CCLD 10-K & 10-Q changes, risk factors and insider trading

In order to operate more efficiently, control costs and improve profitability, we incurred $606,000$154,000 and $645,000$606,000 of restructuring costs in 20242025 and 2023,2024, respectively, primarily consisting of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements. WeThere expect to incur approximately an additional $100,000 of restructuring costs in 2025. There can be no assurance that these actions will achieve their intended benefits.

Our business depends on our ability to adapt to evolving technologies and industry standards and upgrade existing products and introduce new products and services accordingly. If we cannot adapt to changing technologies and industry standards, including changing requirements of third-party applications and software and meetmeeting the requirements of our customers, our products and services may become obsolete, and and our business would suffer significantly. Because both the healthcare industry and the healthcare IT technology market are constantly evolving, our success will depend, in part, on our ability to continue to enhance our existing products and services, develop new technology that addresses the increasingly sophisticated and varied needs of our customers, respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis, educate our customers to adopt these new technologies, and successfully assist them in transitioning to our new products and services. The development of our proprietary technology entails significant technical and business risks. We may not be successful in developing, using, marketing, selling, or maintaining new technologies effectively or adapting our proprietary technology to evolving customer requirements, emerging industry standards or changing third party applications, and, as a result, our business and reputation could materially suffer. We may not be able to introduce new products or services on schedule, or at all, or such products or services may not achieve market acceptance or existing products or services may cease to function properly. A failure by us to timely adapt to ever changing technologies or our failure to regularly upgrade existing or introduce new products or to introduce these products on schedule could cause us to not only lose our current customers but also fail to attract new customers.

If the federal government were to impose a tax on imports or services performed abroad, we might be subject to additional liabilities. At this time, there is no way to predict whether this will occur or estimate the impact on our business.

If we lose the services of Mahmud Haq as Executive Chairman, Stephen Snyder as Chief Executive Officer, A. Hadi Chaudhry and Stephen Snyder as Co-ChiefChief Executive Officers,Strategy Officer, or other members of our management team, or if we are unable to attract, hire, integrate and retain other necessary employees, our business would be harmed.

Our future success depends in part on our ability to attract, hire, integrate and retain the members of our management team and other qualified personnel. In particular, we are dependent on the services of Mahmud Haq, our founder, principal stockholder and Executive Chairman, Stephen Snyder as Chief Executive Officer and A. Hadi Chaudhry and Stephen Snyder as Co-ChiefChief ExecutiveStrategy Officers.Officer. Mr. Haq is instrumental in managing our offshore operations in our Pakistan Offices and coordinating those operations with our U.S. activities. The loss of Mr. Haq, who would be particularly difficult difficult to replace, could negatively impact our ability to effectively manage our cost-effective workforce in our Pakistan Offices, which enables us to provide our products and solutions at attractive prices. Our future success also depends on the continued contributions of our other executive officers and certain key employees, each of whom may be difficult to replace, and upon our ability to attract and retain additional management personnel. Competition for such personnel is intense, and we compete for qualified personnel with other employers. employers. We may face difficulty identifying and hiring qualified personnel at compensation levels consistent with our existing compensation and and salary structure. If we fail to retain our employees, we could incur significant expenses in hiring, integrating and training their replacements, replacements, and the quality of our services and our ability to serve our customers could diminish, resulting in a material adverse effect on our business.

We maintain our cash at domestic and foreign financial institutions,institutions. oftenBalances inheld balancesdomestically thatmay exceed federally insured limits. Foreign banking institutions do not provide bank deposit insurance.

The financial markets recently have encountered volatility associated with concerns about the balance sheets of domestic banks, especially small and regional banks who may have significant losses associated with investments that make it difficult to fund demands to withdraw deposits deposits and other liquidity needs. Although the federal government has announced measures to assist these banks and protect depositors, some some banks have already been impacted and others may be materially and adversely impacted. Our business is dependent on bank relationships,relationships and we are proactively monitoring the financial health of such bank relationships. Continued strain on the banking system may adversely impact our business, financial condition and results of operations. Foreign banking institutions do not provide insurance against balances held there.

We perform an annual goodwill impairment test on October 31st of each year, or more frequently if indicators for potential impairment exist. As a result of the 2023 annual goodwill impairment test, we recorded impairment charges of approximately $2 million at that time. Indicators that were considered included significant changes in performance relative to expected operating results, significant negative industry or economic trends, or a significant decline in our stock price and/or market capitalization or enterprise value for a sustained period of time. While we believe the assumptions used in determining whether there was an impairment and the amount of any resulting impairment were reasonable and commensurate with the views of a market participant, changes in key assumptions in the future, including increasing the discount rate, lowering forecast for revenue and operating margin, selection of guideline public companies or lowering the long-term growth rate, could result in additional charges; similarly, one or more changes in these assumptions in future periods due to changes in circumstances could result in additional future impairments. There was a triggering event at August 31, 2023, but it was determined that there was no impairment. During December 2023, the Company had an additional triggering event as a result of the suspension of the payment of the dividends on the Preferred Stock. As a result of a December 2023 triggering event, the Company recorded additional impairment charges of approximately $40 million. We cannot predict if or when additionala future goodwill impairments impairment may occur. Any additional goodwill impairments could have material adverse effects on our operating results, net assets, or our cost of, or access to, capital, which could harm our business. For the year ended December 31, 2024,2025, no additional goodwill impairment was recorded. See Note 3,4, Goodwill and Intangible Assets - Net, to our consolidated financial statements in this Annual Report on Form 10-K for more details.

We are subject to risks related to a public health crisis such as a global pandemic similar to the coronavirus (COVID-19). Numerous governmental jurisdictions, including the State of New Jersey where we maintain our principal executive offices, and those in which many of our U.S. and international offices are basedbased, may impose “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of public health emergencies. Such orders or restrictions, and the perception that such orders or restrictions could occur, could result in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among other effects, thereby negatively impacting our customers, employees, and offices, among others.

Our managed medical practices and customers could face supply chain issues that would disrupt their ability to service patients and therefore,therefore impact our revenue.

We have no unconditional commitments with respect to any acquisition as of the date of this Annual Report on Form 10-K. Although we expect that one or more acquisition opportunities will become available in the future, we may not be able to acquire additional companies at all or on terms favorable to us. We will likely need additional financing for such acquisitions, but there is no assurance that we will be able to borrow funds or raise capital through the issuance of our equity on favorable terms. Certain of our larger, better capitalized competitors may seek to acquire some of the companies we may be interested in. Competition for acquisitions would likely increase acquisition prices prices and result in us having fewer acquisition opportunities.

Depending on the type of businessesbusiness we acquire (e.g., RCM, practice management, EHR, etc.), we may have varying cost saving and/or cross-selling opportunities with the acquired business. However, there is no assurance that we will achieve anticipated cost savings and cross-selling on our acquisitions, and failure to do so may mean we overpaid for such acquisitions.

At the current pricesprice of our common and Preferred Stock,stock, we may be unable to execute accretive acquisitions.

HistoricallyAt times we have used our common and Preferred Stockstock to pay in part for acquisitions. Due to the lower market pricesprice of thesethe securities,common stock, we may not be able to use thesethis securitiessecurity to execute future acquisitions.

