Item 1A. Risk Factors.
Our business and financial
results are subject to various risks and uncertainties including those described below. You should consider carefully the risks and uncertainties
described below, together with all of the other information in this report, including the section titled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes.
Our business, results of operations, financial condition, and prospects could also be harmed by risks and uncertainties that are not presently
known to us or that we currently believe are not material. If any of these risks actually occur, our business, results of operations,
financial condition, and prospects could be materially and adversely affected. Unless otherwise indicated, references in these risk factors
to our business being harmed will include harm to our business, reputation, brand, financial condition, results of operations, and prospects.
In such event, the market price of our securities could decline.
Risks Related to Our Business and Industry
We operate in a competitive industry, and
if we are not able to compete effectively, our business, financial condition, and results of operations will be harmed.
The telemedicine market is
rapidly evolving and highly competitive. We expect competition to intensify in the future as existing competitors and new entrants introduce
new telemedicine services and software platforms or other technology to U.S. healthcare providers, particularly hospitals and healthcare
systems. We currently face competition from a range of companies, including other incumbent providers of telemedicine consultation services
and specialized software providers, that are continuing to grow and enhance their service offerings and develop more sophisticated and
effective transaction and service platforms. In addition, large, well-financed healthcare providers have in some cases developed their
own telemedicine services and technologies utilizing their own and third-party platforms and may provide these solutions to their patients.
Electronic medical record vendors could build telemedicine functionality directly into their existing systems for healthcare providers
instead of utilizing our solution. The surge in interest in telemedicine, and in particular the relaxation of HIPAA privacy and security
requirements, has also attracted new competition from providers who utilize consumer-grade video conferencing platforms. Competition from
specialized telemedicine services and software providers, healthcare providers and other parties will result in continued pricing pressures,
which is likely to lead to price declines in certain of our services, which could negatively impact our sales, profitability and market
share.
Some of our competitors may
have greater name recognition, longer operating histories and significantly greater resources than we do. Further, our current or potential
competitors may be acquired by third parties with greater available resources. As a result, our competitors may be able to respond more
quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements and may have the
ability to initiate or withstand substantial price competition. In addition, current and potential competitors have established, and may
in the future establish, cooperative relationships with vendors of complementary products, technologies or services to increase the availability
of their solutions in the marketplace. Accordingly, new competitors or alliances may emerge that have greater market share, a larger customer
base, more widely adopted proprietary technologies, greater marketing expertise, greater financial resources and larger sales forces than
we have, which could put us at a competitive disadvantage. Our competitors could also be better positioned to serve certain segments of
the telemedicine market, which could create additional price pressure. In light of these factors, even if our solutions are more effective
than those of our competitors, current or potential customers may accept competitive solutions in lieu of purchasing our solutions. If
we are unable to compete successfully in the telemedicine industry, our business, financial condition and results of operations will be
harmed.
Moreover, we expect that
competition will continue to increase as a result of consolidation in the healthcare industry. Many healthcare industry participants are
consolidating to create integrated healthcare delivery systems with greater market power. As provider networks and managed care organizations
consolidate, thus decreasing the number of market participants, competition to provide services like ours will become more intense, and
the importance of establishing and maintaining relationships with key industry participants will become greater. These industry participants
may try to use their market power to negotiate price reductions for our telemedicine consultation and platform services. If we are forced
to reduce our prices and are unable to achieve a corresponding reduction in our expenses, our revenues would decrease, which could harm
our business.
The level of demand for and market utilization
of our solutions are subject to a high degree of uncertainty.
The market for telemedicine
services and related technology is in the early stages of development and characterized by rapid change. As telemedicine specialty consultation
workflows and related business drivers continue to evolve, the level of demand for and market utilization of our telemedicine services
and platform remain subject to a high degree of uncertainty. Our success will depend to a substantial extent on the willingness of healthcare
organizations to use, and to increase the frequency and extent of their utilization of, our solutions and our ability to demonstrate the
value of telemedicine to healthcare providers. If healthcare organizations do not recognize or acknowledge the benefits of our telemedicine
services or software platform or if we are unable to reduce healthcare costs or generate positive health outcomes, then the market for
our solutions might not develop at all, or it might develop more slowly than we expect. Similarly, negative publicity regarding patient
confidentiality and privacy in the context of technology-enabled healthcare or concerns about our solutions or the telemedicine market
as a whole could limit market acceptance of our solutions. If our customers do not perceive the benefits of our solutions, then our market
may not develop at all, or it may develop more slowly than we expect. Achieving and maintaining market acceptance of our solutions could
be negatively affected by many factors, including:
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the popularity, pricing and timing of telemedicine consultation services being launched and distributed by us and our competitors;
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general economic conditions, particularly economic conditions adversely affecting discretionary and reimbursable healthcare spending;
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federal and state policy initiatives impacting the need for and pricing of telemedicine services;
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changes in customer needs and preferences;
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the development of specialty care practice standards or industry norms applicable to telemedicine consultation services;
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the availability of other forms of medical and telemedicine assistance;
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the lack of additional evidence or peer-reviewed publication of clinical evidence supporting the safety, ease-of-use, cost-savings or other perceived benefits of our solutions over competitive products or other currently available methodologies;
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perceived risks associated with the use of our solutions or similar products or technologies generally; and
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critical reviews and public tastes and preferences, all of which change rapidly and cannot be predicted.
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In addition, our solutions
may be perceived by our customers or potential customers to be more complicated or less effective than traditional approaches, and our
customers and potential customers may be unwilling to change their current healthcare practices. Healthcare providers are often slow to
change their medical treatment practices for a variety of reasons, including perceived liability risks arising from the use of new products
and services and the uncertainty of third-party reimbursement. Accordingly, healthcare providers may not recommend our solutions until
there is sufficient evidence to convince them to alter their current approach. Any of these factors could adversely affect the demand
for and market utilization of our solutions, which would harm our business.
We have a history of losses and anticipate
that we will continue to incur losses in the future. We may never achieve or sustain profitability.
We have incurred net losses
on an annual basis since our inception. For the three and nine months ended September 30, 2021, we incurred net losses of $10.6 million
and $37.7 million, respectively, compared to net losses of $9.7 million and $25.1 million for the three and nine months ended September
30, 2020, respectively. We had an accumulated deficit of approximately $273.9 million as of September 30, 2021. We expect our costs to
stabilize in the foreseeable future and our losses will decrease as we implement our restructuring plan. However, these efforts may prove
more expensive than we currently anticipate, and we may not succeed in increasing our revenues or decreasing our costs sufficiently. Even
if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. To date, we have financed
our operations principally from the sale of our equity securities, revenue from sales of our telemedicine consultation services, and the
incurrence of indebtedness. Our cash flow from operations was negative for the three and nine months ended September 30, 2021, and we
may not generate positive cash flow from operations in any given period. If we are not able to achieve or maintain positive cash flow
in the long term, we will require additional financing, which may not be available on favorable terms or at all or which would be dilutive
to our stockholders. If we are unable to address these risks and challenges successfully as we encounter them, our business may be harmed.
Our failure to achieve or maintain profitability or positive cash flow could negatively affect the value of our Class A common stock.
Our restructuring plan and the associated
headcount reduction may not result in anticipated savings, could result in total costs and expenses that are greater than expected and
could disrupt our business.
On October 28, 2021, the
Board approved certain strategic, operational and organizational plans to improve productivity and reduce complexity in the way we manage
our business. The restructuring plan includes a reduction in our non-clinical headcount by approximately 12% as well as additional cost-saving
initiatives. These actions are expected to be substantially completed by the end of 2021. We may not realize, in full or in part, the
anticipated benefits, savings and improvements in our cost structure from our restructuring efforts due to unforeseen difficulties, delays
or unexpected costs. If we are unable to realize the expected operational efficiencies and cost savings from the restructuring, our business
may be harmed. Furthermore, our restructuring plan may be disruptive to our operations. For example, our headcount reductions could yield
unanticipated consequences, such as increased difficulties in implementing our business strategy, including retention of our remaining
employees.
The developing and rapidly evolving nature
of our business and the markets in which we operate may make it difficult to evaluate our business.
We have been creating offerings
for the developing and rapidly evolving market for telemedicine services since the founding of our business in 2004. Our initial focus
was on our teleNeurology services and we have since expanded our services to include other specialties and offerings. For example, we
have started offering our Telemed IQ telemedicine software platform to hospitals and healthcare systems independent of the utilization
of our provider network, and our sales team has less experience marketing this service. Accordingly, we have a relatively limited operating
history with our current solutions and business model, which makes it difficult to evaluate our business and prospects. In particular,
because we depend in part on market acceptance of our newer services, including our Telemed IQ software platform, it is difficult to evaluate
trends that may affect our business and whether our expansion will be profitable. You should consider our business and prospects in light
of the risks and difficulties we encounter or may encounter. These risks and difficulties include those frequently experienced by growing
companies in rapidly changing industries, such as determining appropriate investments of our limited resources, market adoption of our
existing and future solutions, competition from other companies, acquiring and retaining customers, hiring, integrating, training and
retaining skilled personnel, developing new solutions, determining prices for our solutions, unforeseen expenses, and challenges in forecasting
accuracy. If we have difficulty launching new solutions, our reputation and our business may be harmed. Additional risks include our ability
to effectively manage growth and process, cross-license and privilege physicians, store, protect and use personal data in compliance with
governmental regulation, contractual obligations and other legal obligations related to privacy and security. If our assumptions regarding
these and other similar risks and uncertainties, which we use to plan our business, are incorrect or change as we gain more experience
operating our business or due to changes in our industry, or if we do not address these challenges successfully, our business, financial
condition and results of operations could differ materially from our expectations and our business could suffer.
Our business, results of operations, and
financial condition may fluctuate on a quarterly and annual basis, which may result in a decline in our stock price if such fluctuations
result in a failure to meet any projections that we may provide or the expectations of securities analysts or investors.
Our operating results have
in the past and could in the future vary significantly from quarter-to-quarter and year-to-year and may fail to match our past performance,
our projections or the expectations of securities analysts because of a variety of factors, many of which are outside of our control.
In addition, a significant percentage of our revenues is based upon variable fee provisions in our customer service contracts for additional
utilization of our consultation services. Those variable consultation fees fluctuate based on the degree to which customers are utilizing
our services exceed the contracted amounts, which is difficult to predict in advance. As a result, we may not be able to accurately forecast
our operating results and growth rate. Any of these events could cause the market price of our Class A common stock to fluctuate.
Factors that may contribute to the variability of our operating results include:
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the addition or loss of large hospital and healthcare system customers, including through acquisitions or consolidations of such customers;
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seasonal and other variations in the timing of our sales and implementation cycles, especially in the case of our large customers;
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the timing of recognition of revenue, including possible delays in the recognition of revenue due to sometimes unpredictable implementation timelines;
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the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;
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our ability to effectively manage the size and composition of our proprietary network of healthcare professionals relative to the level of demand for services from our customers;
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the timing and success of introductions of new products and services by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, hospital and healthcare system customers or strategic partners;
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hospital and healthcare system customer renewal rates and the timing and terms of such renewals;
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the mix of services sold and utilization volume of our services during a period;
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the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies;
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technical difficulties or interruptions in our services;
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breaches of information security or privacy;
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our ability to hire and retain qualified personnel, including cross-licensing and privileging our physician network;
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changes in the structure of healthcare provider and payment systems;
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changes in the legislative or regulatory environment, including with respect to healthcare, privacy, or data protection, or enforcement by government regulators, including fines, orders, or consent decrees;
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the cost and potential outcomes of ongoing or future regulatory investigations or examinations, or of future litigation;
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the duration and severity of the COVID-19 pandemic and the extent of further resurgences, the actions taken to contain or address its impact, including the availability, adoption and effectiveness of a vaccine, and their impact on economic, industry and market conditions, customer spending budgets and our ability to conduct business;
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political, economic and social instability, including terrorist activities and health epidemics (including the COVID-19 pandemic), and any disruption these events may cause to the global economy; and
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changes in business or macroeconomic conditions.
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The impact of one or more
of the foregoing and other factors may cause our operating results to vary significantly. As such, we believe that quarter-to-quarter
and year-to-year comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future performance.
Our business, financial condition and results
of operations have been and may continue to be adversely impacted by the COVID-19 pandemic or similar epidemics in the future or other
adverse public health developments, including government responses to such events.
