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

The risks and uncertainties described in the risk factors below are those that we currently consider material. You should carefully consider these risk factors, together with the statements contained elsewhere in this annual report, including our financial statements and the other reports we file with the Commission,SEC, in evaluating us or before making an investment in our common stock. The occurrence of any of the following risks or uncertainties, or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial, could materially and adversely affect our business, financial position, results of operations, liquidity, cash flows, or or reputation.

A significant portion of operating revenue is received from a relatively small group of customers. CombinedDuring sales2025, fortwo threecustomers, customerswho represented 10% or more of operating revenue, combined accounted for approximately 43% and 43%34% of our total revenuesales. inSee fiscalNote year2, 2024Section andF. fiscal“Concentrations yearof 2023,Risk” respectively.of Part II, Item 8 Notes to Consolidated Financial Statements for more information about our customer concentration.

We cannot guarantee that significant or other large customers will not, at some point, terminate or reduce our services. This has happened in the past. The loss of one or more significant or other large customers has historically had an adverse impact on our business, results of operations, cash flows and financial condition, sometimes materially. While we continue to work to lessen our dependence on a few customers, we believe this will continue to be a risk in the foreseeable future.

Most of our customer contracts permit either party to terminate without cause. In the past, for example, we have lost customers due to competitive pricing pressures and customer cost reduction efforts; failure to maintain the quality of the services we provide; and our inability to retain sufficient staffing. Competitive pricing is a particular challenge for us, as our larger competitors can often exploit economies of scale to price lower than us, or can offer bundled services that include insurance-related and other services we do not provide. In October 2024 we received notice of termination from one of our significant customers, which has had a material impact on our operating revenues during fiscal year 2024 due to a shift in timing of delivery of services and which we expect may have further material impacts on operating revenues in future years. If other significantsignificant, or multiplemultiple, customers terminate their contracts, or do not renew or extend their contracts with us, as has happened in the past, it could have a material adverse effect on our business and results of operations.

CombinedAs receivablesof forDecember three31, customers2025, four customers, who represented 10% or more of accounts receivable, combined accounted for approximately 45%66% of our total receivablesaccounts in fiscal year 2024 and 49% in fiscal year 2023.receivable. If we are unable to diversify our customer base, we will continue to be susceptible to risks associated with customer concentration. Further, accounts receivable are typically unsecured and are thus subject to the increased risk of us being unable to collect overdue amounts. The inability or unwillingness to pay by our account debtors, for whatever reason or cause, could have a material adverse effect on our financial condition.

Outsourcing also may require us to change our existing operations or adopt new processes for providing or managing our services. If there are delays or difficulties in changing business processes or our third-party vendors do not perform as expected, it may delay our ability to provide our services and we may not realize, or not realize on a timely basis, the anticipated functionality or benefits of these relationships. Terminating or transitioning, in whole or in part, arrangements with vendors could result in additional costs or penalties, risks of operational delays and interruptions, or potential errors and control issues during the termination or transition phase. As previously disclosed, our revenues were adversely impacted in the fourth quarter of 2022 as a result of the interruptions and costs associated with difficulties in transitioning to a new software vendor. We may also be subject to future regulatory fines related to that software transition. If we experience continued or another an interruption in our ability to provide our services or loss of access to data resulting from a malfunction, termination, transition or other disruption in outsourced services, we may not be able to meet the demands of our customers and, in turn, our business and results of operations could be materially and adversely impacted.

If we are unable to continue to attract and retain key employees and consultants with the skills our business requires, our business operations could be impacted negatively.

Similarly, competition and pricing for our consultants and advisors, such as workers’ compensation consultants, legal, accounting, and other professional service providers, is increasing. As a relatively small business, these costs can disproportionately impact our business and results of operations compared to larger competitors. Further, our consultants and advisors may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain such consultants, our ability to pursue our growth strategy may be limited. In addition, as discussed below, we rely heavily on third-party provided information technology to support our business activities. As technology becomes more complex and more integral to our operations, our lack of inside technology personnel, both in general and with specialty in the third-party business systems we rely on, may also negatively impact our ability to adapt to changes, respond to technology related crises, meet customer needs, or timely implement necessary advancements.

We cannot guarantee that we will be able to attract and retain personnel in the future, particularly in a challenging labor market that disproportionately impacts us as a small service-oriented business. DuringFor 2024,example, during 2024 our Chief Financial Officer resigned and during 2025 our Vice President resigned and we have not yet identified a full-time replacementreplacements for thisthese role.roles. Our CEO, President and Chairman of the board of directors, Tom Kubota, is also our acting Principal Financial Officer until we find a replacement. Given the level of knowledge, experience, and skills the role of a full-time Chief Financial Officer requires, we cannot assure when we will be able to replace this role or the degree of impact on our salary and wages expenses when we do replace this role. If we are unable to effectively compete for, or otherwise attract or retain, key employees and consultants, our business and financial condition could be materially adversely affected.

Cybersecurity, Information Technology and Outsourced Services Related Risks A cybersecurity breach or other disruption to our or our vendors’ information technology systems could result in the loss, theft, misuse, unauthorized disclosure of, or unauthorized access to customer, customer-employee or company information, or could otherwise disrupt our operations, any of which could materially adversely affect our business, financial condition or results of operations.

