ITEM 1A. RISK FACTORS
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 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 reputation.
You should not draw any inference as to the magnitude or likelihood of any particular risk from its position or categorization in the following discussion. Further, the headings and subheadings of the risk factors are organized based on certain shared characteristics with other risk factors, but each risk factor should be read without limiting its application or content to the heading under which it is organized.
Customer, Vendor and Competition Related Risks
A significant percentage of our revenue is generated from a few customers, the loss of one or more of which could have a material impact on our results of operations, cash flows and financial condition.
A significant portion of operating revenue is received from a relatively small group of customers. During 2025, two customers, who represented 10% or more of operating revenue, combined accounted for approximately 34% of our total sales. See Note 2, Section F. “Concentrations of Risk” 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. If significant, or multiple, 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.
A significant percentage of our accounts receivable is generated from a few customers, and if one or more of these customers default on their payment obligations to us, it could have a material impact on our results of operations, cash flows and financial condition.
As of December 31, 2025, four customers, who represented 10% or more of accounts receivable, combined accounted for approximately 66% of our total accounts 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.
We are reliant on the timely, accurate and consistent provision of outsourced services for various services and business functions, the disruption, malfunction, termination or replacement of which could impede our ability to provide our services and materially adversely affect our business.
We contract with various third-party vendors for the provision and support of our services and business functions, including the critical information systems functionality upon which our services rely. Our business is dependent on our ability to provide, in an efficient and uninterrupted manner, necessary business functions which we outsource, such as the processing and support of enrollment in our HCO and MPN programs, and the partial outsourcing of our utilization review, medical bill review, administrative services for medical case management and Medicare set-aside services. Our operations may be adversely affected if there is a failure, disruption or malfunction, (including cybersecurity breaches and other risks discussed further at “ Cybersecurity, Information Technology and Outsourced Services Related Risks ” below) in the provision of such outsourced services, or if the relationship with or services provided by our vendors are terminated in whole or in part. Further, we may not be able to find an alternative vendor in a timely manner, on acceptable terms, or that can provide adequate services or functionality.
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. If we experience 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.
Table of Contents
Our revenues may decline if we cannot compete successfully in an intensely competitive market.
Our target customers are employers seeking to control the cost of employee workers’ compensation claims. We face competition from a variety of companies and the markets for our services are fragmented and competitive. Our competitors include national managed care providers, preferred provider networks, smaller independent providers, third-party administrators, and insurance companies. Many of our current and potential competitors have significantly greater financial, technical, marketing, and other resources than we do. As a result, our competitors may be able to respond more quickly to changes in market demands and requirements, including enhanced technology, changes in regulations and standards, and shifts in customer needs. We believe that as managed care services continue to gain acceptance in the marketplace our competitors will increasingly consist of insurance companies, third-party administrators, large workers’ compensation managed care service companies and other significant providers of managed care services. These competitors may also be able to devote greater resources to the development, promotion and sale of their services and may be able to deliver competitive services or solutions at a lower price. Any of these competitive pressures could have a material adverse effect on our business, results of operations and financial condition.
If the scope and quality of our services lag behind the market or lower costs can be obtained elsewhere, we may lose customers which could have a material adverse impact on our results of operations and financial condition.
We are in the business of assisting our customers in controlling the cost of their employee workers’ compensation claims. While we believe that several factors, including the quality of care provided to the employee, the rapidity at which the employee returns to work, and the service provided to the customer, play a part in attracting and retaining our customers, we believe that price is a primary determining factor in whether customers select or retain our services. While our competitors may offer direct fees less than those we charge, they have traditionally added fees to their other associated services and thus raised the total cost of their services. If our competitors reduce the cost at which they provide services, or our customers seek to reduce costs by performing similar services in-house, we anticipate we would have to likewise attempt to reduce the cost at which we provide our services or risk losing customers. Either outcome could have a material adverse impact on our business, results of operations and financial condition.
If we are unable to attract and retain employees and consultants with the skills our business requires, our business operations could be impacted negatively.
We compete with other workers’ compensation managed care companies and healthcare providers in recruiting qualified personnel and consultants. Hiring and retaining personnel with industry expertise is critical to our competitive strategy. There is intense competition for the services of such people. Furthermore, we do not maintain “key person” insurance for any of our executive officers or employees and replacing executive officers and other key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to perform these roles. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate key personnel on acceptable terms given the competition among the numerous competitors in our industry for similar personnel, many of whom have greater financial resources than us and can offer higher salaries, better benefit packages and broader opportunities. In addition, we operate primarily in California and some of our roles require our employees to live in or near very high cost of living areas in Southern California, which corresponds to higher wage requirements and alternative employment options.