The outbreak of COVID-19
has caused many governments to implement quarantines, shelter-in-place orders and significant restrictions on travel, and to instruct
individuals to avoid crowds, which has led to an economic downturn and increased market volatility. It has also disrupted the normal operations
of many businesses, including ours and the healthcare system generally. Although there are vaccines that have been approved and are in
distribution, it cannot be predicted how long it will take before a sufficient percentage of the United States’ population
is vaccinated to return to normal conditions. Additionally, new and more contagious variants of COVID-19 have been identified, which could
further amplify the impact of the pandemic. This outbreak, as well as intensified measures undertaken to contain the spread of COVID-19,
could decrease healthcare industry spending and has and may continue to adversely impact demand for and utilization of our services if
healthcare providers continue to prioritize treatment of COVID-19-related illnesses and patients are unable or unwilling to visit health
care providers. Economic downturns and other adverse impacts resulting from COVID-19 or other similar epidemics or adverse public health
developments may further negatively impact the utilization rates of our services by our customers and our ability to attract new customers
and may increase the likelihood of customers not renewing their contracts with us or being unable to pay us in accordance with the terms
of their agreements. In addition, the operations of several of our third-party service providers have been negatively impacted by the
COVID-19 pandemic. As a result of the COVID-19 pandemic or other similar epidemics or adverse public health developments, our operations,
and those of our providers, have experienced, and may in the future continue to experience, delays or disruptions, such as temporary suspension
of operations. In particular, the COVID-19 pandemic had an impact on the utilization levels of our core services when it was declared
a global pandemic in March 2020, and, as a result, our financial condition and annual results of operations have been negatively
impacted. Immediately following the declaration of COVID-19 as a global pandemic, the utilization levels of our core services decreased
by approximately 40% in the aggregate. While the utilization levels of these solutions have substantially rebounded in the subsequent
months, they have not completely recovered and there can be no assurances that the utilization rates of our solutions will return to prior
period levels in the foreseeable future. Our business, financial condition and results of operations may continue to be adversely impacted
in the event that the economic downturn or measures undertaken to contain the spread of COVID-19 continue for a long period of time. In
addition, as a result of the COVID-19 pandemic or other similar epidemics or adverse public health developments, we may be impacted by
employee illness, shutdowns and other community response measures meant to prevent spread of the virus, all of which could negatively
impact our business, financial condition and results of operations. Further, if we are regularly unable to meet our obligations to deliver
our services, our customers may decide to terminate their contracts or we may be subject to other contractual penalties. We cannot predict
with any certainty whether and to what degree the disruption caused by the COVID-19 pandemic and reactions thereto will continue, and
expect to face difficulty accurately predicting our internal financial forecasts. The extent to which COVID-19 pandemic-related business
disruption and economic uncertainty affects our results will depend on future developments, which are highly uncertain. The COVID-19 pandemic
may also have the effect of heightening many of the other risks identified elsewhere in this “Risk Factors” section.
Our sales cycle can be long and unpredictable
and requires considerable time and expense. As a result, our sales, revenues, and cash flows are difficult to predict and may vary substantially
from period to period, which may cause our results of operations to fluctuate significantly.
The sales cycle for our solutions
from initial contact with a potential lead to contract execution and implementation varies widely by customer. Some of our customers undertake
a significant and prolonged evaluation process, including to determine whether our solutions meet their unique telemedicine service needs,
which frequently involves evaluation of not only our solutions but also an evaluation of those of our competitors, which has in the past
resulted in extended sales cycles. Our sales efforts involve educating our customers about the use, technical capabilities and potential
benefits of our solutions. Moreover, our large hospital and healthcare system customers often begin to deploy our solutions on a limited
basis, but nevertheless demand extensive configuration, integration services and pricing concessions, which increase our upfront investment
in the sales effort with no guarantee that these customers will deploy our solution widely enough across their organization to justify
our substantial upfront investment. It is possible that in the future we may experience even longer sales cycles, more complex customer
needs, higher upfront sales costs and less predictability in completing some of our sales, including as a result of the COVID-19 pandemic,
as we continue to expand our direct sales force, expand into new territories and market additional solutions and services. If our sales
cycle lengthens or our substantial upfront sales and implementation investments do not result in sufficient sales to justify our investments,
our business could be harmed.
Developments affecting spending by the healthcare
industry could adversely affect our revenues.
The U.S. healthcare industry
has changed significantly in recent years, and we expect that significant changes will continue to occur. General reductions in expenditures
by healthcare industry participants could result from, among other things:
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government regulations or private initiatives that affect the manner in which healthcare providers interact with patients, payors or other healthcare industry participants, including changes in pricing or means of delivery of healthcare products and services;
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consolidation of healthcare industry participants;
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federal amendments to, lack of enforcement or development of applicable regulations for, or repeal of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (as amended, the “ACA”);
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reductions in government funding for healthcare; and
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adverse changes in business or economic conditions affecting healthcare payors or providers or other healthcare industry participants.
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Any of these changes in healthcare
spending could adversely affect our revenues. Even if general expenditures by industry participants remain the same or increase, developments
in the healthcare industry may result in reduced spending in some or all of the specific market segments that we serve now or in the future.
However, the timing and impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the demand
for our solutions and services will continue to exist at current levels or that we will have adequate technical, financial, and marketing
resources to react to changes in the healthcare industry.
Economic uncertainties or prolonged downturns
in the general economy, or political changes, could disproportionately affect the demand for our solutions and harm our business.
Current or future economic
uncertainties or prolonged downturns, including those caused by the ongoing COVID-19 pandemic, could harm our business. Negative conditions
in the general economy in the United States, including conditions resulting from changes in gross domestic product growth, financial
and credit market fluctuations, political deadlock, natural catastrophes, pandemics, social unrest, warfare and terrorist attacks, could
cause a decrease in funds available to our customers and potential customers and negatively affect the growth rate of our business.
These economic conditions
may make it difficult for our customers and us to forecast and plan future budgetary decisions or business activities accurately, and
they could cause our customers to reevaluate their decisions to purchase our solutions, which could delay and lengthen our sales cycles
or result in cancellations of planned purchases. Furthermore, during challenging economic times or as a result of political changes, our
customers may tighten their budgets and face constraints in gaining timely access to sufficient funding or other credit, which could result
in an impairment of their ability to make timely payments to us. In turn, we may be required to increase our allowance for doubtful accounts,
which would adversely affect our financial results.
To the extent our solutions
are perceived by customers and potential customers to be discretionary, our revenues may be disproportionately affected by delays or reductions
in general information technology and telemedicine spending. Also, customers may choose to develop in-house software as an alternative
to using our Telemed IQ platform. Moreover, competitors may respond to market conditions by lowering prices and attempting to lure away
our customers. In addition, the increased pace of consolidation in the healthcare industry may result in reduced overall spending on our
solutions.
We cannot predict the timing,
strength or duration of any economic slowdown, instability or recovery, generally or within the healthcare industry, or the effect of
political changes. If the economic conditions of the general economy or the healthcare industry do not improve, or worsen from present
levels, our business could be harmed.
If our existing customers do not continue
or renew their contracts with us, renew at lower fee levels or decline to purchase additional services from us, our business may be harmed.
We expect to derive a significant
portion of our revenues from renewal of existing customer contracts and sales of additional services to existing customers. Factors that
may affect our ability to sell additional solutions and services include, but are not limited to, the following:
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the price, performance and functionality of our solutions;
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the availability, price, performance and functionality of competing solutions;
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our ability to develop and sell complementary solutions and services;
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the stability, performance and security of our Telemed IQ software platform;
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changes in healthcare laws, regulations or trends; and
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the business environment and strategic priorities of our customers.
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We typically enter into multi-year
contracts with our customers. These contracts generally have stated initial terms between one to three years. Most of our customers have
no obligation to renew their subscriptions for our solutions after the initial term expires. In addition, our customers may negotiate
terms less advantageous to us upon renewal, which may reduce our revenues from these customers. If our customers fail to renew their contracts,
renew their contracts upon less favorable terms or at lower fee levels or fail to purchase new solutions and services from us, our revenues
may decline, or our future revenue growth may be constrained.
Our telemedicine business and growth strategy
depend on our ability to maintain and expand our network of established, board-certified physicians and other provider specialists. If
we are unable to do so, our future growth would be limited and our business would be harmed.
Our success is dependent
upon our continued ability to maintain a network of established, board-certified physicians and other provider specialists. Fulfilling
our clinical and customer service obligations requires a robust supply of specialist physicians who must be licensed across many states
and privileged at a large number of our customer hospitals. If we are unable to recruit and retain board-certified physicians and other
healthcare professionals, it would harm our business and ability to grow and would adversely affect our results of operations. In any
particular market, these providers could demand higher payments or take other actions that could result in higher costs, less attractive
service for our customers or difficulty meeting regulatory or accreditation requirements. Our ability to develop and maintain satisfactory
relationships with these providers also may be negatively impacted by other factors not associated with us, such as changes in Medicare
and/or Medicaid reimbursement levels and other pressures on healthcare providers and consolidation activity among hospitals, physician
groups and healthcare providers. The failure to maintain or to secure new cost-effective provider contracts may result in a loss of or
inability to grow our customer base, higher costs, healthcare provider network disruptions, less attractive service for our customers
and/or difficulty in meeting regulatory or accreditation requirements, any of which could harm our business.
Our telemedicine business is dependent on
our relationships with affiliated professional entities, which we do not own, to provide physician services, and our business would be
harmed if those relationships were disrupted.
There is a risk that U.S.
state authorities in some jurisdictions may find that our contractual relationships with our physicians providing telehealth services
violate laws prohibiting the corporate practice of medicine. These laws generally prohibit the practice of medicine by lay persons or
entities and are intended to prevent unlicensed persons or entities from interfering with or inappropriately influencing a physician’s
professional judgment. The extent to which each state considers particular actions or contractual relationships to constitute improper
influence of professional judgment varies across the states and is subject to change and to evolving interpretations by state boards of
medicine and state attorneys general, among others. As such, we must monitor our compliance with laws in every jurisdiction in which we
operate on an ongoing basis and we cannot guarantee that subsequent interpretation of the corporate practice of medicine laws will not
circumscribe our business operations. State corporate practice of medicine doctrines also often impose penalties on physicians themselves
for aiding the corporate practice of medicine, which could discourage physicians from participating in our network of providers.
The corporate practice of
medicine prohibition exists in some form, by statute, regulation, board of medicine or attorney general guidance, or case law, in most
states, though the broad variation between state application and enforcement of the doctrine makes an exact count difficult. Due to the
prevalence of the corporate practice of medicine doctrine, including in the states where we predominantly conduct our business, we contract
for provider services through administrative support services agreements with nine 100% physician-owned, independent professional corporations
in California, Georgia, Kansas, New Jersey and Texas which employ or contract with physicians for the clinical and professional services
provided to our customers. We do not own these physician organizations; instead, the physician organizations are owned by physicians licensed
in their respective states. Although we expect that these relationships will continue, we cannot guarantee that they will. A material
change in our relationship with any of these physician organizations, or among these physician organizations and their contracted physicians,
whether resulting from a dispute among the parties, a change in government regulation or the loss of these affiliations, could impair
our ability to provide services to our customers and harm our business. Further, any scrutiny, investigation or litigation with regard
to our arrangement with these professional corporations could also harm our business.
We depend on a limited number of third-party
suppliers for our telemedicine equipment, and the loss of any of these suppliers, or their inability to provide us with an adequate supply
of materials, could harm our business.
We rely on a limited number
of third-party suppliers to manufacture and transport our telemedicine carts and equipment. For our business strategy to be successful,
our suppliers must be able to provide us with components in sufficient quantities, in compliance with regulatory requirements and quality
control standards, in accordance with agreed-upon specifications, at acceptable costs and on a timely basis. Increases in our providing
telemedicine equipment to customers, whether forecasted or unanticipated, could strain the ability of our suppliers to deliver an increased
supply of components in a manner that meets these various requirements. Further, in the event of a component shortage or supply interruption
from suppliers of these components, we may not be able to increase capacity from other sources or develop alternate or secondary sources
without incurring material additional costs and substantial delays. Quality or performance failures of the components or changes in the
suppliers’ financial or business condition could also disrupt our ability to supply telemedicine equipment to our customers and
thereby harm our business.
