Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Throughout this Quarterly Report on Form 10-Q (this "quarterly report"), unless the context indicates otherwise, the terms, "we," "us," "our" or the "Company" refer to Pacific Health Care Organization, Inc., ("PHCO") and our wholly-owned subsidiaries Medex Healthcare, Inc. ("Medex"), Medex Managed Care, Inc. ("MMC") and Medex Medical Management, Inc. ("MMM").

Our Management's Discussion and Analysis of Financial Condition and Results of Operations set forth below should be read in conjunction with our unaudited condensed consolidated financial statements, and notes thereto, contained in this quarterly report, as well as our audited consolidated financial statements, and notes thereto, contained in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission (the "SEC") on March 19, 2025 (the "Annual Report").

All statements other than statements of historical fact included herein and in the documents incorporated by reference in this quarterly report, if any, including without limitation, statements regarding future events, financial condition or results of operations, business strategy, potential acquisitions, budgets, projected costs, liquidity, capital resources, and plans and objectives of management for future operations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "foresee," "future," "intend," "likely," "may," "might," "plan," "potential," "predict," "project," "should," "strategy," "will," "would," and other similar expressions and their negatives.

Forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties, many of which may be beyond our control. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof, and actual results could differ materially as a result of various factors. The following include some but not all of the factors that could cause actual results and financial condition to differ materially from those expressed or implied by forward-looking statements:

●

competition within our industry, including competition from much larger competitors;

●

our ability to retain existing customers and to attract new customers;

	●	legislative and regulatory requirements or changes which could render our services less competitive or obsolete;
	●	cost reduction efforts by our existing and prospective customers;

●

failure to retain or recruit, or changes in, officers and key employees, and uncertainties in our ability to maintain key consultants and advisors;

●

reductions in workers' compensation claims or the demand for our services, from whatever source;

●

the loss, ineffective management, malfunction (including those resulting from cybersecurity incidences and breaches), or increased costs of third-party-provided technologies and services on which our operations rely;

●

cybersecurity incidences and breaches, and other software system failures, and the imposition of laws imposing costly cybersecurity and data protection compliance;

●

delays, reductions, or cancellations of contracts we have previously entered;

●

changes in U.S. trade policies and retaliatory responses from other countries, including tariffs;

●

the effects of and uncertainty surrounding the adoption, use and reliability of disruptive technologies such as artificial intelligence;

●

the loss of or inability to obtain adequate insurance coverage;

●

business combinations involving our customers or competitors;

●

economic and labor market conditions generally and in the industries in which we and our customers participate, including the effects resulting from immigration laws and enforcement, economic recessions, financial sector turmoil, international conflicts, and rising domestic inflation and related economic policy responses; and

●

our failure to successfully develop new services and/or products either organically or through acquisition, or to anticipate current or prospective customers' needs.

For more detailed information about particular risk factors related to us and our business, see Part I, Item 1A Risk Factors of our Annual Report.

New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

One should not place undue reliance on forward-looking statements. Forward-looking statements are based on the beliefs of management as well as assumptions made by and information currently available to management and apply only as of the date of this quarterly report or the respective dates of the documents it incorporates by reference. Neither we nor any other person assumes any responsibility for the accuracy or completeness of forward-looking statements. Further, except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or a change in events, conditions, circumstances, or assumptions underlying such statements, or otherwise.

Overview

We are workers' compensation cost containment specialists providing a range of services principally to California employers and claims administrators. We incorporated under the laws of the State of Utah in April 1970, under the name Clear Air, Inc. We changed our name to Pacific Health Care Organization, Inc., in January 2001. In February 2001, we acquired Medex, a California corporation organized in March 1994, in a share for share exchange. Medex is in the business of managing and administering both Health Care Organizations ("HCOs") and Medical Provider Networks ("MPNs") in the state of California and providing workers' compensation carve-out and Medicare set-aside services. In March 2011, we incorporated MMC, a Nevada corporation, as a wholly owned subsidiary of the Company. MMC oversees and manages the Company's utilization review and bill review services. In February 2012, we incorporated MMM, a Nevada corporation, as a wholly owned subsidiary of the Company. MMM is responsible for overseeing and managing medical case management and employee advocate services. We discontinued lien representation services in the third quarter of 2023 due to the lack of demand.

Business of the Company

We offer an integrated and layered array of complementary business solutions that enable our customers to better manage their workers' compensation-related healthcare administration costs. We are constantly looking for ways to expand the suite of services we can provide our customers, either through strategic acquisitions or organic development.