As discussed furtherin inPart I, Item 1C. Cybersecurity of herein,this annual report, during fiscal year 2023, the third-party vendor that provides the file transfer service through which our customers electronically share certain data regarding their employees and other third parties with us, experienced a data security incident that affected many of their customers, including the Company.us. Through this incident the threat actor accessed certain of our customers’ employees’ and other third parties’ data, and such data included protected health information, as as defined by the Health Insurance Portability and Accountability Act, and personally identifiable information. As of the date of this annual report, this incident has not had a materially adverse impact on our results of operations and the matter was closed in 2024. However, we have incurred expenses, and may incur in the future expenses and losses, related to this incident.

As discussed elsewherein inPart I, Item 1C. Cybersecurity of this annual report, we responded to a cybersecurity incident in fiscal year 2023. We made a claim related to that incident under the cyber liability insurance policy in effect at that time. While that claim has been covered thus far, we received a notice of non-renewal of that policy. We were able to obtain new cyber liability insurance, but we cannot assure that we will be able to in the future.

Additionally, cyber liability insurance is subject to policy limitations and exclusions. If the limits of our cyber liability policies are exhausted, in whole or in part, it could deplete or reduce the limits available to pay other material claims applicable to that policy period. Further, our cyber liability insurance carrier could become insolvent and unable to fulfill its obligations to defend, pay or reimburse us when those obligations become due. The loss of or material reduction in cyber liability insurance could also materially affect our ability to contract with current or future customers depending on the cyber liability insurance requirements they require us to have. In any of these cases, or if payments of claimsliabilities exceed our limits or are not otherwise covered by insurance, it could have an adverse effect on our business, financial condition, or results of operations.

The effective and competitive delivery of our services is increasingly dependent upon information technology resources and processes provided by third-party vendors. In addition to better serving our customers, the effective use of technology increases efficiency and enables us to reduce costs. Our future success will depend, in part, on our ability to address the needs of our customers by using technology to provide services to enhance customer convenience, as well as to create additional efficiencies in our operations. We are largely dependent on licensing and integrating various information technology systems and software from third parties for delivery of our services, the loss, ineffective management or malfunction of which could jeopardize all or parts of our ability to deliver our services. ForWe example,have in inthe 2022past weexperienced haddelays and difficulties implementing new utilization review and medical case managementthird-party software and had to transition to another vendor after the first vendor was unableused to provide fully functioning software. During those transitions, our automated processes had to be performed manually, which caused delays in providing services and invoicing our customers, reduced productivity, and increased outsourcing costs. While the replacement software has restored our ability to provide services, certain important functionalities are still being developed. We cannot be assured that the new software system will remain functional, nor whether adequate software will be available from any source in the future.services. We anticipate that we will continue to rely on third-party software for our services in the future and many of the risks associated with the use of third-party software cannot be eliminated.

Further, there can be no assurance that we will be able to effectively implement new technology-driven products and services, which could reduce our ability to compete effectively, particularly because many of our competitors have greater resources to invest in technological improvements than we do. The ability to provide our services may also suffer from the impacts of industry consolidation, as larger companies privatize, acquire, develop, retire or limit the licensing of the software we currently rely on for providing our services. For example, the software we used for our utilization review and medical case management services was purchased by a larger competitor and the software was discontinued because the competitor already had its own software. This resulted in us acquiring new utilization review and medical case management software and experiencing implementation problems, as discussed in the preceding paragraph.services.. The cost of technologies we rely on may also change drastically, changing the profitability profiles of certain services and, in extreme cases, the viability of that line of business for us. Because we rely heavily on various technologies and their ability to integrate with other critical systems to provide our services, the occurrence of any of these events could have a material adverse impact on our business, results of operations and financial condition.

The failure by us to compete with AI-based competitive services, integrate AI into our services, or accommodate the AI needs of our customers could have a material adverse effect on our business. Our efforts to integrate AI into our services are inherently risky and may not always succeed or be profitable. Our recentprevious efforts to incorporate AI enhancements into some of our services were determined not to be be cost-efficient when combined with our claim volumes and the specific means through which we provide our services. We cannot assure that that we will be able to incorporate AI or other technology enhancements into our services cost-effectively, or at all. However, our competitors, including those with higher claim volume, more staff or less expensive offshore medically licensed staff, or different services models may be able to more quickly and profitably incorporate AI into their products and services, which could impair our ability to compete effectively.

The adoption of AI by us, the healthcare industry and the software upon which we rely to provide our services, introduces various risks, including dependency on potentially inaccurate or unreliable AI-generated outputs, potential for data privacy and security breaches, intellectual property infringement or disputes, challenges and costs in complying with rapidly-evolving AI regulations across multiple jurisdictions, jurisdictions, and unforeseen consequences of AI integration into the workers’ compensation industry. The failure to address these risks adequately may negatively impact our operations, reputation, and financial performance. Additionally, as AI technology continues to evolve rapidly, other unforeseen risks may emerge that could adversely affect our business, financial condition, and results of operations.

Certain aspects of our business are dependent upon our ability to store, retrieve, process and manage data, and to maintain and upgrade our data data processing capabilities. Interruption of data processing capabilities for any extended length of time, loss of stored data, programming programming errors or other system failures could cause our customers to terminate our services and could have a material adverse effect on our business and results of operations. For example, during our fourth quarter of 2022, our utilization review and medical case management services were interrupted when we transitioned to different software for those functions. Although the current software has restored our ability to provide services, we continue to experience delays in invoicing several of our customers. We cannot assure that these customers or other customers that may be affected in the future, will not dispute the amounts invoiced or otherwise terminate our services due to these or potential future functionality problems.

