The following management's discussion and analysis should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
In this section, "we," "our," "ours" and "us" refer to
Overview
The Company, together with our recent acquisitions of
Headquartered in
2021 Highlights
Merger with
On
Table of Contents 34
The AHP Merger Agreement provided for the merger of Merger Sub with and into
AHP, hereafter referred to as the "AHP Acquisition." As a result of the
Acquisition, Merger Sub ceased to exist, and AHP became the surviving
corporation and a direct wholly owned subsidiary of
AHP is a privately held company with controlling interest in its' affiliate
Associated Hispanic Physicians of Southern California IPA, a California Medical
corporation, ("AHISP). A key term of the AHP Merger Agreement is that at
Closing,
Through the MSA, we have exclusive authority over all non-medical decisions related to the ongoing business operations of AHISP. Consequently, the Company consolidates the revenue and expenses of AHISP as their primary beneficiary from the date of execution of the MSA.
The AHP Merger Agreement and Management Services Agreement was disclosed on the
Company's current report on Form 8-K filed on
Merger with
On
The AHA Merger Agreement provided for the merger of Merger Sub with and into
AHA, hereafter referred to as the "AHA Acquisition." As a result of the
Acquisition, Merger Sub ceased to exist, and AHA became the surviving
corporation and a direct wholly owned subsidiary of
The AHA Merger Agreement was disclosed on the Company's current report on Form
8-K filed on
At the AHP Closing and the AHA Closing, hereafter collectively referred to as
the "Closing", all of the outstanding shares of AHP common stock (the "AHP
Shares") were converted solely into the right to receive a number of shares of
Table of Contents 35
The preliminary accounting for our merger with AHP and AHA was disclosed on the
Company's current report on Form 8-K/A filed on
Acquisition of
On
The Procare Merger Agreement provided for the merger of Merger Sub with and into
Procare, hereafter referred to as the "Acquisition." As a result of the
Acquisition, Merger Sub ceased to exist, and Procare became the surviving
corporation and a direct wholly owned subsidiary of
Under the terms of the stock purchase agreement, the shares of Procare's common
stock issued and outstanding immediately prior to the Effective Time (other than
Cancelled Shares) will be converted into the right to receive by the
Stockholders an aggregate of 759,036 (the "Exchange Ratio") shares of Parent's
common stock ("Stock Consideration"). Twenty Five percent of the Stock
Consideration shall be held back and shall be released to Parent or
Stockholders, as the case may be, in accordance with the procedures set forth in
Section 3.2 the Merger Agreement. In the event that EBITDA is equal to or
exceeds
The Procare Merger Agreement was disclosed on the Company's current report on
Form 8-K filed on
Recent Developments Reverse Merger with Nutex
On
Under the terms of the Nutex Merger Agreement, Merger Subsidiary will merge with and into Nutex, with Nutex becoming a wholly-owned subsidiary of the Company (the "Nutex Merger").
In connection with the Nutex Merger Agreement, Nutex has entered into certain Contribution Agreements with holders of equity interests ("Nutex Owners") of subsidiaries and affiliates of Nutex and MHH (the "Nutex Subsidiaries") pursuant to which such Nutex Owners have agreed to contribute certain equity interests in the Nutex Subsidiaries to Nutex in exchange for specified equity interests in Nutex (collectively, the "Contribution Transaction").
Table of Contents 36
Pursuant to the Nutex Merger Agreement, each unit representing an equity
interest in Nutex issued and outstanding immediately prior to the effective time
of the Merger but after the Contribution Transaction (collectively, the "Nutex
Membership Interests") shall be converted into the right to receive 3.571428575
(the "Exchange Ratio") shares of common stock ("Company Common Stock") of the
Company, par value
The aggregate number of Nutex Membership Interests outstanding immediately prior
to the Effective Time of the Merger will be equal to the aggregate EBITDA of
Nutex and the contributing percentages of the Nutex Subsidiaries for the
trailing 12-month period ended
The aggregate number of Nutex Membership Interests outstanding immediately prior
to the Effective Time of the Merger will be equal to (a) with respect to ramping
and mature hospitals the aggregate EBITDA of Nutex based on the contributed
percentages of such hospitals for the trailing 12-month period ended
The transaction was approved by the Board of Directors of the Company. Consummation of the Merger is subject to various closing conditions, including, among other things, listing of the Company Common Stock on the Nasdaq Capital Market.