The Office of Inspector General (the “OIG”) of the Department of Health and Human Services (the “HHS”) has a longstanding concern that percentage-based billing arrangements may increase the risk of improper billing practices. In addition, certain states have adopted laws or regulations forbidding splitting of fees with non-physicians which may be interpreted to prevent business service providers, including medical billing providers, from using a percentage-based billing arrangement. The OIG and HHS recommend that medical billing companies develop and implement comprehensive compliance programs to mitigate this risk. While we have developed and implemented a comprehensive billing compliance program that we believe is consistent with these recommendations, our failure to ensure compliance with controlling legal requirements, accurately anticipate the application of these laws and regulations to our business and contracting model, or other failure to comply with regulatory requirements, could create liability for us, result in adverse publicity and negatively affect our business.

The federal Anti-Kickback Statute (the “AKS”) prohibits us from knowingly and willfully soliciting, receiving, offering or providing remuneration in exchange for referrals or recommendations for purposes of selling products or services which are paid for by federal healthcare programs such as Medicare and Medicaid. In addition, a claim including products or services resulting from a violation of the AKS constitutes a violation of the federal False Claims Act (the “FCA”). If we are determined to have violated the FCA, we may be required to pay up to three times the actual damages sustained by the government, plus mandatory civil penalties for each separate false claim. If we are found to be in violation of the FCA, AKS, ACA, or any other applicable state or any federal fraud and abuse laws, whether by our current practices or for the past practices of a company we acquire, we may be subject to substantial civil damages and criminal penalties and fines that could have a material adverse impact on our business.

In addition, federal and state legislatures and agencies periodically consider proposals to revise aspects of the healthcare industry or to revise or create additional statutory and regulatory requirements. For instance, the current administration may make changes to the ACA, the nature and scope of which are presently unknown. Similarly, certain computer software products are regulated as medical devices under the Federal Food, Drug, and Cosmetic Act. While the Food and Drug Administration (the “FDA”) has sometimes chosen to disclaim disclaim authority to, or to refrain from actively regulating certain software products which are similar to our products, this area of medical device regulation remains in flux. We expect that the FDA will continue to be active in exploring legal regimes for regulating computer computer software intended for use in healthcare settings. Any additional regulation can be expected to impose additional overhead costs on us and should we fail to adequately meet these legal obligations, we could face potential regulatory action. Regulatory authorities such such as the Centers for Medicare and Medicaid Services may also impose functionality standards with regard to electronic prescribing technologies. technologies. If implemented, proposals like these could impact our operations, the use of our services and our ability to market new services, or could create unexpected liabilities for us. We cannot predict what changes to laws or regulations might be made in the future or how those changes could affect our business or our operating costs.

The conversion of the majority of the Series A Preferred Stock into common stock in March 2025 (the "“Conversion"”) increased the total number of outstanding shares, potentially diluting the value of existing common shareholders’ equity.

The Conversion resulted in the dilution of existing common shareholders’ ownership percentages. This dilution of ownership will impactimpacted the voting power, earnings per share and overall control of the Company for existing common shareholders.shareholders prior to the Conversion. The Company’s Company’s earnings per share calculation will bewas impacted by the additional common shares, offset by the amount of Series A Preferred Stock dividend that is not included in the calculation. The increased number of common shares outstanding will also lower lowered the book value of each common share, which wouldmay adversely affect the market price of the Company’s common stock. Moreover, existing common shareholders may experience a reduced ability to influence corporate decisiondecisions asif their voting power becomes more diluted diluted.due to additional conversions.

Series A Preferred Stock shareholders that converted their shares gained full voting rights upon conversion of their preferred shares into common stock.

Preferred shareholders do not have voting rights under the terms of their preferred stock, except under extremely limited circumstances. However, upon upon conversion of their preferred shares into common stock, these shareholders gained full voting rights, which couldaltered significantly alter the balance of voting power within the Company. The conversion of a majority of the Series A Preferred Stock shares could result in in a situation where a large group of former Series A preferred shareholders collectively gain the ability to influence corporate decisions, decisions, including matters related to the election of directors, mergers, acquisitions, and other significant strategic initiatives. This shift in voting power could potentially dilute the influence of existing common shareholders and may lead to changes in the Company’s governance structure.

The conversionConversion of the Series A Preferred StockStock, couldand any subsequent conversions, may be perceived negatively by the market.

The Conversion and any subsequent conversions could be perceived negatively by the market, potentially leading to a decline in the value of the Company’s common stock. Investors may interpret such conversion as a sign of financial weakness, dilution of ownership, or a shift in the Company’s capital structure that could impact earnings per share or control dynamics. This negative market perception may arise if investors believe the Conversion isor any subsequent conversions are being undertaken to address financial challenges, increase liquidity, liquidity, or meet other strategic objectives that could signal instability or uncertainty. Such market reactions could lead to increased volatility volatility in the Company’s common stock price, reduced investor confidence, and challenges in maintaining or attracting capital in the future.

The Company may want to issue additional common stock in the future to raise capital for operations, acquisitions, or other strategic initiatives. initiatives. Such potential for future issuances could be limited as a result ofafter the additionalConversion commonand sharesany thatfuture were issued due to the Conversion.conversions.

Political, economic and regulatory developments have effectedaffected fundamental changes in the healthcare industry. In response to perceived increases in healthcare costs in recent years, there have been, and continue to be, proposals by the federal government, state governments, regulators, and third-party payors to control these costs and, more generally, to reform the U.S. health care system. Certain of these proposals could limit the amounts CareCloud will receive for its products and services. The Patient Protection and Affordable Care Act (the “ACA”) substantially changed the way healthcare is financed by both government and private insurers.

The Company cannot predict at this time the full impact of the ACAACA, or any other legislative changes thereto, other new legislation, the new current Administration, agency priorities, rulemaking and healthcare reform measures from U.S. federal or state governments, or third-party payors that may be adopted or implemented in the future on the Company’s financial condition, results of operations and cash flows. Although several legislative initiatives to repeal and replace the ACA have been proposed, and legal challenges to the constitutionality of the ACA or its component parts have been made, the nature and effect of any modification or repeal of, or legislative substitution for, for, the ACA, or any court decision regarding the ACA’s validity, is uncertain, and the Company cannot predict the effect that any of these events would have on the longer-term viability of the act, or on the Company’s financial condition, results of operations or cash flows. However, any changes that create stricter and more costly compliance obligations or lower reimbursement for the Company’s customers could materially and adversely affect its business, financial condition and results of operations. Future significant changes in the healthcare systems in the United States could also have a negative impact on the demand for the Company’s current and future products.

As of December 31, 2024,2025, Mahmud Haq controlled 31%12% of our outstanding shares of common stock, which preventedlimits investors from influencing significant corporate decisions.

As of December 31, 2024,2025, Mahmud Haq, our founder and Executive Chairman, beneficially owned 31%12% of our outstanding shares of common stock. stock. Due to the Conversion,Although his ownership percentage was diluted.diluted However,due he still controls 12% of our outstanding shares of common stock afterto the Conversion. As a result,Conversion, Mr. Haq exercisescontinues to exercise a significant level of controlinfluence over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation, and approval of of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult or impossible without his support, which in turn turn could reduce the price of our common stock.