Moreover, volatile economic
conditions, including as a result of the global COVID-19 pandemic, may make it more likely that our suppliers may be unable to timely
deliver supplies, or at all, and there is no guarantee that we will be able to timely locate alternative suppliers of components of comparable
quality at an acceptable price. Further, since the beginning of 2018, there has been increasing rhetoric, in some cases coupled with legislative
or executive action, from several U.S. and foreign leaders regarding tariffs against foreign imports of certain materials. Several of
the components that go into the manufacturing of our telemedicine equipment are sourced internationally, including from China, where the
Office of the U.S. Trade Representative has imposed tariffs on imports of specified products. These tariffs have an impact on our component
costs and have the potential to have an even greater impact depending on the outcome of the current trade negotiations, which have been
protracted and have resulted in increases in U.S. tariff rates on specified products from China. Increases in our component costs could
have a material effect on our gross margins. The loss of a significant supplier, an increase in component costs, or delays or disruptions
in the delivery of components, could adversely affect our ability to generate future revenue and earnings and harm our business.
Any failure to offer high-quality technical
support services may harm our relationships with our customers and our financial results.
Our customers depend on our
support organization to resolve any technical issues relating to our services. In addition, our sales process is highly dependent on the
quality of our solutions, our business reputation and on strong recommendations from our existing customers. Any failure to maintain high-quality
and highly responsive technical support, or a market perception that we do not maintain high-quality and highly responsive support, could
harm our reputation, adversely affect our ability to sell our solutions to existing and prospective customers, and harm our business.
We offer technical support
services with our solutions and may be unable to respond quickly enough to accommodate short-term increases in demand for support services,
particularly as we increase the size of our customer base. We also may be unable to modify the format of our support services to compete
with changes in support services provided by competitors. It is difficult to predict demand for technical support services and if demand
increases significantly, we may be unable to provide satisfactory support services to our customers. Additionally, increased demand for
these services, without corresponding revenue, could increase costs and adversely affect our results of operations.
Because competition for qualified personnel
is intense, we may not be able to attract and retain the highly skilled employees we need to support our continued growth.
To continue to execute on
our growth plan, we must attract and retain highly qualified personnel. The pool of qualified personnel with experience working in the
healthcare market is limited overall and the competition to hire them is intense. As such, we may not be successful in continuing to attract
and retain qualified personnel. We have from time to time in the past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In addition, our search for replacements
for departed employees may cause uncertainty regarding the future of our business, impact employee hiring and retention, and adversely
impact our revenue, financial condition and results of operations. If we fail to attract new personnel or fail to retain and motivate
our current personnel, our business and future growth prospects could be harmed.
We depend on our senior management team,
and the loss of one or more of these employees or an inability to attract and retain qualified key personnel could harm our business.
Our success depends largely
upon the continued services of our key executive officers. These executive officers are “at-will” employees and therefore
may terminate employment with us at any time with no advance notice. We also rely on our leadership team in the areas of research and
development, marketing, services and general and administrative functions. From time to time, there have been and may continue to be changes
in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. The replacement
of one or more of our executive officers or other key employees would likely involve significant time and costs and may significantly
delay or prevent the achievement of our business objectives. In addition, volatility or lack of performance in our stock price may affect
our ability to attract and retain replacements should key personnel depart. If we are not able to retain any of our key personnel, our
business could be harmed.
Our management team has limited experience
managing a public company.
Most members of our management
team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly
complex laws, rules and regulations that govern public companies. Following the completion of the Merger Transaction, we are now subject
to significant obligations relating to reporting, procedures and internal controls, and our management team may not successfully or efficiently
manage such obligations or the ongoing transition of our business to a public company. These new obligations and constituents require
significant attention from our management team and could divert their attention away from the day-to-day management of our business, which
could harm our business, results of operations, and financial condition. In addition, we will need to expand our employee base and hire
additional employees to support our operations as a public company, which will increase our operating costs in future periods.
If we are not able to develop and release
new solutions, or successful enhancements, new features and modifications to our existing solutions, our business could be harmed.
To date, we have derived
a substantial majority of our revenues from sales of our telemedicine consultation services, and our longer-term results of operations
and continued growth will depend on our ability successfully to develop and market new solutions in a timely manner. In addition, we have
invested, and will continue to invest, significant resources in research and development to enhance our existing solutions, particularly
the features, functionality and performance of our Telemed IQ software platform. If existing customers are not willing to make additional
payments for such new solutions, or if new customers do not value such new solutions or enhancements, it could harm our business. If we
are unable to predict customer and user preferences or if our industry changes, or if we are unable to enhance or modify our solutions
on a timely basis, we may lose customers. In addition, our results of operations would suffer if our innovations are not responsive to
the needs of our, appropriately timed with market opportunity or effectively brought to market. Delays in launching new solutions may
open windows of opportunity for new and existing competitors to erode our market share and may negatively impact our revenues and profitability.
We may acquire other companies or technologies,
which could divert our management’s attention, result in dilution to our stockholders, and otherwise disrupt our operations, and
we may have difficulty integrating any such acquisitions successfully or realizing the anticipated benefits therefrom, any of which could
harm our business.
We have in the past and may
in the future seek to acquire or invest in businesses, applications and services or technologies that we believe could complement or expand
our solutions, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert
the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether
or not they are consummated.
In addition, if we acquire
additional businesses, we may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively
manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due
to a number of factors, including, but not limited to:
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inability to integrate or benefit from acquired technologies or services in a profitable manner;
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unanticipated costs or liabilities, including legal liabilities, associated with the acquisition;
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difficulty integrating the accounting systems, operations and personnel of the acquired business;
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difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;
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difficulty converting the customers of the acquired business onto our platform and contract terms, including disparities in the revenue, licensing, support or professional services model of the acquired company;
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diversion of management’s attention from other business concerns;
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adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;
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the potential loss of key employees or contractors;
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use of resources that are needed in other parts of our business; and
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use of substantial portions of our available cash to consummate the acquisition.
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In addition, a significant
portion of the purchase price of businesses we acquire may be allocated to acquired goodwill and other intangible assets, which must be
assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take
charges to our results of operations based on this impairment assessment process, which could adversely affect our results of operations.
Acquisitions could also result
in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our results of operations or cause
the market price of our Class A common stock to decline. In addition, if an acquired business fails to meet our expectations, our
business may be harmed.
If we are unable to grow, or if we fail
to manage future growth effectively, our revenues may not increase and we may be unable to implement our business strategy.
Our future success depends
upon our ability to grow, and if we are unable to manage our growth effectively, we may incur unexpected expenses and be unable to meet
our customers’ requirements, all of which could harm our business. A key aspect to managing our growth is our ability to scale our
capabilities, including in response to unexpected shifts in demand for telemedicine, such as during the COVID-19 pandemic. To manage our
current and anticipated future growth effectively, we must continue to maintain and enhance our IT infrastructure, financial and accounting
systems and controls. We must also attract, train and retain a significant number of board-certified physicians, sales and marketing personnel,
customer support personnel, professional services personnel, software engineers, technical personnel and management personnel, and the
availability of such personnel, in particular physicians and software engineers, may be constrained.
Our growth depends on the
acceptance of our solutions as a suitable supplement to traditional healthcare delivery systems and on our ability to overcome operational
challenges. Our business model and solutions could lose their viability as a supplement to traditional healthcare delivery systems due
to customer dissatisfaction or new alternative solutions. If we are unable to address the needs of our customers, or our customers are
dissatisfied with the quality of our solutions, our customers may not renew their contracts, seek to cancel or terminate their relationship
with us or renew on less favorable terms, any of which could cause our annual net dollar retention rate to decrease.
As we continue to grow, including
from the integration of employees and businesses acquired in connection with previous or future acquisitions, we may find it difficult
to maintain important aspects of our corporate culture, which could negatively affect our profitability and our ability to retain and
recruit qualified personnel who are essential for our future success. If we do not effectively manage our growth, we may not be able to
execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements
or maintain high-quality solutions. Additionally, we may not be able to expand and upgrade our systems and infrastructure to accommodate
future growth.
Failure to effectively manage
our growth could also lead us to over-invest or under-invest in development and operations, result in weaknesses in our infrastructure,
systems or controls, give rise to operational mistakes, financial losses, loss of productivity or business opportunities and result in
loss of employees and reduced productivity of remaining employees. Our growth is expected to require significant capital expenditures
and may divert financial resources from other projects such as the development of new solutions and services. If we are unable to effectively
manage our growth, our expenses may increase more than expected, our revenues may not increase or may grow more slowly than expected and
we may be unable to implement our business strategy. The quality of our services may also suffer, which could negatively affect our reputation
and harm our ability to attract and retain customers.
We may be unable to successfully execute
on our growth initiatives, business strategies or operating plans.
We are continually executing
a number of growth initiatives, strategies and operating plans designed to enhance our business. For example, we recently entered into
new specialist healthcare professional markets. The anticipated benefits from these efforts are based on several assumptions that may
prove to be inaccurate. Moreover, we may not be able to complete these growth initiatives successfully, strategies and operating plans
and realize all of the benefits, including growth targets and cost savings, that we expect to achieve, or it may be more costly to do
so than we anticipate. A variety of risks could cause us not to realize some or all of the expected benefits. These risks include, among
others, delays in the anticipated timing of activities related to such growth initiatives, strategies and operating plans, increased difficulty
and cost in implementing these efforts, including difficulties in complying with new regulatory requirements and the incurrence of other
unexpected costs associated with operating the business. Moreover, our continued implementation of these programs may disrupt our operations
and performance. As a result, we cannot assure you that we will realize these benefits. If, for any reason, the benefits we realize are
less than our estimates or the implementation of these growth initiatives, strategies and operating plans adversely affect our operations
or cost more or take longer to effectuate than we expect, or if our assumptions prove inaccurate, our business may be harmed.
Our growth depends in part on the success
of our strategic relationships with third parties.
To grow our business, we
anticipate that we will continue to depend on relationships with third parties, such as channel partners. In addition to growing our indirect
sales channels, we intend to pursue additional relationships with other third parties, such as physician groups, integrated delivery networks
and government contractors. Identifying partners, and negotiating and documenting relationships with them, requires significant time and
resources. Our competitors may be effective in causing third parties to favor their products or services over our solutions. In addition,
acquisitions of such partners by our competitors could result in a decrease in the number of our current and potential customers, as these
partners may no longer facilitate the adoption of our solutions. Further, some of our partners are or may become competitive with certain
of our solutions and may elect to no longer integrate with our platform. If we are unsuccessful in establishing or maintaining our relationships
with third parties, our ability to compete in the marketplace or to grow our revenues could be impaired, and our results of operations
may suffer. Even if we are successful, we cannot ensure that these relationships will result in increased customer usage of our applications
or increased revenue.
If the estimates and assumptions we use
to determine the size of our total addressable market are inaccurate, our future growth rate may be affected and our business would be
harmed.
Market opportunity estimates
and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate.
Even if the market in which we compete meets our size estimates and forecasted growth, our business could fail to grow at similar rates,
if at all. The principal assumptions relating to our market opportunity include all hospitals in the United States adopting outsourced
clinical resources via telemedicine and that we can successfully add specialties to our solutions beyond those currently offered today.
Our market opportunity is also based on the assumption that our existing and future offerings will be more attractive to our customers
and potential customers than competing solutions. If these assumptions prove inaccurate, our business could be harmed.
We may not grow at the rates we historically
have achieved or at all, even if our key metrics may indicate growth, which may adversely affect the market price of our Class A
common stock.
We have experienced significant
growth in recent years. Future revenues may not grow at these same rates or may decline. Our future growth will depend, in part, on our
ability to grow our revenues from existing customers, to complete sales to potential future customers, to expand our customer base, and
to develop new solutions and services. We can provide no assurances that we will be successful in executing on these growth strategies
or that, even if our key metrics would indicate future growth, we will continue to grow our revenues or to generate net income. Our ability
to execute on our existing sales pipeline, create additional sales pipelines and expand our customer base depends on, among other things,
the attractiveness of our services relative to those offered by our competitors, our ability to demonstrate the value of our existing
and future services and our ability to attract and retain a sufficient number of qualified sales and marketing leadership and support
personnel. In addition, our existing customers may be slower to adopt our services than we currently anticipate, which could harm our
business and growth prospects and adversely affect the market price of our Class A common stock.
We have been and may in the future become
subject to litigation, which could be costly and time-consuming to defend.
We have been and may in the
future become subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our customers
in connection with commercial disputes or employment claims made by our current or former associates. Litigation may result in substantial
costs and may divert management’s attention and resources, which may substantially harm our business, financial condition and results
of operations. Insurance may not cover such claims, may not provide sufficient payments to cover all of the costs to resolve one or more
such claims and may not continue to be available on terms acceptable to us. Resolution of some of these types of matters against us may
result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements
exceed insured levels, could adversely affect our results of operations and cash flows, thereby harming our business and stock price.