Our business objective is to deliver value to our customers by reducing their workers' compensation-related medical claims expenses in a manner that will ensure injured employees receive high quality healthcare, returning them to gainful employment without undue delay. According to studies conducted by auditing bodies on behalf of the California Division of Workers' Compensation ("DWC"), the two most significant cost drivers for workers' compensation are claims frequency and longer than average treatment duration. Our services focus on ensuring timely medical treatment to reduce the claim duration and medical treatment costs.

Our services include providing customers access to our HCOs and MPNs. We also provide medical bill review, medical case management, employee advocate services, utilization review, workers' compensation carve-outs and Medicare set-aside services. Complementary to these services, we also provide expert witness testimony. We offer our services as a bundled managed care solution, as standalone services, or as add-on ancillary services.

Our core services focus on reducing medical treatment costs by enabling our customers to have control and oversight of the medical treatment of their injured employees to ensure treatment is timely and appropriate. This control is primarily obtained by participation in our HCOs or one of our MPNs. Through Medex, we hold two of three total licenses issued by the state of California to establish and manage HCOs within the state of California. We hold several government-issued licenses to operate medical provider networks. We also hold approvals issued by the state of California to function as an MPN and currently administer 21 MPNs. Our HCO and MPN programs provide our customers with provider networks within which the customer has some ability to direct the administration of the claim. This is designed to decrease the incidence of fraudulent claims and disability awards, and ensure injured employees receive necessary vocational rehabilitation and training. Our medical bill and utilization review services provide oversight of medical billing and treatment requests, and our medical case management and employee advocate services keep workers' compensation claims progressing to a resolution and assure treatment plans are aligned from a medical perspective.

Our customers include self-administered employers, insurers, third party administrators, municipalities, and others. Our principal customers are companies with operations located in the state of California where the cost of workers' compensation insurance is a critical problem for employers, though we process medical bill reviews, utilization reviews and provide medical case management and employee advocate services in several other states. Our provider networks, which are located only in California, are comprised of providers experienced in treating occupational injuries.

Our business has a long sales cycle, typically eight months or more. Once we have established a customer relationship and enrolled the employees of our employer customers, we anticipate our revenue to adjust with the growth or retraction of our customers' employee headcount. We also expect growth and contraction of employee headcounts throughout the year as we gain new customers and lose existing customers. The reasons for customer terminations vary but include when a customer opts to use a different workers' compensation administration vendor; engages an insurance carrier or third-party administrator that uses a different workers' compensation administration vendor; and when our contract ends with state and local governments and they are required to engage in a public bidding process for their workers' compensation administration vendor.

Key trends affecting results of operations

During the second quarter of 2025, the Company received Employee Retention Credit ("ERC") refund checks from the IRS totaling $488,655, recorded as other income of $419,801 and interest income of $68,854. This resulted in a material one-time increase to our net income and earnings per share. These funds will be taxable in the current year and have also impacted our provision for income taxes. The Company has additional ERC applications pending with the IRS for eligible periods that could result in additional refunds of approximately $202,657. The Company's ERC eligibility remains subject to audit by the IRS for a period of five years from the date of filing. While the Company believes it has substantial support for its ERC claims and eligibility, there can be no assurance that the IRS will not challenge the Company's eligibility or calculations during any future audit process.

Our operating revenues typically correlate with general economic conditions and the size and activities of our customers' workforces. However, 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. This could result in a decline in the number of employees enrolled in our HCO and MPN programs and the volume of medical bills reviewed, which could materially affect related revenues.

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. As disclosed previously, a significant customer terminated our services in the fourth quarter of 2024 and is in process of phasing out our services. Though we anticipate an impact on operating revenues from the loss of this customer during 2025, we also expect to mitigate the impact with increased business from other customers. We believe we will continue to be susceptible to risks associated with customer concentration and related potential material impacts on our results of operations in the foreseeable future.

The increase in our HCO revenue during the first nine months of 2025 was due primarily to the timing of delivery of services to a significant customer that began phasing out our services during the fourth quarter of fiscal year 2024. Because we anticipate the customer's services will be completely phased out during 2025, we expect the timing-based fluctuations in revenue from this customer to phase out, as well. During the third quarter of 2025, HCO revenue decreased due to the reduction of services performed, primarily related to the significant customer completing its phase out of services.

During the first nine months of 2025, we saw an increase in MPN revenue related to growth in our customers' workforces and activity from new customers. During the first nine months of 2025 we experienced a decrease in medical bill review revenue due to decreased review activity from existing customers, when compared to the same period in 2024.