Our Board of Directors has the authority to issue up to 7,000,000 shares of preferred stock and to determine the price, privileges and other other terms of these shares, of which 4,526,231984,530 shares of Series A Preferred Stock and 1,511,372 of Series B Preferred Stock were outstanding issued as of December 31, 2024. After the Conversion, there were 984,530 shares of Series A Preferred Stock outstanding.2025. Our Board of Directors may exercise its authority with respect to the remaining shares of preferred stock without any further approval of common stockholders. The rights of the holders of common stock may be adversely affected by the rights of future holders of preferred stock.

Currently, we do not anticipate paying any cash dividends to holders of our common stock. As a result, capital appreciation, if any, of our common stock will be a stockholder’sshareholder’s sole source of gain.

As a public company, the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. AsFor athe “smalleryear reportingended December 31, company,”2025, we electedare required to avail ourselves of the exemption from the requirement thathave our independent registered public accounting firm attest to the effectiveness of our internal control over financial reportingreporting. underThe cost of our compliance with Section 404 ofhas theincreased Sarbanes-Oxleyas Act. Wewe were not required to have this attestation performed for the yearsyear 2024,ended 2023December or31, 2022. In future years, if we are required to have our independent registered public accounting firm attest the effectiveness of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase.2024. Our compliance with applicable provisions of Section 404 requires that we incur substantial accounting accounting expense and expend significant management time on compliance-related issues and stay in compliance with reporting requirements. Moreover, Moreover, if we are not able to stay in compliance with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies any deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

There are many exemptions available to smaller reporting companies like us that have less than $250 million of worldwide common equity held by non-affiliates. The disclosures we will be required to provide in our SEC filings are still less than they would be if we were not considered a smaller reporting company. Specifically, smaller reporting companies are able to provide simplified executive compensation disclosures in their fillingsfilings and have certain other decreased disclosure obligations in their SEC filings. Our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our common stock less attractive because we will rely on the exemption available to smaller reporting companies. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In December 2023 we suspended the payment of the dividends on the Preferred Stock. The Company resumed paying monthly dividends in February February 2025, paying one month of the arrearage.arrearage each month for the rest of the year. The Company has also announced that starting with the February 2026 dividend payment, it will start paying double dividends monthly on the Series B Preferred Stock to reduce the dividends in arrears. We may not be able to continue to pay dividends on the Preferred Stock if we fall out of compliance with with our loan covenants and are prohibited by our bank lender from paying dividends or if we have insufficient cash to make dividend payments.

Our ability to pay cash dividends on the Preferred Stock requires us to have either net profits or positive net assets (total assets less total liabilities), and to be able to pay our debts as they become due in the usual course of business. We cannot predict with certainty whether we will remain in compliance with the covenants of our senior secured lender SVB,Provident, which include, among other things, generatinga adjustedminimum trailing 12-month debt service coverage ratio and an EBITDA or complying with a minimum liquidity ratio at timesrequirement when we are utilizing our line of credit. If we fall out of compliance, our lender may exercise any of its rights and remedies under the loan agreement, including restricting us from making dividend payments.agreement.

Notwithstanding these factors, during December 2023, the Company suspended the dividends on the Preferred Stock. Although the Company resumed payment payment of the monthly dividends in February 2025, we may not maintain sufficient cash to continue to pay dividends on the Preferred Stock, including Stockthe double dividend on the Series B Preferred Stock, and we cannot assure you that our businesses will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to make the Preferred Stock dividend payments that are currently due or in arrears and to fund our other liquidity needs. Our ability to pay dividends may again be impaired if any of the risks described in this document, including the documents incorporated by reference herein, were to occur. Also, payment of our dividends depends upon our financial condition, remaining in compliance with our affirmative and negative loan covenants with SVB, Provident, which we may be unable to do in the future, and other factors as our Board of Directors may deem relevant from time to time.

Our Series A Preferred Stock ranks pari passu to our Series B Preferred Stock with respect to the distribution of assets upon our liquidation, dissolution or winding-up of our affairs. In the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay obligations on the Preferred Stock only after all of our indebtedness and other liabilities have been paid. The rights of holders of the Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our current and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Preferred Stock. Also, the Preferred Stock effectively ranks junior to all existing and future indebtedness and to the indebtedness and other liabilities of our existing subsidiaries and any future subsidiaries. Our existing subsidiaries are, and future subsidiaries would be, separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Preferred Stock. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due on any or all of the Preferred Stock then outstanding. We may in the future incur debt and other obligations that will rank senior to the Preferred Stock. At December 31, 2024,2025, our total liabilities excluding contingent consideration equaled approximately $21.8$27.0 million.

Certain of our existing or future debt instruments may restrict the authorization, payment or setting apart of dividends on the Preferred Stock. Our Credit Agreement with SVB restricts the payment of dividends in the event of any event of default, including failure to meet certain financial covenants. There can be no assurance that we will remain in compliance with the SVBProvident Creditcredit Agreement,agreement, and if we default, we may be contractually prohibited from paying dividends on the Preferred Stock. Also, future offerings of debt or senior equity securities may adversely affect the market price of the Preferred Stock. If we decide to issue debt or senior equity securities in the future, it is possible that these securities will be governed by an indenture or other instruments containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of the Preferred Stock and may result in dilution to owners of the Preferred Stock. We and, indirectly, our shareholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. The holders of the Preferred Stock will bear the risk of our future offerings, which may reduce the market price of the Preferred Stock and will dilute the value of their holdings.

We may issue additional shares of Series B Preferred Stock and additional series of preferred stock that rank on parity with the Preferred Stock Stock as to dividend rights, rights upon liquidation or voting rights.

We are allowed to issue additional shares of Series B Preferred Stock and additional series of preferred stock that would rank equal to or below the Preferred Stock as to dividend payments and rights upon our liquidation, dissolution or winding up of our affairs pursuant to our amended and restated certificate of incorporation and the certificate of designations relating to the Preferred Stock without any vote of the holders of the Preferred Stock. Upon the affirmative vote of the holders of at least two-thirds of the outstanding shares of Preferred Stock (voting together as a class with all other series of parity preferred stock we may issue upon which like voting rights have been conferred and are exercisable), we are allowed to issue additional series of preferred stock that would rank above the Preferred Stock Stock as to dividend payments and rights upon our liquidation, dissolution or the winding up of our affairs pursuant to our amended and restated restated certificate of incorporation and the certificate of designations relating to the Preferred Stock. The issuance of additional shares of Series B Preferred Stock and additional series of preferred stock could have the effect of reducing the amounts available to the Preferred Stock upon our liquidation or dissolution or the winding up of our affairs. It also may reduce dividend payments on the Preferred Stock if we do not have sufficient funds to pay dividends on all Preferred Stock outstanding and other classes or series of stock with equal priority with respect to dividends.

