Risk
Factors
Investing
in our securities involves a high degree of risk. You should carefully consider and evaluate all of the information contained
in this prospectus and in the documents we incorporate by reference into this prospectus, including our consolidated financial
statements and accompanying notes and the information under the heading “Risk Factors” in our most recent annual report
on Form 10-K, before you decide to purchase our Series A Preferred Stock. See the section of this prospectus entitled “Incorporation
of Certain Information by Reference.” The risks and uncertainties described in this prospectus and the documents incorporated
by reference herein are not the only ones we face. Additional risks and uncertainties that we do not presently know about or that
we currently believe are not material may also adversely affect our business, business prospects, results of operations or financial
condition. Any of the risks and uncertainties set forth herein and the documents incorporated by reference herein, as updated
by annual, quarterly and other reports and documents that we file with the SEC and incorporate by reference into this prospectus
could materially and adversely affect our business, results of operations and financial condition. The trading price of our securities
could decline due to the materialization of any of these risks, and you may lose all or part of your investment.
Risks
Related to this Offering and Ownership of Shares of Our Series A Preferred Stock
The
Series A Preferred Stock ranks junior to all of our indebtedness and other liabilities.
In
the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay obligations
on the Series A Preferred Stock only after all of our indebtedness and other liabilities have been paid. The rights of holders
of the Series A Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our current
and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Series A Preferred
Stock. Also, the Series A Preferred Stock effectively ranks junior to all existing and future indebtedness and to the indebtedness
and other liabilities of our existing subsidiaries and any future subsidiaries. Our existing subsidiaries are, and future subsidiaries
would be, separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series
A Preferred Stock. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts
due on any or all of the Series A Preferred Stock then outstanding. We may in the future incur debt and other obligations that
will rank senior to the Series A Preferred Stock. At March 31, 2020, our total liabilities equaled approximately $32.6 million.
Certain
of our existing or future debt instruments may restrict the authorization, payment or setting apart of dividends on the Series
A Preferred Stock. Our Credit Agreement with Silicon Valley Bank (“SVB”) restricts the payment of dividends in the
event of any event of default, including failure to meet certain financial covenants. There can be no assurance that we will remain
in compliance with the SVB Credit Agreement, and if we default, we may be contractually prohibited from paying dividends on the
Series A Preferred Stock. Also, future offerings of debt or senior equity securities may adversely affect the market price of
the Series A Preferred Stock. If we decide to issue debt or senior equity securities in the future, it is possible that these
securities will be governed by an indenture or other instruments containing covenants restricting our operating flexibility. Additionally,
any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable
than those of the Series A Preferred Stock and may result in dilution to owners of the Series A Preferred Stock. We and, indirectly,
our shareholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities
in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the
amount, timing or nature of our future offerings. The holders of the Series A Preferred Stock will bear the risk of our future
offerings, which may reduce the market price of the Series A Preferred Stock and will dilute the value of their holdings in us.
We
may not be able to pay dividends on the Series A Preferred Stock if we fall out of compliance with our loan covenants and are
prohibited by our bank lender from paying dividends or if we have insufficient cash to make dividend payments.
Our
ability to pay cash dividends on the Series A Preferred Stock requires us to have either net profits or positive net assets (total
assets less total liabilities) over our capital, and to be able to pay our debts as they become due in the usual course of business.
We cannot predict with certainty whether we will remain in compliance with the covenants of our senior secured lender, SVB, which
include, among other things, generating adjusted EBITDA and complying with a minimum liquidity ratio. If we fall out of compliance,
our lender may exercise any of its rights and remedies under the loan agreement, including restricting us from making dividend
payments.
Further,
notwithstanding these factors, we may not have sufficient cash to pay dividends on the Series A Preferred Stock. Our ability to
pay dividends may be impaired if any of the risks described in this prospectus, including the documents incorporated by reference
herein, were to occur. Also, payment of our dividends depends upon our financial condition, remaining in compliance with our affirmative
and negative loan covenants with SVB, which we may be unable to do in the future, and other factors as our Board of Directors
may deem relevant from time to time. We cannot assure you that our businesses will generate sufficient cash flow from operations
or that future borrowings will be available to us in an amount sufficient to enable us to make distributions on our common stock,
if any, and preferred stock, including the Series A Preferred Stock to pay our indebtedness or to fund our other liquidity needs.
The
market for our Series A Preferred Stock may not provide investors with adequate liquidity.
Our
Series A Preferred Stock is listed on the Nasdaq Global Market. However, the trading market for the Series A Preferred Stock may
not be maintained and may not provide investors with adequate liquidity. The liquidity of the market for the Series A Preferred
Stock depends on a number of factors, including prevailing interest rates, our financial condition and operating results, the
number of holders of the Series A Preferred Stock, the market for similar securities and the interest of securities dealers in
making a market in the Series A Preferred Stock. We cannot predict the extent to which investor interest in our Company will maintain
the trading market in our Series A Preferred Stock, or how liquid that market will be. If an active market is not maintained,
investors may have difficulty selling shares of our Series A Preferred Stock.
We
may issue additional shares of Series A Preferred Stock and additional series of preferred stock that rank on parity with or senior
to the Series A Preferred Stock as to dividend rights, rights upon liquidation or voting rights.
We
are allowed to issue additional shares of Series A Preferred Stock and additional series of preferred stock that would rank equal
to or below the Series A Preferred Stock as to dividend payments and rights upon our liquidation, dissolution or winding up of
our affairs pursuant to our amended and restated certificate of incorporation and the certificate of designations relating to
the Series A Preferred Stock without any vote of the holders of the Series A Preferred Stock. Upon the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Series A Preferred Stock (voting together as a class with all other
series of parity preferred stock we may issue upon which like voting rights have been conferred and are exercisable), we are allowed
to issue additional series of preferred stock that would rank above the Series A Preferred Stock as to dividend payments and rights
upon our liquidation, dissolution or the winding up of our affairs pursuant to our amended and restated certificate of incorporation
and the certificate of designations relating to the Series A Preferred Stock. The issuance of additional shares of Series A Preferred
Stock and additional series of preferred stock could have the effect of reducing the amounts available to the Series A Preferred
Stock upon our liquidation or dissolution or the winding up of our affairs. It also may reduce dividend payments on the Series
A Preferred Stock if we do not have sufficient funds to pay dividends on all Series A Preferred Stock outstanding and other classes
or series of stock with equal priority with respect to dividends.
Also,
although holders of Series A Preferred Stock are entitled to limited voting rights, as described in this prospectus under “Description
of the Series A Preferred Stock—Voting Rights,” with respect to the circumstances under which the holders of Series
A Preferred Stock are entitled to vote, the Series A Preferred Stock votes separately as a class along with all other series of
our preferred stock that we may issue upon which like voting rights have been conferred and are exercisable. As a result, the
voting rights of holders of Series A Preferred Stock may be significantly diluted, and the holders of such other series of preferred
stock that we may issue may be able to control or significantly influence the outcome of any vote.
Future
issuances and sales of senior or pari passu preferred stock, or the perception that such issuances and sales could occur, may
cause prevailing market prices for the Series A Preferred Stock and our common stock to decline and may adversely affect our ability
to raise additional capital in the financial markets at times and prices favorable to us.
Market
interest rates may materially and adversely affect the value of the Series A Preferred Stock.
One
of the factors that influences the price of the Series A Preferred Stock is the dividend yield on the Series A Preferred Stock
(as a percentage of the market price of the Series A Preferred Stock) relative to market interest rates. An increase in market
interest rates may lead prospective purchasers of the Series A Preferred Stock to expect a higher dividend yield (and higher interest
rates would likely increase our borrowing costs and potentially decrease funds available for dividend payments). Thus, higher
market interest rates could cause the market price of the Series A Preferred Stock to materially decrease.
Holders
of the Series A Preferred Stock may be unable to use the dividends-received deduction and may not be eligible for the preferential
tax rates applicable to “qualified dividend income.”
Distributions
paid to corporate U.S. holders of the Series A Preferred Stock may be eligible for the dividends-received deduction, and distributions
paid to non-corporate U.S. holders of the Series A Preferred Stock may be subject to tax at the preferential tax rates applicable
to “qualified dividend income,” if we have current or accumulated earnings and profits, as determined for U.S. federal
income tax purposes. We do not currently have such accumulated earnings and profits. Additionally, we may not have sufficient
current earnings and profits during future fiscal years for the distributions on the Series A Preferred Stock to qualify as dividends
for U.S. federal income tax purposes. If the distributions fail to qualify as dividends, U.S. holders would be unable to use the
dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.”
If any distributions on the Series A Preferred Stock with respect to any fiscal year are not eligible for the dividends-received
deduction or preferential tax rates applicable to “qualified dividend income” because of insufficient current or accumulated
earnings and profits, it is possible that the market value of the Series A Preferred Stock might decline.
Our
revenues, operating results and cash flows may fluctuate in future periods and we may fail to meet investor expectations, which
may cause the price of our Series A Preferred Stock to decline.
Variations
in our quarterly and year-end operating results are difficult to predict and our income and cash flow may fluctuate significantly
from period to period, which may impact our Board of Directors’ willingness or legal ability to declare a monthly dividend.
If our operating results fall below the expectations of investors or securities analysts, the price of our Series A Preferred
Stock could decline substantially. Specific factors that may cause fluctuations in our operating results include:
|
●
|
demand
and pricing for our products and services;
|
|
|
|
|
●
|
the
encounter volumes of our customer base;
|
|
|
|
|
●
|
government
or commercial healthcare reimbursement policies;
|
|
|
|
|
●
|
physician
and patient acceptance of any of our current or future products;
|
|
|
|
|
●
|
introduction
of competing products;
|
|
|
|
|
●
|
our
operating expenses which fluctuate due to growth of our business;
|
|
|
|
|
●
|
timing
and size of any new product or technology acquisitions we may complete; and
|
|
|
|
|
●
|
variable
sales cycle and implementation periods for our products and services.
|
Our
Series A Preferred Stock has not been rated.
We
have not sought to obtain a rating for the Series A Preferred Stock. No assurance can be given, however, that one or more rating
agencies might not independently determine to issue such a rating or that such a rating, if issued, would not adversely affect
the market price of the Series A Preferred Stock. Also, we may elect in the future to obtain a rating for the Series A Preferred
Stock, which could adversely affect the market price of the Series A Preferred Stock. Ratings only reflect the views of the rating
agency or agencies issuing the ratings and such ratings could be revised downward, placed on a watch list or withdrawn entirely
at the discretion of the issuing rating agency if in its judgment circumstances so warrant. Any such downward revision, placing
on a watch list or withdrawal of a rating could have an adverse effect on the market price of the Series A Preferred Stock.
We
may redeem the Series A Preferred Stock for $25.00 per share on or after November 4, 2020.
On
or after November 4, 2020, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, at any time or from
time to time, for $25.00 per share. Also, upon the occurrence of a change of control, we may, at our option, redeem the Series
A Preferred Stock, in whole or in part, within 120 days after the first date on which such change of control occurred, for $25.00
per share. We may have an incentive to redeem the Series A Preferred Stock voluntarily if market conditions allow us to issue
other preferred stock or debt securities at a rate that is lower than the dividend on the Series A Preferred Stock. If we redeem
the Series A Preferred Stock, then from and after the redemption date, dividends will cease to accrue on shares of Series A Preferred
Stock, the shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights as a holder of those shares
will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption.
The
market price of our Series A Preferred Stock is variable and could be substantially affected by various factors.
The
market price of our Series A Preferred Stock could be subject to wide fluctuations in response to numerous factors. The price
of the Series A Preferred Stock that will prevail in the market after this offering may be higher or lower than the offering price
depending on many factors, some of which are beyond our control and may not be directly related to our operating performance.
These
factors include, but are not limited to, the following:
|
●
|
prevailing
interest rates, changes in which may have an adverse effect on the market price of the Series A Preferred Stock;
|
|
|
|
|
●
|
trading
prices of similar securities;
|
|
●
|
our
history of timely dividend payments;
|
|
|
|
|
●
|
the
annual yield from dividends on the Series A Preferred Stock as compared to yields on other financial instruments;
|
|
|
|
|
●
|
general
economic and financial market conditions;
|
|
|
|
|
●
|
government
action or regulation;
|
|
|
|
|
●
|
changes
to the market and industry conditions as a result of the recent global outbreak of the COVID-19 coronavirus;
|
|
|
|
|
●
|
the
financial condition, performance and prospects of our competitors;
|
|
|
|
|
●
|
changes
in financial estimates or recommendations by securities analysts with respect to us or our competitors in our industry;
|
|
|
|
|
●
|
our
issuance of additional preferred equity or debt securities; and
|
|
|
|
|
●
|
actual
or anticipated variations in quarterly operating results of us and our competitors.
|
As
a result of these and other factors, investors who purchase the Series A Preferred Stock in this offering may experience a decrease,
which could be substantial and rapid, in the market price of the Series A Preferred Stock, including decreases unrelated to our
operating performance or prospects.
A
holder of Series A Preferred Stock has extremely limited voting rights.
The
voting rights for a holder of Series A Preferred Stock are limited. Our shares of common stock are the only class of our securities
that carry full voting rights, and Mahmud Haq, our Executive Chairman, beneficially owns approximately 37.8% of our outstanding
shares of common stock. As a result, Mr. Haq exercises a significant level of control over all matters requiring stockholder approval,
including the election of directors, amendment of our certificate of incorporation, and approval of significant corporate transactions.
This control could have the effect of delaying or preventing a change of control of our company or changes in management, and
will make the approval of certain transactions difficult or impossible without his support, which in turn could reduce the price
of our Series A Preferred Stock.
