Due Diligence: $120K EBITDA Overstatement Caught

KORVEN

CONSULTING · AMAZON · FINANCE

Client Portfolio · Financial Services

Healthcare Client LLC

Financial Due Diligence Report — FY 2025

Prepared by: Service Ltd. · Review Period: Jan–Dec 2025 · Transaction: Management Review

FY 2025 ⚠ HIGH RISK SOW Expiry Risk

Total Revenue FY25

$2.074M

▼ 5.39% vs FY24

Net Operating Income

$679.8K

▼ 16.0% vs FY24

Net Income

$689.9K

▼ 14.3% vs FY24

EBITDA (Actual)

$679.8K

vs claimed $800K

Total Assets

$1.422M

▲ 17.91% YoY

Accounts Receivable

$1.071M

75.3% of assets

Net Working Capital

$816.5K

Cash-free debt-free

Overall Risk Rating

HIGH RISK

SOW + concentration

!Overall Financial & Commercial Assessment

!Overall Health: HIGH RISK. Client Co. demonstrates an adequate financial position on the surface — profitable, low leverage, strong cash collection. However, the Company is rated High Risk due to extreme customer concentration (~99% of revenue from two clients), all SOWs expired December 31, 2025 with no signed replacements, and AR of $1.071M concentrated in the same two clients.

+Recurring service revenues from large, investment-grade pharmaceutical clients (Client A — Client A/Client A: ~55% of revenue; Client B — Client B: ~45%). Both governed under executed Master Services Agreements. Operating margins are acceptable with disciplined cost control (expenses fell 1.06% YoY).

~Management communicated EBITDA of $800,000 to the reviewing party. Our analysis confirms actual EBITDA of $679,819 — a $120,181 overstatement. This discrepancy is a material concern for valuation and deal structuring.

!Independent AR confirmation was not permitted by management (client confidentiality basis). Purchase Orders were not provided. Reliance placed solely on management-provided invoices — a comparatively weak verification basis. External confirmations should be a condition precedent in any transaction.

Revenue vs Expenses vs NOI

FY 2025 vs FY 2024 ($K)

FY 2025FY 2024

Revenue Concentration — FY 2025

Customer breakdown by % of total revenue

Client A 55%Client B 45%Other 0.14%

Total Assets Composition

Dec 31, 2025 — $1.422M

AR $1.071MBank $351K

Expense Mix — FY 2025

$1.394M total

Payroll 74.6%Biz Lic 5.2%Contract Lab 7.8%Other 12.4%

EBITDA Claimed vs Actual

FY 2025 vs FY 2024 ($K)

ActualClaimed (mgmt)

Total Income

$2.074M

▼ 5.96% vs FY24

Pharma Support Revenue

$2.093M

▼ 5.39%

Operating Expenses

$1.394M

▼ 1.06% (favorable)

Net Operating Income

$679.8K

▼ 16.0%

NOI Margin

32.8%

vs 35.9% FY24

Payroll % of Revenue

~44%

$946K salaries

AIP&L Analysis & Key Observations

+Core pharma support revenues ($2.093M) are recurring under MSA/SOW structures. Revenue decline of 5.39% is driven by lower pharma support billings (–$112,895) and near-zero other sales (–$8,520), partially offset by reduced discounts. No non-recurring or exceptional income items identified.

~Dues & Subscriptions fell 176.95% to $36,049 (vs $99,838 in FY24). The $63,789 reduction reflects several software/service contracts discontinued in 2025 — particularly Vendor A LLC, Vendor B Inc., and a web services platform. Confirm whether these are service capability reductions affecting FY26 delivery.

!Travel expense surged 62.77% to $57,193 (vs $21,293 in FY24) — increased airline tickets, taxi fares, and hotel bookings. This represents $35,900 in incremental spend with no apparent revenue increase. A formal T&E policy should be implemented.

~Business Licenses & Permits rose 21.37% to $72,392 — primarily a single payment of $51,000 to a software analytics vendor. This is effectively a recurring license fee that should be classified separately and monitored for FY26 renewal.