For example, and as discussed in more detail in Part I, Item 1C. Cybersecurity,Cybersecurity of this annual report, the third-party vendor that provides our managed file transfer as a service system experienced a data security incident that affected many of its customers, including the Company.us. The threat actor in this incident accessed certain of our customers’ employees’ and other third parties’ data and such data included protected health information, as defined by the Health Insurance Portability and Accountability Act, and personally identifiable information. We have provided the required notifications to the data owners, and where appropriate, to the individuals affected by the incident and to various State Attorneys General. As of the date of this annual report, this incident has not had a materially adverse impact on our results of operations. However, we cannot assure that there will not be future impacts from this incident on our business, results of operations and other potential liabilities.

The collection and transmission of confidential and personal information subjects us to numerous related security breach risks and regulatory compliance risks. Our failure to comply with evolving regulatory requirements related to the collection and transmission of such information or the loss, unauthorized disclosure of or access ofto such information could lead to significant reputational or competitive harm, result in litigation, governmental or regulatory proceedings, or cause us to incur substantial liabilities, fines, penalties, or expenses.

There are also risks that California reduces support for, or discontinues or alters the HCO and MPN programs. The HCO program, though effective, effective, is the predecessor to the more utilized MPN program in California. As a result, there is a risk that the state’s resources and expertise in certifying HCO programs may become limited to such an extent that we or the state decide to terminate the re-licensing of HCO programs, or the state amends or repeals the legislation authorizing HCOs. MPNs may also be at risk of legislative amendment or repeal due to pressures from various industry interest groups in California. Changes to or cessation of either program, by whatever cause,program could have materially adverse effects on our business and results of operations.

Similarly, the state of California requires workers’ compensation organizations performing utilization review in California to be accredited by URAC and undergo a routine investigation by the California Division of Workers’ Compensation every five years. We must be reaccredited by URAC every three years. If we were to lose our URAC accreditation or fail to earn reaccreditation, we would experience a loss of utilization review revenue in California and possibly other states. Other states in which we currently perform utilization review/utilization management each have different standards for authorizing utilization review organizations. If we were to fail our routine investigationsinvestigations, ornot meet those varied standardsstandards, or experience administrative difficulty managing the maintenance of these various certifications and approvals, we could experience a loss or reduction in utilization review revenue and/or fines or penalties.

Our primary business operations are subject to licensing and other regulatory requirements in California, including minimum qualification standards for personnel, confidentiality, internal quality control and dispute resolution procedures. The cost of compliance with these regulatory programs can increase our costsoperational of operation,costs, which may make it difficult for us to compete with other available alternatives for workers’ compensation healthcare cost control.

The healthcare and workers’ compensation regulatory environment is subject to ongoing changechanges that presentspresent risks to the continued and or efficient provision of our services. While we trystrive to be involved in the California legislative process and to stay informed onabout industry developments, we cannot predict what additional government initiatives affecting our business, if any, may be promulgated in in the future. We cannot assure that we will always be able to adapt to new or modified regulatory requirements or tomaintain keep in force necessary licenses and government approvals. Proposals for legislative healthcare legislative reforms are regularly considered at the federal and state levels, and more recently Presidential executive orders have been issued that may impact the health care industry,industry. For example, Executive Order 14273 “Lowering Drug Prices by includingOnce thoseAgain focusedPutting Americans First” was signed on restructuringApril 15, 2025. While intended to lower long-term costs, this order may require changes to bill review technologies and streamliningshift governmentcost agenciesstructures andfor reducinginjured orworkers’ eliminating regulations and federal government programs and other expenditures.medications. To the extent that such actions affect workers’ compensation, itthey may render us unable to deliver services profitably, reduce demand for our services, or require us to develop new or modified services. Any of these factors could materially impact our results of operations.

Restrictions on immigration or changes in immigration lawslaws, andpolicy, policyor enforcement, could have adverse impacts on our condition and the condition of our customers and their workforces, and the healthcare industry, which could have an adverse impact on our results of operations and financial condition.

The political environment in the United States in recent years has included significant support for immigration legislation and enforcement changes, including most recently the newcurrent Presidential Administration’s executive orderspolicies on immigration. This has resulted in uncertainty regarding the effects of national immigration policies and enforcement practices. These effects may include risks of labor shortages and increased labor costs for us, our customers and the healthcare industry.

ChangesU.S. in U.S. trade policies and retaliatory responses from other countries may adversely impact our customers’ businesses and result in a reduction or elimination of our services.

U.S.The trade policies have changed with the new U.S. Presidential administration, which brings uncertainty as to the effects of therecent implementation ofand suchevolving U.S. trade policies, such as newthe tariffsimposition of tariffs, changes in trade agreements, import/export restrictions, sanctions, and retaliatoryrelated responsesregulatory toactions them.are uncertain. New tariffs and effects of potential tradecountermeasures warsfrom other countries may result in increased costs for our customers and other risks related to international trade uncertainty. While it is still too early to ascertain the the impact or potential increased escalation of these trade policies, the effects may include a contraction of our customers’ business and headcounts, a decrease in our customers’ business spending, including on our services, and customer business closures, each of which would likely have a material adverse impact on our business and results of operations.