For example, fines or assessments could be levied against us under domestic or foreign data privacy laws (such as the Health Insurance
Portability and Accountability Act of 1996 (“HIPAA”), the General Data Protection Regulation (“GDPR”), or the
California Consumer Privacy Act of 2018 (“CCPA”)) or under authority of privacy enforcing governmental entities (such as the
Federal Trade Commission (“FTC”), or the U.S. Department of Health and Human Services (“HHS”)) or as a result
of private actions, such as class actions based on data breaches or based on private rights of action (such as that contained in
the CCPA). Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage,
which could adversely affect our results of operations and cash flows, expose us to increased risks that would be uninsured and adversely
affect our ability to attract directors and officers. In addition, such litigation could result in increased scrutiny by government authorities
having authority over our business, such as the FTC, the HHS, Office for Civil Rights (“OCR”), and state attorneys general.
We may become subject to medical liability
claims, which could cause us to incur significant expenses, may require us to pay significant damages if not covered by insurance, and
could harm our business.
Our business entails the
risk of medical liability claims against us and our affiliated professional entities. We and our affiliated professional entities have
in the past and may in the future be subject to medical liability claims and, if these claims are successful, substantial damage awards.
Although we maintain insurance covering medical malpractice claims in amounts that we believe are appropriate in light of the risks attendant
to our business, we cannot predict the outcomes of medical malpractice cases, the effect that any claims of this nature, regardless of
their ultimate outcome, could have on our business or reputation or on our ability to attract and retain customers. Professional liability
insurance is expensive and insurance premiums may increase significantly in the future, particularly as we expand our services. As a result,
adequate professional liability insurance may not be available to our providers or to us in the future at acceptable costs or at all.
Any claims made against us
that are not fully covered by insurance could be costly to defend against, result in substantial damage awards against us and divert the
attention of our management and our providers from our operations, which could harm our business. In addition, any claims may harm our
business or reputation.
Our ability to use our net operating losses
to offset future taxable income may be subject to certain limitations.
In general, under Section 382
of the U.S. Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is
subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. A Section 382
“ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock
increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.
Similar rules may apply under state tax laws. As of December 31, 2020, we had approximately $232.9 million of federal net operating loss
carryforwards and $182.9 million of state net operating loss carryforwards. The federal net operating loss carryforwards of $111.9 million
created subsequent to the year ended December 31, 2017, carry forward indefinitely, whereas the remaining federal net operating loss carryforwards
of $121.0 million begin to expire in 2025. Our ability to utilize NOLs may be currently subject to limitations due to prior ownership
changes. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382
of the Code, further limiting our ability to utilize NOLs arising prior to such ownership change in the future. There is also a risk that
due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise
be unavailable to offset future income tax liabilities. We have recorded a full valuation allowance against the deferred tax assets attributable
to our NOLs that are not more likely than not expected to be utilized.
Taxing authorities may successfully assert
that we should have collected or in the future should collect sales and use, value-added, or similar taxes, and we could be subject to
liability with respect to past or future sales, which could adversely affect our results of operations.
We do not collect sales and
use and similar taxes in any states for telemedicine services based on our belief that our services are not subject to such taxes in any
state. Sales and use and similar tax laws and rates vary greatly from state to state. Certain states in which we do not collect such taxes
may assert that such taxes are applicable, which could result in tax assessments, penalties and interest with respect to past services,
and we may be required to collect such taxes for services in the future. Such tax assessments, penalties and interest or future requirements
may adversely affect our results of operations.
If our relationships with physicians and
other provider specialists within our network are characterized as employees, we would be subject to employment and withholding liabilities.
Although we believe that
some of our physicians and other provider specialists within our network are properly characterized as independent contractors, tax or
other regulatory authorities may in the future challenge our characterization of these relationships. If such regulatory authorities or
state, federal or foreign courts were to determine that our providers or experts are employees, and not independent contractors, we would
be required to withhold income taxes, to withhold and pay social security, Medicare and similar taxes and to pay unemployment and other
related payroll taxes. We would also be liable for unpaid past taxes and subject to penalties. As a result, any determination that our
providers or experts are our employees could harm our business.
We may require additional capital from equity
or debt financings to support business growth, and this capital might not be available on acceptable terms, if at all.
We intend to continue to
make investments to support our business growth and may require additional funds to respond to business challenges, including the need
to develop new solutions or enhance our existing solutions, enhance our operating infrastructure and acquire complementary businesses
and technologies. In order to achieve these objectives, we may make future commitments of capital resources, including incurring additional
indebtedness under the Term Loan Facility. Accordingly, we may need to engage in equity or debt financings to secure additional funds.
If we raise additional funds through further issuances of equity or debt securities, our existing stockholders could suffer significant
dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A
common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities
and other financial and operational matters. In addition, we may not be able to obtain additional financing on terms favorable to us,
if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to
continue to support our business growth and to respond to business challenges could be significantly limited.
Our Term Loan Agreement contains certain
restrictions that may limit our ability to operate our business.
In connection with the Acquisition,
we entered into the Term Loan Agreement with SLR Investment. The terms of the Term Loan Agreement and the related collateral documents
contain, and any future indebtedness would likely contain, a number of restrictive covenants that impose significant operating and financial
restrictions on us, including restrictions on our ability, and the ability of our subsidiaries, to take actions that may be in our best
interests, including, among others, disposing of assets, entering into change of control transactions, mergers or acquisitions, incurring
additional indebtedness, granting liens on our assets, declaring and paying dividends, and agreeing to do any of the foregoing. The Term
Loan Facility requires us to satisfy a specified minimum liquidity level of at least $5.0 million at all times and to achieve certain
minimum net revenue thresholds measured quarterly on a trailing twelve-month basis from March 31, 2022, through December 31, 2022, and
then 60% of projected net revenues in accordance with an annual plan to be submitted to the lenders commencing on March 31, 2023, and
thereafter. Our ability to meet these and other financial covenants can be affected by events beyond our control, including as a result
of the economic downturn caused by the COVID-19 pandemic, and we may not be able to continue to meet these covenants. A breach of any
of these covenants or the occurrence of other events (including a material adverse effect) specified in these agreements and/or the related
collateral documents would result in an event of default under such agreements. Upon the occurrence of an event of default, SLR Investment,
as collateral agent for the lenders, could elect to declare all amounts outstanding, if any, under the Term Loan Agreement to be immediately
due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, SLR Investment, as collateral
agent for the lenders, could proceed against the collateral granted to them to secure such indebtedness. We have pledged substantially
all of our assets as collateral under the loan documents. If SLR Investment, as collateral agent for the lenders, accelerates the repayment
of borrowings, if any, we may not have sufficient funds to repay our existing debt.
Our substantial indebtedness following the
Acquisition could harm our business and growth prospects.
In connection with the Acquisition,
we funded the cash portion of the purchase price in part with proceeds from the Term Loan Facility. Our substantial indebtedness as a
result of these borrowings, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes
for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we
may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds.
Our indebtedness, the cash
flow needed to satisfy our debt and the covenants contained in our debt agreements could have important consequences to us, including
limiting funds otherwise available for financing our operations, capital expenditures, selling and marketing efforts, development of new
solutions, future business opportunities and other purposes by requiring us to dedicate a portion of our cash flows from operations to
the repayment of debt and the interest on this debt; limiting our ability to incur or prepay existing indebtedness, pay dividends or distributions,
dispose of assets, engage in mergers and consolidations, make acquisitions or other investments and make changes in the nature of the
business, among other things; making us more vulnerable to rising interest rates, as borrowings under the Term Loan Facility bear variable
rates of interest; and making us more vulnerable in the event of a downturn in our business.
Our level of indebtedness
may place us at a competitive disadvantage to our competitors that are not as highly leveraged. Fluctuations in interest rates can increase
borrowing costs. Increases in interest rates may directly impact the amount of interest we are required to pay and reduce earnings accordingly.
In addition, tax laws, including the disallowance or deferral of tax deductions for interest paid on outstanding indebtedness, could have
an adverse effect on our liquidity and harm our business. Further, the Term Loan Agreement contains customary affirmative and negative
covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including
restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or
necessary for our business.
We expect to use cash flow
from operations to meet current and future financial obligations, including funding our operations, debt service requirements and capital
expenditures. The ability to make these payments depends on our financial and operating performance, which is subject to prevailing economic,
industry and competitive conditions and to certain financial, business, economic and other factors beyond our control.
We have identified material weaknesses in
our internal control over financial reporting. If our remediation of these material weaknesses is not effective, or if we experience additional
material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately
report our financial statements or report them in a timely manner, which may adversely affect investor confidence in us and, as a result,
the value of our Class A common stock.
As a public company, we are
required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Prior to
the Merger Transaction, Legacy SOC Telemed operated as a private company with limited accounting and financial reporting personnel and
other resources with which to address its internal controls and procedures, and, as previously disclosed, had identified a material weakness
in its internal control over financial reporting related to the design of its control environment. In connection with the audit of our
consolidated financial statements for the year ended December 31, 2020, we and our independent registered public accounting firm identified
material weaknesses (including the previously identified material weakness) in our internal control over financial reporting and, as a
result, our management concluded that our disclosure controls and procedures were not effective as of December 31, 2020. See “Controls
and Procedures” under Part I, Item 4 of this report. A material weakness is a deficiency, or a combination of deficiencies,
in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or
interim financial statements will not be prevented or detected on a timely basis.
Consistent with our prior
disclosures, we determined that we had a material weakness related to the design of our control environment because we did not (i) maintain
a sufficient complement of personnel with an appropriate degree of knowledge, experience, and training, commensurate with our accounting
and reporting requirements; (ii) maintain sufficient evidence of formal procedures and controls to achieve complete, accurate and
timely financial accounting, reporting and disclosures, nor were monitoring controls evidenced at a sufficient level to provide the appropriate
level of oversight of activities related to our internal control over financial reporting; and (iii) design and maintain effective
controls over segregation of duties with respect to creating and posting manual journal entries.
In addition, in connection
with our year-end audit, we determined that we had a material weakness related to informational technology (“IT”) general
controls because we did not design and maintain effective controls over IT general controls for information systems that are relevant
to the preparation of our financial statements. Specifically, we did not design and maintain (i) program change management controls
for financial systems to ensure that information technology and data changes affecting financial IT applications and underlying accounts
records are identified, tested, authorized, and implemented appropriately; and (ii) user access controls to ensure appropriate segregation
of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company
personnel.
The material weakness related
to the control environment resulted in adjustments to liability, equity, and changes in fair value related to private placement warrants,
the accrual of certain compensation-related costs, and other items related to the consummation of the Merger Transaction. The IT deficiencies
did not result in a material misstatement to our consolidated financial statements; however, the deficiencies, when aggregated, could
impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls
that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support
the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement
accounts and disclosures that would not be prevented or detected. Accordingly, we have determined these deficiencies in the aggregate
constitute a second material weakness. Additionally, each of the above material weaknesses could result in a misstatement of our account
balances or disclosures that would result in a material misstatement to our annual or interim consolidated financial statements that would
not be prevented or detected.
With the oversight of senior
management and our audit committee, we have implemented a remediation plan which includes (i) the hiring of personnel with technical
accounting and financial reporting experience to further bolster our ability to assess judgmental areas of accounting and provide an appropriate
level of oversight of activities related to internal control over financial reporting; (ii) the implementation of improved accounting
and financial reporting procedures and controls to improve the timeliness of our financial reporting cycle; (iii) the implementation
of new accounting and financial reporting systems to improve the completeness and accuracy of our financial reporting and disclosures;
(iv) the establishment of formalized internal controls to maintain segregation of duties between control operators; (v) the
implementation of additional program change management policies and procedures, control activities, and tools to ensure changes affecting
IT applications and underlying accounting records are identified, authorized, tested, and implemented appropriately; and (vi) the
enhancement of the design and operation of user access control activities and procedures to ensure that access to IT applications and
data is adequately restricted to appropriate Company personnel. We believe the measures described above, which continues the implementation
of a remediation plan commenced by Legacy SOC Telemed prior to the Merger Transaction, will remediate the material weaknesses identified
and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes
and will continue to diligently and vigorously review our financial reporting controls and procedures.