+Payroll Expenses (salaries + taxes) declined marginally to $1.041M (–3.51% vs $1.077M). This is the largest cost line at ~74.6% of operating expenses. Profit-sharing pool of $47,587 (7% of EBITDA) and discretionary bonuses averaging ~7% of salary ($37,770) were distributed.

Income Statement — Full Line-by-Line

FY 2025 vs FY 2024 with variance

Account	FY 2025	FY 2024	Variance $	% Chg
Income
Pharma Support Revenue	$2,092,655	$2,205,550	–$112,895	–5.39%
Other Sales	$3,000	$11,520	–$8,520	–74.0%
Discounts Given (contra)	–$21,345	–$19,126	–$2,219	+11.6%
Total Income	$2,074,309	$2,197,944	–$123,635	–5.63%
Operating Expenses
Payroll – Salaries & Wages	$946,325	$946,915	–$590	–0.1%
Payroll – Tax Expense	$92,615	$128,808	–$36,193	–28.1%
Payroll – Processing Fees	$1,839	$1,564	+$275	+17.6%
Total Payroll Expenses	$1,040,779	$1,077,287	–$36,508	–3.39%
Contract Labor	$109,243	$79,450	+$29,793	+37.5%
Business Licenses & Permits	$72,392	$56,925	+$15,467	+27.2%
Travel	$57,193	$21,293	+$35,900	+168.6%
Dues & Subscriptions	$36,049	$99,838	–$63,789	–63.9%
Office Supplies	$24,807	$27,116	–$2,309	–8.5%
Advertising & Promotion	$18,149	$12,165	+$5,984	+49.2%
Legal & Professional Fees	$13,988	$15,558	–$1,570	–10.1%
Meals	$5,204	$2,903	+$2,301	+79.3%
Telephone	$5,747	$5,165	+$582	+11.3%
Insurance	$7,530	$7,425	+$105	+1.4%
Computer & Internet	$2,301	$1,092	+$1,209	+110.7%
Bank Service Charges	$396	$1,613	–$1,217	–75.4%
Charitable Contributions	$—	$1,500	–$1,500	–100%
Entertainment	$713	$—	+$713	New
Total Operating Expenses	$1,394,491	$1,409,329	–$14,838	–1.05%
Net Operating Income (EBITDA)	$679,819	$788,615	–$108,797	–13.8%
Below the Line
Other Income (interest)	$10,119	$—	+$10,119	New
Other Miscellaneous Expense	$—	$—	$—	—
Net Income	$689,938	$788,615	–$98,677	–12.5%

Quarterly Revenue — FY 2025

Actual cashflow basis ($K)

Client AClient B

Monthly Revenue Trend — FY 2025

All customers combined ($K)

Contract Labor Detail — FY 2025 vs FY 2024

+40% YoY increase

Contractor	FY 2025	FY 2024	YoY %	Reason
Contractor A	$93,373	$65,045	+43.6%	Rate increase (+30%)
Vendor A	$15,984	$14,405	+11.0%	Rate increase
Contractor B	$1,055	$—	New	New contract labor FY25
Grand Total	$110,412	$79,450	+38.97%

Payroll Detail — FY 2025 (6 employees)

Total annual payroll: $872,400

Employee (Name Changed)	Annual Salary	Monthly Salary
Officer D	$121,000	$10,083
Contractor C	$95,400	$7,950
Officer A	$146,000	$12,167
Officer B	$150,000	$12,500
Officer E	$180,000	$15,000
Officer C	$180,000	$15,000
Total	$872,400	$72,700

Profit Sharing: $47,587 (7% of EBITDA) · Discretionary Bonus: $37,770 (~7% of salary, range 3%–10%)

Total Assets

$1.422M

▲ 17.91% YoY

Bank Balance

$350.6K

▲ 12.96% YoY

Accounts Receivable

$1.071M

75.3% of assets

Total Liabilities

$151.7K

▲ 98.7% YoY

Accounts Payable

$147.4K

Was $128 in FY24

Total Equity

$1.270M

▲ 8.26% YoY

Retained Earnings

$2.592M

▲ 30.43% YoY

Shareholder Distributions

–$2.012M

–$585K drawn FY25

AIBalance Sheet Analysis

+Clean balance sheet with minimal leverage. Total liabilities of $151.7K against assets of $1.422M = debt-to-asset ratio of 10.7%. No external debt or financing facilities — operations fully funded by internally generated cash flows. This is a genuine operational strength.