From time to time, management evaluates potential opportunities to expand our business through strategic acquisitions. To date, we have been unsuccessful in our efforts to identify suitable acquisition candidates. Even if we are successful in identifying and making strategic acquisitions, there can be no assurance such acquisitions will positively impact our business and the results of operations. Acquisitions are subject to numerous risks. Expenses arising from our acquisition efforts could have a negative impact on operating results, at least in the short term. If such transactions do occur, there can be no assurance that we will be able to effectively integrate the acquired businesses. In addition, any such transactions would be subject to various risks associated with the acquisition of businesses, including, but not limited to, the following:

In instances where we make recommendations concerning the appropriateness of providers’ medical treatment plans for patients, we couldmay potentiallyhave be exposedexposure to legal claims from adverse medical outcomes. We do not believe we engage in the practice of medicine or medical services. services. Similarly, we do not grant or deny claims for payment of benefits. Notwithstanding this, there is nothing that bars someone from making a claim that the services we provide constitute the practice of medicine or the delivery of medical services.

In addition, we cannot assure that we will not be the subject of litigation, including but not limited to, being joined in litigation brought against one of our customers in the managed care industry. While we maintain professional liability insurance and such other coverages as we believe are reasonable considering our experience to date, this coverage may be insufficient. We also cannot assure that insurance companies companies will always make insurance available to us at a reasonable cost to protect us from significant future liability. If we become subject subject to litigation our business, financial condition or results of operations could be negatively impacted.

The majority of our assets and liabilities are monetary in nature, as opposed to businesses that have significant investments in fixed assets or inventories. Because of this, the effects of rising inflation may impact us more than many other businesses, including the value of holding on to our cash position over time and related ability to capitalize on potential acquisition opportunities. Rising inflation can also adversely impact the profit margins for our customers who have fixed contract pricing, the pricing our vendors charge us, and our salary and wage expenses in our efforts to retain and attract employees. Further, inflation may affect our customers similarly and their ability to maintain and grow employee head counts. Inflation may also affect the general level of interest rates, which, among other things, will likelymay increase borrowing costs and preclude further growth of our business and the business of our customers.

Acts of war, terrorist attacks, natural disasters, health crisescrises, civil unrest or other similar events may disrupt our operations, as well as the operations of our customers. Such events have the potential to create significant volatility, uncertainty, and worldwide economic disruption, resulting in an economic slowdown of potentially extended duration, as seen with the COVID-19 pandemic. Such events could adversely affect our business and financial results, and they may also have the effect of heightening many of the other risks described throughout this annual report.

The following is a discussion of our financial condition condition and results of operations for the years ended December 31, 20242025 and 2023,2024, and other factors that are expected to affect our prospective prospective financial condition.condition The following discussion and analysis should be read together with our consolidated financial statements and related notes included in Item 8 Financial Statements and Supplementary Data of this annual report.

Some of the statements set forth in this section are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those expressed in the forward-looking statements. We disclaim any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. For further information about forward-looking statements and the factors that could cause actual results or events to differ materially from anticipated results or events, please see “Cautionary Statement Regarding Forward-Looking Statements” above and Part I, Item 1A Risk Factors of this annual report.Factors.

During the year ended December 31, 2024,2025, total revenues increased 8%11% compared to fiscal year 2023.2024. During fiscal year 2024,2025, revenue from MPN, utilization review, and medical case management increased by 6%, 5%, and 42%, respectively; and revenue from HCO, medical bill review, utilization review, medical case management, and other services increaseddecreased by2%, 19%, 6%, 11%, 29%4%, and 20%,70%, respectively;respectively, and revenue from HCO decreased 18% compared to fiscal year 2023.2024.

From fiscal year 20232024 to fiscal year 2024,2025, operating expenses increased by 5%,10%, primarily as a result of increases in salariesprofessional fees and wages,data and generalmaintenance and administrative expenses.fees. The increases were partially offset by decreasesa decrease primarily in bad debt provisionsalaries and datawages. maintenance expenses.Despite Asthis aincrease result,in expenses, there was a 26%17% increase in our income from operations from fiscal year 20232024 to fiscal year 2024.2025.

Our net income increased 15%,57%, from $767,928$883,584 in fiscal year 2024 to $1,387,647 in fiscal year 2023 to $883,584 in fiscal year 2024,2025, as a result of the increase in our net income from operations, as well as a 1%117% increase in interesttotal other income from Employee Retention Credit (“ERC”) refund checks from the IRS totaling $488,655 and our investment in U.S. Treasury bills. The increase in net income was partially offset by a 19%33% increase in income tax provision related to additional revenues income earned during fiscal year 2024. 2025. Basic and fully diluted earnings per share during fiscal year 20242025 were $0.11 and $0.11, respectively, compared to $0.07 and $0.07, respectively, compared to $0.06 and $0.06, respectively, during fiscal year 2023.2024.

Medical bill review involves analyzing medical provider services and equipment billing to ascertain proper reimbursement. California and many other states have established fee schedules for the maximum allowable fees payable under workers’ compensation for a variety of procedures performed by medical providers. Many procedures, however, are not covered under the fee schedules, such as hospital bills, which still require review and negotiation. Medical bill review involves analyzing medical providerOur services and equipment billing to ascertain proper reimbursement. Our medical bill review services include coding review and re-bundling, confirming that the services are customary and reasonable, fee schedule compliance, out-of-network bill review, pharmacy review, and preferred provider organization repricing arrangements. Our medical bill review services can result in significant savings for our customers. Revenue for medical bill reviews is generated based on a set fee per medical bill reviewed and a percentage of savings of the preferred provider organization discounts. Hospital bill review services generate revenue on a percentage of savings off of the hospital bill, usually with a negotiated cap.