While we continue to implement
this plan to remediate the material weaknesses described above, we cannot predict the success of such plan or the outcome of our assessment
of these plans at this time. If our steps are insufficient to remediate the material weaknesses successfully and otherwise establish and
maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence
in us, and the value of our Class A common stock could be materially and adversely affected. We can give no assurance that the implementation
of this plan will remediate these deficiencies in internal control or that additional material weaknesses or significant deficiencies
in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective
internal control over financial reporting could result in errors in our financial statements that could result in a restatement of
our financial statements, causing us to fail to meet our reporting obligations.
If we fail to maintain an effective system
of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements
or comply with applicable regulations could be impaired.
As a public company, we are
subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the applicable listing
standards of Nasdaq. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and
financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on our personnel,
systems and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures
and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that
are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports
under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve
our internal control over financial reporting, which includes hiring additional accounting and financial personnel to implement such processes
and controls. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial
reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs
and significant management oversight. If any of these new or improved controls and systems do not perform as expected, we may experience
material weaknesses in our controls in addition to those discussed in the section entitled “Controls and Procedures”
under Part I, Item 4 of this report. Our current controls and any new controls that we develop may become inadequate because of changes
in conditions in our business. Further, additional weaknesses in our disclosure controls and internal control over financial reporting
may be discovered in the future.
Any failure to develop or
maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations
or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any
failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic
management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our
internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with
the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose
confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our Class A
common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq. We
are required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are required to make a formal
assessment of the effectiveness of our internal control over financial reporting for that purpose. We will be required to provide an annual
management report on the effectiveness of our internal control over financial reporting commencing with our annual report on Form 10-K
for the year ended December 31, 2021. Our independent registered public accounting firm is not required to formally attest to the effectiveness
of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the
JOBS Act or a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. At such time, our independent
registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal
control over financial reporting is documented, designed, or operating. Any failure to maintain effective disclosure controls and internal
control over financial reporting could harm our business and could cause a decline in the price of our Class A common stock.
Risks Related to Governmental Regulation
Government regulation of healthcare creates
risks and challenges with respect to our compliance efforts and our business strategies.
The healthcare industry is
highly regulated and is subject to changing political, legislative, regulatory, and other influences. Existing and new laws and regulations
affecting the healthcare industry could create unexpected liabilities for us, could cause us to incur additional costs, and could restrict
our operations. Many healthcare laws are complex, and their application to specific products and services may not be clear. In particular,
many existing healthcare laws and regulations, when enacted, did not anticipate the services that we provide. However, these laws and
regulations may nonetheless be applied to our business. Our failure to accurately anticipate the application of these laws and regulations,
or other failure to comply, could create liability for us, result in adverse publicity and harm our business.
If we fail to comply with extensive healthcare
laws and government regulations, we could suffer penalties or be required to make significant changes to our operations.
The healthcare industry is
required to comply with extensive and complex laws and regulations at the federal, state and local government levels relating to, among
other things:
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licensure of health providers, certification of organizations and enrollment with government reimbursement programs;
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necessity and adequacy of medical care;
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relationships with physicians and other referral sources and referral recipients;
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billing and coding for services;
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properly handling overpayments;
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quality of medical equipment and services;
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qualifications of medical and support personnel;
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confidentiality, maintenance, data breach, identity theft and security issues associated with health-related and personal information and medical records; and
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communications with patients and consumers.
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Among these laws are the
federal Stark Law, the federal Anti-Kickback Statute, the False Claims Act, and similar state laws. If we fail to comply with applicable
laws and regulations, we could suffer civil sanctions and criminal penalties, including the loss of our ability to participate in
the Medicare, Medicaid and other federal and state healthcare programs. While we endeavor to ensure that our financial relationships with
referral sources such as hospitals and physicians comply with the applicable laws (including applicable safe harbors and exceptions),
evolving interpretations or enforcement of these laws and regulations could subject our current practices to allegations of impropriety
or illegality or could require us to make changes in our operations. A determination that we have violated these or other laws, or the
public announcement that we are being investigated for possible violations of these or other laws, could harm our business, and our business
reputation could suffer significantly. In addition, other legislation or regulations at the federal or state level may be adopted that
could harm our business.
Our use and disclosure of personally identifiable
information, including health information, is subject to federal and state privacy and security regulations, and our failure to comply
with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm to us,
which could, in turn, harm our customer base and our business.
Numerous state and federal
laws and regulations, including HIPAA, govern the collection, dissemination, use, privacy, confidentiality, security, availability and
integrity of personally identifiable information, or PII, including protected health information. HIPAA establishes a set of basic national
privacy and security standards for the protection of protected health information (“PHI”) by health plans, healthcare clearinghouses
and certain healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract
for services, which includes us.
HIPAA requires healthcare
providers like us to develop and maintain policies and procedures with respect to PHI that is used or disclosed, including the adoption
of administrative, physical and technical safeguards to protect such information. HIPAA also implemented the use of standard transaction
code sets and standard identifiers that covered entities must use when submitting or receiving certain electronic healthcare transactions,
including activities associated with the billing and collection of healthcare claims.
HIPAA imposes mandatory
penalties for certain violations. HIPAA also authorizes state attorneys general to file suit on behalf of their residents. Courts will
be able to award damages, costs and attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a
private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis
for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.
In addition, HIPAA mandates
that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities or business associates for compliance with the
HIPAA Privacy and Security Standards. It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims
of breaches of unsecured PHI may receive a percentage of the Civil Monetary Penalty fine paid by the violator.
HIPAA further requires that
patients be notified of any unauthorized acquisition, access, use or disclosure of their unsecured PHI that compromises the privacy or
security of such information, with certain exceptions related to unintentional or inadvertent use or disclosure by employees or authorized
individuals. HIPAA specifies that such notifications must be made “without unreasonable delay and in no case later than 60 calendar
days after discovery of the breach.” If a breach affects 500 patients or more, it must be reported to HHS without unreasonable
delay, and HHS will post the name of the breaching entity on its public web site. Breaches affecting 500 patients or more in the same
state or jurisdiction must also be reported to the local media. If a breach involves fewer than 500 people, the covered entity must record
it in a log and notify HHS at least annually.
Numerous other federal and
state laws protect the confidentiality, privacy, availability, integrity and security of PII, including PHI. These laws in many cases
are more restrictive than, and may not be preempted by, the HIPAA rules and may be subject to varying interpretations by courts and government
agencies, creating complex compliance issues for us and our customers and potentially exposing us to additional expense, adverse publicity
and liability.
New health information standards,
whether implemented pursuant to HIPAA, congressional action or otherwise, could have a significant effect on the manner in which we must
handle healthcare related data, and the cost of complying with standards could be significant. If we do not comply with existing or new
laws and regulations related to PHI, we could be subject to criminal or civil sanctions.
Because of the extreme sensitivity
of the PII we store and transmit, the security features of our technology platform are very important. If our security measures, some
of which are managed by third parties, are breached or fail, unauthorized persons may be able to obtain access to sensitive customer
and patient data, including HIPAA-regulated PHI. As a result, our reputation could be severely damaged, adversely affecting customer
or investor confidence. Customers may curtail their use of or stop using our services or our customer base could decrease, which would
cause our business to suffer. In addition, we could face litigation, damages for contract breach, penalties and regulatory actions for
violation of HIPAA and other applicable laws or regulations and significant costs for remediation, notification to individuals and for
measures to prevent future occurrences. Any potential security breach could also result in increased costs associated with liability
for stolen assets or information, repairing system damage that may have been caused by such breaches, incentives offered to customers
or other business partners in an effort to maintain our business relationships after a breach and implementing measures to prevent future
occurrences, including organizational changes, deploying additional personnel and protection technologies, training employees and engaging
third-party experts and consultants. While we maintain insurance covering certain security and privacy damages and claim expenses, we
may not carry insurance or maintain coverage sufficient to compensate for all liability and, in any event, insurance coverage would not
address the reputational damage that could result from a security incident.
We outsource important aspects
of the storage and transmission of customer and patient information, and thus rely on third parties to manage functions that have material
cyber-security risks. We attempt to address these risks by requiring outsourcing subcontractors who handle customer and patient information
to sign business associate agreements contractually requiring those subcontractors to adequately safeguard personal health data to the
same extent that applies to us and in some cases by requiring such outsourcing subcontractors to undergo third-party security examinations.
However, we cannot assure you that these contractual measures and other safeguards will adequately protect us from the risks associated
with the storage and transmission of such information on our behalf by our subcontractors.
We also publish statements
to our customers that describe how we handle and protect personal information. If federal or state regulatory authorities or private
litigants consider any portion of these statements to be untrue, we may be subject to claims of deceptive practices, which could lead
to significant liabilities and consequences, including, without limitation, costs of responding to investigations, defending against
litigation, settling claims and complying with regulatory or court orders.
We have specific requirements to protect
the privacy and security of personal health information we collect from or on behalf of our customers.
Privacy and security of
personal health information, particularly personal health information stored and transmitted electronically, is a major issue in the
United States. The Privacy Standards and Security Standards under HIPAA establish a set of national privacy and security standards
for the protection of individually identifiable health information by health plans, healthcare clearinghouses and healthcare providers
(referred to as covered entities) and their business associates. We may be required to comply with the HIPAA Privacy and Security Standards
for physical, technical, and administrative safeguards, among other requirements. We cannot assure you that it will adequately address
the risks created by these requirements, and if it fails to do so we could potentially be subject to HIPAA’s criminal and civil
penalties. The Health Information Technology for Economic and Clinical Health (or “HITECH”) Act, which was enacted as part
of the American Recovery and Reinvestment Act of 2009, and amended HIPAA, increased civil penalty amounts for violations of HIPAA and
significantly strengthened enforcement by requiring the United States Department of Health and Human Services to conduct periodic
audits to confirm compliance and authorizing state attorneys general to bring civil actions seeking either injunctions or damages in
response to violations of HIPAA Privacy and Security Standards that threaten the privacy of state residents.
Both federal and state governments
continue to adopt and/or are considering a number of new regulations related to protection of personal information. Thus, we may incur
costs to monitor, evaluate, and modify operational processes for compliance.
If we fail to comply with federal and state
laws and policies governing claim submissions to government healthcare programs or commercial insurance programs, we or our customers
may be subject to civil and criminal penalties or loss of eligibility to participate in government healthcare programs and contractual
claims by commercial insurers.
We offer revenue cycle management
services to our customers that include the preparation and submission of claims for professional service and billing agent collection
processing with payers on behalf of our customers. Certain of these reimbursement claims are governed by federal and state laws with
potential civil and criminal penalties for non-compliance. The HIPAA security, privacy and transaction standards also have a potentially
significant effect on our claims preparation, transmission and submission services, because such services must be structured and provided
in a way that supports our customers’ HIPAA compliance obligations. Errors by us or our systems with respect to entry, formatting,
preparation or transmission of claim information may be determined or alleged to be in violation of these laws and regulations. If our
revenue cycle management services fail to comply with these laws and regulations, we may be subjected to federal or state government
investigations and possible penalties may be imposed upon us, false claims actions may have to be defended, private payers may file claims
against us, and we may be excluded from Medicare, Medicaid or other government-funded healthcare programs. Further, our customers may
seek contractual remedies and indemnification. Any investigation or proceeding related to these topics, even if unwarranted or without
merit, could adversely affect demand for our services, could force us to expend significant capital, research and development and other
resources to address the failure, and may harm our business.
If we fail to comply with Medicare and
Medicaid regulatory, guidance, or policy requirements, we may be subjected to reduced reimbursement, overpayment demands or loss of eligibility
to participate in these programs.
Our affiliated professional
entities enrolled and recently began participating in certain government health care programs covering certain of the professional services
delivered by our affiliated professional entities. We expect a growing portion of our patient services to be reimbursed by government
health care programs. The Medicare and Medicaid programs are highly regulated, and unique requirements governing the reimbursement of
professional services delivered using telemedicine are evolving and complicated. In addition, changes in government health care programs
may reduce the reimbursement we receive and could harm our business. In particular, there is uncertainty regarding whether temporary
waivers of certain Medicare conditions of participation and payment for many virtual care services and temporary expansions of the types
of Medicare-covered services that can be provided remotely will continue or be made permanent. If we fail to comply with applicable reimbursement
laws and regulations, reimbursement under these programs and participation in these programs could be adversely affected. Federal or
state governments may also impose other sanctions on us for failure to comply with the applicable reimbursement regulations, including
but not limited to recovering an overpayment. Failure to comply with these or future laws and regulations could result in our or our
affiliated provider network’s ability to provide telemedicine services to our customers.