Key Financial Measures and Indicators
Operating Revenues
Our revenue primarily consists of capitation revenue and SaaS subscription services. The form of billing and related risk of collection for such services may vary by type of revenue and the customer.
Operating Expenses
Our largest expense is the patient care cost paid to contracted physicians, and the cost of providing management and administrative support services to our affiliated physician groups. These services include providing utilization and case management, physician practice billing, revenue cycle services, physician practice management, administrative oversight, coding services, and other consulting services.
Results of operation
Our consolidated operating results for the year ended
CLINIGENCE HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2021 2020 Sales Capitation revenue, net 16,620,488 - SaaS revenue 1,653,806 1,585,952 Management services revenue, net 519,489 - Total sales 18,793,783 1,585,952 Cost of sales 14,647,045 909,780 Gross profit 4,146,738 676,172 Operating expenses Research and development 285,880 557,257 Sales and marketing 24,449 166,759 General and administrative expenses 12,177,316 3,251,353 Goodwill impairment loss - 3,471,508 Gain on sale of assets - (8,395,702 ) Gain on lease termination - (25,174 ) Loss on sale of fixed assets - 54,819 Amortization 677,168 222,032 Total operating expenses 13,164,813 (697,148 ) Income (loss) from operations (9,018,075 ) 1,373,320 Other income (expense)
Loss on extinguishment of debt (167,797 ) Settlement payment from ACMG 522,000 Income from forgiveness of debt 636,807 - Impairment of Series E investment - (6,402,278 ) Interest income 917 1,030 Interest expense - debt obligations (784,012 ) Interest expense - accretion of debt discount (6,011,071 ) (335,450 ) Total other income (expenses) (5,635,359 ) (6,904,495 ) Loss from continuing operations (14,653,434 ) (5,531,175 ) Income tax benefit - deferred 984,810 - Loss from discontinued operations (including gain on disposal of$142,027 for the year ended December 31, 2020) - (118,992 ) Net loss (13,688,624 ) (5,650,167 ) Net income attributable to noncontrolling interests 891 - Net income (loss) attributable to Clinigence Holdings, Inc.$ (13,669,515 ) $ (5,650,167 ) Table of Contents 37 Revenue
The increase was primarily attributable to the AHP acquisition.
Our total revenue in 2021 was
(i) an increase of
(ii) a decrease of
(iii) an increase of
Cost of Services
Expenses related to cost of services for the year ended
Research and Development
Research and Development expense for year ended
Sales and Marketing
Sales and Marketing expense for the year ended
General and Administrative Expenses
General and administrative expenses for year ended
Gain on Sale of Assets
For the year ended
Gain on Lease Termination
For the year ended
Loss on Sale of Fixed Assets
For the year ended
Table of Contents 38 Amortization
Amortization expense for the year ended
Loss on extinguishment of debt
For the year ended
Income from forgiveness of debt
For the year ended
Impairment of Series E investment
Pursuant to the AHA IP purchase agreement in 2020 with our subsidiary CHI, we
recorded a Series E Preferred Stock investment in AHA at
Interest Income
Interest income for the year ended
Interest Expense
Interest expense for the year ended
Income Tax Benefit
For the year ended
Net Income (Loss) Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was
Table of Contents 39
LIQUIDITY AND CAPITAL RESOURCES
General
We had cash of
We generate cash primarily from capitations, risk pool settlements and incentives, fees for medical management services provided to our physician groups, as well as FFS reimbursements and recurring SaaS Subscriptions.