Voting
rights for holders of the Series A Preferred Stock exist primarily with respect to the ability to elect, voting together with
the holders of any other series of our preferred stock having similar voting rights, two additional directors to our Board of
Directors, subject to limitations described in this prospectus entitled “Description of the Series A Preferred Stock—Voting
Rights,” in the event that eighteen monthly dividends (whether or not consecutive) payable on the Series A Preferred Stock
are in arrears, and with respect to voting on amendments to our certificate of incorporation or certificate of designations relating
to the Series A Preferred Stock that materially and adversely affect the rights of the holders of Series A Preferred Stock or
authorize, increase or create additional classes or series of our capital stock that are senior to the Series A Preferred Stock.
Other than the limited circumstances described in this prospectus and except to the extent required by law, holders of Series
A Preferred Stock do not have any voting rights. Please see the section in this prospectus entitled “Description of the
Series A Preferred Stock—Voting Rights.”
The
Series A Preferred Stock is not convertible, and investors will not realize a corresponding upside if the price of the common
stock increases.
The
Series A Preferred Stock is not convertible into the common stock and earns dividends at a fixed rate. Accordingly, an increase
in market price of our common stock will not necessarily result in an increase in the market price of our Series A Preferred Stock.
The market value of the Series A Preferred Stock may depend more on dividend and interest rates for other preferred stock, commercial
paper and other investment alternatives and our actual and perceived ability to pay dividends on, and, in the event of dissolution,
satisfy the liquidation preference with respect to, the Series A Preferred Stock.
We
will have broad discretion in using the proceeds of this offering, and we may not effectively spend the proceeds.
We
intend to use the net proceeds of this offering for working capital and general corporate purposes to support our growth. We have
not allocated any specific portion of the net proceeds to any particular purpose, and our management will have the discretion
to allocate the proceeds as it determines. We will have significant flexibility and broad discretion in applying the net proceeds
of this offering, and we may not apply these proceeds effectively. Our management might not be able to yield a significant return,
if any, on any investment of these net proceeds, and you will not have the opportunity to influence our decisions on how to use
our net proceeds from this offering.
Future
sales of substantial amounts of our common stock, or other securities, or the possibility that such sales could occur, could adversely
affect the market price of our Series A Preferred Stock.
We
cannot predict the effect, if any, that future issuances or sales of our common stock or other securities, including sales of
our Series A Preferred Stock or the availability of our securities for future issuance or sale, will have on the market price
of our securities. Issuances or sales of substantial amounts of our common stock, preferred stock, warrants, or debt securities
convertible into or exercisable or exchangeable for common stock, including sales of our Series A Preferred Stock, or the perception
that such issuances or sales might occur, could negatively impact the market price of our Series A Preferred Stock and the terms
upon which we may obtain additional equity financing in the future.
Risks
Related to Our Acquisition Strategy
If
we do not manage our growth effectively, our revenue, business and operating results may be harmed.
Our
strategy is to expand through organic growth, and through synergistic, accretive acquisitions of healthcare IT companies. Since
2006, we have acquired the assets or businesses of over 20 RCM companies, including our recent acquisitions of CareCloud and Meridian.
The majority of these transactions have occurred since we went public in July 2014. Our future acquisitions may require greater
than anticipated investment of operational and financial resources as we seek to migrate customers of these companies to our solutions.
Acquisitions also require the integration of different software and services, assimilation of new employees, diversion of management
and IT resources, and increases in administrative costs. Acquisitions may also require additional costs associated with any debt
or equity financings undertaken to pay for such acquisitions. We cannot assure you that any acquisition we undertake will be successful.
Future growth will also place additional demands on our customer support, sales, and marketing resources, and may require us to
hire and train additional employees. We will need to expand and upgrade our systems and infrastructure to accommodate our growth.
The failure to manage our growth effectively will materially and adversely affect our business.
We
may be unable to successfully integrate operations or to achieve expected growth from our recent acquisitions of CareCloud and
Meridian.
During
January 2020, through a merger with a subsidiary, we acquired CareCloud, which has developed a highly acclaimed cloud-based
platform including EHR, PM and patient experience capabilities. During June 2020, we acquired Meridian, a former GE
Healthcare IT company that delivers healthcare information technology solutions, including robotic process automation and
electronic health records and business analytic platforms, and services to thousands of healthcare providers nationwide. The
principal benefits expected to result from our acquisitions of CareCloud and Meridian will not be fully achieved unless we
are able to successfully integrate the operations of CareCloud and Meridian with our current business operations and realize
the anticipated synergies, cost savings and growth opportunities from such integration. Challenges we may face in this regard
include, but are not limited to: (i) estimating the capital, personnel and equipment required for proper integration; (ii)
minimizing potential adverse effects on existing business relationships; (iii) enhancing the technology platform; and (iv)
successfully developing and marketing CareCloud’s and Meridian’s products and services. Any difficulties we may
experience in connection with the integration of CareCloud or Meridian could delay or prevent us from realizing such expected
benefits and enhancing our business, and our business, financial condition and results of operation could be materially and
adversely impacted. In addition, we have not provided any pro forma financial statements giving effect to the acquisition
of Meridian, because we are not required to do so pursuant to applicable SEC rules and regulation, therefore it may be more
difficult for investors to evaluate the financial and economic impact of the Meridian acquisition. See “Unaudited Pro
Forma Condensed Combined Financial Statements” and related notes thereto.
We
may be unable to retain customers following their acquisition, which may result in a decrease in our revenues and operating results.
Customers
of the businesses we acquire often have the right to terminate their service contracts for any reason at any time upon notice
of 90 days or less. These customers may elect to terminate their contracts as a result of our acquisition or choose not to renew
their contracts upon expiration. Legal and practical limitations on our ability to enforce non-competition and non-solicitation
provisions against customer representatives and sales personnel that leave the businesses we acquire to join competitors may result
in the loss of acquired customers. In the past, our failure to retain acquired customers has at times resulted in decreases in
our revenues. Our inability to retain customers of businesses we acquire could adversely affect our ability to benefit from those
acquisitions and to grow our future revenues and operating income.
Acquisitions
may subject us to liability with regard to the creditors, customers, and shareholders of the sellers.
While
we attempt to limit our exposure to the liabilities associated with the businesses we acquire, we cannot guarantee that we will
be successful in avoiding all material liability. Regardless of how we structure the acquisition, whether as an asset purchase,
stock purchase, merger or other business combination, creditors, customers, vendors, governmental agencies and other parties at
times seek to hold us accountable for unpaid debts, breach of contract claims, regulatory violations and other liabilities that
relate to the business we acquired. Disaffected shareholders of the businesses we acquire have also attempted to interfere with
our business acquisitions or brought claims against us. We attempt to minimize all of these risks through thorough due diligence,
negotiating indemnities and holdbacks, obtaining relevant representations from sellers, procuring insurance coverage and leveraging
experienced professionals when appropriate.
Through
the CareCloud transaction, we acquired its software technology and related business, of which certain elements are currently subject
to a civil investigation to determine compliance with certain federal regulatory requirements. The Company will cooperate with
the inquiry as CareCloud has historically done. This element was considered as part of the transaction and we believe that the
continued investigation will have no material impact on our financial statements and that we have properly protected ourselves
from liability through the negotiated structure of the transaction. However, the outcome of matters such as this are not necessarily
predictable. In the event of an unfavorable outcome, our business, reputation, and financial condition could be materially and
adversely affected.
We
may be unable to implement our strategy of acquiring additional companies.
We
have no unconditional commitments with respect to any acquisition as of the date of this prospectus. Although we expect that one
or more acquisition opportunities will become available in the future, we may not be able to acquire additional companies at all
or on terms favorable to us. We will likely need additional financing for such acquisitions, but there is no assurance that we
will be able to borrow funds or raise capital through the issuance of our equity on favorable terms. Certain of our larger, better
capitalized competitors may seek to acquire some of the companies we may be interested in. Competition for acquisitions would
likely increase acquisition prices and result in us having fewer acquisition opportunities.
Depending
on the type of businesses we acquire (e.g., RCM, practice management, EHR), we may have varying cost saving and/or cross-selling
opportunities with the acquired business. However, there is no assurance that we will achieve anticipated cost savings and cross-selling
on our acquisitions, and failure to do so may mean we overpaid for such acquisitions.
In
completing any future acquisitions, we will rely upon the representations, warranties and indemnities made by the sellers with
respect to each acquisition as well as our own due diligence investigation. We cannot be assured that such representations and
warranties will be true and correct or that our due diligence will uncover all materially adverse facts relating to the operations
and financial condition of the acquired companies or their customers. To the extent that we are required to pay for obligations
of an acquired company, or if material misrepresentations exist, we may not realize the expected benefit from such acquisition
and we will have overpaid in cash and/or stock for the value received in that acquisition.
Future
acquisitions may result in potentially dilutive issuances of Series A Preferred Stock or other equity securities, the incurrence
of indebtedness and increased amortization expense.
Future
acquisitions may result in dilutive issuances of Series A Preferred Stock or other equity securities, the incurrence of debt,
the assumption of known and unknown liabilities, the write-off of software development costs and the amortization of expenses
related to intangible assets, all of which could have an adverse effect on our business, financial condition and results of operations.
Risks
Related to Our Business
We
operate in a highly competitive industry, and our competitors may be able to compete more efficiently or evolve more rapidly than
we do, which could have a material adverse effect on our business, revenue, growth rates and market share.
The
market for practice management, healthcare IT solutions and related services is highly competitive, and we expect competition
to increase in the future. We face competition from other providers of both integrated and standalone practice management, EHR
and RCM solutions, including competitors who utilize a web-based platform and providers of locally installed software systems.
Our competitors include larger healthcare IT companies, such as athenahealth, Inc., eClinicalWorks, Allscripts Healthcare Solutions,
Inc. and Greenway Medical Technologies, Inc., all of which may be able to respond more quickly and effectively than we can to
new or changing opportunities, technologies, standards, regulations or customer needs and requirements. Many of our competitors
have longer operating histories, greater brand recognition and greater financial, marketing and other resources than us. Further,
in light of the COVID-19 pandemic, existing or new competitors may develop or further invest in telehealth and remote medicine
programs and ventures, which would compete with our telemedicine solution. We also compete with various regional RCM companies,
some of which may continue to consolidate and expand into broader markets. We expect that competition will continue to increase
as a result of incentives provided by the Health Information Technology for Economic and Clinical Health (“HITECH”)
Act, and consolidation in both the information technology and healthcare industries. Competitors may introduce products or services
that render our products or services obsolete or less marketable. Even if our products and services are more effective than the
offerings of our competitors, current or potential customers might prefer competitive products or services to our products and
services. In addition, our competitive edge could be diminished or completely lost if our competition develops similar offshore
operations in Pakistan or other countries, such as India and the Philippines, where labor costs are lower than those in the U.S.
(although higher than in Pakistan). Pricing pressures could negatively impact our margins, growth rate and market share.
If
we are unable to successfully introduce new products or services or fail to keep pace with advances in technology, we would not
be able to maintain our customers or grow our business which will have a material adverse effect on our business.
Our
business depends on our ability to adapt to evolving technologies and industry standards and upgrade existing and introduce new
products and services accordingly. If we cannot adapt to changing technologies and industry standards, including changing requirements
of third-party applications and software and meet the requirements of our customers, our products and services may become obsolete,
and our business would suffer significantly. Because both the healthcare industry and the healthcare IT technology market are
constantly evolving, our success will depend, in part, on our ability to continue to enhance our existing products and services,
develop new technology that addresses the increasingly sophisticated and varied needs of our customers, respond to technological
advances and emerging industry standards and practices on a timely and cost-effective basis, educate our customers to adopt these
new technologies, and successfully assist them in transitioning to our new products and services. The development of our proprietary
technology entails significant technical and business risks. We may not be successful in developing, using, marketing, selling,
or maintaining new technologies effectively or adapting our proprietary technology to evolving customer requirements, emerging
industry standards or changing third-party applications, and, as a result, our business and reputation could materially suffer.
We may not be able to introduce new products or services on schedule, or at all, or such products or services may not achieve
market acceptance or existing products or services may cease to function properly. A failure by us to timely adapt to ever changing
technologies or our failure to regularly upgrade existing or introduce new products or to introduce these products on schedule
could cause us to not only lose our current customers but also fail to attract new customers.
The
continued success of our business model is heavily dependent upon our offshore operations, and any disruption to those operations
will adversely affect us.
The
majority of our operations, including the development and maintenance of our web-based platform, our customer support services
and medical billing activities, are performed by our highly educated workforce of approximately 2,500 employees in Pakistan and
Sri Lanka. Approximately 98% of our offshore employees are in Pakistan and our remaining employees are located at our smaller
offshore operation center in Sri Lanka. The performance of our operations in Pakistan, and our ability to maintain our offshore
offices, is an essential element of our business model, as the labor costs in Pakistan are substantially lower than the cost of
comparable labor in India, the United States and other countries, and allows us to competitively price our products and services.
Our competitive advantage will be greatly diminished and may disappear altogether if our operations in Pakistan are negatively
impacted.
Pakistan
and Sri Lanka have experienced, and continue to experience, political and social unrest, war and acts of terrorism, and the effects
of COVID-19. Our operations in our offshore locations may be negatively impacted by these and a number of other factors, including
a failing power grid and infrastructure, vandalism, currency fluctuations, cost of labor and supplies, and changes in local law
as well as laws within the United States relating to these countries. Client mandates or preferences for on-shore service providers
may also adversely impact our business model. Our operations in Pakistan and Sri Lanka may also be affected by trade restrictions,
such as tariffs or other trade controls. If we are unable to continue to leverage the skills and experience of our highly educated
workforce, particularly in Pakistan, we may be unable to provide our products and services at attractive prices, and our business
would be materially and negatively impacted or discontinued.