Adjusted EBITDA excludes the following elementsamounts which are included in GAAP net income (loss):

Adjusted operating income and adjusted operating margin exclude the following elementsamounts which are included in GAAP operating income (loss):

Adjusted net income and adjusted net income per share exclude the following elementsamounts which are included in GAAP net income (loss):

No tax effect has been provided in computing non-GAAP adjusted net income and non-GAAP adjusted net income per share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes. The following table shows our reconciliation of GAAP net income (loss) to non-GAAP adjusted net income for the years ended December 31, 2025 and 2024 and 2023:

For purposes of determining non-GAAP adjusted earnings per share, the Company used the number of common shares outstanding at the end of December 31, 20242025 and 2023. Non-GAAP adjusted diluted earnings per share was computed using an as-converted method and includes warrants that are in-the-money as of that date as well as outstanding unvested RSUs.2024. Non-GAAP adjusted earnings per share and non-GAAP adjusted diluted earnings per share dodoes not take into account dividends on the Preferred Stock. No tax effect has been provided in computing non-GAAP adjusted earnings per share and non-GAAP adjusted diluted earnings per share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes.

The following table contains a reconciliation of net income (loss) to adjusted EBITDA by year.year:

The following table contains a reconciliation of net income (loss) to adjusted EBITDA by quarter.quarter:

Providers and Practices Served: As of December 31, 20242025 and December 31, 2023,2024, we provided services to approximately 45,000 and 40,000 providersproviders, respectively, (which we define as physicians, nurses, nurse practitioners, physician assistants and other clinical staff that render bills for their services), representing approximately 2,900 and 2,600 practices.practices, respectively. In addition, we served approximately 15080 clients who were not medical practices, but are service organizations who serve the healthcare community. The foregoing numbers include clients leveraging any of our products or services and are based in part upon estimates in cases where the precise number of practices or providers is unknown.

We earned approximately 1% of our revenue from group purchasing services during boththe years ended December 31, 20242025 and 2023.2024. We earned approximately 13%12% and 11%13% of our revenue from medical practice management services during the years ended December 31, 20242025 and 2023,2024, respectively. This revenue represents fees based on our actual costs plus a percentage of the operating profit and is reported in our Medical Practice Management segment.

LeaseRestructuring Terminations, Unoccupied Lease Charges and Restructuring Costs. Lease terminations represent the write-off of leasehold improvements and gains or losses as the result of lease terminations. Unoccupied lease charges represent the portion of lease and related costs for vacant space not being utilized by the Company. Restructuring costs, primarily consist of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements.

Income Taxes. In preparing our consolidated financial statements, we estimate income taxes in each of the jurisdictions in which we operate. operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred income tax assets and liabilities. Although the Company reported GAAP earnings in 2025 and 2024, it has incurred tax losses historically and there is uncertainty regarding future U.S. taxable income, which make realization of a deferred tax asset difficult to support in accordance with ASC 740. Accordingly, a valuation allowance has been recorded against all deferred tax assets as of December 31, 20242025 and December 31, 2023.2024. For the global intangible low-taxed income (“GILTI”) tax, companies can either account for the GILTI inclusion in the period in which they are incurred or establish deferred tax liabilities for the expected future taxes associated with GILTI. The Company records the GILTI provisions as they are incurred each period.

Goodwill is evaluated for impairment annually as of October 31st, referred to as the annual test date. As a result of the annual impairment test, an impairment of approximately $2 million was recorded in October 2023. The Company also tests for impairment between annual test dates if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is performed at the reporting-unit level. The Company has determined that its business consists of two operating segments and two reporting units (Healthcare IT and Medical Practice Management). Application of the goodwill impairment test requires judgment including the use of a discounted cash flow approach, the trading price of publicly traded stock and the guideline public company method. These analyses require significant assumptions and judgments. These assumptions and judgments include estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, determination of our weighted average cost of capital and the selection of comparable companies and the interpretation of their data. Future business and economic conditions, as well as differences in actual financial results related to any of the assumptions, could materially impact the consolidated financial statements through impairment of goodwill or intangible assets and acceleration of the amortization period of the purchased intangible assets which are finite-lived assets. There was a triggering event at August 31, 2023, but it was determined that there was no impairment. Due to a triggering event in December 2023, an additional impairment test was performed. As a result, the Company recorded an additional impairment of approximately $40 million. No impairment charges were recorded during the yearyears ended December 31, 2025 or 2024.

Net revenue. Net revenue of $110.8$120.5 million for the year ended December 31, 20242025 decreasedincreased by $6.2 $9.7 million or 5%9% from revenue of $117.1$110.8 million million for the year ended December 31, 2023.2024. Revenue for the years ended December 31, 20242025 and December 31, 20232024 includes $76.9 million and $73.7 million and $76.6 million relating to technology-enabled business solutions, $18.2$25.4 million and $23.0 $18.2 million related to professional services and $14.4$13.9 million and $13.4$14.4 million for medical practice management services, respectively. Our printing and mailing and group purchasing services aggregated $4.3 million and $4.5 million for the year ended December 31, 2025 and 2024, respectively.

Direct Operating Costs. Direct operating costs of $64.5 million for the year ended December 31, 2025 increased by $3.6 million or 6% from direct operating costs of $60.8 million for the year ended December 31, 2024 decreased by $10.0 million or 14% from direct operating costs of $70.8 million for the year ended December 31, 2023.2024. Salary costs decreasedincreased by $6.3$1.0 million primarily due to the decrease inMedsphere the Pakistan exchange rate, a decrease in the U.S. headcount and the redeployment of employees performing functions that were classified as direct operating costs to functions classified as research and development expense.acquisition. Outsourcing and other customer processing costs decreased increased by $2.4 million and billableconsultancy expenses decreased increased by $1.3 million.$270,000.

General and Administrative Expense. General and administrative expense of $18.4 million for the year ended December 31, 2025 increased by $2.3 million or 14% from general and administrative expense of $16.1 million for the year ended December 31, 2024 decreased by $5.3 million or 25% from general and administrative expense of $21.5 million for the year ended December 31, 2023.2024. Salary costs decreasedincreased by $3.5$2.5 million due to the decreaseincrease in headcountheadcount. Legal and the Pakistan exchange rate. Legal, professional and audit fees decreased by $790,000. Other costs such as computer expenses, utilities and office supplies decreased by $295,000.$794,000.

Research and Development Expense. Research and development expense of $6.4 million for the year ended December 31, 2025 increased by $2.6 million or 69% from research and development expense of $3.8 million for the year ended December 31, 2024 decreased by $955,000 or 20% from research and development expense of $4.7 million for the year ended December 31, 2023.2024. The decreaseincrease was due to aan increase decrease in the U.S.offshore headcount which was offset by the redeployment of employees performing functions that were previously classified as direct operating costs to functions classified as research and development expense.headcount. During the years ended December 31, 20242025 and 2023,2024, the Company capitalized approximately $5.7$3.2 million and $8.6$5.7 million of development costs, respectively, in connection with its internal-use software.

Depreciation Expense. Depreciation expense was $2.0$2.5 million for both the yearsyear ended December 31, 20242025 and 2023.increased by $468,000 or 23% from depreciation expense of $2.0 million for the year ended December 31, 2024. The increase primarily relates to certain leasehold improvements being capitalized.

Amortization Expense. Amortization expense of $12.4 million for the year ended December 31, 2025 increased by $350,000 or 3% from amortization expense of $12.1 million for the year ended December 31, 2024 decreased by $302,000 or 2% from amortization expense of $12.4 million for the year ended December 31, 2023.2024. The decreaseincrease in amortization expense was due to certainthe amortization of the intangible assets related to acquisitionsthe becomingcurrent fullyyears’ amortized.acquisitions.