!75.3% of total assets ($1.071M of $1.422M) consist of Accounts Receivable. This creates extreme asset quality concentration in trade receivables from only two clients. Any dispute, delay, or SOW non-renewal could significantly impair the balance sheet.

~Accounts Payable jumped from $128 (Dec-24) to $147,382 (Dec-25) — effectively zero to $147K. This reflects year-end accruals for contractual labor (Contractor A: $93,373; Vendor A: $2,338) and annual dues (ERP software: $51,000). Not a solvency concern, but monitor timely settlement.

~Shareholder distributions totalled $585,000 in FY25 (net cash basis), increasing cumulative distributions to $2.012M. Given net income of $689.9K, the distribution represents 84.8% of earnings — high but sustainable at current revenue levels. If FY26 revenue is disrupted by SOW delays, distributions would need to be curtailed.

!Credit card balances (Dec-25): two executive cards show positive/negative balances totalling net +$4,289. While immaterial, individual card balances of –$12,237 for one executive suggest personal charges being settled through the company — governance review recommended.

Balance Sheet — Dec 31, 2025 vs Dec 31, 2024

Assets detail

Account	Dec-25	Dec-24	% Chg
Current Assets
Bank – First National	$350,627	$305,180	+12.96%
Accounts Receivable (A/R)	$1,071,024	$861,851	+24.27%
Total Current Assets	$1,421,651	$1,167,031	+17.91%
TOTAL ASSETS	$1,421,651	$1,167,031	+17.91%

Balance Sheet — Dec 31, 2025 vs Dec 31, 2024

Liabilities & Equity detail

Account	Dec-25	Dec-24	% Chg
Liabilities
Accounts Payable	$147,382	$128	+99.9%
Chase Credit Cards (net)	$4,289	$1,861	+130.5%
Total Liabilities	$151,671	$1,989	+98.7%
Equity
Retained Earnings	$2,591,617	$1,803,001	+43.7%
Shareholder Distributions	–$2,011,575	–$1,426,575	–40.7%
Net Income	$689,938	$788,615	–12.5%
Total Equity	$1,269,980	$1,165,042	+9.0%
TOTAL LIAB. & EQUITY	$1,421,651	$1,167,031	+17.91%

Net Working Capital (Cash-Free Debt-Free)

As of December 31, 2025

Description	Amount
Accounts Receivable (Dec-25)
Client B (Client B — renamed)		$399,575
Client A (Client A — renamed)		$667,699
Others		$3,750
Total A/R		$1,071,024
Accounts Payable (Dec-25)
Contractual Labor (Contractor A + Vendor A)		–$95,711
Dues & Subscriptions (ERP software)		–$51,000
Accounting Services (Supporting Strategies)		–$672
Total A/P		–$147,382
Accrued Monthly Expenses
Payroll & Wages	$79,014
Contract Labor	$9,104
Business Licenses & Permits	$6,033
Tax Expense	$7,718
Insurance	$627
Other accruals	$4,683
Total Accrued Expenses		–$107,177
NET WORKING CAPITAL (CFDF)		$816,465

AR Balance (Dec-25)

$1.071M

Dec-25 closing

Subsequent Collections

$434.2K

Jan 2026 receipts

Updated AR Balance

$636.8K

Post Jan-26 collections

AR Days (Dec-25)

~189 days

Extended terms

Client A (Client A) AR

$667.7K

62.3% of total AR

Client B AR

$399.6K

37.3% of total AR

!AR Risk Assessment

~AR concentration mirrors revenue concentration — 99.6% of $1.071M AR is from the same two clients (Client A Client A: 62.3%; Client B Client B: 37.3%). This creates compounded risk: a customer dispute or non-renewal simultaneously impairs both revenue and receivables.