Historically, the Company's has experienced significant losses and the major
sources of cash have been comprised of proceeds from various public and private
offerings of its common stock, debt financings, and option and warrant
exercises. During the year ended
Cash Flow Activity
Cash used in operating activities for the year ended
Cash provided by investing activities for the year ended
Cash provided by financing activities for the year ended
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our management's discussion and analysis of our financial condition and results
of operations are based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in
Table of Contents 40 Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries,
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
Fair Value Measurements
We adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short- and long-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk. The Company's investment in AHA was valued at level 3 input.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 - quoted prices in active markets for identical assets or liabilities
Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 - inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
Table of Contents 41
The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.
Variable interest model
We perform a primary beneficiary analysis on all our identified variable interest entities, which comprises a qualitative analysis based on power and economics. We consolidate a VIE if both power and benefits belong to us - that is, we (i) have the power to direct the activities of a VIE that most significantly influence the VIE's economic performance (power), and (ii) have the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (benefits). We consolidate VIEs whenever it is determined that we are the primary beneficiary.
Noncontrolling Interests
We consolidate variable interest entities (VIEs) in which the Company is the primary beneficiary. Noncontrolling interests represent the amount of net income attributable to the VIEs and is disclosed in the consolidated statements of income.
Revenue Recognition
Revenue is generated by software licenses, training, and consulting. Software licenses are provided as SaaS-based subscriptions that grants access to proprietary online databases and data management solutions. Training and consulting are project based and billable to customers on a monthly-basis or task-basis.
Revenue from training and consulting are generally recognized upon delivery of training or completion of the consulting project. The duration of training and consulting projects are typically a few weeks or months and last no longer than 12 months.
SaaS-based subscriptions are generally marketed under multi-year agreements with annual, semi-annual, quarterly, or month-to-month renewals and revenue is recognized ratably over the renewal period with the unearned amounts received recorded as deferred revenue. For multiple-element arrangements accounted for in accordance with specific software accounting guidance, multiple deliverables are segregated into units of accounting which are delivered items that have value to a customer on a standalone basis.
On
Table of Contents 42
The Company provides its customers with software licensing, training, and consulting through SaaS-based subscriptions. This subscription revenue represents revenue earned under contracts in which the Company bills and collects the charges for licensing and related services. The Company determines the measurement of revenue and the timing of revenue recognition utilizing the following core principles:
1. Identifying the contract with a customer;
2. Identifying the performance obligations in the contract;
3. Determining the transaction price;
4. Allocating the transaction price to the performance obligations in the contract; and
5. Recognizing revenue when (or as) the Company satisfies its performance obligations.
Revenues from subscriptions are deferred and recorded as deferred revenue when cash payments are received in advance of the satisfaction of the Company's performance obligations and recognized over the period in which the performance obligations are satisfied. The Company completes its contractual performance obligations through providing its customers access to specified data through subscriptions for a service period, and training on consulting associated with the subscriptions. The Company primarily invoices its customers on a monthly basis and does not provide any refunds, rights of return, or warranties to its customers.
AHA's performance obligation is to manage ACO participants who provide healthcare services to CMS's members for the purpose of generating shared savings. If achieved, the Company receives shared savings payments from CMS, which represents variable consideration. The shared savings payments are recognized using the most likely methodology. However, as the Company does not have sufficient insight from CMS into the financial performance of the shared risk pool because of unknown factors related to shifting patient count, risk adjustment factors and benchmark adjustments, among other factors, an estimate cannot be developed. Therefore, these amounts are considered to be fully constrained and only recorded in the months when such payments are known and/or received. The Company generally receives payment within ten months after the fiscal year-end.
AHP negotiates fixed per-member, per-month (PMPM) rates (Capitation) with
third-party insurers for a fixed period of time.
Procare's revenue is generated primarily through management fees that are received based on Gross Capitation Revenues of the IPA/Physician Groups. Revenue is paid monthly and is a flat fixed rate determined by the agreement. In addition to Management Fees, there is revenue generated through consultant services that are charged as a flat fixed rate and represent a small portion of the total revenue.
Cost of Sales
Our costs of sales primarily consist of cloud computing and storage costs, datasets, contracted and internal labor costs and contracted medical provider services.