Interest Income. Interest income of $88,000$206,000 for the year ended December 31, 20242025 decreasedincreased by $66,000$118,000 or 43%134% from interest income of $154,000$88,000 for the year ended December 31, 2023.2024. The interest income represents late fees from customers and interest earned on temporary cash investments, which decreasedincreased due to lowerhigher cash balances being invested.

Interest Expense. Interest expense of $900,000$287,000 for the year ended December 31, 20242025 decreased by $294,000$613,000 or 25%68% from $1.2 million$900,000 for the year year ended December 31, 2023.2024. The decrease in interest expense was due to the decreased use of the line of credit and decreases in the interest interest rate charged. Interest expense on the line of credit was $649,000$152,000 and $906,000 and the amortization of deferred financing costs was $127,000 and $169,000$649,000 during the years ended December 31, 20242025 and 2023,2024, respectively and amortization of deferred financing costs was $44,000 and $127,000 during the years ended December 31, 2025 and 2024, respectively.

Other Expense - net. Other expense - net was $298,000$265,000 for the year ended December 31, 20242025 compared to other expense - net of $883,000$298,000 for the year ended December 31, 2023.2024. Other expense primarily represents foreign currency transaction gains and losses and legal settlements made by the Company. Legal and other settlements recorded during the years ended December 31, 2025 and 2024 were approximately $175,000 and $465,000, respectively. There was a foreign exchange loss of $109,000 and a gain of $130,000 and a loss of $790,000 for the years ended December 31, 2024 2025 and 2023, 2024, respectively. Transaction gains and losses result from revaluing intercompany accounts which are denominated in U.S. dollars that represent amounts receivable/payable between the entities. Whenever the exchange rate varies, the gains and losses are recorded in the consolidated statements of operations.

Income Tax Provision (Benefit).Provision. There was a $160,000$199,000 provision for income taxes for the year ended December 31, 2025 compared to $160,000 for the year ended December 31, 2024 compared to the benefit for income taxes of $364,000 for the year ended December 31, 2023.2024.

The current income tax expense for the years ended December 31, 20242025 and 20232024 was $160,000$199,000 and $161,000,$160,000, respectively. For the year ended December 31, 2023, there was a deferred tax benefit of $525,000. There was no deferred tax recorded for the yearyears ended December 31, 2025 and 2024. The current provision for 20242025 and 20232024 primarily relates to state and foreign income taxes. The pre-tax income andwas pre-tax loss was $8.0$11.0 million and $49.0 $8.0 million for the years ended December 31, 20242025 and 2023,2024, respectively. Although the Company reported GAAP earnings in 2025 and 2024, it has incurred tax losses historically and there is uncertainty regarding future U.S. taxable income, which make realization of of a deferred tax asset difficult to support in accordance with ASC 740. Accordingly, a valuation allowance was recorded against all deferred deferred tax assets at December 31, 20242025 and 2023.2024. The Company will maintain a full valuation allowance on deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.

The Company has recorded goodwill as a result of its acquisitions. Goodwill is generally not amortized for financial reporting purposes. However, goodwill from asset acquisitions is tax deductible and amortized over 15 years for tax purposes. As such, deferred income tax expense and a deferred tax liability arise as a result of the tax-deductibility of this indefinitely lived asset. The resulting deferred tax liability, which is recorded over the amortization period, has an indefinite life. In 2023, there was a goodwill impairment charge of $42 million, a portion of which was allocated to the tax deductible portion of the goodwill balance. The impairment charge resulted in the reversal of the entire deferred tax liability at December 31, 2023. There was no deferred tax liability recorded at December 31, 2024.

As of December 31, 2024,2025, the Company has a total federal NOL carry forward of approximately $265$271 million of which approximately $187$186 million will expire between 20312030 and 2038,2037, and the balance of approximately $78$85 million has an indefinite life. At December 31, 2025, the Company had federal research and development credit carryforwards of approximately $3.4 million. Out of the total federal NOL carry forward, approximately $237 million is from the CareCloud and Meridian acquisitions and is subject to the federal Section 382 NOL annual usage limitations. The Company has state NOL carry forwards of approximately $211$214 million, of which $84$87 million relates to the State of New Jersey. These NOLs expire starting in 2025.2026.

We have not been adversely affected by inflation as typically we receive a percentage of the fees our clients collect from our revenue cycle management services. Additionally, our medical practice management contracts are based on our costs plus a percentage of the medical practice’s operating income. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. In the event of inflation, we believe that we will be able to pass on any price increases for fixed rate contracts to our customers, as the prices that we charge are not governed by long-term contracts. The interest rate on our Provident line of credit is based on the primesecured overnight financing rate which hadhas been increasingdeclining throughslightly 2023since butthe decreasedinception duringof the 2024.line of credit.

Cash provided by operating activities was $20.6$28.6 million and $15.5 $20.6 million during the years ended December 31, 20242025 and 2023,2024, respectively. The increase in the net income of $56.5 $2.9 million included the following changes in non-cash items: aan decreaseincrease in stock-based compensation expense of $4.8 million $339,000 and aan decreaseincrease in depreciation and amortization of $420,000. No goodwill impairment charges were recorded during 2024 as compared to the $42 million charge recognized in 2023.$739,000. Revenue decreasedincreased by $6.2$9.7 million for the year ended December 31, 2024 2025 compared to the year ended December 31, 2023,2024. offset by a decrease in cashCash operating expenses ofincreased by $20.2$6.6 million for the same period.

Accounts receivable increased by $408,000 and $1.2 million for the years ended December 31, 2025 and 2024, respectively. Accounts payable and other liabilities increased by $1.3 million and decreased by $2.2$4.7 million for the years ended December 31, 20242025 and 2023,2024, respectively. Accounts payable, accrued compensation and accrued expenses decreased by $4.7 million and $3.3 million for the years ended December 31, 2024 and 2023, respectively.

Cash used in investing activities during the year ended December 31, 20242025 was $7.4$24.5 million, aan decrease increase of $4.2$17.1 million compared to $11.6$7.4 million during the year ended December 31, 2023.2024. This is primarily due to the Company paying $16.5 million for its acquisitions during the year ended December 31, 2025. Capitalized software was $5.7$3.2 million and $8.6$5.7 million during the years ended December 31, 2024 2025 and 2023,2024, respectively. Purchases of property and equipment were $1.7$4.8 million and $3.1$1.7 million during the years ended December 31, 2024 2025 and 2023,2024, respectively.

Cash used by financing activities during the year ended December 31, 20242025 was $11.3$5.6 million, compared to $13.3$11.3 million offor cash used for the year ended December 31, 2023.2024. Cash used by financing activities during 2025 includes the payment of dividends on the Preferred Stock of $6.3 million and $620,000 of repayments for debt obligations. Cash used by financing activities during 2024 includes the full repayment of the credit line of of $10 million and $677,000 of repayments for debt obligations. CashDuring providedthe byyear financingended activitiesDecember during31, 20232025, includesthe $1.4Company borrowed approximately $1.5 million of netto proceedsfinance fromthe issuing 59,773 sharespurchase of Seriesan B Preferred Stock, offset by $888,000 of repayments for debt obligations,aircraft and several $14.3 million of preferred stock dividends paid.vehicles. There was also $579,000$24,000 of payments to settle the tax withholding obligations in 2024 2025 compared to $1.5 million$579,000 in 2023.2024. Net proceeds on the line of credit were $2.0 million duringDuring the year ended December 31, 2025, the Company borrowed approximately $9.3 million on the 2023.line of credit primarily to finance the acquisition of Medsphere and which it repaid by the end of the year.