Utilization review is the review of medical treatment requests by providers to providegive a safeguard for employers and injured employees against unnecessary or inappropriate medical treatment from the perspective of medical necessity, quality of care, appropriateness of decision-making, and timeliness of treatment. Its purpose is to reduce employer liability for medical costs that are not medically appropriate or approved by the relevant medical and legal authorities and the payor. We generate revenue when we receive a referral for a request for authorization of treatment from a claims adjuster. We bill by the number of treatment requests and the level of expertise of the reviewer required to approve, modify, or deny the request.

Medical case management oversees the injured employees’ medical treatment to ensure that it progresses to a resolution and assurestreatment treatment plans are aligned from a medical perspective. Medical oversight is a collaborative process that assesses, evaluates, coordinates, implements and monitors medical treatment plans and the options and services required to meet an injured worker’s health needs. Our medical case management services are performed by nurses who are licensed by the state and have expertise in various clinical areas and backgrounds in workers’ compensation matters. We work to manage the number of nurses in our program to maintain our ratio of claims per nurse at a level that ensures timely and appropriate medical care is given to the injured worker and facilitates faster claim closures for our customers.

Salaries and wages reflect employment-related compensation we pay to our employees, payroll processing, payroll taxestaxes, vacation expense, and commissions.

Professional fees include fees we pay to third parties to provide IT, financial, marketing, lobbying, in-house legal services related to the various services we offer, medical consulting, field medical case management, and board of directors’ fees for board meetings, as well as legal, accounting, and other professional services fees.

Data maintenance fees include fees we pay to a third party to process HCO annual and new hire employee enrollments and notifications. HCO employee enrollment and notification fees fluctuate throughout the year because of the varied timing of customer enrollmentenrolment in our HCO program, the number of employees our customers have in their workforce, the number of new hires throughout the year, and the number of new workers’ compensation claims.

General and administrative expenses consist primarily of ofdepreciation, bad debt, dues and subscriptions, IT enhancement, meals, travel, and entertainment, office rent, telephone, vacation expense, licenses and permits, miscellaneous, advertising and marketing, auto expenses, bank charges and fees, education, parking, postage and delivery, shareholders’ expense, equipment repairs and office supplies.

Comparison ofThe the fiscal years ended December 31, 2024 and 2023 The following represents selected components of our consolidated results of operations, for the years ended December 31, 20242025 and 2023,2024, respectively, together with changes from year-to-year:

The employee enrollment numbers in our HCO and MPN programs typically correlate with general economic conditions and the size and activities of our customers’ workforce. During fiscal year 2024,2025, we saw an increase in MPN revenue that was attributable to additional service agreements with existing customers, reflecting efforts to access more cost-effective healthcare for injured workers, and an increase in employee enrollments from our customers’ increased headcounts. In contrast, our HCO revenue decreased during the same period due to decreases in employee enrollments and reported injuries. injuries, and a decrease in annual notifications revenue related to the timingIf of delivery of services to a significant customer that began phasing out our services during the fourth quarter of fiscal year 2024. If economic conditions become challenging, including from the effects of inflationary pressures, elevated interest rates, and difficult labor labor market conditions, our customers may reduce their workforce or seek price-competitive alternatives to our services, in which case we would expect a decline in the number of employees enrolled in our HCO and MPN programs in future periods and inthe volume of medical bills reviewed, which could materially affect related revenues.

Our utilization review program grew by 11%5% during fiscal year 20242025 due to increased requests for our services, which helped offset the overall decrease decreases in HCO program revenue and medical bill review revenue. We believe that increased demand for our utilization review services is driven by rising and difficult to control healthcare costs, as this service is an additional means to decrease healthcare costs. However, as labor markets change, our customers customers may reduce their workforce which would decrease the amount of opportunities to provide this specialized function.

We haveThe expandedexpansion of our employee advocate services to six states outside of California, whichCalifornia continues to bolster our medical case management revenues. For example, duringDuring fiscal year 2024,2025, revenue from our employee advocate services increased 184%64% when compared to the same period of 2023,2024, which drove a 29%42% increase in medical case management revenue. We plan to continue to expand employee advocate services to other states as feasible during 2025,2026, but cannot guarantee that we will be successful in further growing this service.

Though we continue our efforts to increase our customer base and reduce customer concentration across all service lines, the addition or loss of a single customer can materially impact our results of operations. For example, in October 2024 we received notice of termination from one of our significant customers, which did we anticipate maynot materially impact futureour operating revenues. The Company experienced a shiftrevenues in the2025, timingbut will likely have material impacts on operating revenues in 2026. Further, in January 2026, we received notice of whentermination certainfrom services were provided to theanother significant customer related to this phase-out, resulting in a material impact to fiscal year 2024 revenue that is not expected to affect fiscal year 2025 revenue. We began phasing out the associated services for that customer during the fourth quarter of fiscal year 2024,customer, which we anticipate will have material impacts on our operating revenues in future periods; though, we also expect these impacts will be completedpartially duringoffset thein firstfuture quarterperiods ofby fiscalincreased yearservices 2025.and Thenew customerprograms terminationrequested was not due to a contract dispute or issues related toby our performanceother of services, and we remain in good standing with the customer.customers. We expect to continue to be susceptible to risks associated with customer concentration, whichand could continuerelated topotential materiallymaterial affectimpacts on our results of operations intofor the foreseeable future.