The expansion of our employee advocate services to six states outside of California continues to bolster our medical case management revenues. During the first nine months of 2025, we saw an increase in revenue from our employee advocate services of 78%, when compared to the same period of 2024, which contributed to a 53% increase in overall medical case management revenues for the nine months ended September 30, 2025. We plan to continue to expand employee advocate services within the states we currently operate in when feasible during 2025 but cannot guarantee that we will be successful in further growing this service.

Total expenses during the first nine months of 2025 increased, primarily due to increased salaries and wages for the addition of one employee, increased professional fees due to transitioning to a new auditing firm and the retention of a consultant to serve as interim Assistant Controller, and increased data maintenance fees related to a large service at the beginning of 2025 for the customer who is completing a phase out of our services during fiscal year 2025.

Revenue

We derive revenue from fees charged for HCO notifications, HCO/MPN program administration, HCO/MPN custom networks, HCO/MPN claim network fees, medical bill review, utilization review services, medical case management and employee advocate services, Medicare set-asides, and network access.

HCO

HCO revenue is generated from fees charged to our employer customers for annual and new hire notifications to enroll their employees into our HCO program, annual or monthly program administration, custom network fees, claim network fees to access our HCO provider networks, and fees for other ancillary services they may select.

MPN

Like HCO revenue, MPN revenue is generated from fees charged to our employer customers for monthly program administration, custom network fees, and claim network fees to access our MPN provider networks. Unlike HCOs, from which we derive revenues from annual and new hire notification fees, MPNs do not require annual and new hire notifications and as such we do not generate related revenues.

Medical bill review

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. 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

Utilization review is the review of medical treatment requests by providers to give 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

Medical case management oversees the injured employees' medical treatment to ensure that it progresses to a resolution and 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.

We also offer employee advocate services, which is similar to medical case management in that it utilizes our medical case managers who provide similar services; however, the medical case manager is an advocate for the employee. We generate revenue from these services when we receive a workers' compensation claim and a medical case manager is assigned to oversee the injured workers' medical treatment, with billing based on the number of hours a medical case manager works on the claim.

Other

Other revenue consists of revenue derived from network access fees charged for network access for preferred provider organizations, ancillary legal support services, Medicare set-aside and workers' compensation carve-out services.

The following table sets forth, for the below indicated periods ended September 30, 2025 and 2024, respectively, the percentage each revenue item identified in our unaudited condensed consolidated financial statements contributed to total revenues during the respective period.

		For three months ended September 30,								For nine months ended September 30,
		2025				2024				2025				2024
HCO			12	%			18	%			20	%			22	%
MPN			11	%			11	%			10	%			10	%
Medical bill review			6	%			7	%			6	%			7	%
Utilization review			37	%			35	%			31	%			34	%
Medical case management			34	%			26	%			32	%			25	%
Other			-	%			3	%			1	%			2	%

Expense

Salaries and wages

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

Professional fees

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, consulting, field medical case management, and board of directors' fees for board meetings, as well as legal, accounting, and other professional services fees.

Insurance

Insurance expenses are comprised primarily of health insurance benefits offered to our employees, directors' and officers' liability insurance, and cyber liability, workers' compensation and business liability coverages.

Outsource service fees

Outsource service fees consist of costs incurred by our subsidiaries by partially outsourcing utilization review, medical bill review, administrative services for medical case management and HCO, and Medicare set-aside services; and typically tend to fluctuate in correlation with customer demand for those services.

Data maintenance fees

Data maintenance fees include fees we pay to a third party to process HCO annual and new hire employee enrolments and notifications. HCO employee enrolment and notification fees fluctuate throughout the year because of the varied timing of customer enrolment 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

General and administrative expenses consist primarily of depreciation, bad debt, dues and subscriptions, IT enhancement, meals, travel, and entertainment, office rent, telephone, 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.

The following table sets forth, for the below indicated periods ended September 30, 2025, and 2024, respectively, the percentage each expense item identified in our unaudited condensed consolidated financial statements contributed to total expenses during the respective period.