Physician licensing and credentialing,
a cost of providing professional services, can negatively impact our margins as we may incur increased expenses to utilize appropriately
licensed and credentialed physicians for consult demands, especially when expanding to new jurisdictions and new hospital customers.
A physician’s ability
to perform telemedicine consults is dictated by where the physician is licensed to practice and with whom the physician is privileged
to provide services. State licensure and physician credentialing requirements take time to procure, often necessitating months of lead-time
before a physician is able to take consults for a particular hospital facility. Our ability to manage and anticipate physician need and
prioritize licensing and credentialing could impact profit margins and expense management. As consult demands increase in areas where
only a limited number of physicians hold necessary licenses and credentials, those physicians with appropriate licensing and credentialing
to meet customer demands may assume additional overtime shifts or otherwise demand increased fees, thereby increasing our costs. Further,
obtaining a license to practice medicine in a particular jurisdiction is at the discretion of the local state medical board, and, as
such, timing to achieve licensure in certain jurisdictions may be outside our ability to accomplish within expected time frames.
Recent and frequent state legislative and
regulatory changes specific to telemedicine may present us with additional requirements and state compliance costs, with potential operational
impacts in certain jurisdictions.
In recent years, states
have adopted an abundance of new legislation and regulations specific to telemedicine. In some cases, this legislation and regulation,
typically targeting “direct to consumer” telehealth service offerings rather than specialty consultative services, such as
our acute care telemedicine solutions, incorporates informed consent, modality, medical record, and other requirements. Thus, where new
legislation and regulations apply to our telemedicine solutions, we may incur costs to monitor, evaluate, and modify operational processes
for compliance. All such activities increase our costs and could, in certain circumstances, impact our ability to make available telemedicine
services in a particular state.
Risks Related to Our Use of Technology
Failure to keep pace with advances in technology
could cause our solutions to become obsolete, which could harm our business, financial condition and results of operations.
The telemedicine industry
is characterized by rapid technological change, changing consumer requirements, short product lifecycles and evolving industry standards.
The successful implementation of our business model depends on our ability to anticipate and adapt to evolving technologies and industry
standards and introduce new solutions accordingly. For example, we recently started deploying our Telemed IQ software platform to hospital
organizations as a stand-alone software-as-a-service solution independent of our clinical services to enable these providers to optimize
and scale our platform across all of their care sites. These new solutions carry risks, such as cost overruns, delays in delivery, performance
problems, and lack of acceptance by our customers. If we cannot anticipate or adapt to rapidly evolving industry standards, technology,
and increasingly sophisticated customers and their employees, our existing technology could become undesirable, obsolete, or harm our
reputation. Moreover, we may not be successful in developing, using, marketing, selling or maintaining new technologies effectively or
adapting our solutions to evolving customer requirements or emerging industry standards, and, as a result, our business could be harmed.
In addition, we have limited insight into trends that might develop and affect our business, which could lead to errors in our predicting
and reacting to relevant business, legal, and regulatory trends and healthcare reform. 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 solutions and services becoming
uncompetitive or obsolete. If any of these events occur, it could harm our business.
We depend upon third-party service providers
for certain technologies. If these third-party providers fail to fulfill their contractual obligations, fail to maintain or support those
technologies or choose to discontinue their services, our operations could be disrupted and our business may be harmed.
We depend upon third-party
service providers for important functions of our solutions. Software, network applications and data, as well as the core video and audio
system integral to our business, are hosted on third-party sites. These facilities may be vulnerable to damage or interruption from earthquakes,
hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures, COVID-19 pandemic-related
business disruptions, and similar events. The occurrence of a natural disaster or an act of terrorism, a decision to close the facilities
without adequate notice, or other unanticipated problems could result in lengthy interruptions in our providing our services. The facilities
also could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism, and other misconduct. Redundancies and
backup systems are in place to prevent operational disruptions and data loss, but if these technologies fail or are of poor quality,
our business could be harmed. Failures or disruption in the delivery of telemedicine services could result in customer dissatisfaction,
disrupt our operations, and adversely affect our operating results. Additionally, we have significantly less control over the technologies
third parties provide to us than if we maintained and operated them ourselves. In some cases, functions necessary to some of our solutions
may be performed by these third-party technologies. If we need to find an alternative source for performing these functions, we may have
to expend significant money, resources and time to develop the alternative, and if this development is not accomplished in a timely manner
and without significant disruption to our business, we may be unable to fulfill our obligations to customers. Any errors, failures, interruptions,
or delays experienced in connection with these third-party technologies and information services or our own systems could negatively
impact our relationships with customers and harm our business and could expose us to third-party liabilities.
If the systems that we use to provide our
services experience security breaches, we may incur significant liabilities, and our reputation and business may be harmed.
Our services involve the
storage and transmission of our customers’ proprietary information, sensitive or confidential data, including valuable personal
information of patients, customers and others, as well as the PHI of our customers. Because of the extreme sensitivity of the information
we store and transmit, the security features of our computer, network and communications systems infrastructure are critical to the success
of our business. We are also dependent on third-party vendors to keep their systems secure in order to protect our information systems
and data. A breach or failure of our or our third-party vendors’ security measures could result from a variety of circumstances
and events, including third-party action, employee negligence or error, malfeasance, computer viruses, cyber-attacks by computer hackers,
failures during the process of upgrading or replacing software and databases, power outages, hardware failures, telecommunication failures,
user errors or catastrophic events. Information security risks have generally increased in recent years because of the proliferation
of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. As cyber threats continue to evolve,
we may be required to expend additional resources to further enhance our information security measures and/or to investigate and remediate
any information security vulnerabilities. If our or our third-party vendors’ security measures fail or are breached, it could result
in unauthorized persons accessing sensitive customer or patient data (including PHI), a loss of or damage to our data, an inability to
access data sources, or process data or provide our services to our customers. Such failures or breaches of our or our third-party vendors’
security measures, or our or our third-party vendors’ inability to effectively resolve such failures or breaches in a timely manner,
could severely damage our reputation, adversely affect customer or investor confidence in us, and reduce the demand for our services
from existing and potential customers. In addition, we could face litigation, damages for contract breach, monetary penalties, or regulatory
actions for violation of applicable laws or regulations, and incur significant costs for remedial measures to prevent future occurrences
and mitigate past violations. Although we maintain insurance covering certain security and privacy damages and claim expenses, we may
not carry insurance or maintain coverage sufficient to compensate for all liability and, in any event, insurance coverage would not address
the reputational damage that could result from a security incident.
We or our third-party vendors
may experience cyber-security and other breach incidents that remain undetected for an extended period. Because techniques used to obtain
unauthorized access or to sabotage systems change frequently and generally are not recognized until launched, we or our third-party vendors
may be unable to anticipate these techniques or to implement adequate preventive measures. If an actual or perceived breach of our or
our third-party vendors’ security occurs, or if we or our third-party vendors are unable to effectively resolve such breaches in
a timely manner, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and customers,
which could harm our business.
We rely on telecommunications and internet
service providers for providing solutions to our customers, and any interruption or failure in the services provided by these third parties
could harm our business.
Our business is highly dependent
on telecommunications and internet service providers. We serve our customers using third-party data centers and telecommunications solutions,
including cloud infrastructure services. Our services are designed to operate 24-hours-a-day, seven-days-a-week, without interruption.
However, we have experienced, and we expect that we will continue to experience, interruptions and delays in services and availability
from time to time. We may not maintain redundant systems or facilities for some of these services. While we control and have access to
our servers, we do not control the operation of these facilities. The cloud vendors and the owners of our data center facilities have
no obligation to renew their agreements with us on commercially reasonable terms or at all. If we are unable to renew these agreements
on commercially reasonable terms, or if one of our cloud vendors or data center operators is acquired, we may be required to transfer
our servers and other infrastructure to a new vendor or a new data center facility, and we may incur significant costs and possible service
interruption in connection with doing so. Problems faced by our cloud vendors or third-party data center locations with the telecommunications
network providers with whom we or they contract or with the systems by which our telecommunications providers allocate capacity among
their customers, including us, could adversely affect the experience of our customers. Our cloud vendors or third-party data center operators
could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy faced by
our cloud vendors or third-party data centers operators or any of the service providers with whom we or they contract may have negative
effects on our business, the nature and extent of which are difficult to predict.
Additionally, if our cloud
or data centers vendors are unable to keep up with our growing needs for capacity, this could harm our business. For example, a rapid
expansion of our business could affect the service levels at our cloud vendors or data centers or cause such cloud systems or data centers
and systems to fail. Any changes in third-party service levels at our cloud vendors or data centers or any disruptions or other performance
problems with our solution could harm our reputation and may damage our customers’ stored files or result in lengthy interruptions
in our services. Interruptions in our services may reduce our revenue, cause us to issue refunds to customers for prepaid and unused
subscriptions, subject us to potential liability or adversely affect customer renewal rates.
In the event of a catastrophic
event with respect to one or more of these systems or facilities, we may experience an extended period of system unavailability, which
could negatively impact our relationships with customers. To operate without interruption, both we and our service providers must guard
against:
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damage
from fire, power loss, natural disasters and other force majeure events outside our control;
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communications
failures;
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software
and hardware errors, failures and crashes;
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security
breaches, computer viruses, hacking, denial-of-service attacks and similar disruptive problems; and
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other
potential interruptions.
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Moreover, system failures
may result in loss of data, including patient data, which is critical to the provision of our services. Any errors, failures, interruptions
or delays experienced in connection with our or our third parties’ systems could negatively impact our relationships with customers,
adversely affect our brand and expose us to liabilities to third parties, all of which could harm our business.
Failure to protect or enforce our intellectual
property rights could impair our ability to protect our internally developed technology and our brand and the costs involved in such
enforcement could harm our business.
Our intellectual property
includes our internally developed processes, methodologies, algorithms, applications, technology platform, software code, website content,
user interfaces, graphics, trade dress, databases and domain names. We rely on a combination of trademark, trade secret and copyright
laws and confidentiality procedures and contractual provisions to protect our intellectual property rights in our internally developed
technology and content. We believe that our intellectual property is an essential asset of our business. If we do not adequately protect
our intellectual property, our brand and reputation could be harmed and competitors may be able to use our technologies and erode or
negate any competitive advantage we may have, which could harm our business, negatively affect our position in the marketplace, limit
our ability to commercialize our technology, and delay or render impossible our achievement of profitability. A failure to protect our
intellectual property in a cost-effective and meaningful manner could adversely affect our ability to compete. We regard the protection
of our trade secrets, copyrights, trademarks, trade dress, databases and domain names as critical to our success.
We strive to protect our
intellectual property rights by relying on federal, state, and common law rights and other rights provided under foreign laws. However,
the steps we take to protect our intellectual property rights may be inadequate. For example, other parties, including our competitors,
may independently develop similar technology, duplicate our services, or design around our intellectual property and, in such cases,
we may not be able to assert our intellectual property rights against such parties. Further, our contractual arrangements may not effectively
prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential
information, and we may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property
rights.
We make business decisions
about when to seek patent protection for a particular technology and when to rely upon trade secret protection, and the approach we select
may ultimately prove to be inadequate. In particular, we do not currently hold a patent or other registered or applied for intellectual
property protection for our Telemed IQ software platform. Even in cases where we seek patent protection, there is no assurance that the
resulting patents will effectively protect every significant feature of our solutions, technology or proprietary information, or provide
us with any competitive advantages, since intellectual property law, including statutory and case law, particularly in the United States,
is constantly developing, and any changes in the law could make it harder for us to enforce our rights.
In order to protect our
intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation brought
to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result
in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights
may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights.
An adverse determination of any litigation proceedings could put our intellectual property at risk of being invalidated or interpreted
narrowly and could put any related pending patent applications at risk of not issuing. Furthermore, because of the substantial amount
of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential or sensitive
information could be compromised by disclosure in the event of litigation. In addition, during the course of litigation, there could
be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors
perceive these results to be negative, it could have a substantial adverse effect on the price of our Class A common stock. Negative
publicity related to a decision by us to initiate such enforcement actions against a customer or former customer, regardless of its accuracy,
may adversely impact our other customer relationships or prospective customer relationships, harm our brand and business, and could cause
the market price of our Class A common stock to decline. Our failure to secure, protect, and enforce our intellectual property rights
could harm our brand and our business.