We
believe that the labor costs in Pakistan and Sri Lanka are approximately 10% of the cost of comparably educated and skilled workers
in the U.S. If there were potential disruptions in any of these locations, they could have a negative impact on our business.
Future
changes in visa rules could prevent our offshore employees from entering the United States, which could decrease our efficiency.
In
the ordinary course of business, we bring skilled employees from our offshore subsidiaries to the U.S. to serve as liaisons on
projects and to expand the respective employees’ understanding of both the U.S. healthcare industry and the needs and expectations
of our customers. These visits equip them to better understand and support our business objectives. While the current administration’s
actions up to this point have not had an impact on us, we cannot predict whether the administration may in the future take actions
that would prevent non-U.S. employees from visiting the U.S. If such restrictions were implemented in the future, it may become
more difficult or expensive for us to educate and equip the employees of our foreign subsidiaries to support our business needs.
We may also have difficulty in finding employees and contractors in the U.S that can replace the functions now performed by our
offshore employees that we bring over to the U.S., which could negatively impact our business.
Our
offshore operations expose us to additional business and financial risks which could adversely affect us and subject us to civil
and criminal liability.
The
risks and challenges associated with our operations outside the United States include laws and business practices favoring local
competitors; compliance with multiple, conflicting and changing governmental laws and regulations, including employment and tax
laws and regulations; and fluctuations in foreign currency exchange rates. Foreign operations subject us to numerous stringent
U.S. and foreign laws, including the Foreign Corrupt Practices Act (“FCPA”), and comparable foreign laws and regulations
that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S.
and other business entities for the purpose of obtaining or retaining business. Safeguards we implement to discourage these practices
may prove to be less than effective and violations of the FCPA and other laws may result in severe criminal or civil sanctions,
or other liabilities or proceedings against us, including class action lawsuits and enforcement actions from the SEC, Department
of Justice and overseas regulators.
Changes
in the healthcare industry could affect the demand for our services and may result in a decrease in our revenues and market share.
As
the healthcare industry evolves, changes in our customer base may reduce the demand for our services, result in the termination
of existing contracts, and make it more difficult to negotiate new contracts on terms that are acceptable to us. For example,
the current trend toward consolidation of healthcare providers may cause our existing customer contracts to terminate as independent
practices are merged into hospital systems or other healthcare organizations. Such larger healthcare organizations may have their
own practice management, and EHR and RCM solutions, reducing demand for our services. If this trend continues, we cannot assure
you that we will be able to continue to maintain or expand our customer base, negotiate contracts with acceptable terms, or maintain
our current pricing structure, which would result in a decrease in our revenues and market share.
The
current administration and some members of Congress have been critical of the Affordable Care Act (“ACA”) and have
taken steps toward materially revising or even repealing it. On December 14, 2018, a federal judge in Texas ruled the ACA unconstitutional.
The decision declared that key parts of the legislation were inconsistent with the Constitution. The decision is still making
its way through the courts and has not made an impact on the exchanges which are still open. As of now, there has been no impact
to the coverage plans and no final ruling. The ACA included specific reforms for the individual and small group marketplace, including
an expansion of Medicaid. We can give no assurances that healthcare reform initiatives, if passed, will not have a material adverse
impact on our operational results or the manner in which we operate our business.
If
providers do not purchase our products and services or delay in choosing our products or services, we may not be able to grow
our business.
Our
business model depends on our ability to sell our products and services. Acceptance of our products and services may require providers
to adopt different behavior patterns and new methods of conducting business and exchanging information. Providers may not integrate
our products and services into their workflow and may not accept our solutions and services as a replacement for traditional methods
of practicing medicine. Providers may also choose to buy our competitors’ products and services instead of ours. Achieving
market acceptance for our solutions and services will continue to require substantial sales and marketing efforts and the expenditure
of significant financial and other resources to create awareness and demand by providers. If providers fail to broadly accept
our products and services, our business, financial condition and results of operations will be adversely affected.
If
the revenues of our customers decrease, or if our customers cancel or elect not to renew their contracts, our revenue will decrease.
Under
most of our customer contracts, we base our charges on a percentage of the revenue that our customer collects through the use
of our services. Many factors may lead to decreases in customer revenue, including:
|
●
|
reduction
of customer revenue as a result of changes to the ACA;
|
|
|
|
|
●
|
a
rollback of the expansion of Medicaid or other governmental programs;
|
|
|
|
|
●
|
reduction
of customer revenue resulting from increased competition or other changes in the marketplace for physician services;
|
|
|
|
|
●
|
failure
of our customers to adopt or maintain effective business practices;
|
|
|
|
|
●
|
actions
by third-party payers of medical claims to reduce reimbursement;
|
|
|
|
|
●
|
government
regulations and government or other payer actions or inaction reducing or delaying reimbursement;
|
|
|
|
|
●
|
interruption
of customer access to our system; and
|
|
|
|
|
●
|
our
failure to provide services in a timely or high-quality manner.
|
We
have incurred operating losses and net losses, and we may not be able to achieve or subsequently maintain profitability in the
future.
We
incurred net losses of approximately $872,000 and $2.1 million for the years ended December 31, 2019 and 2018, respectively, and
CareCloud and Meridian, which were both acquired in 2020, incurred net losses in these years as well. Our net loss for the three
months ended March 31, 2020 was approximately $2.5 million. The three months ended March 31, 2020 and the years ended December
31, 2019 and 2018, include approximately $1.0 million, $1.9 million and $1.8 million of non-cash amortization expense of purchased
intangible assets, respectively.
We
may not succeed in achieving the efficiencies we anticipate from our acquisitions and possible future acquisitions, including
moving sufficient labor to our offshore locations to offset increased costs resulting from these acquisitions, and we may continue
to incur losses in future periods. We expect to incur additional operating expenses as a public company and we intend to continue
to increase our operating expenses as we grow our business. We also expect to continue to make investments in our proprietary
technology, sales and marketing, infrastructure, facilities and other resources as we seek to grow, thereby incurring additional
costs. If we are unable to generate adequate revenue growth and manage our expenses, we may continue to incur losses in the future
and may not be able to achieve or maintain profitability.
Our
business, financial condition, results of operations and growth could be harmed by the effects of the COVID-19 pandemic.
We
are subject to risks related to the public health crises such as the global pandemic associated with the coronavirus (COVID-19).
In December 2019, a novel strain of coronavirus, SARS-CoV-2, was reported to have surfaced in Wuhan, China. Since then, SARS-CoV-2,
and the resulting disease COVID-19, has spread to most countries, and all 50 states within the United States. In March 2020, the
World Health Organization declared the COVID-19 outbreak a pandemic. Further, the President of the United States declared the
COVID-19 pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency
disaster response, and under the Defense Production Act, the legislation that facilitates
the production of goods and services necessary for national security and for other purposes. Numerous governmental jurisdictions,
including the State of New Jersey where we maintain our principal executive offices, and those in which many of our U.S. and international
offices are based, have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive
orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Most states and the
federal government, including the State of New Jersey, together with foreign jurisdictions in which we have operations centers,
have declared a state of emergency related to the spread of COVID-19. Such orders or restrictions, and the perception that such
orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies,
travel restrictions and cancellation of events, among other effects, thereby negatively impacting our customers, employees, and
offices, among others. We may experience further limitations on employee resources in the future, including because of sickness
of employees or their families. These challenges have been, and are anticipated to continue being, particularly difficult to manage
in foreign jurisdictions in which we have offices due to, among other things, a reduced ability to enable efficient and secure
work-from-home.
Health
care organizations around the world, including our health care provider customers, have faced and will continue to face, substantial
challenges in treating patients with COVID-19, such as the diversion of staff and resources from ordinary functions to the treatment
of COVID-19, supply, resource and capital shortages and overburdening of staff and resource capacity. In the United States, governmental
authorities have also recommended, and in certain cases required, that elective, specialty and other procedures and appointments,
including certain primary care services, be suspended or canceled to avoid non-essential patient exposure to medical environments
and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19.
These measures and challenges will likely continue for the duration of the pandemic, which is uncertain, and will disproportionately
harm the results of operations, liquidity and financial condition of these health care organizations and our health care provider
customers. As a result, our health care provider customers may seek contractual accommodations from us in the future. To the extent
such health care provider customers experience challenges and difficulties, it will adversely affect our business operation and
results of operations. We note, for example, that approximately 65% of our revenue is directly tied to the cash collected by our
health care provider customers, which means that our short-term revenue has and is expected to decline as less patients visit
their doctors during periods of social distancing. Further, a recession or prolonged economic contraction as a result of COVID-19
pandemic could also harm the business and results of operations of our enterprise customers, resulting in potential business closures,
layoffs of employees and a significant increase in unemployment in the United States and elsewhere which may continue even after
the pandemic. The occurrence of any such events may lead to reduced income for customers and reduced size of workforces, which
could reduce our revenue and harm our business, financial condition and results of operations.
The
widespread COVID-19 pandemic has resulted in, and may continue to result in, significant volatility and uncertainty in U.S and
international financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.
In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the
value of our common stock and Preferred Stock.
Further, given the dislocation and government-imposed
travel related limitations as a consequence of the COVID-19 pandemic, our ability to complete acquisitions in the near-term may
be delayed. Future acquisitions may be subject to difficulties in evaluating potential acquisition targets as a result of the
inability to accurately predict the duration or long-term economic and business consequences resulting from the COVID-19 pandemic.
As described under the risk factor “Risks
Related to Our Acquisition Strategy - We may be unable to successfully integrate operations or to achieve expected growth from
our recent acquisitions of CareCloud and Meridian,” any difficulties we may experience in connection with the integration
of CareCloud or Meridian could delay or prevent us from realizing such expected benefits and enhancing our business, and our business,
financial condition and results of operation could be materially and adversely impacted. While we are working diligently to accelerate
integration activities, the employee disruptions and communication challenges created by the COVID-19 pandemic present particular
challenges to our integration of CareCloud and Meridian and could make it difficult to effectively and timely complete our integration
goals.
The
global outbreak of COVID-19 continues to rapidly evolve. We have taken steps intended to mitigate the effects of the pandemic
and to protect our global workforce including, but not limited to: moving a significant portion of our workforce to remote operations,
enacting social distancing and hygiene guidelines set forth by the Centers for Disease Control and Prevention and World Health
Organization at our offices, and discontinuing company travel and events, among others. Although we believe we have taken the
appropriate actions, we cannot guarantee that these measures will mitigate all or any negative effects of the pandemic. The ultimate
impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We cannot at this time
precisely predict what effects the COVID-19 outbreak will have on our business, results of operations and financial condition,
including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration
of the pandemic and the governmental responses to the pandemic. However, we will continue to monitor the COVID-19 situation closely.
In
addition, given the inherent uncertainty surrounding COVID-19 due to rapidly changing governmental directives, public health challenges
and economic disruption and the duration of the foregoing, the potential impact that COVID-19 could have on the other Risk Factors
described in this “Risk Factors” section and the Risk Factors contained in and incorporated by reference herein remain
unclear.
Member
participation in our Group Purchasing Organization (“GPO”) programs may be terminated with limited or no notice and
without significant termination payments. If our members reduce activity levels or terminate or elect not to renew their contracts,
our revenue and results of operations may decrease.
As
part of the Orion acquisition in 2018, we acquired GPO program relationships. The GPO participation agreements are generally for
an initial two-year term, and the option to renew for additional one-year terms. The GPO participation agreements are generally
terminable by either party by providing written notice to the other.
There
can be no assurance that the members will extend or renew their GPO participation agreements. Failure of these members to renew
their GPO participation agreements may adversely impact our revenue and results of operations.
Our
success in retaining member participation in our GPO program depends upon our reputation, strong relationships with such members
and our ability to deliver consistent, reliable and high quality products and services; a failure in any of these areas may result
in the loss of members. In addition, members may seek to reduce, cancel or elect not to renew their contracts due to factors that
are beyond our control and are unrelated to our performance, including their business or financial condition, changes in their
strategies or business plans, their acquisition, or economic conditions in general. When contracts are reduced, canceled or not
renewed for any reason, we lose the anticipated future revenue associated with such contracts and consequently, our revenue and
results of operations may decrease.
We
rely on the administrative fees we receive from our GPO suppliers, and the failure to maintain contracts with these GPO suppliers
could have a generally negative effect on our relationships with our members and could affect our business, financial condition
and results of operations.
We
derive some of our revenue from the administrative fees that we receive from our GPO suppliers. We maintain contractual relationships
with these suppliers which provide products and services to our members at reduced costs and which pay us administrative fees
based on the dollars spent by our members for such products and services. Our contracts with these GPO suppliers generally may
be terminated upon 90 days’ notice. A termination of any relationship or agreement with a GPO supplier would result in the
loss of administrative fees. In addition, if we lose a relationship with a GPO supplier, we may not be able to negotiate similar
arrangements for our members and our ability to maintain our member agreements may be impacted.
As
a result of our variable sales and implementation cycles, we may be unable to recognize revenue from prospective customers on
a timely basis and we may not be able to offset expenditures.