+Subsequent collections of $434,190 were verified in January 2026 — demonstrating active cash collection and confirming the bona fide nature of approximately 40.5% of the closing AR balance. Post-collection balance reduces to $636,835.

!External AR confirmation was not performed. Management confirmed the Company has agreed with its customers not to circulate balance confirmations. This is a significant scope limitation — independent verification of $1.071M in AR was not possible. In any transaction, independent confirmation should be a condition precedent.

~Client A (Client A) has 19.41% of its balance in the 31–60 day bucket and $159,619 (23.9%) in the 90+ day bucket. While this is characterised as "timing risk" given customer approval processes, the 90+ balance warrants monitoring — particularly given the SOW expiry coincides with year-end AR.

!Purchase Orders (POs) were not made available. Reliance placed solely on invoices — a comparatively weak verification basis. Without PO matching, there is no independent evidence that billings were pre-approved by the client before invoicing.

AR Aging — Dec 31, 2025 (Original)

$1,071,024 total

Current1–30d31–60d61–90d90+d

AR Aging — Jan 31, 2026 (Post Collections)

$636,835 updated balance

Current1–30d31–60d90+d

Detailed AR Aging — Dec 31, 2025

By client

Client	Current	1–30 Days	31–60 Days	61–90 Days	90+ Days	Grand Total
Client B	$334,950	$64,625	$—	$—	$—	$399,575
Client A (Client A)	$247,825	$79,373	$90,175	$90,708	$159,619	$667,699
Other Clients	$600	$—	$—	$—	$1,650 + $1,500	$3,750
Grand Total	$583,375	$143,998	$90,175	$90,708	$162,769	$1,071,024
% of Total	54.5%	13.4%	8.4%	8.5%	15.2%	100%

Updated AR Aging — Jan 31, 2026 (Post Jan Collections)

Client	Current	1–30 Days	31–60 Days	90+ Days	Grand Total
Client B	$250,675	$84,275	$—	$—	$334,950
Client A (Client A)	$160,981	$79,284	$57,870	$—	$298,134
Others	$—	$600	$—	$3,150	$3,750
Grand Total	$411,656	$164,159	$57,870	$3,150	$636,835

FY26 Client A Contract

$1.008M

MSA signed, SOWs unsigned

FY26 Client B Contract

$742.1K

2 SOWs unsigned

Total FY26 Pipeline

$1.750M

All pending signatures

Client A Master Validity

Jun 2026

Short runway

Client B Master Validity

Jun 2027

Longer protection

SOWs Signed (FY26)

PAH only

All others unsigned

!SOW Expiry & Revenue Continuity Risk — Critical

!ALL active SOWs with both Client A and Client B expired on December 31, 2025. There are no minimum revenue commitments or exclusivity provisions. Revenue beyond FY2025 is ENTIRELY renewal-dependent — this represents a potential revenue cliff of $2.074M.

~Master Agreements have been renewed/amended for FY2026: Client A (valid to Jun 30, 2026) and Client B (valid to Jun 30, 2027). However, individual SOWs under these MSAs have NOT yet been executed. Without signed SOWs, no contractual obligation to pay exists.

!Client B FY2026 unsigned SOWs include: SOW-001 and SOW-002. These two SOWs represent a significant portion of the Client B pipeline. Combined FY26 Client B contract value of $742K is contingent on these signatures.

~Client A FY2026 includes new SOWs for three new drugs (Drug X, Drug Y, Drug Z) totalling ~$391K. None are signed. Combined FY26 Client A value of $1.008M is fully contingent. Only the PAH SOW under Client A is confirmed signed (renewed).

+Mitigating factors: long-standing customer relationships (multi-year history), multiple concurrent programs within each client, strong counterparty credit profiles (investment-grade pharma companies), and management's confirmation that MSAs have been renewed. These factors support renewal likelihood but do not contractually guarantee it.