We could incur substantial costs as a result
of any claim of infringement of another party’s intellectual property rights.
There is considerable patent
and other intellectual property development activity in our industry. Our future success depends in part on not infringing upon the intellectual
property rights of others. Our competitors, as well as a number of other entities and individuals, including so-called non-practicing
entities (NPEs), may own or claim to own intellectual property relating to our solutions. From time to time, third parties may claim
that we are infringing upon their intellectual property rights or that we have misappropriated their intellectual property. For example,
in some cases, very broad patents are granted that may be interpreted as covering a wide field of machine learning and predictive modeling
methods in healthcare. As competition in our market grows, the possibility of patent infringement, trademark infringement and other intellectual
property claims against us increases. In the future, we expect others to claim that our solutions and underlying technology infringe
or violate their intellectual property rights. In a patent infringement claim against us, we may assert, as a defense, that we do not
infringe the relevant patent claims, that the patent is invalid or both. The strength of our defenses will depend on the patents asserted,
the interpretation of these patents, and our ability to invalidate the asserted patents. However, we could be unsuccessful in advancing
non-infringement and/or invalidity arguments in our defense. In the United States, issued patents enjoy a presumption of validity,
and the party challenging the validity of a patent claim must present clear and convincing evidence of invalidity, which is a high burden
of proof. Conversely, the patent owner need only prove infringement by a preponderance of the evidence, which is a lower burden of proof.
We may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Because
patent applications can take years to issue and are often afforded confidentiality for some period of time, there may currently be pending
applications, unknown to us, that later result in issued patents that could cover one or more aspects of our technology and services.
Any claims or litigation could cause us to incur significant expenses and, whether or not successfully asserted against us, could require
that we pay substantial damages, ongoing royalty or license payments or settlement fees, prevent us from offering our solutions or using
certain technologies, require us to re-engineer all or a portion of our platform, or require that we comply with other unfavorable terms.
We may also be obligated to indemnify our customers or business partners or pay substantial settlement costs, including royalty payments,
in connection with any such claim or litigation and to obtain licenses, modify applications or refund fees, which could be costly. Even
if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert
the attention of our management and key personnel from our business operations.
Our use of open source software could adversely
affect our ability to offer our solutions and subject us to possible litigation.
We use open source software
in connection with our existing and future solutions. Some open source software licenses require those who distribute open source software
as part of their own software product to make available the source code for any modifications or derivative works created based upon
the open source software, and that such modifications or derivative works are licensed under the terms of a particular open source license
or other license granting third parties certain rights of further use. By the terms of certain open source licenses, we could be required
to release the source code of our internally developed software and make it available under open source licenses if we combine and/or
distribute our internally developed software with open source software in certain manners. Although we monitor our use of open source
software, we cannot be sure that all open source software is reviewed prior to use in our software, that our programmers have not incorporated
open source software into our internally developed software or that they will not do so in the future. Additionally, the terms of many
open source licenses to which we are subject have not been interpreted by U.S. or foreign courts. There is a risk that open source software
licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide our existing
and future solutions to our customers. In addition, the terms of open source software licenses may require us to provide software that
we develop using such open source software to others, including our competitors, on unfavorable license terms. As a result of our current
or future use of open source software, we may face claims or litigation, be required to release our internally developed source code,
pay damages for breach of contract, re-engineer our technology, discontinue sales in the event re-engineering cannot be accomplished
on a timely basis, or take other remedial action that may divert resources away from our development efforts, any of which could harm
our business.
Our software platform may not perform properly
due to errors or similar problems, 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.
Telemed IQ, our cloud-based
software platform, provides our customers and providers with the ability to, among other things, complete, view and edit medical history;
request a consult (either scheduled or on demand); conduct a consult (via video or phone); and initiate an expert medical service. Software
development is time-consuming, expensive and complex, and may involve unforeseen difficulties. We may encounter technical obstacles,
and it is possible that we may discover additional problems that prevent our software platform from operating properly. If our solutions
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.
Moreover, complex software,
such as ours, often contains defects and errors, some of which may remain undetected for a period of time. Material performance problems,
defects or errors in our existing or new software and services may arise in the future and may result from interface of our solution
with systems and data that we did not develop and the function of which is outside of our control or undetected in our testing. Such
errors may be found after the introduction of new software or enhancements to existing software. If we detect any errors before we introduce
a solution, we may have to delay deployment for an extended period of time while we address the problem. Any defects and errors, and
any failure by us to identify and address them, could result in loss of revenue or market share, diversion of development resources,
harm to our reputation and increased service and maintenance costs. Defects or errors may discourage existing or potential customers
from purchasing our solutions from us. Correction of defects or errors could prove to be impossible or impracticable. The costs incurred
in correcting any defects or errors may be substantial and could harm our business.
Risks Related to Our Corporate Governance
Warburg Pincus has significant influence
over us, and their interests may conflict with ours and those of our other stockholders in the future.
As of September 30,
2021, investment funds owned by Warburg Pincus LLC (“Warburg Pincus”) and its affiliates beneficially owned
approximately 33.6% of our outstanding Class A common stock. As long as Warburg Pincus owns or controls a significant
percentage of our outstanding voting power, they will have the ability to significantly influence all corporate actions requiring
stockholder approval, including the election and removal of directors and the size of our board of directors (the
“Board”), any amendment to our amended and restated certificate of incorporation or amended and restated by-laws, or the
approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. In addition,
in connection with the Merger Transaction, we entered into an Investor Rights Agreement with Warburg Pincus pursuant to which, among
other things, Warburg Pincus has the right to designate (i) up to five of nine directors for as long as it beneficially owns at
least 50% of the issued and outstanding shares of Class A common stock, (ii) up to three of nine directors for so long as
it beneficially owns at least 35% but less than 50% of the issued and outstanding shares of Class A common stock, (iii) up
to two of seven directors for so long as it beneficially owns at least 15% but less than 35% of the issued and outstanding shares of
Class A common stock and (iv) up to one of seven directors for so long as it beneficially owns at least 5% but less than
15% of the issued and outstanding shares of Class A common stock. Thomas J. Carella and Amr Kronfol, each a Managing Director
of Warburg Pincus, are members of the Board and are deemed to be director designees of Warburg Pincus. Warburg Pincus’
influence over our management could have the effect of delaying or preventing a change in control or otherwise discouraging a
potential acquirer from attempting to obtain control of us, which could cause the market price of our Class A common stock to
decline or prevent stockholders from realizing a premium over the market price for our Class A common stock.
The interests of Warburg
Pincus may not align with our interests as a company or the interests of our other stockholders. Accordingly, Warburg Pincus could cause
us to enter into transactions or agreements of which you would not approve or make decisions with which you would disagree. Further,
Warburg Pincus is in the business of making investments in companies and may acquire and hold interests in businesses that compete directly
or indirectly with us. Warburg Pincus may also pursue acquisition opportunities that may be complementary to our business, and, as a
result, those acquisition opportunities may not be available to us. In recognition that directors, principals, officers, employees and
other representatives of Warburg Pincus and its affiliates and investment funds may serve as our or our affiliates’ directors,
officers or agents, our amended and restated certificate of incorporation provides, among other things, that none of Warburg Pincus or
any director, principal, officer, employee or other representatives of Warburg Pincus has any duty to refrain from engaging directly
or indirectly in an investment or corporate or business opportunity or offering a prospective economic or competitive advantage in which
we or any of our controlled affiliates, directly or indirectly, could have an interest or expectancy or otherwise competing with us or
any of our controlled affiliates. In the event that any of these persons or entities acquires knowledge of a potential investment or
corporate or business opportunity which may be a corporate opportunity for itself and us, we will not have any expectancy in such corporate
opportunity, and these persons and entities will not have any duty to communicate or present such corporate opportunity to us and may
pursue or acquire such corporate opportunity for themselves or direct such opportunity to another person. These potential conflicts of
interest could harm our business if, among other things, attractive corporate opportunities are allocated by Warburg Pincus to itself
or its other affiliates.
Provisions in our charter documents and
under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent
attempts by our stockholders to replace or remove our current management.
Certain provisions of our
amended and restated certificate of incorporation and amended and restated by-laws may have the effect of rendering more difficult, delaying,
or preventing a change of control or changes in our management. These provisions provide for, among other things:
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a
classified board of directors whose members serve staggered three-year terms;
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the
authorization of “blank check” preferred stock, which could be issued by the Board without stockholder approval and may contain
voting, liquidation, dividend and other rights superior to our Class A common stock;
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a
limitation on the ability of, and providing indemnification to, our directors and officers;
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a
requirement that special meetings of our stockholders can be called only by the Board, the Chairperson of the Board or our Chief Executive
Officer;
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a
requirement of advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations
of candidates for election to the Board;
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a
prohibition on cumulative voting in the election of directors;
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a
requirement that our directors may be removed only for cause and by a majority vote of the stockholders;
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a
prohibition on stockholder action by written consent;
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a
requirement that vacancies on the Board may be filled only by a majority of directors then in office (subject to limited exceptions),
even though less than a quorum; and
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a
requirement of the approval of the Board or the holders of at least two-thirds of our outstanding shares of capital stock to amend the
amended and restated by-laws and certain provisions of the amended and restated certificate of incorporation.
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These provisions may frustrate
or prevent any attempts by our stockholders to replace or remove our management by making it more difficult for stockholders to replace
members of the Board, which is responsible for appointing the members of our management. In addition, institutional stockholder representative
groups, stockholder activists and others may disagree with our corporate governance provisions or other practices, including anti-takeover
provisions, such as those listed above. We generally will consider recommendations of institutional stockholder representative groups,
but we will make decisions based on what the Board and management believe to be in the best long-term interests of our company and stockholders;
however, these groups could make recommendations to our stockholders against our practices or our board members if they disagree with
our positions.
Finally, we have not opted
out of the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from
engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following
the date on which the stockholder became an “interested” stockholder.
Any of the foregoing provisions
could limit the price that investors might be willing to pay in the future for shares of our Class A common stock, and they could
deter potential acquirers of our company, thereby reducing the likelihood that you would receive a premium for your shares of our Class A
common stock in an acquisition.
Our amended and restated certificate of
incorporation provides that a state or federal court located within the state of Delaware will be the exclusive forum for substantially
all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum
for disputes with us or our directors, officers or employees.
Our amended and restated
certificate of incorporation provides, to the fullest extent permitted by law, that unless we consent in writing to the selection of
an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for the following types of actions or
proceedings under Delaware statutory or common law:
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any
derivative action or proceeding brought on behalf of us;
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any
action asserting a claim of breach of a fiduciary duty owed by or other wrongdoing by any current or former director, officer, employee,
agent or stockholder of ours to us or our stockholders;
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any
action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation
or our by-laws, or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware;
or
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any
action asserting a claim governed by the internal affairs doctrine;
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except for, as to each of the above clauses,
any action as to which the Court of Chancery of the State of Delaware determines that there is an indispensable party not subject to
the personal jurisdiction of the Court of Chancery of the State of Delaware (and the indispensable party does not consent to the personal
jurisdiction of the Court of Chancery of the State of Delaware within ten (10) days following such determination), in which case the
United States District Court for the District of Delaware or other state courts of the State of Delaware, as applicable, shall,
to the fullest extent permitted by law, be the sole and exclusive forum for any such claims.
This provision would not
apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act or any claim for which the U.S.
federal courts have exclusive or concurrent jurisdiction. Our amended and restated certificate of incorporation further provides that,
unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts
of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under
the Securities Act or the rules and regulations promulgated thereunder.
These exclusive-forum provisions
may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors,
officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If any other
court of competent jurisdiction were to find either exclusive-forum provision in our amended and restated certificate of incorporation
to be inapplicable or unenforceable, we may incur additional costs associated with resolving the dispute in other jurisdictions, which
could harm our business. In addition, although the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions
purporting to require claims under the Securities Act be brought in federal court were “facially valid” under Delaware law,
there is uncertainty as to whether other courts will enforce our federal forum selection clause.
We will incur increased costs and demands
upon management as a result of complying with the laws and regulations affecting public companies, particularly after we are no longer
an “emerging growth company,” which could harm our business.