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, 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.
Table of Contents
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. For example, during 2024 our Chief Financial Officer resigned and during 2025 our Vice President resigned and we have not yet identified full-time replacements for these 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.
Further, it can also be difficult for us to hire and retain qualified and capable individuals to fill roles for our day-to-day operational staff. Our failure to hire and retain employees within our current pay structure and increases in employee benefits costs could result in increased operating expenses and decreased profitability.
If we are unable to effectively compete for, or otherwise attract or retain, 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.
We rely heavily on third-party provided information technology to support our business activities. Our business involves the transmission and storage of confidential and personal information (including protected health information as defined by the Health Insurance Portability and Accountability Act) of our customers, their employees, and our employees. We, and the vendors we use to support our business, including vendor support of critical business functions such as IT, data management and cybersecurity, are at risk of cybersecurity breaches of the systems on which we rely, including circumvention or breach of security systems, denial-of-service attacks or other cyber-attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, employee error, social engineering, physical breaches, or other malfeasance. We anticipate that the threats of such incidents will continue to increase as dependence on information technology increases. Further, as these threats evolve, cybersecurity incidents could be more difficult to detect, defend against, and remediate.
As discussed in Part I, Item 1C. Cybersecurity of 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 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 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.
We continue to operate primarily remotely using employee laptops and accessories and secure, cloud-based data storage and access. As part of accommodating remote work, we rely on technology, software, hardware, and internet access and home resources of individual employees. We also have less control over the hardware, physical security of equipment, and maintenance of equipment used by our off-premises employees. Although we have implemented employee IT security training, instant remote access termination, remote hard drive wipe capabilities, and other systemic enhancements to increase security, we are still exposed to additional security and system failure risks through our accommodation of remote work.
Any compromise or perceived compromise of our security (or the security of our third-party service providers) could damage our reputation and our relationship with our customers, third-party administrators, insurers, enrollees, vendors and employees; reduce demand for our services; and subject us to significant liability as well as regulatory action. Cybersecurity breaches or failure to meet customer or other required cybersecurity standards could cause us to experience reputational harm, loss of customers, loss and/or delay of revenue, loss of proprietary data, loss of licenses, regulatory actions and scrutiny, sanctions or other statutory penalties, litigation, liability for failure to safeguard customers’ information, financial losses or a drop in our stock price.
Table of Contents
We cannot assure that we can maintain cyber liability insurance coverage and we could be subject to uninsured liabilities.
While we seek to maintain cyber liability insurance coverage and currently have such a policy in place, we cannot assure that we will be able to obtain or have continual cyber liability insurance coverage in the future, that available cyber liability insurance will be adequate to cover our liabilities or will not be cost prohibitive to maintain, or that claims will be covered by policies in place.
As discussed in Part 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 liabilities 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.
Our financial performance is tied to the availability, quality and functionality of the information technology platforms we can acquire or license from third parties to provide our services, the loss of which could disrupt our business and ability to remain competitive.
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. We have in the past experienced delays and difficulties implementing third-party software used to provide our 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.. 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 adoption, use, and reliability of disruptive technologies such as artificial intelligence technology (“AI”), and the continued rapid pace of development of such technologies, are inherently uncertain and present risks that could have a material adverse effect on our business and results of operations.
As technology in our industry changes and evolves, keeping pace may become increasingly complex and expensive, or not possible, and could result in substantial increases in costs or a reduction in the demand for our services. Disruptive technologies such as AI increasingly present risks that could render our services uncompetitive, unprofitable, or even obsolete, and require us to alter our business plans.
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 previous efforts to incorporate AI enhancements into some of our services were determined not to be cost-efficient when combined with our claim volumes and the specific means through which we provide our services. We cannot assure 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.
In addition, one of our market differentiators is our expertise and specialized application of strategic tools to each service line of our customers’ programs. We believe this makes our services higher quality and more valuable to our customers; though, these services currently require human expertise and intervention to implement. Many of our competitors use AI or other forms of automation that lower their operating costs for their services. The growing adoption of artificial intelligence and automation by our customers and their other service providers also presents the risk that our customers will begin to expect us to adopt these technologies and potentially terminate our services if we do not.
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, 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.
Table of Contents
An interruption in our ability to access, review or deliver data may cause customers to terminate our services and/or may reduce our ability to effectively compete.
Certain aspects of our business are dependent upon our ability to store, retrieve, process and manage data, and to maintain and upgrade our data processing capabilities. Interruption of data processing capabilities for any extended length of time, loss of stored data, 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.