Advertising Costs
We expense advertising costs as incurred. Advertising costs of
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash and highly liquid investments
with original maturities of 90 days or less at the date of purchase. We do not
have any cash equivalents as of
Table of Contents 43 Accounts Receivable
The Company analyzes the collectability of accounts receivable from continuing
operations each accounting period and adjusts its allowance for doubtful
accounts accordingly. A considerable amount of judgment is required in assessing
the realization of accounts receivables, including the creditworthiness of each
customer, current and historical collection history and the related aging of
past due balances. The Company evaluates specific accounts when it becomes aware
of information indicating that a customer may not be able to meet its financial
obligations due to deterioration of its financial condition, lower credit
ratings, bankruptcy or other factors affecting the ability to render payment. As
of
Inventory
Inventory consisting of finished products is stated at the lower of cost or net realizable value.
Property and equipment and depreciation
Property and equipment are stated at cost. Maintenance and repairs are charged to expense when incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is credited or charged to income. Depreciation for both financial reporting and income tax purposes is computed using combinations of the straight line and accelerated methods over the estimated lives of the respective assets as follows:
Office equipment and fixtures 5 - 7 years Computer hardware 5 years Computer software 3 years Development equipment 5 years Business Combinations
We use the acquisition method of accounting for all business combinations, which requires assets and liabilities of the acquiree to be recorded at fair value, to measure the fair value of the consideration transferred, including contingent consideration, to be determined on the acquisition date, and to account for acquisition related costs separately from the business combination.
Amortization
Intangible assets are amortized using the straight-line method over the estimated lives of the respective assets as follows:
Developed technology 13 years Customer relationships 10 years
Table of Contents 44 Long-Lived Assets
We assess the valuation of components of our property and equipment and other long-lived assets whenever events or circumstances dictate that the carrying value might not be recoverable. We base our evaluation on indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such factors indicate that the carrying amount of an asset or asset group may not be recoverable, we determine whether an impairment has occurred by analyzing an estimate of undiscounted future cash flows at the lowest level for which identifiable cash flows exist. If the estimate of undiscounted cash flows during the estimated useful life of the asset is less than the carrying value of the asset, we recognize a loss for the difference between the carrying value of the asset and its estimated fair value, generally measured by the present value of the estimated cash flows.
Deferred Revenue
Deposits from customers are not recognized as revenues, but as liabilities,
until the following conditions are met: revenues are realized when cash or
claims to cash (receivable) are received in exchange for goods or services or
when assets received in such exchange are readily convertible to cash or claim
to cash or when such goods/services are transferred. When such income item is
earned, the related revenue item is recognized, and the deferred revenue is
reduced. To the extent revenues are generated from our support and maintenance
services, we recognize such revenues when services are completed and billed. We
received deposits from our various customers that have been recorded as deferred
revenue and presented as current liabilities in the amount of
Stock-Based Compensation
We account for our stock-based awards granted under our employee compensation plan in accordance with ASC Topic No. 718-20, Awards Classified as Equity, which requires the measurement of compensation expense for all share-based compensation granted to employees and non-employee directors at fair value on the date of grant and recognition of compensation expense over the related service period for awards expected to vest. We use the Black-Scholes option pricing model to estimate the fair value of its stock options and warrants. The Black-Scholes option pricing model requires the input of highly subjective assumptions including the expected stock price volatility of the Company's common stock, the risk-free interest rate at the date of grant, the expected vesting term of the grant, expected dividends, and an assumption related to forfeitures of such grants. Changes in these subjective input assumptions can materially affect the fair value estimate of the Company's stock options and warrants.
Income Taxes
We account for income taxes using the asset and liability method in accordance with ASC Topic No. 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
We apply the provisions of ASC Topic No. 740 for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in our financial statements. In accordance with this provision, tax positions must meet a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position.
Recent Accounting Pronouncements
We have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect is expected on the condensed consolidated financial statements as a result of future adoption.
Table of Contents 45
OFF BALANCE SHEET ARRANGEMENTS
We have no off balance-sheet arrangements.
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