The
sales cycle for our services can be variable, typically ranging from two to four months from initial contact with a potential
customer to contract execution, although this period can be substantially longer. During the sales cycle, we expend time and resources
in an attempt to obtain a customer without recognizing revenue from that customer to offset such expenditures. Our implementation
cycle is also variable, typically ranging from two to four months from contract execution to completion of implementation. Each
customer’s situation is different, and unanticipated difficulties and delays may arise as a result of a failure by us or
by the customer to meet our respective implementation responsibilities. During the implementation cycle, we expend substantial
time, effort, and financial resources implementing our services without recognizing revenue. Even following implementation, there
can be no assurance that we will recognize revenue on a timely basis or at all from our efforts. In addition, cancellation of
any implementation after it has begun may involve loss to us of time, effort, and expenses invested in the canceled implementation
process, and lost opportunity for implementing paying customers in that same period of time.
As
a result of the Wayfair decision and changes in various states’ laws, we are required to collect sales and use taxes on
certain products and services we sell in certain jurisdictions. We may be subject to liability for past sales and incur additional
related costs and expenses, and our future sales may decrease.
We
may lose sales or incur significant expenses should states be successful in imposing additional state sales and use taxes on our
products and services. A successful assertion by one or more states that we should collect sales or other taxes on the sale of
our products and services that we are currently not collecting could result in substantial tax liabilities for past sales, decrease
our ability to compete with healthcare IT vendors not subject to sales and use taxes, and otherwise harm our business. Each state
has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations
that may change over time. We review these rules and regulations periodically and, when we believe that our products or services
are subject to sales and use taxes in a particular state, we voluntarily approach state tax authorities in order to determine
how to comply with their rules and regulations. We cannot assure you that we will not be subject to sales and use taxes or related
penalties for past sales in states where we believe no compliance is necessary.
If
the federal government were to impose a tax on imports or services performed abroad, we might be subject to additional liabilities.
At this time, there is no way to predict whether this will occur or estimate the impact on our business.
Vendors
of products and services like us are typically held responsible by taxing authorities for the collection and payment of any applicable
sales and similar taxes. If one or more taxing authorities determines that taxes should have, but have not, been paid with respect
to our products or services, we may be liable for past taxes in addition to taxes going forward. Liability for past taxes may
also include very substantial interest and penalty charges. Nevertheless, customers may be reluctant to pay back taxes and may
refuse responsibility for interest or penalties associated with those taxes. If we are required to collect and pay back taxes
and the associated interest and penalties, and if our customers fail or refuse to reimburse us for all or a portion of these amounts,
we will have incurred unplanned expenses that may be substantial. Moreover, imposition of such taxes on our products and services
going forward will effectively increase the cost of those products and services to our customers and may adversely affect our
ability to retain existing customers or to gain new customers in the states in which such taxes are imposed.
We
may also become subject to tax audits or similar procedures in states where we already pay sales and use taxes. The incurrence
of additional accounting and legal costs and related expenses in connection with, and the assessment of, taxes, interest, and
penalties as a result of audits, litigation, or otherwise could be materially adverse to our current and future results of operations
and financial condition.
If
we lose the services of Mahmud Haq, Stephen Snyder, A. Hadi Chaudhry or other members of our management team, or if we are unable
to attract, hire, integrate and retain other necessary employees, our business would be harmed.
Our
future success depends in part on our ability to attract, hire, integrate and retain the members of our management team and other
qualified personnel. In particular, we are dependent on the services of Mahmud Haq, our founder, principal stockholder and Executive
Chairman, Stephen Snyder, our Chief Executive Officer and A. Hadi Chaudhry, our President. Mr. Haq is instrumental in managing
our offshore operations in Pakistan and coordinating those operations with our U.S. activities. The loss of Mr. Haq, who would
be particularly difficult to replace, could negatively impact our ability to effectively manage our cost-effective workforce in
Pakistan, which enables us to provide our products and solutions at attractive prices. Our future success also depends on the
continued contributions of our other executive officers and certain key employees, each of whom may be difficult to replace, and
upon our ability to attract and retain additional management personnel. Competition for such personnel is intense, and we compete
for qualified personnel with other employers. We may face difficulty identifying and hiring qualified personnel at compensation
levels consistent with our existing compensation and salary structure. If we fail to retain our employees, we could incur significant
expenses in hiring, integrating and training their replacements, and the quality of our services and our ability to serve our
customers could diminish, resulting in a material adverse effect on our business.
We
may be unable to adequately establish, protect or enforce our patents, trade secrets and other intellectual property rights.
Our
success depends in part upon our ability to establish, protect and enforce our patents, trade secrets and other intellectual property
and proprietary rights. If we fail to establish, protect or enforce these rights, we may lose customers and important advantages
in the market in which we compete. We rely on a combination of patent, trademark, copyright and trade secret law and contractual
obligations to protect our key intellectual property rights, all of which provide only limited protection. Our intellectual property
rights may not be sufficient to help us maintain our position in the market and our competitive advantages.
Trade
secrets may not be protectable if not properly kept confidential. We strive to enter into non-disclosure agreements with our employees,
customers, contractors and business partners to limit access to and disclosure of our proprietary information. However, the steps
we have taken may not be sufficient to prevent unauthorized use of our customer information, technology, and adequate remedies
may not be available in the event of unauthorized use or disclosure of our trade secrets and proprietary information. Our ability
to protect the trade secrets of our acquired companies from disclosure by the former employees of these acquired entities may
be limited by law in the jurisdiction in which the acquired company and/or former employee resides, and/or where the disclosure
occurred, and this leaves us vulnerable to the solicitation of the customers we acquire by former employees of the acquired business
that join our competitors.
Accordingly,
despite our efforts, we may be unable to prevent third parties from using our intellectual property for their competitive advantage.
Any such use could have a material adverse effect on our business, results of operations and financial condition. Monitoring unauthorized
uses of and enforcing our intellectual property rights can be difficult and costly. Legal intellectual property actions are inherently
uncertain and may not be successful, and may require a substantial amount of resources and divert our management’s attention.
Claims
by others that we infringe their intellectual property could force us to incur significant costs or revise the way we conduct
our business.
Our
competitors protect their proprietary rights by means of patents, trade secrets, copyrights, trademarks and other intellectual
property. We have not conducted an independent review of patents and other intellectual property issued to third parties, who
may have patents or patent applications relating to our proprietary technology. We may receive letters from third parties alleging,
or inquiring about, possible infringement, misappropriation or violation of their intellectual property rights. Any party asserting
that we infringe, misappropriate or violate proprietary rights may force us to defend ourselves, and potentially our customers,
against the alleged claim. These claims and any resulting lawsuit, if successful, could subject us to significant liability for
damages and/or invalidation of our proprietary rights or interruption or cessation of our operations. Any such claims or lawsuit
could:
|
●
|
be
time-consuming and expensive to defend, whether meritorious or not;
|
|
|
|
|
●
|
require
us to stop providing products or services that use the technology that allegedly infringes the other party’s intellectual
property;
|
|
|
|
|
●
|
divert
the attention of our technical and managerial resources;
|
|
|
|
|
●
|
require
us to enter into royalty or licensing agreements with third parties, which may not be available on terms that we deem acceptable;
|
|
|
|
|
●
|
prevent
us from operating all or a portion of our business or force us to redesign our products, services or technology platforms,
which could be difficult and expensive and may make the performance or value of our product or service offerings less attractive;
|
|
|
|
|
●
|
subject
us to significant liability for damages or result in significant settlement payments; and/or
|
|
|
|
|
●
|
require
us to indemnify our customers.
|
Furthermore,
during the course of litigation, confidential information may be disclosed in the form of documents or testimony in connection
with discovery requests, depositions or trial testimony. Disclosure of our confidential information and our involvement in intellectual
property litigation could materially adversely affect our business. Some of our competitors may be able to sustain the costs of
intellectual property litigation more effectively than we can because they have substantially greater resources. In addition,
any litigation could significantly harm our relationships with current and prospective customers. Any of the foregoing could disrupt
our business and have a material adverse effect on our business, operating results and financial condition.
We
may be unable to protect, and we may incur significant costs in enforcing, our intellectual property rights.
Our
patents, trademarks, trade secrets, copyrights, and other intellectual property rights are important assets to us. Various events
outside of our control pose a threat to our intellectual property rights, as well as to our products, services, and technologies.
For instance, any of our current or future intellectual property rights may be challenged by others or invalidated through administrative
process or litigation. Any of our pending or future patent applications, whether or not being currently challenged, may not be
issued with the scope of the claims we seek, if at all.
We
have taken efforts to protect our proprietary rights, including a combination of license agreements, confidentiality policies
and procedures, confidentiality provisions in employment agreements, confidentiality agreements with third parties, and technical
security measures, as well as our reliance on copyright, patent, trademark, trade secret and unfair competition laws. These efforts
may not be sufficient or effective. For example, the secrecy of our trade secrets or other confidential information could be compromised
by our employees or by third parties, which could cause us to lose the competitive advantage resulting from those trade secrets
or confidential information. Unauthorized third parties may try to copy or reverse engineer portions of our products or otherwise
infringe upon, misappropriate or use our intellectual property. We may not be able to discover or determine the extent of any
unauthorized use of our proprietary rights. We may also conclude that, in some instances, the benefits of protecting our intellectual
property rights may be outweighed by the expense.
In
addition, our platforms incorporate “open source” software components that are licensed to us under various public
domain licenses. Open source license terms are often ambiguous, and there is little or no legal precedent governing the interpretation
of many of the terms of certain of these licenses. Therefore, the potential impact of such terms on our business is somewhat unknown.
Further, some enterprises may be reluctant or unwilling to use cloud-based services, because they have concerns regarding the
risks associated with the security and reliability, among other things, of the technology delivery model associated with these
services. If enterprises do not perceive the benefits of our services, then the market for these services may not expand as much
or develop as quickly as we expect, either of which would adversely affect our business, financial condition, or operating results.
Legal
standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain and still
evolving. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States,
and effective intellectual property protection may not be available in every country in which our products and services are distributed.
Any
impairment of our intellectual property rights, or our failure to protect our intellectual property rights adequately, could give
our competitors’ access to our technology and could materially and adversely impact our business and operating results.
Any increase in the unauthorized use of our intellectual property could also divert the efforts of our technical and management
personnel and result in significant additional expense to us, which could materially and adversely impact our operating results.
Finally, we may be required to spend significant resources to monitor and protect our intellectual property rights, including
with respect to legal proceedings, which could result in substantial costs and diversion of resources and could materially and
adversely impact our business, financial condition and operating results.
Current
and future litigation against us could be costly and time-consuming to defend and could result in additional liabilities.
We
may from time to time be subject to legal proceedings and claims that arise in the ordinary course of business, such as claims
brought by current and former clients in connection with commercial disputes and employment claims made by our current or former
employees. Claims may also be asserted by or on behalf of a variety of other parties, including government agencies, patients
of our physician clients, stockholders, the sellers of the businesses that we acquire, or the creditors of the businesses we acquire.
Any litigation involving us may result in substantial costs and may divert management’s attention and resources, which may
seriously harm our business, overall financial condition, and operating results. Insurance may not cover existing or future claims,
be sufficient to fully compensate us for one or more of such claims, or continue to be available on terms acceptable to us. A
claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby reducing our operating
results and leading analysts or potential investors to reduce their expectations of our performance resulting in a reduction in
the trading price of our stock.
Our
proprietary software or service delivery platform (including the platform we acquired through CareCloud, Meridian and other acquisitions)
may not operate properly, which could damage our reputation, give rise to claims against us, or divert application of our resources
from other purposes, any of which could harm our business and operating results.
We
may encounter human or technical obstacles that prevent our proprietary or acquired applications from operating properly. If our
applications do not function reliably or fail to achieve customer expectations in terms of performance, customers could assert
liability claims against us or attempt to cancel their contracts with us. This could damage our reputation and impair our ability
to attract or maintain customers.
There
are particular risks when we inherit technologies through the companies we acquire. These technologies, often developed by distressed
companies, were not created under our direct supervision and control and therefore may not have been developed in accordance with
our standards. Such acquired technologies could, and at times do, contain operational deficiencies, outdated code such as Adobe
Flash technology, defects, glitches or bugs that may not be discovered immediately or otherwise could have been avoided had we
built the technology ourselves. Whether technology we develop or technology we acquire, we will need to replace certain components
and remediate software defects or bugs from time to time. There can be no assurance that such defects or bugs, or the process
of remediating them or otherwise updating our technology, will not have a material impact on our business. Our inability to promptly
and cost-effectively correct a product defect or otherwise update our technology could result in the Company having to withdraw
an important product from market, damage to our reputation, and result in material costs and expenses, any of which could have
a material impact on our revenue, margins, and operating results.
Moreover,
information services as complex as those we offer have in the past contained, and may in the future develop or contain, undetected
defects or errors. We cannot assure you that material performance problems or defects in our products or services will not arise
in the future. Errors may result from receipt, entry, or interpretation of patient information or from interface of our services
with legacy systems and data that we did not develop and the function of which is outside of our control. Despite testing, defects
or errors may arise in our existing or new software or service processes. Because changes in payer requirements and practices
are frequent and sometimes difficult to determine except through trial and error, we are continuously discovering defects and
errors in our software and service processes compared against these requirements and practices. These defects and errors and any
failure by us to identify and address them could result in loss of revenue or market share, liability to customers or others,
failure to achieve market acceptance or expansion, diversion of development resources, injury to our reputation, and increased
service and maintenance costs. Defects or errors in our software might discourage existing or potential customers from purchasing
our products and services. Correction of defects or errors could prove to be impossible or impracticable. The costs incurred in
correcting any defects or errors or in responding to resulting claims or liability may be substantial and could adversely affect
our operating results.
In
addition, customers relying on our services to collect, manage, and report clinical, business, and administrative data may have
a greater sensitivity to service errors and security vulnerabilities than customers of software products in general. We market
and sell services that, among other things, provide information to assist healthcare providers in tracking and treating patients.
