Business Context and Reporting Period
MTBC, Inc. (trading as Carecloud, Inc.) filed this Form 8-K on June 16, 2020, to report the completion of an acquisition. The Company purchased all issued and outstanding capital stock of Meridian Billing Management Co. and Origin Holdings, Inc. (collectively, the "Acquired Companies"), which provide medical billing, revenue cycle management, electronic medical records, and medical coding services.
Key Financial Metrics and Transaction Details
The filing details a specific transaction rather than periodic financial performance. Key financial terms of the acquisition include:
- Total Consideration: $15 million in cash, 200,000 shares of 11% Series A Cumulative Redeemable Perpetual Preferred Stock, and warrants to purchase 2,250,000 shares of common stock.
- Warrant Terms: Exercise price of $7.50 per share with a two-year term.
- Assumed Liabilities: Approximately $4.8 million in negative net working capital and long-term lease liabilities.
- Use of Cash: Proceeds used to repay Acquired Companies' indebtedness and transaction expenses.
- Insurance: The Company obtained representations and warranties insurance coverage of up to $4 million.
The filing text does not provide clear values for the Company's overall revenue, profit, cash flow, margins, or total debt as of the reporting date.
Material Changes
The primary material change is the expansion of the Company's operations through the acquisition of Meridian and Origin. The Acquired Companies became wholly owned subsidiaries of MTBC, Inc. on June 16, 2020. Additionally, the Company issued unregistered equity securities (preferred stock and warrants) as part of the purchase consideration.
Outlook, Risks, and Contingencies
- Registration Rights: The Company agreed to register the preferred stock and underlying common stock for resale under the Securities Act of 1933 as soon as practicable after the audit of the Acquired Companies' 2019 financial statements, but no later than 85 days from the agreement date.
- Holdback Provisions: A portion of the preferred stock consideration will be held back until the satisfaction of certain specified obligations by the Acquired Companies.
- Non-Solicitation: The Seller is prohibited from soliciting employees, customers, or suppliers of the Acquired Companies for three years following closing.
- Indemnification Limits: The Company generally will not seek recovery from the Seller for breaches of representations or warranties, except for claims regarding ownership of capital stock or actual fraud, with specific caps on recovery amounts.
Investor Verification Checklist
- Verify the final valuation of the $4.8 million in assumed liabilities and negative working capital.
- Confirm the timeline for the audit of the Acquired Companies' 2019 financial statements and the subsequent registration statement filing.
- Review the specific "specified obligations" required to release the held-back portion of the preferred stock consideration.
- Assess the impact of the $15 million cash outflow on the Company's current liquidity position.
- Examine the integration plan for the Acquired Companies' medical billing and revenue cycle management services.