CareCloud, Inc.

Previous wording

We recently experienced a cybersecurity incident involving unauthorized access to certain of our information systems. While we have taken steps to contain and remediate the incident, including engaging third-party cybersecurity experts, there can be no assurance that 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, and customer notification. Additionally, this incident may harm our reputation, result in customer attrition, and expose us to litigation or regulatory penalties. Because the investigation is ongoing, we have not yet determined the full scope of data that may have been accessed, including the number of patients potentially affected and the categories of data involved, and the ultimate costs of responding to, remediating and resolving the incident could exceed our available cybersecurity insurance coverage. 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.

Current wording

We experienced a cybersecurity incident involving unauthorized third party access to one 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 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 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, customer and patient notification, and legal proceedings. Additionally, this incident may harm our reputation, result in customer attrition, and expose us to regulatory penalties. We have provided notifications to applicable federal and state regulatory agencies as required. Regulatory agencies, including the U.S. Department of Health and Human Services Office for Civil Rights and state attorneys general, may open inquiries or investigations into the incident, which could result in fines, penalties, corrective action plans or other remedies, and responding to any such inquiries could involve costs and management attention. 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 or retentions, or reduced availability of cybersecurity insurance 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.

Previous wording

The financial markets recently have 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.

Current wording

The financial markets have from 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.

Previous wording

On December 11, 2023, the Board of Directors suspended the monthly cash dividends for Series A Preferred Stock and Series B Preferred Stock beginning with the payment scheduled for December 15, 2023 together with the remaining dividends that were declared. Effective in September 2024, there was a change in the dividend rate on the Series A Preferred Stock from 11.00% to 8.75%. Due to the conversion of the majority of the Series A Preferred Stock in March 2025, the dividend amount due on the converted shares resulting from the suspension was settled. During February 2025 and continuing monthly thereafter, the Company resumed payment of the dividends, paying one month of dividends in arrears each month based on the oldest dividend amount outstanding. Beginning in February 2026, the Company began making one additional dividend payment each month on the Series B Preferred Stock to begin to satisfy the dividend arrearage. As a result of such suspension, and including the additional dividend payments made on the Series B Preferred Stock, as of the filing date of this Quarterly Report, the Company has approximately $6.1 million of dividends due. During this suspension, dividends continued to accumulate in arrears on the remaining Series A and Series B Preferred Stock. See discussion of preferred stock dividend suspension in “Note 12, Shareholders’ Equity” and planned redemption of the Series B Preferred Stock in “Note 18, Subsequent Events” of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report.

Current wording

On December 11, 2023, the Board of Directors suspended the monthly cash dividends for Series A Preferred Stock and Series B Preferred Stock beginning with the payment scheduled for December 15, 2023 together with the outstanding dividends that were declared. During this suspension, dividends continued to accumulate in arrears on the remaining Series A and Series B Preferred Stock. Effective in September 2024, there was a change in the dividend rate on the Series A Preferred Stock from 11.00% to 8.75%. Due to the conversion of the majority of the Series A Preferred Stock in March 2025, the dividend amount due on the converted shares resulting from the suspension was settled. During February 2025 and continuing monthly thereafter, the Company resumed payment of the dividends, paying one month of dividends in arrears each month based on the oldest dividend amount outstanding. Beginning in February 2026, the Company began making one additional dividend payment each month on the Series B Preferred Stock to begin to satisfy the dividend arrearage. Due to the redemption of all of the Series B Preferred Stock in May 2026, the dividend amount due on the redeemed Series B Preferred Stock shares resulting from the suspension was settled. The Company has approximately $2.7 million of dividends declared and accumulated on the Series A Preferred Stock due as of the filing date.