Any operational delay in or failure of our technology or service processes may result in the disruption of patient care and could
cause harm to patients and thereby create unforeseen liabilities for our business.
Our
customers or their patients may assert claims against us alleging that they suffered damages due to a defect, error, or other
failure of our software or service processes. A product liability claim or errors or omissions claim could subject us to significant
legal defense costs and adverse publicity, regardless of the merits or eventual outcome of such a claim.
The
physicians who are our customers have relied on our platforms (including the platforms we acquired through CareCloud and Meridian)
as being certified by the office of the National Coordinator for Health Information Technology (“ONC”). If this certification
were to be challenged, we might face liability related to any incentive that the physicians received in reliance upon such certification.
If
our security measures are breached or fail and unauthorized access is obtained to a customer’s data, our service may be
perceived as insecure, the attractiveness of our services to current or potential customers may be reduced, and we may incur significant
liabilities.
Our
services involve the web-based storage and transmission of customers’ proprietary information and patient information, including
health, financial, payment and other personal or confidential information. We rely on proprietary and commercially available systems,
software, tools and monitoring, as well as other processes, to provide security for processing, transmission and storage of such
information. Because of the sensitivity of this information and due to requirements under applicable laws and regulations, the
effectiveness of our security efforts is very important. We maintain servers, which store customers’ data, including patient
health records, in the U.S. and offshore. We also process, transmit and store some data of our customers on servers and networks
that are owned and controlled by third-party contractors in India and elsewhere. If our security measures are breached or fail
as a result of third-party action, acts of terror, social unrest, employee error, malfeasance or for any other reasons, someone
may be able to obtain unauthorized access to customer or patient data. Improper activities by third parties, advances in computer
and software capabilities and encryption technology, new tools and discoveries and other events or developments may facilitate
or result in a compromise or breach of our security systems. Our security measures may not be effective in preventing unauthorized
access to the customer and patient data stored on our servers. If a breach of our security occurs, we could face damages for contract
breach, penalties for violation of applicable laws or regulations, possible lawsuits by individuals affected by the breach and
significant remediation costs and efforts to prevent future occurrences. In addition, whether there is an actual or a perceived
breach of our security, the market perception of the effectiveness of our security measures could be harmed and we could lose
current or potential customers.
Our
products and services are required to meet the interoperability standards, which could require us to incur substantial additional
development costs or result in a decrease in revenue.
Our
customers and the industry leaders enacting regulatory requirements are concerned with and often require that our products and
services be interoperable with other third-party healthcare information technology suppliers. Market forces or regulatory authorities
could create software interoperability standards that would apply to our solutions, and if our products and services are not consistent
with those standards, we could be forced to incur substantial additional development costs. There currently exists a comprehensive
set of criteria for the functionality, interoperability and security of various software modules in the healthcare information
technology industry. However, those standards are subject to continuous modification and refinement. Achieving and maintaining
compliance with industry interoperability standards and related requirements could result in larger than expected software development
expenses and administrative expenses in order to conform to these requirements. These standards and specifications, once finalized,
will be subject to interpretation by the entities designated to certify such technology. We will incur increased development costs
in delivering solutions if we need to change or enhance our products and services to be in compliance with these varying and evolving
standards. If our products and services are not consistent with these evolving standards, our market position and sales could
be impaired and we may have to invest significantly in changes to our solutions.
Disruptions
in Internet or telecommunication service or damage to our data centers could adversely affect our business by reducing our customers’
confidence in the reliability of our services and products.
Our
information technologies and systems are vulnerable to damage or interruption from various causes, including acts of God and other
natural disasters, war and acts of terrorism and power losses, computer systems failures, internet and telecommunications or data
network failures, operator error, losses of and corruption of data and similar events. Our customers’ data, including patient
health records, reside on our own servers located in the U.S., Pakistan and Sri Lanka. Although we conduct business continuity
planning to protect against fires, floods, other natural disasters and general business interruptions to mitigate the adverse
effects of a disruption, relocation or change in operating environment at our data centers, the situations we plan for and the
amount of insurance coverage we maintain may not be adequate in any particular case. In addition, the occurrence of any of these
events could result in interruptions, delays or cessations in service to our customers. Any of these events could impair or prohibit
our ability to provide our services, reduce the attractiveness of our services to current or potential customers and adversely
impact our financial condition and results of operations.
In
addition, despite the implementation of security measures, our infrastructure, data centers, or systems that we interface with
or utilize, including the internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or
contractor access, computer viruses, programming errors, denial-of-service attacks or other attacks by third parties seeking to
disrupt operations or misappropriate information or similar physical or electronic breaches of security. Any of these can cause
system failure, including network, software or hardware failure, which can result in service disruptions. As a result, we may
be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate
problems caused by such breaches.
We
may be subject to liability for the content we provide to our customers and their patients.
We
provide content for use by healthcare providers in treating patients. This content includes, among other things, patient education
materials, coding and drug databases developed by third parties, and prepopulated templates providers can use to document as visits
and record patient health information. If content in the third-party databases we use is incorrect or incomplete, adverse consequences,
including death, may give rise to product liability and other claims against us. A court or government agency may take the position
that our delivery of health information directly, including through licensed practitioners, or delivery of information by a third-party
site that a consumer accesses through our solutions, exposes us to personal injury liability, or other liability for wrongful
delivery or handling of healthcare services or erroneous health information. Our liability insurance coverage may not be adequate
or continue to be available on acceptable terms, if at all. A claim brought against us that is uninsured or under-insured could
harm our business. Even unsuccessful claims could result in substantial costs and diversion of management resources.
We
are subject to the effect of payer and provider conduct that we cannot control and that could damage our reputation with customers
and result in liability claims that increase our expenses.
We
offer electronic claims submission services for which we rely on content from customers, payers, and others. While we have implemented
features and safeguards designed to maximize the accuracy and completeness of claims content, these features and safeguards may
not be sufficient to prevent inaccurate claims data from being submitted to payers. Should inaccurate claims data be submitted
to payers, we may experience poor operational results and be subject to liability claims, which could damage our reputation with
customers and result in liability claims that increase our expenses.
Failure
by our clients to obtain proper permissions and waivers may result in claims against us or may limit or prevent our use of data,
which could harm our business.
Our
clients are obligated by applicable law to provide necessary notices and to obtain necessary permission waivers for use and disclosure
of the information that we receive. If they do not obtain necessary permissions and waivers, then our use and disclosure of information
that we receive from them or on their behalf may be limited or prohibited by state or federal privacy laws or other laws. This
could impair our functions, processes, and databases that reflect, contain, or are based upon such data and may prevent use of
such data. In addition, this could interfere with or prevent creation or use of rules, and analyses or limit other data-driven
activities that benefit us. Moreover, we may be subject to claims or liability for use or disclosure of information by reason
of lack of valid notice, permission, or waiver. These claims or liabilities could subject us to unexpected costs and adversely
affect our operating results.
Any
deficiencies in our financial reporting or internal controls could adversely affect our business and the trading price of our
securities.
As
a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses
in such internal controls. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of
our internal control over financial reporting.
In
the future, if we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely
basis and our financial statements may be materially misstated. In addition, our internal control over financial reporting would
not prevent or detect all errors and fraud. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances
of fraud will be detected.
If
there are material weaknesses or failures in our ability to meet any of the requirements related to the maintenance and reporting
of our internal controls, investors may lose confidence in the accuracy and completeness of our financial reports, which in turn
could cause the price of our common stock and Series A Preferred Stock to decline. Moreover, effective internal controls are necessary
to produce reliable financial reports and to prevent fraud. If we have deficiencies in our internal controls, it may negatively
impact our business, results of operations and reputation. In addition, we could become subject to investigations by Nasdaq, the
SEC or other regulatory authorities, which could require additional management attention and which could adversely affect our
business.
We
are a party to several related-party agreements with our founder and Executive Chairman, Mahmud Haq, which have significant contractual
obligations. These agreements are reviewed by our Audit Committee on an annual basis.
Since
inception, we have entered into several related-party transactions with our founder and Executive Chairman, Mahmud Haq, which
subject us to significant contractual obligations. We believe these transactions reflect terms comparable to those that would
be available from third parties. Our independent audit committee has reviewed these arrangements and continues to do so on an
annual basis.
We
depend on key information systems and third-party service providers.
We
depend on key information systems to accurately and efficiently transact our business, provide information to management and prepare
financial reports. These systems and services are vulnerable to interruptions or other failures resulting from, among other things,
natural disasters, terrorist attacks, software, equipment or telecommunications failures, processing errors, computer viruses,
other security issues or supplier defaults. Security, backup and disaster recovery measures may not be adequate or implemented
properly to avoid such disruptions or failures. Any disruption or failure of these systems or services could cause substantial
errors, processing inefficiencies, security breaches, inability to use the systems or process transactions, loss of customers
or other business disruptions, all of which could negatively affect our business and financial performance.
Systems
failures or cyberattacks and resulting interruptions in the availability of or degradation in the performance of our websites,
applications, products or services could harm our business.
As
cybersecurity attacks continue to evolve and increase, our information systems could also be penetrated or compromised by internal
and external parties’ intent on extracting confidential information, disrupting business processes or corrupting information.
Our systems may experience service interruptions or degradation due to hardware and software defects or malfunctions, computer
denial-of-service and other cyberattacks, human error, earthquakes, hurricanes, floods, fires, natural disasters, power losses,
disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses, or other
events. Our systems are also subject to break-ins, sabotage and intentional acts of vandalism. Some of our systems are not fully
redundant and our disaster recovery planning is not sufficient for all eventualities. We have experienced and will likely continue
to experience system failures, denial of service attacks and other events or conditions from time to time that interrupt the availability
or reduce the speed or functionality of our websites and mobile applications. These events likely will result in loss of revenue.
A prolonged interruption in the availability or reduction in the speed or other functionality of our websites and mobile applications
could materially harm our business. Frequent or persistent interruptions in our services could cause current or potential users
to believe that our systems are unreliable, leading them to switch to our competitors or to avoid our sites, and could permanently
harm our reputation and brands. Moreover, to the extent that any system failure or similar event results in damages to our customers
or their businesses, these customers could seek significant compensation from us for their losses and those claims, even if unsuccessful,
would likely be time-consuming and costly for us to address. These risks could arise from external parties or from acts or omissions
of internal or service provider personnel. Such unauthorized access could disrupt our business and could result in the loss of
assets, litigation, remediation costs, damage to our reputation and failure to retain or attract customers following such an event,
which could adversely affect our business.
Our
telemedicine business could be adversely affected by legal challenges to our business model or by actions restricting our ability
to provide the full range of our services in certain jurisdictions.
In
addition to offering telemedicine, otherwise known as “telehealth”, software-as-a-service, we may eventually begin
providing full-service practice management and telehealth software, pursuant to a long-term practice management agreement with
one or more medical practices. Our ability to conduct telemedicine services in a particular U.S. state or non-U.S. jurisdiction
is directly dependent upon the applicable laws governing remote healthcare, the practice of medicine and healthcare delivery in
general in such location which are subject to changing political, regulatory and other influences. With respect to telemedicine
services, state medical boards have established new rules or interpreted existing rules in a manner that may limit or restrict
our ability to conduct our business as it is conducted in other states. Some of these actions may result in litigation and the
suspension or modification of our telemedicine operations in certain states.
We
believe we are correct in the view that our telemedicine services do not constitute the practice of medicine in any jurisdiction
in which we provide them. However, the extent to which a U.S. state or non-U.S. jurisdiction considers particular actions or relationships
to constitute practicing medicine is subject to change and to evolving interpretations by (in the case of U.S. states) medical
boards and state attorneys general, among others, and (in the case of non-U.S. jurisdictions) the relevant regulatory and legal
authorities, each with broad discretion. Accordingly, we must monitor our compliance with law in every jurisdiction in which we
operate, on an ongoing basis, and we cannot provide assurance that our activities and arrangements, if challenged, will be found
to be in compliance with the law. Additionally, it is possible that the laws and rules governing the practice of medicine, including
remote healthcare, in one or more jurisdictions may change in a manner deleterious to our business. If a successful legal challenge
or an adverse change in the relevant laws were to occur, and we were unable to adapt our business model accordingly, our operations
in the affected jurisdictions would be disrupted, which could have a material adverse effect on our business, financial condition
and results of operations.
The
telemedicine market is relatively new and volatile, and if it does not develop, if it develops more slowly than we expect, if
it encounters negative publicity or if our solution does not drive customer and patient engagement, the growth of our business
will be harmed.
With
respect to our telemedicine services, the telemedicine market is relatively new and unproven, and it is uncertain whether it will
achieve and sustain high levels of demand, consumer acceptance and market adoption. Our success will depend to a substantial extent
on the willingness of our customers and patients to use, and to increase the frequency and extent of their utilization
of, our solution. Negative publicity concerning our solution or the telemedicine market as a whole could limit market acceptance
of our solution. If our customers do not perceive the benefits of our solution, or if our solution does not drive patient engagement,
then our market may not develop at all, or it may develop more slowly than we expect. Similarly, individual and healthcare industry
concerns or negative publicity regarding patient confidentiality and privacy in the context of telemedicine could limit market
acceptance of our telemedicine services. If any of these events occurs, it could have a material adverse effect on our business,
financial condition or results of operations.
Rapid
technological change in the telemedicine industry presents us with significant risks and challenges.