Client A — Individual SOWs FY 2025 (Expired)

All expired Dec 31, 2025

Program (renamed)	Service Fees	Deduction %	Expenses	Total Fees+Exp	Pricing Model	Status
Drug Program A (Nipocalimab)	$196,000	2.15%	$1,200	$197,200	Hourly/Time-Based	Expired
Drug Program B (Erleada US)	$109,200	2.15%	$1,800	$111,000	Hourly/Time-Based	Expired
Drug Program C (PR Erleada)	$12,900	2.15%	$600	$13,500	Hourly/Time-Based	Expired
Drug Program D (TAR-200)	$32,340	2.15%	$—	$32,340	Hourly/Time-Based	Expired
Drug Program E (PAH)	$69,300	2.15%	$—	$69,300	Hourly/Time-Based	Expired
Drug Program F (INVEGA)	$168,000	2.15%	$1,200	$169,200	Hourly/Time-Based	Expired
Drug Program G (IMMA/Imaavy)	$239,400	2.15%	$5,400	$244,800	Hourly/Time-Based	Expired
Drug Program H (ICO)	$75,600	2.15%	$—	$75,600	Hourly/Time-Based	Expired
Drug Program I (AML-LAZ)	$54,600	2.15%	$1,200	$55,800	Hourly/Time-Based	Expired
Total FY25 Client A	$957,340		$11,400	$968,740

Client A — FY 2026 Renewals (Unsigned)

Total pipeline: $1,030,920 — MSA signed, all SOWs unsigned except PAH

Program	Status	New Service Fees	Expenses	Total	Signed?	Expiry
Drug Program B (Erleada US)	Renewed	$83,160	$1,800,000	$84,960	No	31-Dec-26
Drug Program E (PAH)	Renewed	$71,400	$—	$71,400	Yes	31-Dec-26
Drug Program F (INVEGA)	Renewed	$226,800	$1,200	$228,000	No	31-Dec-26
Drug Program G (IMMA/Imaavy)	Renewed	$100,800	$—	$100,800	No	31-Dec-26
Drug Program H (ICO)	Renewed	$151,200	$—	$151,200	No	31-Dec-26
Drug Program J (Drug X — New)	New	$298,200	$3,600	$301,800	No	31-Dec-26
Drug Program K (Drug Y — New)	New	$41,160	$—	$41,160	No	31-Dec-26
Drug Program L (Drug Z — New)	New	$50,400	$1,200	$51,600	No	31-Dec-26
Total FY26 Client A		$1,023,120	$7,800	$1,030,920	7 of 8 unsigned

Client B — FY 2025 SOWs (Expired)

Total: $952,800 — all expired Dec 31, 2025

Program	Service Fees	Provider Fees	Status
Client B Program 1 (Venclexta-8195)	$350,275	$348,275	Expired
Client B Program 2 (Teliso)	$48,900	$48,900	Expired
Client B Program 3 (SOW-001)	$140,650	$140,650	Expired
Client B Program 4 (SOW-002)	$148,450	$148,450	Expired
Client B Program 5 (Inv Recon 7470)	$128,200	$128,200	Expired
Client B Program 6 (IMM QBR 9972)	$87,425	$87,425	Expired
Client B Program 7 (Elahere 8444)	$48,900	$48,900	Expired
Total FY25 Client B	$952,800	$950,800

Client B — FY 2026 Renewals (Unsigned)

Total: $745,125 — MSA signed to Jun 2027, SOWs unsigned

Program	Status	New Fees	Signed?	Expiry
Client B Program 1 (Venclexta)	Renewed	$408,475	No	31-Dec-26
Client B Program 3 (SOW-001)	Renewed	$—	No	31-Dec-26
Client B Program 4 (SOW-002)	Renewed	$136,650	No	31-Dec-26
Client B Program 5 (Inv Recon 7470)	Renewed	$153,950	No	31-Dec-26
Client B Program 7 (Elahere 8444)	Renewed	$26,900	No	31-Dec-26
Client B Program 8 (Emrelis — New)	New	$19,150	No	31-Dec-26
Total FY26 Client B		$745,125	All unsigned

⚠ Note: Licensing fees payable of $51,000 identified. $30,000 of this is to be borne by shareholder Officer C — confirm allocation and booking treatment.