In addition, we expect that a considerable amount of our future growth will depend on our ability to process and manage claims data more efficiently and to provide more meaningful healthcare information to customers and payors of healthcare. There can be no assurance that our current data processing capabilities will be adequate, that we will be able to efficiently upgrade our systems to meet future needs, or that we will be able to develop, license or otherwise acquire software to competitively address market demands.
If we are unable to safeguard the security and privacy of confidential data, including personal information of our customers and their employees, or comply with applicable data privacy laws, our reputation and business could be harmed.
We are subject to data privacy related risks. Our services involve the collection and storage of confidential and personal information (including protected health information as defined by the Health Insurance Portability and Accountability Act) and the transmission of this information, most often electronically. For example, we collect personal information of our employees and our customers’ employees. We cannot guarantee such information is invulnerable to security breaches and other unauthorized access by third parties. In certain cases, such information is also provided to third parties, the transmission of which is also subject to security risks. Once such information is in the control of the third parties, we are most often no longer able to control the use of such information, or the security protections employed by such third parties.
For example, and as discussed in more detail in Part I, Item 1C. 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 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 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.
In addition, as new data privacy and security laws are implemented, we may be unable to timely comply with such requirements, or such requirements may not be compatible with our current processes. Changing our processes to address new data security laws or customer requirements could be time-consuming and expensive and the failure to timely implement the required changes could result in our inability to sell our services or retain customers. For example, the California Consumer Privacy Act (“CCPA”) and amendments made to it through the California Privacy Rights Act (“CPRA”), can require certain businesses to give California consumers more control over their data and share certain notices regarding their privacy practices. We believe we are currently exempt from compliance with the CCPA and CPRA, but if we have misinterpreted the existing exemptions, or if amendments to or official guidance related to these laws changes the availability of these exemptions to us, we may incur significant costs, administrative burdens, and legal liabilities as a result.
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 to 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.
Table of Contents
Licensure and Regulatory Risks
Failure to maintain our licenses and/or accreditation would have a material, adverse impact on our business and results of operations.
Our HCOs require operating licenses from and our MPNs require approval by the state of California. If the California governing body were to determine that we have failed to comply with the licensure or approval requirements, it has the authority to deny, suspend or revoke our licenses or approvals. Further, our HCO licenses and MPN approvals must be recertified every three years and reapproved every four years, respectively. If our licenses or approvals were suspended, revoked, or not recertified or reapproved we would no longer be able to operate our HCO and/or MPN networks. In addition to the reduction in revenue we would experience from the loss of our HCO and/or MPN operations, the other services we offer would likely also be impacted negatively as many of the customers for our utilization review, medical bill review and medical case management services are derived from our HCO and MPN customers.
There are also risks that California reduces support for, or discontinues or alters the HCO and MPN programs. The HCO program, though 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 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 investigations, not meet those varied standards, 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.
Changes in government regulations may negatively impact our costs of operation and/or demand for our services.
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 operational 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 changes that present risks to the continued and efficient provision of our services. While we strive to be involved in the California legislative process and to stay informed about industry developments, we cannot predict what additional government initiatives affecting our business, if any, may be promulgated in the future. We cannot assure that we will always be able to adapt to new or modified regulatory requirements or maintain necessary licenses and government approvals. Proposals for legislative healthcare reforms are regularly considered at the federal and state levels, and Presidential executive orders may impact the health care industry. For example, Executive Order 14273 “Lowering Drug Prices by Once Again Putting Americans First” was signed on April 15, 2025. While intended to lower long-term costs, this order may require changes to bill review technologies and shift cost structures for injured workers’ medications. To the extent that such actions affect workers’ compensation, they 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.
Industry Trend Related Risks
Challenges to the use of certain healthcare cost containment techniques may cause our revenue to decrease.
Within our industry there has been a movement among certain medical and healthcare providers and injured worker applicants’ attorneys to challenge the use of cost containment techniques. Some have even resorted to litigation to challenge the application of cost containment and medical control measures. This includes challenges to insurers’ claims adjudication, reimbursement decisions, and choice of medical provider and treatments. While these lawsuits have not yet involved us or any services we currently offer, we may be subject to them in the future, and the impacts of other legal challenges may negatively impact our ability to provide certain cost containment services in the future, which could result in material adverse effects on our revenues.
Table of Contents
Increased use of early intervention services could negatively impact our revenue.