The
telemedicine market is characterized by rapid technological change, changing consumer requirements, short product lifecycles and
evolving industry standards. Our success will depend on our ability to enhance our solution with next-generation technologies
and to develop or to acquire and market new services to access new consumer populations. There is no guarantee that we will possess
the resources, either financial or personnel, for the research, design and development of new applications or services, or that
we will be able to utilize these resources successfully and avoid technological or market obsolescence. Further, there can be
no assurance that technological advances by one or more of our competitors or future competitors will not result in our present
or future applications and services becoming uncompetitive or obsolete.
Regulatory
Risks
The
healthcare industry is heavily regulated. Our failure to comply with regulatory requirements could create liability for us, result
in adverse publicity and negatively affect our business.
The
healthcare industry is heavily regulated and is constantly evolving due to the changing political, legislative, regulatory landscape
and other factors. Many healthcare laws are complex, and their application to specific services and relationships may not be clear.
In particular, many existing healthcare laws and regulations, when enacted, did not anticipate or address the services that we
provide. Further, healthcare laws differ from state to state and it is difficult to ensure that our business, products and services
comply with evolving laws in all states. By way of example, certain federal and state laws forbid billing based on referrals between
individuals or entities that have various financial, ownership, or other business relationships with healthcare providers. These
laws vary widely from state to state, and one of the federal laws governing these relationships, known as the Stark Law, is very
complex in its application. Similarly, many states have laws forbidding physicians from practicing medicine in partnership with
non-physicians, such as business corporations, as well as laws or regulations forbidding splitting of physician fees with non-physicians
or others. Other federal and state laws restrict assignment of claims for reimbursement from government-funded programs, the manner
in which business service companies may handle payments for such claims and the methodology under which business services companies
may be compensated for such services.
The
Office of Inspector General (“OIG”) of the Department of Health and Human Services (“HHS”) has a longstanding
concern that percentage-based billing arrangements may increase the risk of improper billing practices. In addition, certain states
have adopted laws or regulations forbidding splitting of fees with non-physicians which may be interpreted to prevent business
service providers, including medical billing providers, from using a percentage-based billing arrangement. The OIG and HHS recommend
that medical billing companies develop and implement comprehensive compliance programs to mitigate this risk. While we have developed
and implemented a comprehensive billing compliance program that we believe is consistent with these recommendations, our failure
to ensure compliance with controlling legal requirements, accurately anticipate the application of these laws and regulations
to our business and contracting model, or other failure to comply with regulatory requirements, could create liability for us,
result in adverse publicity and negatively affect our business.
The
federal Anti-Kickback Statute (“AKS”) prohibits us from knowingly and willfully soliciting, receiving, offering or
providing remuneration in exchange for referrals or recommendations for purposes of selling products or services which are paid
for by federal healthcare programs such as Medicare and Medicaid. In addition, a claim including products or services resulting
from a violation of AKS constitutes a violation of the federal False Claims Act (“FCA”). Due to the breadth of the
FCA, AKS, and ACA’s broad prohibitions, the risk of scrutiny and prosecution by government enforcement authorities is increased.
Despite the fact that certain statutory exceptions and safe harbors exist that protect certain arrangements from prosecution,
these arrangements may still be subject to scrutiny by government authorities. If we are subjected to such scrutiny, it could
be costly to defend ourselves and could have a potential negative impact on our ability to continue certain programs that lead
to organic growth. If we are determined to have violated the FCA, we may be required to pay up to three times the actual damages
sustained by the government, plus mandatory civil penalties for each separate false claim. If our operations, practices, or contractual
relationships are found to be in violation of the FCA, AKS, ACA, or any other applicable state or any federal fraud and abuse
laws, whether by our current practices or for the past practices of a company we acquire, we may be subject to substantial civil
damages and criminal penalties and fines that could have a material adverse impact on our business.
In
addition, federal and state legislatures and agencies periodically consider proposals to revise aspects of the healthcare industry
or to revise or create additional statutory and regulatory requirements. For instance, the current administration may make changes
to the ACA after the most recent judicial decision in December 2018, the nature and scope of which are presently unknown. Similarly,
certain computer software products are regulated as medical devices under the Federal Food, Drug, and Cosmetic Act. While the
Food and Drug Administration (“FDA”) has sometimes chosen to disclaim authority to, or to refrain from actively regulating
certain software products which are similar to our products, this area of medical device regulation remains in flux. We expect
that the FDA will continue to be active in exploring legal regimes for regulating computer software intended for use in healthcare
settings. Any additional regulation can be expected to impose additional overhead costs on us and should we fail to adequately
meet these legal obligations, we could face potential regulatory action. Regulatory authorities such as the Centers for Medicare
and Medicaid Services may also impose functionality standards with regard to electronic prescribing technologies. If implemented,
proposals like these could impact our operations, the use of our services and our ability to market new services, or could create
unexpected liabilities for us. We cannot predict what changes to laws or regulations might be made in the future or how those
changes could affect our business or our operating costs.
Further,
our ability to provide our telemedicine services in each state is dependent upon a state’s treatment of telemedicine and
emerging technologies (such as digital health services), which are subject to changing political, regulatory and other influences.
Many states have laws that limit or restrict the practice of telemedicine, such as laws that require a provider to be licensed
and/or physically located in the same state where the patient is located. For example, California, Georgia, New York, Massachusetts,
Oregon and Washington, D.C. are not members of the Interstate Medical Licensure Compact, which streamlines the process by which
physicians licensed in one state are able to practice in other participating states. Failure to comply with these laws could result
in denials of reimbursement for services (to the extent such services are billed), recoupments of prior payments, professional
discipline for providers or civil or criminal penalties.
If
we do not maintain the certification of our EHR solution pursuant to the HITECH Act, our business, financial condition and results
of operations will be adversely affected.
The
HITECH Act provides financial incentives for healthcare providers that demonstrate “meaningful use” of EHR and mandates
use of health information technology systems that are certified according to technical standards developed under the supervision
of the U.S. Department of Health and Human Services (“HHS”). The HITECH Act also imposes certain requirements upon
governmental agencies to use, and requires healthcare providers, health plans, and insurers contracting with such agencies to
use, systems that are certified according to such standards. Such standards and implementation specifications that are being developed
under the HITECH Act includes named standards, architectures, and software schemes for the authentication and security of individually
identifiable health information and the creation of common solutions across disparate entities.
The
HITECH Act’s certification requirements affect our business because we have invested and continue to invest in conforming
our products and services to these standards. HHS has developed certification programs for electronic health records and health
information exchanges. Our web-based EHR solution has been certified as a complete EHR by ICSA Labs, a non-governmental, independent
certifying body. We must ensure that our EHR solutions continue to be certified according to applicable HITECH Act technical standards
so that our customers qualify for any “meaningful use” incentive payments and are not subject to penalties for non-compliance.
Failure to maintain this certification under the HITECH Act could jeopardize our relationships with customers who are relying
upon us to provide certified software, and will make our products and services less attractive to customers than the offerings
of other EHR vendors who maintain certification of their products.
If
a breach of our measures protecting personal data covered by HIPAA or the HITECH Act occurs, we may incur significant liabilities.
The
Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”), and the regulations that have been
issued under it contain substantial restrictions and requirements with respect to the use, collection, storage and disclosure
of individuals’ protected health information. Under HIPAA, covered entities must establish administrative, physical and
technical safeguards to protect the confidentiality, integrity and availability of electronic protected health information maintained
or transmitted by them or by others on their behalf. In February 2009, HIPAA was amended by the HITECH Act to add provisions that
impose certain of HIPAA’s privacy and security requirements directly upon business associates of covered entities. Under
HIPAA and the HITECH Act, our customers are covered entities and we are a business associate of our customers as a result of our
contractual obligations to perform certain services for those customers. The HITECH Act transferred enforcement authority of the
security rule from CMS to the Office for Civil Rights of HHS, thereby consolidating authority over the privacy and security rules
under a single office within HHS. Further, HITECH empowered state attorneys’ general to enforce HIPAA.
The
HITECH Act heightened enforcement of privacy and security rules, indicating that the imposition of penalties will be more common
in the future and such penalties will be more severe. For example, the HITECH Act requires that the HHS fully investigate all
complaints if a preliminary investigation of the facts indicates a possible violation due to “willful neglect” and
imposes penalties if such neglect is found. Further, where our liability as a business associate to our customers was previously
merely contractual in nature, the HITECH Act now treats the breach of duty under an agreement by a business associate to carry
the same liability as if the covered entity engaged in the breach. In other words, as a business associate, we are now directly
responsible for complying with HIPAA. We may find ourselves subject to increased liability as a possible liable party and we may
incur increased costs as we perform our obligations to our customers under our agreements with them.
Finally,
regulations also require business associates to notify covered entities, who in turn must notify affected individuals and government
authorities of data security breaches involving unsecured protected health information. We have performed an assessment of the
potential risks and vulnerabilities to the confidentiality, integrity and availability of electronic health information. In response
to this risk analysis, we implemented and maintain physical, technical and administrative safeguards intended to protect all personal
data and have processes in place to assist us in complying with applicable laws and regulations regarding the protection of this
data and properly responding to any security incidents. If we knowingly breach the HITECH Act’s requirements, we could be
exposed to criminal liability. A breach of our safeguards and processes could expose us to civil penalties of up to $1.5 million
for each incident and the possibility of civil litigation.
If
we or our customers fail to comply with federal and state laws governing submission of false or fraudulent claims to government
healthcare programs and financial relationships among healthcare providers, we or our customers may be subject to civil and criminal
penalties or loss of eligibility to participate in government healthcare programs.
As
a participant in the healthcare industry, our operations and relationships, and those of our customers, are regulated by a number
of federal, state and local governmental entities. The impact of these regulations can adversely affect us even though we may
not be directly regulated by specific healthcare laws and regulations. We must ensure that our products and services can be used
by our customers in a manner that complies with those laws and regulations. Inability of our customers to do so could affect the
marketability of our products and services or our compliance with our customer contracts, or even expose us to direct liability
under the theory that we had assisted our customers in a violation of healthcare laws or regulations. A number of federal and
state laws, including anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims, apply to healthcare
providers and others that make, offer, seek or receive referrals or payments for products or services that may be paid for through
any federal or state healthcare program and, in some instances, any private program. These laws are complex and their application
to our specific services and relationships may not be clear and may be applied to our business in ways that we do not anticipate.
Federal and state regulatory and law enforcement authorities have recently increased enforcement activities with respect to Medicare
and Medicaid fraud and abuse regulations and other healthcare reimbursement laws and rules. From time to time, participants in
the healthcare industry receive inquiries or subpoenas to produce documents in connection with government investigations. We could
be required to expend significant time and resources to comply with these requests, and the attention of our management team could
be diverted by these efforts. The occurrence of any of these events could give our customers the right to terminate our contracts
with us and result in significant harm to our business and financial condition.
These
laws and regulations may change rapidly, and it is frequently unclear how they apply to our business. Any failure of our products
or services to comply with these laws and regulations could result in substantial civil or criminal liability and could, among
other things, adversely affect demand for our services, invalidate all or portions of some of our contracts with our customers,
require us to change or terminate some portions of our business, require us to refund portions of our revenue, cause us to be
disqualified from serving customers doing business with government payers, and give our customers the right to terminate our contracts
with them, any one of which could have an adverse effect on our business.
Potential
healthcare reform and new regulatory requirements placed on our products and services could increase our costs, delay or prevent
our introduction of new products or services, and impair the function or value of our existing products and services.
Our
products and services may be significantly impacted by healthcare reform initiatives and will be subject to increasing regulatory
requirements, either of which could negatively impact our business in a multitude of ways. If substantive healthcare reform or
applicable regulatory requirements are adopted, we may have to change or adapt our products and services to comply. Reform or
changing regulatory requirements may also render our products or services obsolete or may block us from accomplishing our work
or from developing new products or services. This may in turn impose additional costs upon us to adapt to the new operating environment
or to further develop or modify our products and services. Such reforms may also make introduction of new products and service
more costly or more time-consuming than we currently anticipate. These changes may also prevent our introduction of new products
and services or make the continuation or maintenance of our existing products and services unprofitable or impossible.
Additional
regulation of the disclosure of medical information outside the United States may adversely affect our operations and may increase
our costs.
Federal
or state governmental authorities may impose additional data security standards or additional privacy or other restrictions on
the collection, use, transmission, and other disclosures of medical information. Legislation has been proposed at various times
at both the federal and the state level that would limit, forbid, or regulate the use or transmission of medical information outside
of the United States. Such legislation, if adopted, may render our use of our servers in offshore offices for work related to
such data impracticable or substantially more expensive. Alternative processing of such information within the United States may
involve substantial delay in implementation and increased cost.
Our
services present the potential for embezzlement, identity theft, or other similar illegal behavior by our employees.
Among
other things, our services from time to time involve handling mail from payers and payments from patients for our customers, and
this mail frequently includes original checks and credit card information and occasionally includes currency. Where requested,
we deposit payments and process credit card transactions from patients on behalf of customers and then forward these payments
to the customers. Even in those cases in which we do not handle original documents or mail, our services also involve the use
and disclosure of personal and business information that could be used to impersonate third parties or otherwise gain access to
their data or funds. The manner in which we store and use certain financial information is governed by various federal and state
laws. If any of our employees takes, converts, or misuses such funds, documents, or data, we could be liable for damages, subject
to regulatory actions and penalties, and our business reputation could be damaged or destroyed. In addition, we could be perceived
to have facilitated or participated in illegal misappropriation of funds, documents, or data and therefore be subject to civil
or criminal liability.
Description
of the Series A Preferred Stock
The
description of certain terms of the 11% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”)
in this prospectus and the accompanying prospectus does not purport to be complete and is in all respects subject to, and qualified
in its entirety by references to the relevant provisions of our amended and restated certificate of incorporation, the certificate
of designations establishing the terms of our Series A Preferred Stock, as amended, our amended and restated bylaws and Delaware
corporate law. Copies of our certificate of incorporation, certificate of designations, bylaws and all amendments thereto, are
available from us upon request.
