final prospectus that we filed with the Securities and Exchange Commission on July 23, 2014 in connection with our IPO
could materially and adversely affect our business, financial condition and results of operations. You should carefully review
those risk factors in evaluating our business. These risk factors do not identify all risks that we face, and our operations could
also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
| (a) | Sale of Unregistered Sales of Equity Securities |
On September 15, 2014, we granted 171,000
Restricted Stock Units (“RSUs”) in the aggregate to members of our Board of Directors, two officers and six US employees.
On April 4, 2014 we granted 217,500 RSUs in the aggregate to two named executive officers and members of our Board of Directors
under our 2014 Equity Incentive Plan. Additionally, the Company granted 125,000 performance-based RSUs in the aggregate to certain
key personnel in order to incent those personnel to attain certain profitability goals for their respective divisions.
The sales of the above securities were
deemed to be exempt from registration under the Securities Act in reliance on Rule 701 of the Securities Act, as transactions
by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients of securities in each of these transactions represented their intention
to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and
instruments issued in such transactions. All recipients had adequate access, through their relationship with us, to information
about us.
| (b) | Use of Proceeds from Public Offering of Common Stock |
On July 28, 2014, we closed our initial
public offering, in which we sold 4,080,000 shares of common stock at a price to the public of $5.00 per share. The aggregate
offering price for shares sold in the offering was $20.4 million. The offer and sale of all of the shares in the IPO were registered
under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-192989), which was declared effective
by the SEC on July 22, 2014. The offering commenced July 23, 2014 and did not terminate before all of the securities registered
in the registration statement were sold. Chardan Capital Markets, LLC, Aegis Capital Corp. and Summer Street Research Partners
acted as joint book running managers for the offering. We raised approximately $15.6 million in net proceeds from the offering,
after deducting underwriter discounts of approximately $1.4 million and other offering expenses, including the brokerage fees
on the purchase of the Acquired Businesses, of approximately $3.4 million.
On July 28, 2014, upon receipt of funds
from our IPO, we purchased the assets of three independent revenue cycle management companies, Omni Medical Billing Services,
LLC, Practicare Medical Management, Inc., and CastleRock Solutions, Inc. for approximately $11.4 million in cash and 1.7 million
shares of common stock, on terms disclosed in the Company's final prospectus.
There has been no material change in the
planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on July 23, 2014 pursuant to Rule
424(b). Other than repayments of indebtedness in the amount of $266,000 to Mahmud Haq, our principal stockholder and Chief Executive
Officer, payment of a cash bonus of $95,000 to Stephen Snyder, our President, $60,000 to Brendan Harney, our General Counsel,
and $8,750 to Christine Salimbene, our Chief Compliance Officer, no direct or indirect payments were made by us to any of our
directors or officers or their associates, to persons owning ten percent or more of our common stock or to their associates, or
to our affiliates, other than payments in the ordinary course of business to officers for salaries. We have invested the net proceeds
in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations
of the U.S. government.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
Item 6. Exhibits
Exhibit
Number |
Exhibit Description |
|
|
31.1 |
Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act
of 1934, as amended. |
31.2 |
Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act
of 1934, as amended. |
32.1* |
Certification of Chief Executive Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended,
and 18 U.S.C.§1350. |
32.2* |
Certification of Chief Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended,
and 18 U.S.C. §1350. |
101.INS |
XBRL Instance Document |
101.SCH |
XBRL Taxonomy Extension Schema |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase |
101.LAB |
XBRL Taxonomy Extension Label Linkbase |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase |
* The
certifications on Exhibit 32 hereto are deemed not “filed” for purposes of Section 18 of the Securities and Exchange
Act of 1934, as amended, or otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated
by reference into any filing under the Securities Act or the Exchange Act.
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, thereunto duly
authorized.
|
Medical Transcription Billing, Corp. |
|
|
|
|
By: |
/s/ Mahmud Haq |
|
|
Mahmud Haq |
|
|
Chairman of the Board |
|
|
and Chief Executive Officer |
|
|
|
|
By: |
/s/ Bill Korn |
|
|
Bill Korn |
|
|
Chief Financial Officer |
Date: March 31, 2015
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Mahmud Haq, certify that:
| 1. | I
have reviewed this Quarterly Report on Form 10-Q/A of Medical Transcription Billing, Corp.; |
| 2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report; |
| 4. | The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a. | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
| d. | Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
| 5. | The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions): |
| a. | All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and |
| b. | Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
|
Medical Transcription Billing, Corp. |
|
|
|
|
|
By: |
|
/s/Mahmud Haq |
|
|
|
Mahmud Haq |
|
|
|
Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
Dated: |
|
|
|
March 31, 2015 |
|
|
|
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL
OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Bill Korn, certify that:
| 1. | I
have reviewed this Quarterly Report on Form 10-Q/A of Medical Transcription Billing, Corp.; |
| 2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report; |
| 4. | The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a. | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
| d. | Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
| 5. | The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions): |
| a. | All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and |
| b. | Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
|
Medical Transcription Billing, Corp. |
|
|
|
|
|
By: |
|
/s/Bill Korn |
|
|
|
Bill Korn |
|
|
|
Chief Financial Officer (Principal Financial Officer) |
Dated: |
|
|
|
March 31, 2015 |
|
|
|
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
Based on my knowledge, I, Mahmud Haq, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report
of Medical Transcription Billing, Corp. on Form 10-Q/A for the quarterly period ended September 30, 2014 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form
10-Q/A fairly presents in all material respects the financial condition and results of operations of Medical Transcription Billing,
Corp.
|
Medical Transcription Billing, Corp. |
|
|
|
|
|
By: |
|
/s/Mahmud Haq |
|
|
|
Mahmud Haq |
|
|
|
Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
Dated: |
|
|
|
March 31, 2015 |
|
|
|
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
Based on my knowledge, I, Bill Korn, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report
of Medical Transcription Billing, Corp. on Form 10-Q/A for the quarterly period ended September 30, 2014 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form
10-Q/A fairly presents in all material respects the financial condition and results of operations of Medical Transcription Billing,
Corp.
|
Medical Transcription Billing, Corp. |
|
|
|
|
|
By: |
|
/s/Bill Korn |
|
|
|
Bill Korn |
|
|
|
Chief Financial Officer (Principal Financial Officer) |
Dated: |
|
|
|
March 31, 2015 |
|
|
|
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