We have contractual obligations under our line of credit. We also maintain operating leases for property and certain office equipment. We were in compliance with all SVB and Provident covenants in 2024.2025.

As of December 31, 2024,2025, and 2023,2024, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. During the first quarter of 2020, a New Jersey corporation, talkMD Clinicians, PA (“talkMD”), was formed by the wife of the Executive Chairman, who is a licensed physician, to provide telehealth services. talkMD was determined to be a variable interest entity (“VIE”) for financial reporting purposes because the entity will be controlled by the Company. As of December 31, 2024,2025, talkMD had not yet commenced operations. The Company made arrangements to have the income tax returns prepared for talkMD and advancesadvanced the funds for the required taxes. Cumulatively, the Company has paid approximately $6,000$6,500 on behalf of talkMD for income taxes. We do not engage in off-balance sheet financing arrangements.

We recently experienced a cybersecurity incident involving unauthorized third party access to certainone cloud account supporting one of our CareCloud Health division electronic health record environments. The forensic investigation determined that an unauthorized third party claimed to have exfiltrated personally identifiable information systems.and protected health information. While we have taken steps to contain and remediate the incident, including engaging third-party cybersecurity experts, notifying the affected healthcare customers, potentially affected individuals, and regulatory agencies, there can be no assurance that additional additional vulnerabilities will not be identified or that further unauthorized activity will not occur. The incident has resulted in, and may continue to result in, costs related to investigation, remediation, legal proceedings, regulatory inquiries,customer and customerpatient notification.notification, and legal proceedings. Additionally, this incident may harm our reputation, result in customer attrition, and expose us to litigation or regulatory penalties. Because the investigation is ongoing, weWe have notprovided yetnotifications determinedto theapplicable fullfederal scopeand ofstate dataregulatory thatagencies mayas haverequired. beenRegulatory accessed, agencies, including the numberU.S. Department of patients potentially affectedHealth and theHuman categoriesServices ofOffice datafor involved,Civil Rights and state attorneys general, may open inquiries or investigations into the ultimateincident, which could result in fines, penalties, corrective action plans or other remedies, and responding to any such inquiries could involve costs of responding to, remediating and resolvingmanagement theattention. We may also face contractual claims from healthcare-provider customers, including indemnification claims or claims under business associate agreements. The incident may result in increased insurance premiums couldor exceedretentions, ouror availablereduced availability of cybersecurity insurance coverage.on acceptable terms, and we expect to continue to incur costs to further enhance our information security safeguards. If our remediation efforts are not successful or timely, or if additional vulnerabilities are exploited, our business, financial condition, and results of operations could be materially adversely affected.

The financial markets recentlyhave havefrom time to time encountered volatility associated with concerns about the balance sheets of banks, especially small and regional banks who may have significant losses associated with investments that make it difficult to fund demands to withdraw deposits and other liquidity needs. Although the federal government has announced measures to assist these banks and protect depositors, some banks have already been impacted and others may be materially and adversely impacted. Our business is dependent on bank relationships and we are proactively monitoring the financial health of such bank relationships. Continued strain on the banking system may adversely impact our business, financial condition and results of operations.

The following is a discussion of our condensed consolidated financial condition and results of operations for the three and six months ended June March 31,30, 2026 and 2025, and other factors that are expected to affect our prospective financial condition. The following discussion and analysis analysis should be read together with our Condensed Consolidated Financial Statements and related notes beginning on page 4 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 12, 2026.

The Company maintains cash balances at Provident Bank (“Provident”) in excess of the FDIC insurance coverage limits. The Company performs periodic evaluations of the relative credit standing of Provident to ensure their credit worthiness. As of MarchJune 31,30, 2026 and December 31, 2025, the Company held cash of approximately $547,000$1.3 million and $1.1 million, respectively, in the name of its subsidiaries at at banks in Pakistan and Sri Lanka. The banking systems in these countries do not provide deposit insurance coverage. The Company has not not experienced any losses on its cash accounts.

Our offshore operations in the Pakistan Offices and Sri Lanka together accounted for approximately 17% and 18% of total expenses for boththe six the three months ended MarchJune 31,30, 2026 and 2025.2025, respectively. A significant portion of those foreign expenses were personnel-related costs (approximately 76% 73% and 78%77% for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively). Because personnel-related costs are significantly lower in Pakistan and Sri Lanka than in the U.S. and many other offshore locations, we believe our offshore operations give us a competitive advantage over many industry participants. We are able to achieve significant cost reductions and leverage technology to reduce manual work and strategically transition a portion of the remaining manual tasks to our highly-specialized, cost-efficient team in the U.S., the Pakistan Offices and Sri Lanka. Our offshore operations are subject to geopolitical, economic and operational risks; see “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K.

Set forth below is a presentation of our adjusted EBITDA for the three and six months ended MarchJune 31,30, 2026 and 2025:

Set forth below is a presentation of our adjusted operating income and adjusted operating margin, which represents adjusted operating income as a percentage of net revenue for the three and six months ended MarchJune 31,30, 2026 and 2025:

No tax effect has been provided in computing non-GAAP adjusted net income and non-GAAP adjusted net income per share as the Company has sufficient carry forward net operating losses to offset the applicable income taxes. The following table shows our reconciliation of GAAP net income to non-GAAP adjusted net income for the three and six months ended MarchJune 31,30, 2026 2026 and 2025:

For purposes of determining non-GAAP adjusted earnings per share, the Company used the number of common shares outstanding at the end of MarchJune 31,30, 2026 and 2025. Non-GAAP adjusted earnings per share does not take into account dividends declared or earned on preferred stock.

Providers and Practices Served: As of MarchJune 31,30, 2026 and 2025, we provided services to approximately 45,00044,000 and 40,000 providers, respectively respectively (which we define as physicians, nurses, nurse practitioners, physician assistants and other clinical staff that render bills for their services), representing approximately 2,900 independent medical practices, hospitals and service organizations. The foregoing numbers include clients leveraging any of our products or services and are based in part upon estimates in cases where the precise number of practices or providers is unknown.

Revenue: We primarily derive our revenue from subscription-based technology-enabled business solutions, reported in our Healthcare IT segment, which are typically billed as a percentage of payments collected by our customers. This fee includes technology-enabled RCM, as well as the ability to use our EHR, practice management system and other software as part of the bundled fee. These solutions accounted for approximately 74%75% and 64%69% of revenue for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and 74% and 67% of revenue for the six months ended June 30, 2026 and 2025, respectively. Other healthcare IT services, including printing and mailing operations, group purchasing and professional services, represented approximately 14%13% and 25%19% of revenue for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and 14% and 22% of revenue for the six months ended June 30, 2026 and 2025, respectively.

We earned approximately 12% and 11% of our revenue from medical practice management services during both the three and six months ended March 31,June 30, 2026 and 2025, respectively. This revenue represents fees based on our actual costs plus a percentage of the operating profit and is reported in our Medical Practice Management segment.