General
Pursuant
to our amended and restated certificate of incorporation, as amended, we are currently authorized to designate and issue up to
7,000,000 shares of preferred stock, par value $0.001 per share, in one or more classes or series and, subject to the limitations
prescribed by our amended and restated certificate of incorporation and Delaware corporate law, with such rights, preferences,
privileges and restrictions of each class or series of preferred stock, including dividend rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting any class or series as our board of directors may determine, without
any vote or action by our shareholders. As of July
9, 2020, we had 4,362,383 shares of the Series A Preferred Stock issued and outstanding, and
an additional 2,387,617 authorized but unissued shares of Series A Preferred Stock. Assuming all of the shares of Series A
Preferred Stock offered hereunder are issued, including the exercise of the underwriters’ option to purchase additional
shares, we will have available for issuance
shares of Series A Preferred Stock and an additional 250,000 shares authorized but undesignated and unissued shares of preferred
stock. The Series A Preferred Stock offered hereby, when issued, delivered and paid for in accordance with the terms of our
underwriting agreement, will be fully paid and non-assessable. Our board of directors may, without the approval of holders of
the Series A Preferred Stock or our common stock, designate additional series of authorized preferred stock ranking junior to
or on parity with the Series A Preferred Stock or designate additional shares of the Series A Preferred Stock and authorize the
issuance of such shares. Designation of preferred stock ranking senior to the Series A Preferred Stock will require approval of
the holders of Series A Preferred Stock, as described below in “Voting Rights.”
The
registrar, transfer agent and dividend and redemption price disbursing agent in respect of the Series A Preferred Stock is VStock
Transfer, LLC. The principal business address for VStock Transfer, LLC is 18 Lafayette Place, Woodmere, NY 11598.
Listing
Our
Series A Preferred Stock trades on the Nasdaq Global Market under the symbol “MTBCP.”
No
Maturity, Sinking Fund or Mandatory Redemption
The
Series A Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption. Shares of
the Series A Preferred Stock will remain outstanding indefinitely unless we decide to redeem or otherwise repurchase them. On
or after November 4, 2020, we will have the right to redeem the Series A Preferred Stock. We also have the right to redeem the
Series A Preferred Stock upon a change of control. A description of these redemption rights is described in the section
entitled “Redemption” below. We are not required to set aside funds to redeem the Series A Preferred Stock.
Ranking
The
Series A Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon our
liquidation, dissolution or winding up:
|
(1)
|
senior
to all classes or series of our common stock and to all other equity securities issued by us other than equity securities
referred to in clauses (2) and (3) below;
|
|
|
|
|
(2)
|
on
a parity with all equity securities issued by us with terms specifically providing that those equity securities rank on a
parity with the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets
upon our liquidation, dissolution or winding up;
|
|
|
|
|
(3)
|
junior
to all equity securities issued by us with terms specifically providing that those equity securities rank senior to the Series
A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up (please see the section entitled “Voting Rights” below); and
|
|
|
|
|
(4)
|
effectively
junior to all of our existing and future indebtedness (including indebtedness convertible to our common stock or preferred
stock) and to any indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our
existing subsidiaries.
|
Dividends
Holders
of shares of the Series A Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors, out of
funds of the Company legally available for the payment of dividends, cumulative cash dividends at the rate of 11% of the $25.00
per share liquidation preference per annum (equivalent to $2.75 per annum per share). Dividends on the Series A Preferred Stock
shall be payable monthly on the 15th day of each month; provided that if any dividend payment date is not a business day, as defined
in the certificate of designations, then the dividend that would otherwise have been payable on that dividend payment date may
be paid on the next succeeding business day and no interest, additional dividends or other sums will accrue on the amount so payable
for the period from and after that dividend payment date to that next succeeding business day. Any dividend payable on the Series
A Preferred Stock, including dividends payable for any partial dividend period, will be computed on the basis of a 360-day year
consisting of twelve 30-day months; however, the shares of Series A Preferred Stock offered hereby will be credited as having
accrued dividends since the first day of the calendar month in which they are issued. Dividends will be payable to holders of
record as they appear in our stock records for the Series A Preferred Stock at the close of business on the applicable record
date, which shall be the last day of the calendar month, whether or not a business day, immediately preceding the month in which
the applicable dividend payment date falls. As a result, holders of shares of Series A Preferred Stock will not be entitled to
receive dividends on a dividend payment date if such shares were not issued and outstanding on the applicable dividend record
date.
No
dividends on shares of Series A Preferred Stock shall be authorized by our board of directors or paid or set apart for payment
by us at any time when the terms and provisions of any agreement of ours, including any agreement relating to our indebtedness,
prohibit the authorization, payment or setting apart for payment thereof or provide that the authorization, payment or setting
apart for payment thereof would constitute a breach of the agreement or a default under the agreement, or if the authorization,
payment or setting apart for payment shall be restricted or prohibited by law. You should review the information appearing above
under “Risk Factors—We may not be able to pay dividends on the Series A Preferred Stock” for information as
to, among other things, other circumstances under which we may be unable to pay dividends on the Series A Preferred Stock.
Notwithstanding
the foregoing, dividends on the Series A Preferred Stock will accrue whether or not we have earnings, whether or not there are
funds legally available for the payment of those dividends and whether or not those dividends are declared by our board of directors.
No interest, or sum in lieu of interest, will be payable in respect of any dividend payment or payments on the Series A Preferred
Stock that may be in arrears, and holders of the Series A Preferred Stock will not be entitled to any dividends in excess of full
cumulative dividends described above. Any dividend payment made on the Series A Preferred Stock shall first be credited against
the earliest accumulated but unpaid dividend due with respect to those shares.
Future
distributions on our common stock and preferred stock, including the Series A Preferred Stock will be at the discretion of our
board of directors and will depend on, among other things, our results of operations, cash flow from operations, financial condition
and capital requirements, any debt service requirements and any other factors our board of directors deems relevant. Accordingly,
we cannot guarantee that we will be able to make cash distributions on our preferred stock or what the actual distributions will
be for any future period.
Unless
full cumulative dividends on all shares of Series A Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment for all past dividend periods,
no dividends (other than in shares of common stock or in shares of any series of preferred stock that we may issue ranking junior
to the Series A Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or
winding up) shall be declared or paid or set aside for payment upon shares of our common stock or preferred stock that we may
issue ranking junior to, or on a parity with, the Series A Preferred Stock as to the payment of dividends or the distribution
of assets upon liquidation, dissolution or winding up. Nor shall any other distribution be declared or made upon shares of our
common stock or preferred stock that we may issue ranking junior to, or on a parity with, the Series A Preferred Stock as to the
payment of dividends or the distribution of assets upon liquidation, dissolution or winding up. Also, any shares of our common
stock or preferred stock that we may issue ranking junior to or on a parity with the Series A Preferred Stock as to the payment
of dividends or the distribution of assets upon liquidation, dissolution or winding up shall not be redeemed, purchased or otherwise
acquired for any consideration (or any moneys paid to or made available for a sinking fund for the redemption of any such shares)
by us (except by conversion into or exchange for our other capital stock that we may issue ranking junior to the Series A Preferred
Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up).
When
dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Stock
and the shares of any other series of preferred stock that we may issue ranking on a parity as to the payment of dividends with
the Series A Preferred Stock, all dividends declared upon the Series A Preferred Stock and any other series of preferred stock
that we may issue ranking on a parity as to the payment of dividends with the Series A Preferred Stock shall be declared pro rata
so that the amount of dividends declared per share of Series A Preferred Stock and such other series of preferred stock that we
may issue shall in all cases bear to each other the same ratio that accrued dividends per share on the Series A Preferred Stock
and such other series of preferred stock that we may issue (which shall not include any accrual in respect of unpaid dividends
for prior dividend periods if such preferred stock does not have a cumulative dividend) bear to each other. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A Preferred Stock
that may be in arrears.
Liquidation
Preference
In
the event of our voluntary or involuntary liquidation, dissolution or winding up, the holders of shares of Series A Preferred
Stock will be entitled to be paid out of the assets we have legally available for distribution to our shareholders, subject to
the preferential rights of the holders of any class or series of our capital stock we may issue ranking senior to the Series A
Preferred Stock with respect to the distribution of assets upon liquidation, dissolution or winding up, a liquidation preference
of $25.00 per share, plus an amount equal to any accumulated and unpaid dividends to, but not including, the date of payment,
before any distribution of assets is made to holders of our common stock or any other class or series of our capital stock we
may issue that ranks junior to the Series A Preferred Stock as to liquidation rights.
In
the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, our available assets are insufficient
to pay the amount of the liquidating distributions on all outstanding shares of Series A Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of our capital stock that we may issue ranking on a parity with the Series
A Preferred Stock in the distribution of assets, then the holders of the Series A Preferred Stock and all other such classes or
series of capital stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions
to which they would otherwise be respectively entitled.
Holders
of Series A Preferred Stock will be entitled to written notice of any such liquidation, dissolution or winding up no fewer than
30 days and no more than 60 days prior to the payment date. After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Series A Preferred Stock will have no right or claim to any of our remaining assets.
The consolidation or merger of us with or into any other corporation, trust or entity or of any other entity with or into us,
or the sale, lease, transfer or conveyance of all or substantially all of our property or business, shall not be deemed a liquidation,
dissolution or winding up of us (although such events may give rise to the special optional redemption to the extent described
below).
Redemption
The
Series A Preferred Stock is not redeemable by us prior to November 4, 2020, except as described below under “—Special
Optional Redemption.”
Optional
Redemption. On and after November 4, 2020, we may, at our option, upon not less than 30 nor more than 60 days’ written notice,
redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of
$25.00 per share, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption.
Special
Optional Redemption. Upon the occurrence of a Change of Control, we may, at our option, upon not less than 30 nor more than 60
days’ written notice, redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on
which such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends
thereon to, but not including, the redemption date.
A
“Change of Control” is deemed to occur when the following have occurred and are continuing:
the
acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the
Exchange Act (other than Mahmud Haq, the chairman of our board of directors and our principal shareholder, any member of his immediate
family, and any “person” or “group” under Section 13(d)(3) of the Exchange Act, that is controlled by
Mr. Haq or any member of his immediate family, any beneficiary of the estate of Mr. Haq, or any trust, partnership, corporate
or other entity controlled by any of the foregoing), of beneficial ownership, directly or indirectly, through a purchase, merger
or other acquisition transaction or series of purchases, mergers or other acquisition transactions of our stock entitling that
person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in the election of our
directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right
to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition);
and
following
the closing of any transaction referred to above, neither we nor the acquiring or surviving entity has a class of common securities
(or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE MKT or Nasdaq, or listed or quoted
on an exchange or quotation system that is a successor to the NYSE, the NYSE MKT or Nasdaq.
Redemption
Procedures. In the event we elect to redeem Series A Preferred Stock, the notice of redemption will be mailed to each holder of
record of Series A Preferred Stock called for redemption at such holder’s address as it appears on our stock transfer
records, not less than 30 nor more than 60 days prior to the redemption date, and will state the following:
|
●
|
the
redemption date;
|
|
|
|
|
●
|
the
number of shares of Series A Preferred Stock to be redeemed;
|
|
|
|
|
●
|
the
redemption price;
|
|
|
|
|
●
|
the
place or places where certificates (if any) for the Series A Preferred Stock are to be surrendered for payment of the redemption
price;
|
|
|
|
|
●
|
that
dividends on the shares to be redeemed will cease to accumulate on the redemption date;
|
|
|
|
|
●
|
whether
such redemption is being made pursuant to the provisions described above under “—Optional Redemption” or
“—Special Optional Redemption”; and
|
|
|
|
|
●
|
if
applicable, that such redemption is being made in connection with a Change of Control and, in that case, a brief description
of the transaction or transactions constituting such Change of Control.
|
If
less than all of the Series A Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also
specify the number of shares of Series A Preferred Stock held by such holder to be redeemed. No failure to give such notice or
any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of
Series A Preferred Stock except as to the holder to whom notice was defective or not given.
Holders
of Series A Preferred Stock to be redeemed shall surrender the Series A Preferred Stock at the place designated in the notice
of redemption and shall be entitled to the redemption price and any accumulated and unpaid dividends payable upon the redemption
following the surrender. If notice of redemption of any shares of Series A Preferred Stock has been given and if we have irrevocably
set aside the funds necessary for redemption in trust for the benefit of the holders of the shares of Series A Preferred Stock
so called for redemption, then from and after the redemption date (unless default shall be made by us in providing for the payment
of the redemption price plus accumulated and unpaid dividends, if any), dividends will cease to accrue on those shares of Series
A Preferred Stock, those shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights of the holders
of those shares will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any,
payable upon redemption. If any redemption date is not a business day, then the redemption price and accumulated and unpaid dividends,
if any, payable upon redemption may be paid on the next business day and no interest, additional dividends or other sums will
accrue on the amount payable for the period from and after that redemption date to that next business day. If less than all of
the outstanding Series A Preferred Stock is to be redeemed, the Series A Preferred Stock to be redeemed shall be selected pro
rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method we determine.
In
connection with any redemption of Series A Preferred Stock, we shall pay, in cash, any accumulated and unpaid dividends to, but
not including, the redemption date, unless a redemption date falls after a dividend record date and prior to the corresponding
dividend payment date, in which case each holder of Series A Preferred Stock at the close of business on such dividend record
date shall be entitled to the dividend payable on such shares on the corresponding dividend payment date notwithstanding the redemption
of such shares before such dividend payment date. Except as provided above, we will make no payment or allowance for unpaid dividends,
whether or not in arrears, on shares of the Series A Preferred Stock to be redeemed.