During the year ended December 31, 2024,2025, HCO revenue decreased by 18%2% compared to fiscal year 2023.2024. The decrease in HCO revenue was attributable primarily to decreases in the timing number of whenemployees weenrolled completedin annualour notificationsprogram andat relatedour billingcustomers’ duringbusinesses, eachwhich yearalso forreduced the significant customer that is completing a phase outnumber of ourinjuries servicesincurred and during the first quarter of fiscal year 2025. We anticipate similar future fluctuations for HCO revenues when the timing of recognizing HCO revenue for customers does not align between comparable periods.reported.

During the year ended December 31, 2024,2025, MPN revenue increased by 19%6% compared to fiscal year 2023.2024. The increase in MPN revenue was largely due to an increase in monthly MPN program administration and custom network fees, resulting from the addition of a new customer and an increase in our existing customers’ reported injuries. The increase in MPN revenue was partially offset by a decrease in both employee headcount and reported injuries at other customer locations.

During fiscal year 2024,2025, medical bill review revenue increased decreased by 6%,4%, compared to fiscal year 2023.2024. The increasedecrease was primarily due to a net increaseshift in the mix of bill reviews performed forfrom existingperiod to customers alongperiod, with thea additionhigher proportion of alower-priced newbill customer.reviews The increase was partially offset by the loss of a customerperformed in the third quarter of fiscal year 2023.2025 compared to a higher proportion of higher-priced hospital bill reviews in fiscal year 2024.

During fiscal year 2024,2025, revenue from medical case management increased 29%42% compared to fiscal year 2023.2024. The increase was attributable to anincreases in billing rates, claim activity for increaseone of our existing customers and in employee advocate services revenue due to the continued growth of the program within California and to locations in six other states, an increase in managed claims by existing customers, and increase accuracy and efficiency in our related billing processes.states.

Other revenue for the year ended December 31, 2024,2025, decreased increased 20%,70%, compared to the same period in the prior year, primarily due to anthe increase indiscontinuance of network access revenuefee-related fromservices for increasedthe significant customer usagethat completed a phase out of our networkservices during fiscal year 2024.2025.

Professional fees increased 8%55% during fiscal year 2024 2025 compared to fiscal year 2023.2024. The increase in professional fees during fiscal year 20242025 was primarily the result of increases in legal accountingservices related to the lawsuits initiated by our subsidiaries in 2025, as discussed in “Note 11 – COMMITMENTS AND CONTINGENCIES” of Part II, Item 8 Notes to Consolidated Financial Statements, and otherthe professionalretention servicesof a consultant to serve as interim Assistant Controller during thatthe period.third and fourth quarters of 2025.

During fiscal year 2024,2025, data maintenance fees increased decreased 55%131% compared to fiscal year 2023.2024. The decreaseincrease in data maintenance fees was primarily due to the timing of when we completed annual and termination letters and related billing for some of our customers during each year, year; most notably for the significant customer that is completingcompleted a phase out of our services during the first quarter of fiscal year 2025. We expect similar future fluctuations for data maintenance fees when the timing of sending annual and termination letters for customers does not align between comparable periods.

During fiscal year 2024,2025, general and administrative expenses increased by 19%6% compared to fiscal year 2023.2024. The increase was primarily due to increases in advertisingbad anddebt marketing,expense, dues and subscriptions, IT enhancement, meals/travel, and licenses and permits. The increases were primarily offset by decreases in vacation expense. While we anticipate certain generaladvertising and administrative expenses will remain lower than historic levels, such as office rent, internetmarketing and phone, we expect other general and administrative expenses, such as IT enhancements,miscellaneous licenses and permits, and other technology-related expenses will remain at higher than historic levels in future periods.expenses.

Other Income income, net

Other income income, net increased 1%117% during the year ended December 31, 2024,2025, compared to the year ended December 31, 2023,2024, due to anERC increaserefunds received from the Internal Revenue Service in the amount of $488,655, which includes interest income of $68,854, combined with interest from our investmentsinvestment in U.S. Treasury bills.Bills of $405,590. This increase in interest income was slightly offset by an increase in interest expense in fiscal year 2024,2025, resulting in other income (expense) of $411,083.$893,753.

Our income tax provision for the year ended December 31, 20242025 increased by $59,565$127,022 or 19%33% compared to fiscal year 2023.2024. The increase in income tax provision was primarily attributable to the areceipt 26%of ERC refund checks and the increase in income from operations during fiscal year 2024.2025, which increased our tax provision.

During fiscal year 2024,2025, we realized an 8%11% increase in total revenues, a 5%10% increase in total expenses, and one-time ERC refunds from the Internal Revenue Service of $488,655. This resulted in a 19%33% increase in our provision for income tax when compared to fiscal year 2023.2024. As a result, we realized net income of $883,584,$1,387,647, a 15%57% increase year over year.