Our revenue could be negatively impacted by the increased use of early intervention services such as injury occupational healthcare, first notice of loss, and telephonic case management services. The implementation at an early stage in the workers’ compensation claim by healthcare payors of these early intervention services can lead to decreases in the average length of, and the total costs associated with, a healthcare claim, which may reduce or even eliminate the need for the later stage network and healthcare management services we provide.
Declines in workers ’ compensation claims could materially impact our financial condition and results of operations.
Some of our customers’ industries are labor intensive, which can result in higher workers’ compensation claims. However, with the rise in costs or unavailability of labor our customers may use technology to replace some of their workforce. This may cause a decline in the frequency or severity of the workers’ compensation claims and reduce the need for our services. Changes in the strength of the economy also affect the size and activity of the workforce and consequently the level of workers’ compensation claims. These factors can cause cyclical and permanent material adverse impacts on our results of operations.
Risks Related to Owning our Securities
The price and trading volume of our common stock may be volatile, which may negatively affect its value and liquidity.
The market price of our common stock may be volatile and subject to fluctuations. During the twelve-month period ended December 31, 2025, the low bid price for our common stock was $0.65 per share and the high bid price was $1.39 per share. Our common stock is currently quoted on the OTCQB, which is generally a thinly traded market that lacks the liquidity of certain other public markets. Additionally, there is a limited number of our shares of common stock outstanding, which may further limit the liquidity of our shares. Moreover, in the past, stock markets have experienced price and volume fluctuations that have particularly affected companies in the healthcare and managed care markets resulting in changes in the market price of the stock of many companies, which may not have been directly related to the operating performance of those companies. We cannot assure that the market price for our common stock will not fluctuate or decline significantly in the future or that there will be sufficient trading volume in our common stock to allow our shareholders to sell their shares in the market when they desire to do so.
Our Chief Executive Officer, President and Chairman of the board of directors has the ability to exercise significant control over the Company.
Tom Kubota, our Chief Executive Officer, President and Chairman of the board of directors beneficially owns 8,410,000 common shares, or approximately 65.7% of our outstanding common stock. Since 2008, Mr. Kubota has held a majority of our outstanding common stock and voting control of the Company. Mr. Kubota also holds 16,000 shares of our Series A convertible preferred stock, which represents 100% of the outstanding shares of Series A convertible preferred stock. In most matters, our Series A convertible preferred stock is treated on parity with our common stock on a share-for-share basis, with the exception that each share of Series A convertible preferred stock is entitled to 20,000 votes of common stock on all matters submitted to a vote of our common stockholders. The Series A convertible preferred stock is convertible to shares of our common stock on a one share for one share basis at the election of the holder thereof. This capital structure may be viewed positively, negatively or indifferently by the market, investors, and potential acquisition targets. If it is viewed negatively, it could affect the liquidity and/or market price for our common stock, and our ability to participate in merger and acquisition or capital-raising transactions.
General Risk Factors
Restrictions on immigration or changes in immigration laws, policy, or 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 current Presidential Administration’s policies 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.
Workers in California are eligible for workers’ compensation benefits regardless of their immigration status. Given that most of our customers are based in California, if new immigration policies and enforcement adversely affect our customers’ workforce composition or participation it could result in a decline in the number of workers’ compensation claims filed (either due to lower overall employee counts or reduced reporting of workplace injuries), a decline in the overall number of employees employed by our customers (impacting our service lines billed based on total employee count), our customers closing or downsizing California locations due to lack of adequate and economically feasible labor resources, and other factors. Further, if new immigration policies and enforcement adversely impact the financial condition of our customers it may affect our customer’s willingness or ability to spend on the services we provide.
Table of Contents
In addition, changes in immigration policies and enforcement may impact our network of medical providers and our ability to provide network administration at the level required by our customers or state regulatory bodies. The healthcare industry is increasingly facing a nationwide shortage of healthcare personnel. We believe that foreign-trained medical providers comprise a significant part of medical providers that treat workers’ compensation cases. While we do not know the immigration status of the health care providers in our networks, if new immigration policies and enforcement have the effect of materially reducing the number of medical providers in California, it could adversely affect our medical provider networks, or otherwise contribute to increased labor shortages in healthcare, which could have an adverse impact on our ability to provide adequate network coverage, to maintain the quality of our networks, to charge for network services for customers in certain locations, or to meet the network composition standards required to maintain our certifications. Any of these events could materially adversely affect our business and financial results.
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.
The effects of recent and evolving U.S. trade policies, such as the imposition of tariffs, changes in trade agreements, import/export restrictions, sanctions, and related regulatory actions are uncertain. New tariffs and potential countermeasures from 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 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.
Even if we are successful in making strategic acquisitions, it could have a negative impact on our business.