Unless
full cumulative dividends on all shares of Series A Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment for all past dividend periods,
no shares of Series A Preferred Stock shall be redeemed unless all outstanding shares of Series A Preferred Stock are simultaneously
redeemed and we shall not purchase or otherwise acquire directly or indirectly any shares of Series A Preferred Stock (except
by exchanging it for our capital stock ranking junior to the Series A Preferred Stock as to the payment of dividends and distribution
of assets upon liquidation, dissolution or winding up); provided, however, that the foregoing shall not prevent the purchase or
acquisition by us of shares of Series A Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders
of all outstanding shares of Series A Preferred Stock.
Subject
to applicable law, we may purchase shares of Series A Preferred Stock in the open market, by tender or by private agreement. Any
shares of Series A Preferred Stock that we acquire may be retired and reclassified as authorized but unissued shares of preferred
stock, without designation as to class or series, and may thereafter be reissued as any class or series of preferred stock.
Voting
Rights
Holders
of the Series A Preferred Stock do not have any voting rights, except as set forth below or as otherwise required by law.
On
each matter on which holders of Series A Preferred Stock are entitled to vote, each share of Series A Preferred Stock will be
entitled to one vote. In instances described below where holders of Series A Preferred Stock vote with holders of any other class
or series of our preferred stock as a single class on any matter, the Series A Preferred Stock and the shares of each such other
class or series will have one vote for each $25.00 of liquidation preference (excluding accumulated dividends) represented by
their respective shares.
Whenever
dividends on any shares of Series A Preferred Stock are in arrears for eighteen or more monthly dividend periods, whether or not
consecutive, the number of directors constituting our board of directors will be automatically increased by two (if not already
increased by two by reason of the election of directors by the holders of any other class or series of our preferred stock we
may issue upon which like voting rights have been conferred and are exercisable and with which the Series A Preferred Stock is
entitled to vote as a class with respect to the election of those two directors) and the holders of Series A Preferred Stock (voting
separately as a class with all other classes or series of preferred stock we may issue upon which like voting rights have been
conferred and are exercisable and which are entitled to vote as a class with the Series A Preferred Stock in the election of those
two directors) will be entitled to vote for the election of those two additional directors (the “preferred stock directors”)
at a special meeting called by us at the request of the holders of record of at least 25% of the outstanding shares of Series
A Preferred Stock or by the holders of any other class or series of preferred stock upon which like voting rights have been conferred
and are exercisable and which are entitled to vote as a class with the Series A Preferred Stock in the election of those two preferred
stock directors (unless the request is received less than 90 days before the date fixed for the next annual or special meeting
of shareholders, in which case, such vote will be held at the earlier of the next annual or special meeting of shareholders),
and at each subsequent annual meeting until all dividends accumulated on the Series A Preferred Stock for all past dividend periods
and the then current dividend period have been fully paid or declared and a sum sufficient for the payment thereof set aside for
payment. In that case, the right of holders of the Series A Preferred Stock to elect any directors will cease and, unless there
are other classes or series of our preferred stock upon which like voting rights have been conferred and are exercisable, any
preferred stock directors elected by holders of the Series A Preferred Stock shall immediately resign and the number of directors
constituting the board of directors shall be reduced accordingly. In no event shall the holders of Series A Preferred Stock be
entitled under these voting rights to elect a preferred stock director that would cause us to fail to satisfy a requirement relating
to director independence of any national securities exchange or quotation system on which any class or series of our capital stock
is listed or quoted. For the avoidance of doubt, in no event shall the total number of preferred stock directors elected by holders
of the Series A Preferred Stock (voting separately as a class with all other classes or series of preferred stock we may issue
upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series
A Preferred Stock in the election of such directors) under these voting rights exceed two.
If
a special meeting is not called by us within 30 days after request from the holders of Series A Preferred Stock as described above,
then the holders of record of at least 25% of the outstanding Series A Preferred Stock may designate a holder to call the meeting
at our expense.
If,
at any time when the voting rights conferred upon the Series A Preferred Stock are exercisable, any vacancy in the office of a
preferred stock director shall occur, then such vacancy may be filled only by a written consent of the remaining preferred stock
director, or if none remains in office, by vote of the holders of record of the outstanding Series A Preferred Stock and any other
classes or series of preferred stock upon which like voting rights have been conferred and are exercisable and which are entitled
to vote as a class with the Series A Preferred Stock in the election of the preferred stock directors. Any preferred stock director
elected or appointed may be removed only by the affirmative vote of holders of the outstanding Series A Preferred Stock and any
other classes or series of preferred stock upon which like voting rights have been conferred and are exercisable and which classes
or series of preferred stock are entitled to vote as a class with the Series A Preferred Stock in the election of the preferred
stock directors, such removal to be effected by the affirmative vote of a majority of the votes entitled to be cast by the holders
of the outstanding Series A Preferred Stock and any such other classes or series of preferred stock, and may not be removed by
the holders of the common stock.
So
long as any shares of Series A Preferred Stock remain outstanding, we will not, without the affirmative vote or consent of the
holders of at least two-thirds of the votes entitled to be cast by the holders of the Series A Preferred Stock outstanding at
the time, given in person or by proxy, either in writing or at a meeting (voting together as a class with all other series of
parity preferred stock that we may issue upon which like voting rights have been conferred and are exercisable), (a) authorize
or create, or increase the authorized or issued amount of, any class or series of capital stock ranking senior to the Series A
Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up
or reclassify any of our authorized capital stock into such shares, or create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase any such shares; or (b) amend, alter, repeal or replace our amended and restated certificate
of incorporation, including by way of a merger, consolidation or otherwise in which we may or may not be the surviving entity,
so as to materially and adversely affect and deprive holders of Series A Preferred Stock of any right, preference, privilege or
voting power of the Series A Preferred Stock (each, an “Event”). An increase in the amount of the authorized preferred
stock, including the Series A Preferred Stock, or the creation or issuance of any additional Series A Preferred Stock or other
series of preferred stock that we may issue, or any increase in the amount of authorized shares of such series, in each case ranking
on a parity with or junior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up, shall not be deemed an Event and will not require us to obtain two-thirds of the
votes entitled to be cast by the holders of the Series A Preferred Stock and all such other similarly affected series, outstanding
at the time (voting together as a class).
The
foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise
be required shall be effected, all outstanding shares of Series A Preferred Stock shall have been redeemed or called for redemption
upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.
Except
as expressly stated in the certificate of designations or as may be required by applicable law, the Series A Preferred Stock do
not have any relative, participating, optional or other special voting rights or powers and the consent of the holders thereof
shall not be required for the taking of any corporate action.
Information
Rights
During
any period in which we are not subject to Section 13 or 15(d) of the Exchange Act and any shares of Series A Preferred Stock are
outstanding, we will use our best efforts to (i) transmit by mail (or other permissible means under the Exchange Act) to all holders
of Series A Preferred Stock, as their names and addresses appear on our record books and without cost to such holders, copies
of the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that we would have been required to file with the SEC pursuant
to Section 13 or 15(d) of the Exchange Act if we were subject thereto (other than any exhibits that would have been required)
and (ii) promptly, upon request, supply copies of such reports to any holders or prospective holder of Series A Preferred Stock.
We will use our best effort to mail (or otherwise provide) the information to the holders of the Series A Preferred Stock within
15 days after the respective dates by which a periodic report on Form 10-K or Form 10-Q, as the case may be, in respect of such
information would have been required to be filed with the SEC, if we were subject to Section 13 or 15(d) of the Exchange Act,
in each case, based on the dates on which we would be required to file such periodic reports if we were a “non-accelerated
filer” within the meaning of the Exchange Act.
No
Conversion Rights
The
Series A Preferred Stock is not convertible into our common stock or any other security.
No
Preemptive Rights
No
holders of the Series A Preferred Stock will, as holders of Series A Preferred Stock, have any preemptive rights to purchase or
subscribe for our common stock or any other security.
Change
of Control
Provisions
in our amended and restated certificate of incorporation and bylaws may make it difficult and expensive for a third party to pursue
a tender offer, change in control or takeover attempt, which is opposed by management and the board of directors.
Book-Entry
Procedures
Depository
Trust Company (“DTC”) acts as the securities depository for our outstanding Series A Preferred Stock. With respect
to the Series A Preferred Stock offered hereunder, we will issue one or more fully registered global securities certificates in
the name of DTC’s nominee, Cede & Co. These certificates will represent the total aggregate number of shares of Series
A Preferred Stock. We will deposit these certificates with DTC or a custodian appointed by DTC. We will not issue certificates
to you for the shares of Series A Preferred Stock that you purchase, unless DTC’s services are discontinued as described
below.
Title
to book-entry interests in the Series A Preferred Stock will pass by book-entry registration of the transfer within the records
of DTC in accordance with its procedures. Book-entry interests in the securities may be transferred within DTC in accordance with
procedures established for these purposes by DTC. Each person owning a beneficial interest in shares of the Series A Preferred
Stock must rely on the procedures of DTC and the participant through which such person owns its interest to exercise its rights
as a holder of the Series A Preferred Stock.
DTC
has advised us that it is a limited-purpose trust company organized under the New York Banking Law, a member of the Federal Reserve
System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing
agency” registered under the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants (“Direct
Participants”) deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions,
such as transfers and pledges in deposited securities through electronic computerized book-entry changes in Direct Participants’
accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. Access to the DTC system
is also available to others such as securities brokers and dealers, including the underwriters, banks and trust companies that
clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”).
The rules applicable to DTC and its Direct and Indirect Participants are on file with the SEC.
When
you purchase shares of Series A Preferred Stock within the DTC system, the purchase must be by or through a Direct Participant.
The Direct Participant will receive a credit for the Series A Preferred Stock on DTC’s records. You will be considered to
be the “beneficial owner” of the Series A Preferred Stock. Your beneficial ownership interest will be recorded on
the Direct and Indirect Participants’ records, but DTC will have no knowledge of your individual ownership. DTC’s
records reflect only the identity of the Direct Participants to whose accounts shares of Series A Preferred Stock are credited.
You
will not receive written confirmation from DTC of your purchase. The Direct or Indirect Participants through whom you purchased
the Series A Preferred Stock should send you written confirmations providing details of your transactions, as well as periodic
statements of your holdings. The Direct and Indirect Participants are responsible for keeping an accurate account of the holdings
of their customers like you.
Transfers
of ownership interests held through Direct and Indirect Participants will be accomplished by entries on the books of Direct and
Indirect Participants acting on behalf of the beneficial owners.
Conveyance
of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to beneficial owners will be governed by arrangements among them, subject to any statutory
or regulatory requirements as may be in effect from time to time.
We
understand that, under DTC’s existing practices, in the event that we request any action of the holders, or an owner of
a beneficial interest in a global security, such as you, desires to take any action that a holder is entitled to take under our
amended and restated certificate of incorporation (including the certificate of designations designating the Series A Preferred
Stock), DTC would authorize the Direct Participants holding the relevant shares to take such action, and those Direct Participants
and any Indirect Participants would authorize beneficial owners owning through those Direct and Indirect Participants to take
such action or would otherwise act upon the instructions of beneficial owners owning through them.
Any
redemption notices with respect to the Series A Preferred Stock will be sent to Cede & Co. If less than all of the outstanding
shares of Series A Preferred Stock are being redeemed, DTC will reduce each Direct Participant’s holdings of shares of Series
A Preferred Stock in accordance with its procedures.
In
those instances where a vote is required, neither DTC nor Cede & Co. itself will consent or vote with respect to the shares
of Series A Preferred Stock. Under its usual procedures, DTC would mail an omnibus proxy to us as soon as possible after the record
date. The omnibus proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants whose accounts
the shares of Series A Preferred Stock are credited to on the record date, which are identified in a listing attached to the omnibus
proxy.
Dividends
on the Series A Preferred Stock are made directly to DTC’s nominee (or its successor, if applicable). DTC’s practice
is to credit participants’ accounts on the relevant payment date in accordance with their respective holdings shown on DTC’s
records unless DTC has reason to believe that it will not receive payment on that payment date.
Payments
by Direct and Indirect Participants to beneficial owners will be governed by standing instructions and customary practices, as
is the case with securities held for the accounts of customers in bearer form or registered in “street name.” These
payments will be the responsibility of the participant and not of DTC, us or any agent of ours.
DTC
may discontinue providing its services as securities depositary with respect to the Series A Preferred Stock at any time by giving
reasonable notice to us. Additionally, we may decide to discontinue the book-entry only system of transfers with respect to the
Series A Preferred Stock. In that event, we will print and deliver certificates in fully registered form for the Series A Preferred
Stock. If DTC notifies us that it is unwilling to continue as securities depositary, or it is unable to continue or ceases to
be a clearing agency registered under the Exchange Act and a successor depositary is not appointed by us within 90 days after
receiving such notice or becoming aware that DTC is no longer so registered, we will issue the Series A Preferred Stock in definitive
form, at our expense, upon registration of transfer of, or in exchange for, such global security.
According
to DTC, the foregoing information with respect to DTC has been provided to the financial community for informational purposes
only and is not intended to serve as a representation, warranty or contract modification of any kind.
Global
Clearance and Settlement Procedures
Initial
settlement for the Series A Preferred Stock will be made in immediately available funds. Secondary market trading among DTC’s
participants occurs in the ordinary way in accordance with DTC’s rules and will be settled in immediately available funds
using DTC’s Same-Day Funds Settlement System.