As a public company, we
are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the applicable
listing standards of Nasdaq. These requirements have increased and will continue to increase our legal, accounting, and financial compliance
costs and have made and will continue to make some activities more time consuming and costly. For example, we expect these rules and
regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required
to accept reduced policy limits and coverage or incur substantially higher costs to maintain the same or similar coverage. As a result,
it may be more difficult for us to attract and retain qualified individuals to serve on the Board, our board committees or as our executive
officers. After we cease to be an “emerging growth company,” we will incur greater legal, accounting, and other expenses
than we previously incurred. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring
compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. In that regard, we will need to hire
additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
Risks Related to Our Securities
The market price of our Class A common
stock and warrants may be volatile, which could cause the value of your investment to decline.
The market price of our
Class A common stock and warrants has been and may continue to be volatile and subject to wide fluctuations depending on a number
of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may
not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our Class A
common stock or warrants. Factors affecting the trading price of our Class A common stock and warrants may include:
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market
conditions in our industry or the broader stock market;
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actual
or anticipated fluctuations in our financial and operating results;
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actual
or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
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the
financial projections we may provide to the public, any changes in those projections, or our failure to meet those projections;
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changes
in financial estimates and recommendations by securities analysts concerning us or the market in general;
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the
public’s reaction to our press releases, our other public announcements and our filings with the SEC;
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our
ability to market new and enhanced solutions on a timely basis;
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announced
or completed acquisitions of businesses, commercial relationships, products, services or technologies by us or our competitors;
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changes
in laws and regulations affecting our business;
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changes
in accounting standards, policies, guidelines, interpretations or principles;
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commencement
of, or involvement in, litigation involving us;
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changes
in our capital structure, such as future issuances of securities or the incurrence of additional debt;
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sales,
or anticipated sales, of large blocks of our Class A common stock;
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any
major change in the composition of the Board or management;
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general
economic and political conditions such as recessions, interest rates, fuel prices, trade wars, pandemics (such as COVID-19), currency
fluctuations and acts of war or terrorism; and
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other
risk factors listed under this “Risk Factors” section.
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Broad market and industry
factors may materially harm the market price of our Class A common stock and warrants, regardless of our actual operating performance.
The stock market in general and Nasdaq have, from time to time, experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of
these stocks, and of our Class A common stock and warrants, may not be predictable. A loss of investor confidence in the market
for the stocks of other companies that investors perceive to be similar to us could depress our stock price regardless of our business,
prospects, financial conditions or results of operations. A decline in the market price of our Class A common stock or warrants
also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
In addition, in the past,
following periods of volatility in the overall market and the market prices of particular companies’ securities, securities class action
litigations have often been instituted against these companies. Litigation of this type, if instituted against us, could result in substantial
costs and a diversion of our management’s attention and resources. Any adverse determination in any such litigation or any amounts
paid to settle any such actual or threatened litigation could require that we make significant payments.
Further, although our Class A
common stock and warrants are currently listed on Nasdaq, an active trading market for our Class A common stock and warrants may
not be sustained. Accordingly, if an active trading market for these securities is not maintained, the liquidity of our Class A
common stock and warrants, your ability to sell your shares of our Class A common stock or warrants when desired and the prices
that you may obtain for your shares or warrants will be adversely affected.
Our issuance of additional capital stock
in connection with financings, acquisitions, investments, our equity incentive plans or otherwise will dilute all other stockholders.
We expect to issue additional
capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors
and consultants under our equity incentive plans. We may also raise capital through equity financings in the future. As part of our business
strategy, we may acquire or make investments in complementary businesses and technologies and issue equity securities to pay for any
such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution
of their ownership interests and the per share value of our Class A common stock to decline.
Future sales of shares by existing stockholders
and future exercise of registration rights may adversely affect the market price of our Class A common stock.
Sales of a substantial number
of shares of our Class A common stock in the public market, or the perception that such sales could occur, could adversely affect
the market price of our Class A common stock and may make it more difficult for you to sell your shares of our Class A common
stock at a time and price that you deem appropriate. All outstanding shares of our Class A common stock previously held by the pre-Merger
Transaction public stockholders at the completion of the Merger Transaction and a substantial number of shares of our Class A common
stock issued as merger consideration in the Merger Transaction are freely tradable without restriction under the Securities Act, except
for any shares of our Class A common stock that may be held or acquired by our directors, executive officers and other affiliates
(including affiliates of Warburg Pincus), as that term is defined in the Securities Act, which are subject to restrictions under the
Securities Act.
In connection with the completion
of the Merger Transaction, we entered into an Amended and Restated Registration Rights Agreement with Warburg Pincus and the sponsor
of the pre-Merger Transaction company, HCMC Sponsor LLC (the “Sponsor”), pursuant to which we agreed to register for resale
and granted certain other registration rights with respect to the approximately 39.0 million shares of Class A common stock held
by Warburg Pincus and the Sponsor and their respective permitted transferees, in addition to the warrants originally issued in a private
placement to the Sponsor in connection with HCMC’s initial public offering and the up to 350,000 shares of our Class A common
stock issuable upon the exercise of the private placement warrants. We also agreed to register for resale the 16.8 million shares of
our Class A common stock (the “PIPE shares”) issued in a private placement that closed immediately prior to the Merger
Transaction and the 12.5 million shares of Class A common stock issuable upon exercise of our publicly held warrants to purchase
shares of Class A common stock. In accordance with the foregoing, we filed a registration statement on Form S-1 under the Securities
Act, which registration statement was declared effective on December 8, 2020, to register the resale of up to 69.3 million shares of
our Class A common stock, including 33.9 million shares of Class A common stock held by Warburg Pincus, the 16.8 million PIPE
shares and 12.85 million shares of Class A common stock issuable upon exercise of our outstanding warrants. Shares of Class A
common stock sold under such registration statement can be freely sold in the public market. In addition, in connection with the completion
of the Acquisition, we agreed to register for resale the 13.8 million shares of our Class A common stock issued to the Sellers at
the closing of the Acquisition and any shares of Class A common stock that we may issue in the future under deferred vesting agreements
or, in our sole discretion, as payment in respect of certain earn-out amounts and other deferred consideration in accordance with the
terms of the Purchase Agreement. In accordance with the foregoing, we filed a registration statement on Form S-1 under the Securities
Act, which registration statement was declared effective on August 10, 2021, covering the resale of the 13.8 million shares of our Class
A common stock issued to the Sellers at the closing of the Acquisition. The registration and availability of such a significant number
of securities for trading in the public market may have an adverse effect on the market price of our Class A common stock.
We have also filed a registration
statement on Form S-8 under the Securities Act to register shares of our Class A common stock that may be issued under our
equity incentive plans from time to time, as well as any shares of our Class A common stock underlying outstanding options and restricted
stock units that have been granted to our directors, executive officers and other employees, all of which are subject to time- or performance-based
vesting conditions. Shares registered under this registration statement will be available for sale in the public market upon issuance
subject to vesting arrangements and exercise of options, as well as Rule 144 in the case of our affiliates.
In addition, approximately
1.9 million of the founder shares initially purchased by the Sponsor in a private placement prior to HCMC’s initial public offering
remain subject to lock-up pursuant to the terms of a letter agreement (the “Sponsor Agreement”) entered into between the
Sponsor and HCMC in connection with the Merger Transaction, and will be released from this lock-up upon achieving certain market share
price milestones within a period of seven years after the closing of the Merger Transaction. If any of these founder shares vest and
are released from such lock-up, the Sponsor and its permitted transferees will not be restricted from selling such securities, other
than by applicable securities laws.
We are unable to predict
the effect that these sales, particularly sales by our directors, executive officers and significant stockholders, may have on the prevailing
market price of our Class A common stock. If holders of these shares sell, or indicate an intent to sell, substantial amounts of
our Class A common stock in the public market, the trading price of our Class A common stock could decline significantly and
make it difficult for us to raise funds through securities offerings in the future.
Because we have no current plans to pay
cash dividends on our Class A common stock, you may not receive any return on investment unless you sell your shares for a price
greater than that which you are deemed to have paid for it.
We have no current plans
to pay cash dividends on our Class A common stock. The declaration, amount and payment of any future dividends will be at the sole
discretion of the Board. The Board may take into account general and economic conditions, our financial condition and operating results,
our available cash, current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, implications
on the payment of dividends by us to our stockholders and such other factors as the board of directors may deem relevant. In addition,
the Term Loan Agreement contains and any future indebtedness would likely contain a number of restrictive covenants that impose significant
operating and financial restrictions on us, including restricting or limiting our ability to pay cash dividends. Furthermore, because
we are a holding company, our ability to pay dividends will depend on our receipt of cash distributions and dividends, loans or other
funds from our subsidiaries, which may be similarly affected by, among other things, the terms of any future indebtedness, other contractual
restrictions and provisions of applicable law. Accordingly, we may not pay any dividends on our Class A common stock in the foreseeable
future.
If securities and industry analysts do
not publish or cease publishing research or reports, or publish inaccurate or unfavorable research or reports, about our business or
our market, our stock price and trading volume could decline.
The trading market for our
Class A common stock and warrants will depend, in part, on the research and reports that securities and industry analysts publish
about us, our business and our market. We do not have any control over these analysts or the information contained in their reports.
If securities and industry analysts do not commence and maintain coverage of our business, our stock price and trading volume would likely
be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade
our stock, publish inaccurate or unfavorable research about our business or our market, or provide more favorable relative recommendations
about our competitors, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish
reports on us regularly, we could lose visibility in the financial markets and demand for our Class A common stock could decrease,
which might cause our stock price and trading volume to decline.
We are an “emerging growth company”
as well as a “smaller reporting company” within the meaning of the Securities Act, and if we take advantage of certain exemptions
from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less
attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging
growth company” within the meaning of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS
Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies
that are not emerging growth companies for as long as we continue to be an emerging growth company, including, but not limited to, not
being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding
a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
As a result, our stockholders may not have access to certain information they may deem important. We will remain an emerging growth company
until the earliest of (i) the last day of the fiscal year in which the market value of our Class A common stock that is held
by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal
year in which we have total annual gross revenues of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the
date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2024.
We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors
find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower
than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may
be more volatile.
In addition, Section 107
of the JOBS Act provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting
standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth
company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have elected not to opt out of such extended transition period and, therefore, we may not be subject to the same new or revised accounting
standards as other public companies that are not emerging growth companies. This may make the comparison of our financial statements
with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the
extended transition period difficult or impossible because of the potential differences in accountant standards used.
Additionally, we are a “smaller
reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain
reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain
a smaller reporting company until the last day of the fiscal year in which (i) the market value of our Class A common stock
held by non-affiliates exceeds $250 million as of the end of that year’s second fiscal quarter, or (ii) our annual revenues
exceeded $100 million during such completed fiscal year and the market value of our Class A common stock held by non-affiliates
exceeds $700 million as of the end of that year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure
obligations, it may also make the comparison of our financial statements with other public companies difficult or impossible.
The issuance of shares of our Class A
common stock upon exercise of our outstanding warrants would increase the number of shares eligible for future resale in the public market
and result in dilution to our stockholders.
As of September 30, 2021,
warrants to purchase an aggregate of approximately 12.85 million shares of our Class A common stock were outstanding and exercisable.
The exercise price of these warrants is $11.50 per share. To the extent such warrants are exercised, additional shares of Class A
common stock will be issued, which will result in dilution to holders of our Class A common stock and increase the number of shares
eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants
may be exercised could adversely affect the market price of our Class A common stock. However, there is no guarantee that the warrants
will ever be in the money prior to their expiration, and as such, the warrants may expire worthless.
We may redeem unexpired warrants prior
to their exercise at a time that is disadvantageous to warrantholders.
We have the ability to redeem
outstanding warrants at any time prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sale price
of our Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations,
recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date
we send the notice of redemption to the warrantholders. If and when the warrants become redeemable by us, we may exercise our redemption
right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption
of the outstanding warrants could force warrantholders to: (i) exercise their warrants and pay the exercise price therefor at a
time when it may be disadvantageous for them to do so; (ii) sell their warrants at the then-current market price when they might
otherwise wish to hold their warrants; or (iii) accept the nominal redemption price which, at the time the outstanding warrants
are called for redemption, is likely to be substantially less than the market value of the warrants. Additionally, in the event we redeem
the warrants, the Board may elect to require all holders of warrants to exercise such warrants on a cashless basis, by surrendering the
warrants for a number of shares of our Class A common stock as calculated in accordance with the warrant agreement governing the
warrants (the “Warrant Agreement”), even if the holder of a warrant would otherwise prefer to exercise the warrant for cash.
None of the private placement
warrants will be redeemable by us so long as they are held by the Sponsor or its permitted transferees.