Management currently believes that cash on hand and anticipated revenuescash flows from operations will be sufficient to coverfund our operating expensesoperations for at least the next twelve months. The Company’sOur primary sources of liquidity are cash, cash equivalents, short-term investments, and future cash generated from operations. However, our ability to generate cash from operations will depend on our future operating performance, which is subject to certain ongoing known and unknown risks and uncertainties. For a discussion of particular risk factors related to our business, see Part I, Item 1A Risk Factors of our Annual Report.Factors.

During the year ended December 31, 2024,2025, we had a net decreaseincrease in cash and cash equivalents of $423,503.$98,332. See below for additional discussion and analysis of cash flow.

Net cash provided by operating activities was $675,084$1,160,784 and $932,359$675,084 in fiscal year 20242025 and fiscal year 2023,2024, respectively. This $257,275$485,700 decrease increase in cash flow from operations during fiscal year 20242025 was primarily the result of higher net income offset primarily by an increasechanges in accountsworking receivablecapital andbalances, amost decreasenotably in income tax payable due to cash payments made for estimated taxesaccrued throughout fiscal year 2024.expenses.

Net cash provided by (used in) investing activities was $(1,133,892)$990,147 during fiscal year 2025, and $1,133,892 during fiscal year 2024, and $806,788 during fiscal year 2023.2024. The change in net cash used in investing activities was primarily the result of reinvesting the proceeds of investments that reached maturity during the period, which we increased by investing additional cash. We plan to continue reinvesting the proceeds as our investments reach maturity.

During fiscal year 2024,2025, net cash providedused byin financing activities was $35,305,$72,305, which was the result of cash received from the Company’s insurance financing agreement offset by payments made on theour insurance financing agreement duringearly in the year.year combined with the escheatment of unclaimed cash dividends from dividends declared in 2015.

We experience pricing pressures in the form of competitive pricing. Insurance carriers and third-party administrators compete against us for customers by offering bundled claims administration services with their own managed care services at a lower rate. We are also impacted by rising costs for certain inflation-sensitive operating expenses such as labor and employee benefits and facility leases. We believe that these impacts can be material to our revenues or net income. Some of our customers are public entities which contract with us at a fixed price for the term of the contract. Increases in labor and employee benefits can reduce our profit margin over the term of these contracts. See also “theThe effects of inflation may have a disproportionate impact on our business” under Part I, Item 1A Risk Factors of this annual report.Factors.

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in our consolidated financial statements and accompanying notes. Because of the inherent uncertainty in making estimates and judgments, actual results could differ from our estimates and judgments. Our critical accounting policies are disclosed in “Note 2,2 Significant– AccountingSIGNIFICANT Policies,ACCOUNTING POLICIES” of thePart II, Item 8 Notes to theConsolidated Consolidated Financial Statements in this annual report.Statements.

We continually evaluate our accounting estimates and judgments and base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Our critical accounting estimates include revenue recognition, allowance for credit losses, legal contingencies, losses and income taxes, and are discussed in more detail below. Such accounting estimates require the most subjective or complex judgments by us, often as a result of the need to make assumptions regarding matters that are inherently uncertain, and actual results could differ materially from these estimates.

The CompanyWe allocatesallocate revenue to each performance obligation based on its stand-alone selling price (SSP). Judgment is required to determine unobservable SSP for each distinct performance obligation as most services provided by the Companyus are not directly observable. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we determine SSP using a cost-plus margin approach. ReferFor further discussion, see “Note 2 – SIGNIFICANT ACCOUNTING POLICIES” of Part II, Item 8 Notes to NoteConsolidated 2Financial for further discussion.Statements.

We must make significant judgments and estimates in determining contractual and credit loss allowances in any accounting period. One significant uncertainty inherent in our analysis is whether our past experience will be indicative of future periods. Although we consider future projections when estimating contractual and credit loss allowances, we ultimately make our decisions based on the best information available to us at the time the decision is made. Adverse changes in general economic conditions or trends in reimbursement amounts for our services could affect our contractual and credit loss allowance estimates, collection of accounts receivable, cash flows, and results of operations. At December 31, 2024,2025, three four customers accounted for 10% or more of accounts receivable compared to twothree customers at December 31, 2023.2024.

The employee enrollment numbers in our HCO and MPN programs typically correlate with general economic conditions and the size and activities of our customers’ workforce. If economic conditions become challenging, including from the effects of inflationary pressures, elevated interest rates, and difficult labor market conditions, our customers may reduce their workforce or seek price-competitive alternatives to our services, in which case we would expect a decline in the number of employees enrolled in our HCO and MPN programs and theemployee advocate volume of medical bills reviewed,programs, which could materially affect related revenues. During the threesix months ended MarchJune 31,30, 2026, our operating revenue decreased primarily due to the significant customer terminations discussed below. We believe these terminations were influenced, at least in part, by challenging economic conditions and the customers’ efforts to seek more price-competitive alternatives to our services.

Though we continue our efforts to increase our customer base and reduce customer concentration across all service lines, the addition or loss of a single customer can materially impact our results of operations. For example, in October 2024 we received notice of termination from one of our significant customers. This termination did not materially impact our operating revenues in 2025, but did materially impact our operating revenues during the first threesix months of 2026, and will likely continue to impact our operating revenues in future periods. Further, in January and June 2026, we received notice notices of termination from anothertwo additional significant customer,customers, which we anticipate will have material impacts on our operating revenues in future periods. However, we also expect these impacts will be partially offset in future periods by increased services and new programs requested by our other customers.customers, as well as internal labor cost reductions made during the third quarter of 2026. We expect to continue to be susceptible to risks associated with customer concentration, and related potential material impacts on our results of operations for the foreseeable future.