🔴 REVENUE & COMMERCIAL RISKS

~99% of revenue from only 2 clients — extreme concentration
All SOWs expired Dec 31, 2025 — potential revenue cliff of $2.074M
Revenue beyond FY2025 is entirely renewal-dependent
No minimum revenue commitments or exclusivity arrangements
Client A Master Agreement valid only to Jun 30, 2026 — 6-month runway
7 of 8 Client A FY2026 SOWs unsigned; all Client B FY2026 SOWs unsigned

🔴 AR & WORKING CAPITAL RISKS

$1.071M AR concentrated in same 2 clients as revenue risk
Extended collection cycles — AR days ~189, net 90-day terms
Client A (Client A): $159,619 (23.9%) in 90+ day bucket
External AR confirmations were NOT permitted by management
Purchase Orders not provided — invoice-only verification (weak basis)
Simultaneous SOW expiry and AR recovery risk at Dec 31, 2025

🔴 TRANSACTION & VALUATION IMPLICATIONS

EBITDA overstated by management: claimed $800K vs actual $679.8K (–15%)
Limited forward revenue visibility may significantly compress revenue multiple
Potential need for earn-outs or renewal-linked consideration structures
Post-close risk: customer renewals must be contractually confirmed pre-close
Licensing fee allocation ($51K ERP software; $30K shareholder-borne) needs formal treatment
No external financing — no debt capacity headroom for working capital shock

🟡 GOVERNANCE & OPERATIONAL RISKS

Executive credit card with –$12,237 balance suggests personal charges via company
Individual employee bonus breakups not shared — payroll transparency gap
Contract labor costs up 40% YoY — rate escalation risk if volumes grow
Travel costs up 63% to $57K — no formal T&E policy in evidence
Meals costs up 79% — rising entertainment without clear policy
Shareholder distributions ($585K in FY25) exceed regulatory norms if SOW risk materialises

Deal-Facing Considerations Summary

Prepared by: Service Ltd.

Category	Finding	Severity	Action Required
Customer Concentration	~99% from 2 clients	Critical	Diversification plan; earn-out structure
SOW Expiry / Revenue Cliff	All SOWs expired Dec-25, none re-signed	Critical	Condition precedent: signed SOWs before close
EBITDA Discrepancy	Claimed $800K vs actual $679.8K	High	Adjust valuation; management warranty
AR Verification Scope	No external confirmation; no POs	High	Independent confirmation as condition precedent
AR Concentration	$1.071M in same 2 clients	Medium	Escrow arrangement; post-close monitoring
T&E & Governance	Travel +63%, exec card anomaly	Medium	Formal T&E policy; card audit
License Fee Allocation	$51K ERP software; $30K shareholder-borne?	Medium	Formal agreement; confirm accounting treatment
Shareholder Distributions	$585K drawn in FY25 (84.8% of NI)	Medium	Distribution policy; working capital lock-box

✅ Positive Indicators

Returned to positive net income trajectory vs prior concern
Strong NOI margin of 32.8% — well-managed cost structure
Cash balance of $350.6K — adequate operating buffer
Net Working Capital of $816.5K (cash-free, debt-free)
Subsequent AR collections of $434K confirmed in Jan 2026
Investment-grade client counterparties (pharmaceutical leaders)
Long-standing multi-year customer relationships
No debt or external financing — clean liability structure

📋 Pre-Close Conditions Recommended

Signed SOWs for all FY2026 programs (both clients) — condition precedent
Independent AR confirmation directly from Client B and Client A
Management warranty on EBITDA figure ($679.8K, not $800K)
Formal documentation of ERP software license fee allocation ($30K Pete Zuker)
Corporate card audit — clarify personal charges vs business charges
Customer diversification plan for FY27+ (post-close commitment)
Earn-out structure tied to FY2026 SOW execution and collections
Review and formalise T&E, bonus, and distribution policies

Financial Due Diligence: Catching a $120,181 EBITDA Overstatement

The situation

What we found

Why this is a bookkeeping problem, not a deal problem

What we would look at in yours

✅ Positive Indicators

📋 Pre-Close Conditions Recommended