Direct Operating Costs. Direct operating costcosts consistsconsist primarily of salaries and benefits related to personnel who provide services to our customers, claims processing costs, costs to operate the three managed practices, including facility lease costs, supplies, insurance and other direct costs related to our services. Costs associated with the implementation of new customers are expensed as incurred. The reported amounts of direct operating costs do not include depreciation and amortization, which are broken out separately in the condensed consolidated statements of operations.

Restructuring Costs. Restructuring costs primarily consistsconsist of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements.

Income Taxes. In preparing our condensed consolidated financial statements, we estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred income tax assets and liabilities. Although the Company has returned to profitability, it incurred losses historically and there is uncertainty regarding sufficient future U.S. taxable income, which makes realization of a deferred tax asset difficult to support in accordance with ASC 740. Accordingly, a valuation allowance has been recorded against all deferred tax assets as of MarchJune 31,30, 2026 and December 31, 2025.

As of MarchJune 31,30, 2026 and December 31, 2025, the carrying amountsamount of internally-developed capitalized software in use was $3.7$2.5 million and $5.3 million, respectively. The decrease was due to the amortization exceeding the amounts being capitalized.

Comparison of the three and six months ended MarchJune 31,30, 2026 and 2025:

Net Revenue. Net revenue of $31.3$31.9 million and $63.2 million for the three and six months ended MarchJune 31,30, 2026, increased by $3.6$4.5 million or 16% and increased by $8.1 million or 13%15% from net revenue of $27.6$27.4 million and $55.0 million for the three and six months ended March 31,June 30, 2025, respectively. Revenue for the three and six months ended MarchJune 31,30, 2026 includes $23.0 $24.0 million and $47.0 million relating to technology-enabled business solutions, $3.1$3.2 million and $6.3 million related to professional services and $3.8$3.7 million and $7.5 million for medical practice management services, respectively. Printing and mailing services and group purchasing services revenue was $1.0 million and $2.3 million for medical practicethe managementthree services.and six months ended June 30, 2026, respectively.

During the three and six months ended MarchJune 31,30, 2026, there was approximately $6.8 million and $13.6 million of revenue related to the Medsphere acquisition. The medSR revenue, which is project based, decreased approximately $2.9$1.3 million and $4.2 million compared to the quarterthree and six months ended MarchJune 31,30, 2025.

Direct Operating Costs. Direct operating costs of $16.9$17.5 million and $34.3 million for the three and six months ended MarchJune 31,30, 2026 increased by $3.0 million or 21% and increased by $1.4$4.4 million or 9% 15% compared to direct operating costs of $15.5$14.5 million and $29.9 million for the three and six months ended MarchJune 31,30, 2025, respectively. During the three and six months ended MarchJune 31,30, 2026, salary costs decreased increased by $120,000, billable expenses decreased by $336,000$889,000 and $769,000, outsourcing and processing costs increased by $1.5$1.9 million.million and $3.4 million and billable expenses decreased by $46,000 and $381,000, respectively.

Selling and Marketing Expense. Selling and marketing expense of $1.4$1.3 million and $2.7 million for the three and six months ended MarchJune 31, 30, 2026 increased by $283,000 $182,000 or 25%16% and $465,000 or 21% from selling and marketing expense of $1.1 million and $2.2 million for the three and six months ended MarchJune 31,30, 2025.2025, respectively. The increase for the three and six months ended MarchJune 31,30, 2026 was primarily due to additional headcount.

General and Administrative Expense. General and administrative expense of $5.5$5.4 million and $10.9 million for the three and six months ended MarchJune 31,30, 2026 increased by $1.2$1.0 million or 27%23% and $2.2 million or 25% compared to general and administrative expense of $4.3$4.4 million and $8.7 million for the three monthsand ended March 31, 2025. During the threesix months ended MarchJune 31,30, 2025, respectively. During the three and six months ended June 30, 2026, salary costs increased by $360,000$530,000 and legal$890,000, and professionalinsurance feescosts increased by $334,000.$64,000 and $101,000, respectively. The costs for the newly purchased aircraft used to support business development and maintain client relationships were $276,000 and $438,000 for the three and six months ended June 30, 2026, respectively.

Research and Development Expense. Research and development expense of $2.4$2.2 million and $4.6 million for the three and six months ended March 31,June 30, 2026 increased by approximately $1.2 million or 96%115% and $2.4 million or 104% from research and development expense of $1.2$1.0 million and $2.3 million for the three monthsand ended March 31, 2025. During the threesix months ended MarchJune 31,30, 2025, respectively. During the six months ended June 30, 2026 and 2025 the Company capitalized approximately $820,000$1.6 million and $846,000,$1.7 million, respectively, of development costs in connection with its internal-use software. The increase in expense was primarily due to a shift in the nature of development activities, with fewer costs qualifying for capitalization as internal-use software, resulting in a greater portion of costs being recognized as operating expenses in the current period.

Change in Contingent Consideration. Change in contingent consideration of $57,000$(34,000) and $23,000 for the three and six months ended March 31,June 30, 2026 relates to adjustments for probable future payments required under the purchase agreement for certain acquisitions.

Depreciation Expense. Depreciation expense of $740,000$748,000 and $1.5 million for the three and six months ended MarchJune 31,30, 2026 increased by $179,000$154,000 and $333,000 from depreciation of $561,000 $594,000 and $1.2 million for the three and six months ended MarchJune 31,30, 2025.2025, respectively.

Amortization Expense. Amortization expense of $3.3$3.0 million and $6.3 million for the three and six months ended MarchJune 31,30, 2026 increased by $521,000 $195,000 or 19%7% and $716,000 or 13% from amortization expense of $2.8 million and $5.6 million for the three and six months ended June March30, 31,2025, 2025.respectively. The increase in the expense is due to the amortization of the intangible assets acquired in the recent acquisitions.

Restructuring Costs. There were no restructuring costs for the three and six months ended MarchJune 31,30, 2026 as compared to $114,000$23,000 and $137,000 for the three and six months ended March 31,June 30, 2025, respectively, which primarily consists of severance and separation costs associated with the optimization of the Company’s operations and profitability improvements.

Interest Income. Interest income of $10,000$73,000 and $83,000 for the three and six months ended MarchJune 31,30, 2026 decreasedincreased by $32,000$22,000 and decreased by $10,000 from interest income of $42,000 $51,000 and $93,000 for the three and six months ended MarchJune 31,30, 2025.2025, respectively. The interest income represents late fees from customers and interest earned on temporary cash investments, which decreased due to less funds being temporarily invested.investments.

Other Income (Expense) – net. Other income – net was $22,000$104,000 and $126,000 for the three and six months ended MarchJune 31,30, 2026 compared to other expense – net of $14,000$35,000 and $49,000 for the three and six months ended MarchJune 31,30, 2025.2025, respectively. Other expense or income primarily represents foreign currency transaction losses gains or gains.losses. These transaction lossesgains or gainslosses result from revaluing intercompany accounts which are denominated in U.S. dollars that represent amounts payable/receivable between the entities. Whenever the exchange rate varies, the lossesgains or gainslosses are recorded in the condensed consolidated statements of operations.