Our medical bill review and utilization review programprograms grew by 9%22% and 12%, respectively, during fiscalthe yearsix 2025months dueended June 30, 2026, compared to increasedthe requestssame forperiod ourin services,2025, which partially offset the overall decreases in HCO program revenue and medical bill review revenue. We believe that increased demand for our ourmedical bill review and utilization review services iswas driven by rising and difficult to control healthcare costs, as thisthese service isservices are an additional means to decrease healthcare costs. costs for our customers. However, asthese service lines remain sensitive to labor marketsreductions and change,future labor reductions by our customers maycould reduceadversely their workforce which would decreaseaffect the opportunitiesdemand tofor providethese this specialized function.programs.

The following table sets forth, for the quartersbelow indicated periods ended MarchJune 31,30, 2026 and 2025, respectively, the percentage each revenue item identified identified in our unaudited condensed consolidated financial statements contributed to total revenues during the respective period.

Data maintenance fees include fees we pay to a third party to process HCO annual and new hire employee enrolmentsenrollments and notifications. HCO employee employee enrolmentenrollment and notification fees fluctuate throughout the year because of the varied timing of customer enrolmentenrollment in our HCO program, program, the number of employees our customers have in their workforce, the number of new hires throughout the year, and the number of new workers’ compensation claims.

The following table sets forth, for the quartersbelow indicated periods ended MarchJune 31,30, 2026 and 2025, respectively, the percentage each expense item identified identified in our unaudited condensed consolidated financial statements contributed to total expenses during the respective period.

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

The following represents selected components of our unaudited condensed consolidated results of operations for the three-month periods ended MarchJune 31,30, 2026 and 2025, respectively, together with changes from period-to-period:

DuringHCO revenue for the three-month period ended MarchJune 31,30, 2026, HCO revenue decreased 62%by 6% compared to the same period in the prior year. The decrease in HCO revenue was primarilylargely attributabledue to the termination of services performed for a significant customer that completed a phase out of our services during fiscal year 2025.

During the three-month period ended MarchJune 31,30, 2026, medical bill review revenue decreasedincreased by 7%66% compared to the same period in the prior year. The decreaseincrease was primarily due to a net decreaseshift in the mix of bill reviews performed forfrom existingperiod customersto duringperiod, with a higher proportion of higher-priced hospital bill reviews performed in the period.second quarter of 2026 compared to a higher proportion of lower-priced bill reviews in the second quarter of 2025.

During the three-month period ended MarchJune 31,30, 2026, utilization review revenue increased 9%,16%, compared to the same period in the prior year. The increase in utilization review revenue was primarily due to increased referrals for requests for authorization from existing customers.

During the three-month period ended MarchJune 31,30, 2026, other revenue decreasedincreased 100%130% compared to the same period in the prior year, primarily due to an increase in the discontinuancerequest offor networkMedicare access fee-relatedset-aside services forfrom theexisting significant customer that completed a phase out of our services during fiscal year 2025.customers.

During the three-month period ended MarchJune 31,30, 2026, salaries and wages decreased 8%9% compared to the three months ended MarchJune 31,30, 2025. The decrease was due primarily to the loss of threeone employeesemployee duringfrom 2025period thatto were later replaced by two full time employees and a contractor.period.

During the three-month period ended MarchJune 31,30, 2026, professional fees decreasedincreased 21%22% compared to the three months ended MarchJune 31,30, 2025. The decreaseincrease in professional fees was primarily the result of afees normalizationpaid ofto accountingexternal human resources and legalmedical fees after our transition to a new auditing firm.consultants.

During the three-month period ended MarchJune 31,30, 2026, outsource service fees increased 24%28% compared to the three months ended MarchJune 31,30, 2025. The The increase in outsource service fees was primarily related to the increase in use of these services for our utilization review service line.

During the three-month period ended MarchJune 31,30, 2026, data maintenance fees decreased 81%5% compared to the three months ended MarchJune 31,30, 2025. The decrease in data maintenance fees was primarilyis due to thean timingoverall ofdecrease whenin wecosts completedassociated with creating and sending annual and terminationrenotification letters letters, and related billing for the significant customer that completed a phase out of our services during fiscal year 2025.customers.

During the three-month period ended MarchJune 31,30, 2026, we recognized ana 18%3% decreaseincrease in total revenue and a 12%1% decrease in total expenses compared to the same period in 2025.expenses. As a result, our income from operations decreasedincreased $141,735,$65,837, or 45%,22% for the three months ended June 30, 2026 when compared to the three months ended MarchJune 31,30, 2025.

We realized a decrease in our income tax provision of $39,777,$122,151, or 35%,47%, during the three-month period ended MarchJune 31,30, 2026 compared to the same period in the prior year, which was primarily attributable to the decreasereceipt inof incomeERC fromrefund operationschecks during thatthe period.prior period, which increased our tax liability.

During the three-month period ended MarchJune 31,30, 2026, we realized ana 18%3% decreaseincrease in total revenue,revenues, a 12%1% decrease in total expenses, a $497,887 decrease in other income, net, and a 35% 47% decrease in our provision for income tax when compared to the same period in the prior year. As a result, we realized net income of $193,669, $327,008, a 34%49% decrease in net income year over year.