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 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:
an acquisition may (i) negatively impact our results of operations because it may require incurring large one-time charges, substantial debt or liabilities; (ii) require the amortization or write down of amounts related to deferred compensation, goodwill and other intangible assets; or (iii) cause adverse tax consequences, substantial depreciation, or deferred compensation charges;
we may not identify all liabilities, risks, or other issues during due diligence, including contingent, undisclosed, or unanticipated liabilities, and any contractual protections may be insufficient to protect us from such liabilities;
the consummation of an acquisition may be subject to required governmental, regulatory, or third-party approvals or consents, and such approvals or consents may be delayed, conditioned, or denied, or may require operational changes or restrictions that reduce the anticipated benefits of the acquisition;
we may encounter difficulties in assimilating and integrating the businesses, technologies, products, services, personnel, or operations of companies that are acquired, particularly if key personnel of acquired companies decide not to work for us;
an acquisition may disrupt ongoing business, divert resources, increase expenses, and distract management;
the acquired businesses, products, services, or technologies may not generate sufficient revenue to offset acquisition cost;
we may have to issue equity or debt securities to complete an acquisition, which would dilute the position of stockholders and could adversely affect the market price of our common stock; and
the acquisitions may involve entry into a geographic or business market in which we have little or no prior experience.
There can be no assurance that we will be able to identify or consummate any future acquisitions on favorable terms, or at all, or that any future acquisitions will not have an adverse impact on our business or results of operations. If suitable opportunities arise, we may finance such transactions through debt or equity financing. There can be no assurance, however, that such debt or equity financing would be available to us on acceptable terms or at all when, and if, suitable strategic opportunities arise.
Table of Contents
Litigation and legal liability may adversely affect our financial condition and results of operations.
We are subject to risks associated with litigation and legal proceedings, which could have a material adverse effect on our business, financial condition, and results of operations. From time to time, we may be involved in legal proceedings, claims, disputes, investigations, including matters involving our services, relationships with customers and vendors, regulatory and contractual obligations, and employment-related claims. We were involved in litigation during 2025, as previously reported and updated in “Note 11 – COMMITMENTS AND CONTINGENCIES” of Part II, Item 8 Notes to Consolidated Financial Statements .
In instances where we make recommendations concerning the appropriateness of providers’ medical treatment plans for patients, we may have exposure to legal claims from adverse medical outcomes. We do not believe we engage in the practice of medicine or medical 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 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 will always make insurance available to us at a reasonable cost to protect us from significant future liability. If we become subject to litigation our business, financial condition or results of operations could be negatively impacted.
The outcome of any litigation or proceeding is inherently uncertain, and unfavorable outcomes could result in monetary damages, fines or penalties, injunctive or other equitable relief, increased compliance obligations, reputational harm, loss of customers, or restrictions on how we conduct our business. Litigation and related matters may also be costly and time-consuming to defend, may divert management’s attention and resources, and could require us to incur significant legal fees and expenses, regardless of the outcome.
The effects of inflation may have a disproportionate impact on our business.
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, may increase borrowing costs and preclude further growth of our business and the business of our customers.
A partial or full shutdown of the U.S. federal government resulting from a failure to enact spending authorization or appropriations legislation may adversely affect our business.
Federal government shutdowns (or threats of shutdowns) may contribute to broader economic uncertainty, reduced business confidence, and volatility in financial markets. Such conditions may lead customers to reassess contractual commitments, delay procurement decisions, or reduce spending, which could negatively affect our revenues and cash flows. A shutdown may also indirectly affect us through disruptions to third-party service providers, suppliers, or customers that rely on federal funding or government operations. For example, we have county and city government customers who may experience constraints to fiscal capacity due to delayed reimbursements, reduced federal grant flows, and a greater demand on local resources. To the extent any such counterparties experience financial stress, operational interruptions, or workforce reductions, our ability to operate efficiently or collect payments in a timely manner could be adversely affected. In addition, a shutdown could delay regulatory approvals, filings, or other actions by governmental agencies that may be relevant to our business, and may reduce agency capacity to provide guidance or conduct routine administrative functions. While the timing, duration, and scope of any federal government shutdown are inherently uncertain, repeated or prolonged funding disruptions could compound other risk factors and place additional strain on our financial and operational resources. We cannot predict whether, or to what extent, government shutdowns may occur, and any such events could materially and adversely affect our business.
Acts of war, terrorist attacks, natural disasters, and health crises (including epidemics and pandemics), may harm our business, operating results, and financial condition.
Acts of war, terrorist attacks, natural disasters, health crises, 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.
Table of Contents