Income Tax Provision. The provision for income taxes was $52,000$102,000 and $154,000 for the three and six months ended MarchJune 31,30, 20262026, respectively, compared to the$42,000 provisionand for income taxes of $41,000$83,000 for the three and six months ended MarchJune 31,30, 2025.2025, respectively. The increase was primarily due to a $50,000 deferred income tax provision for the three and six months ended June 30, 2026 related to the amortization of goodwill for tax purposes. There was no deferred tax liability recorded at March 31, 2026 or December 31, 2025. There were no deferred income taxes for the three months and six months ended MarchJune 31, 2026 and 30, 2025.

The current income tax expense for the three and six months ended MarchJune 31,30, 2026 was approximately $52,000,$52,000 and $102,000, respectively, which represents state minimum taxes and foreign income taxes. Although the Company has returned to profitability, it incurred losses historically and there is uncertainty regarding sufficient future U.S. taxable income, which makes realization of deferred tax losses difficult to support in accordance with ASC 740. Accordingly, a valuation allowance was recorded against all deferred tax assets at MarchJune 31,30, 2026 and December 31, 2025.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law, extending key provisions of the 2017 Tax Cuts and Jobs Act including, but not limited to, federal bonus depreciation and deductions for domestic research and development expenditures. OBBBA did not have a material impact on the Company’s condensed consolidated financial statements.

During August 2025, the Company voluntarily terminated its agreement with Silicon Valley Bank which was not in use. During September 2025, the Company entered into a two year, $10 million revolving line of credit with Provident. During April 2026, the Company terminated the credit line with Provident and entered into thea $50 million joint credit facility with Citizens Bank, N.A. and Provident. Provident consisting of a four-year $40 million term loan and a $10 million revolving line of credit. As of June March30, 31, 2026 and 2025,2026, there were no$9.0 borrowingsmillion outstanding on the line of credit.credit and $39.2 million outstanding on the term loan. The Company fully has announced plans to fully redeemredeemed the outstanding Series B Preferred Stock in May 2026. Approximately $41.6 million of the new credit facility will bewas used for for the redemption. As of June 30, 2025, there were no borrowings under the Provident credit facility.

As of MarchJune 31,30, 2026, the Company had total cash of $3.9$13.4 million and net working capital of $2.6 million.$695,000. For the threesix months ended MarchJune 30, 31, 2026, cash provided by operations was $3.6$10.7 million and cash provided by financing activities was $2.3 million, offset by cash used in investing and financing activities of $3.4$3.2 millionmillion, resulting in an increase in cash of $237,000$9.8 million after accounting for the effect of $8,000 of exchange rate changes.

For the threesix months ended MarchJune 31,30, 2026, the Company recorded net income of $922,000.$2.0 million. Management continues to focus on the Company’s Company’s overall profitability, including managing expenses, and to the extent possible growing revenue, and expects that these efforts will continue to enhance our liquidity and financial position. Our expectations regarding future financial performance, including revenue, adjusted EBITDA and earnings-per-share, are based on management’s current beliefs and assumptions regarding, among other things, the signing and continuation of certain client and vendor relationships, the anticipated timing and scope of client projects, and our timely execution of integration and expense-management initiatives intended to align our cost structure with those objectives. If these assumptions prove incorrect or these initiatives are delayed or not fully realized, our results may differ materially. Based on management’s forecasts, the Company will have sufficient liquidity to meet its obligations as they become due for the next twelve months from the date of the financial statements’ issuance.

We have not been adversely affected by inflation as typically we receive a percentage of the fees our clients collect from our revenue cycle management services. Additionally, our medical practice management contracts are based on our costs plus a percentage of the medical practice’s operating income. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. In the event of inflation, we believe that we will be able to pass on any price increases for fixed rate contracts to our customers, as the prices that we charge are not governed by long-term contracts. The interest rate on ourthe ProvidentCitizens’ term loan and the line of credit wasis based on the secured overnight financing rate which has slightly declined since the inception of the line of credit. The interest rate on our new credit facility is based on this same rate.inception.

The income before income taxes was $974,000$1.2 million and $2.2 million for the three and six months ended MarchJune 31,30, 2026, respectively, which included $3.7 $4.0million and $7.8 million of non-cash depreciation and amortization.amortization, respectively. The income before income taxes was $2.0$2.9 million and $4.9 million for the three and six months ended MarchJune 31,30, 2025, respectively, which included $3.3$3.4 million and $6.7 million of non-cash depreciation and amortization.amortization, respectively.

Net cash provided by operating activities was $3.6$10.7 million and $5.1$12.5 million during the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. respectively. There was a decrease in net income of $1.0$2.8 million together with the following changes in non-cash items: an increase in depreciation and amortization of $678,000,$1.0 a $57,000 change in contingent considerationmillion and a decrease in stock-based compensation of $44,000.$91,000. Accounts receivable receivabledecreased $827,000 and increased $280,000 and $1.2 million$958,000 for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. Accounts payable and other other liabilities decreased by $2.6$2.1 million and increased $956,000$377,000 during the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. Other Otherassets assetsdecreased by $73,000 and increased by $228,000 and $908,000$838,000 during the threesix months ended MarchJune 31,30, 2026 and 2025, respectively.

Net cash used in investing activities was $1.2$3.2 million and $1.5$3.5 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. Capital expenditures were $412,000$937,000 and $624,000$1.8 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. The capital expenditures expenditures for the threesix months ended MarchJune 31,30, 2026 and 2025 primarily represented computer equipment purchased and leasehold improvements for the Pakistan Offices. Software development costs of $820,000$1.6 million and $846,000$1.7 million for the threesix months ended MarchJune 31, 30, 2026 and 2025, respectively, were capitalized in connection with the development of software for providing technology-enabled business solutions. Payment for acquisitions was $681,000 and $40,000 for the six months ended June 30, 2026 and 2025, respectively.

We had contractual obligations under our Provident line of credit and have contractual obligations under the new credit facility obtained in April 2026. We were in compliance with all covenants as of MarchJune 31,30, 2026. We also maintain operating leases for property and certain office equipment. For additional information, see Contractual Obligations and Commitments under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 12, 2026.

As of MarchJune 31,30, 2026, and 2025, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

On March 16, 2026, the Company experienceddetected a temporarysecurity network disruptionincident in its CareCloud Health division that partially impactedaffected the functionality and data access to one of its six electronic health record environments for approximately eight hours until the Company fully restored all all functionality and data access during that evening. The Companyforensic believesinvestigation determined that thean incidentunauthorized wasthird containedparty gained access to one cloud account supporting the CareCloud Healthpreviously identified electronic health record environment and didfound notno affectevidence thethat Company’sany other otherCompany platforms, divisions, systems, data or environments.environments were affected. The incidentinvestigation wasfound no evidence of unauthorized containedactivity onrelated to the dayincident itafter wasMarch discovered.16, The2026 and all affected systems remain fully operational. Subject to applicable policy terms, limits, retentions, exclusions and coverage determinations, the Company currently believes thatits it has sufficientavailable cybersecurity insurance coverage is likely to be sufficient for anythe losses it currently anticipates in connection with the incident. See Note 9, potentialCommitments losses.and Contingencies, of the Notes to Condensed Consolidated Financial Statements for additional information regarding the incident, including related legal proceedings.