		For three months ended September 30,								For nine months ended September 30,
		2025				2024				2025				2024
Salaries and wages			49	%			53	%			49	%			52	%
Professional fees			17	%			12	%			14	%			12	%
Insurance			7	%			7	%			6	%			7	%
Outsource service fees			14	%			13	%			13	%			13	%
Data maintenance fees			-	%			1	%			5	%			2	%
General and administrative			13	%			14	%			13	%			14	%

Results of Operations

Comparison of the three months ended September 30, 2025 and 2024

The following represents selected components of our unaudited condensed consolidated results of operations for the three-month periods ended September 30, 2025, and 2024, respectively, together with changes from period-to-period:

		For three months ended September 30,								Amount
		2025				2024				Change				% Change
Revenues
HCO		$	205,793			$	275,728			$	(69,935	)			(25	%)
MPN			171,479				166,606				4,873				3	%
Medical bill review			89,479				111,433				(21,954	)			(20	%)
Utilization review			580,247				531,527				48,720				9	%
Medical case management			535,486				383,399				152,087				40	%
Other			4,500				32,144				(27,644	)			(86	%)
Total revenues			1,586,984				1,500,837				86,147				6	%
Expenses
Salaries and wages			670,249				734,674				(64,425	)			(9	%)
Professional fees			235,952				157,641				78,311				50	%
Insurance			90,379				90,118				261				-
Outsource service fees			196,885				175,395				21,490				12	%
Data maintenance			2,340				8,783				(6,443	)			(73	%)
General and administrative			186,142				182,649				3,493				2	%
Total expenses			1,381,947				1,349,260				32,687				2	%
Income from operations			205,037				151,577				53,460				35	%
Other income (expense)
Other income			1,870				-				1,870				N/A
Interest income			103,202				113,634				(10,432	)			(9	%)
Total other income, net			105,072				113,634				(8,562	)			(9	%)
Income before taxes			310,109				265,211				44,898				17	%
Income tax provision			87,107				90,348				(3,241	)			(4	%)
Net income		$	223,002			$	174,863			$	48,139				28	%

Revenue

HCO

During the three-month period ended September 30, 2025, HCO revenue decreased 25% compared to the same period in the prior year. The decrease in HCO revenue was primarily attributable to the termination of services performed for the customer that is completing a phase out of our services during fiscal year 2025.

Medical bill review

During the three-month period ended September 30, 2025, medical bill review revenue decreased 20% compared to the same period in the prior year. The decrease was due to a net decrease in bill reviews performed for existing customers during the period.

Utilization review

During the three-month period ended September 30, 2025, utilization review revenue increased 9%, compared to the same period in the prior year. The increase in utilization review revenue was due to increased referrals for requests for authorization from existing customers.

Medical case management

During the three-month period ended September 30, 2025, medical case management revenue increased 40% compared to the same period in the prior year. The increase was attributable to an increase in managed claims by existing customers, an increase in employee advocate services revenue due to the continued growth of the program, an increase in billing rates for one of our customers, and increased accuracy and efficiency in our related billing processes.

Other

Other revenue for the three-month period ended September 30, 2025, decreased 86% compared to the same period in the prior year, primarily due to the discontinuance of network access fee-related services for the significant customer that is completing a phase out of our services during fiscal year 2025.

Expenses

Salaries and wages

During the three-month period ended September 30, 2025, salaries and wages decreased 9% compared to the three months ended September 30, 2024. The decrease was due primarily to the loss of six employees in the third quarter 2025 compared to the third quarter 2024. We intend to replace most of those employees in the coming months and, as a result, expect salaries and wages to return to previous levels.

Professional fees

During the three-month period ended September 30, 2025, professional fees increased 50% compared to the three months ended September 30, 2024. The increase in professional fees was primarily the result of increases in accounting fees due to the retention of a consultant to serve as interim Assistant Controller.

Outsource service fees

During the three-month period ended September 30, 2025, outsource service fees increased 12% compared to the three months ended September 30, 2024. The increase is primarily due to an increase in demand for utilization review services which resulted in the Company incurring more costs.

Data maintenance

During the three-month period ended September 30, 2025, data maintenance fees decreased 73% compared to the three months ended September 30, 2024. The decrease in data maintenance fees is primarily due to the timing of when we completed annual letters for a significant customer. We expect similar future fluctuations for data maintenance fees when the timing of sending annual letters for customers does not align between comparable periods.

General and administrative

General and administrative expenses increased by 2% during the three-month period ended September 30, 2025 compared to the three months ended September 30, 2024. The increase was primarily due to an increase in meals, travel, and entertainment expenses partially offset by a decrease in fines and penalties expenses.

Income from Operations

During the three-month period ended September 30, 2025, we recognized a 6% increase in total revenue whereas total expenses increased 2% year-over-year for the comparable period. As a result, our income from operations increased $53,460, or 35%, for the three months ended September 30, 2025, when compared to the three months ended September 30, 2024.

Other Income, net

During the three-month period ended September 30, 2025, other income, net decreased $8,562 compared to the same period in 2024, primarily due to a decrease in interest income of $10,432.

Net Income

During the three-month period ended September 30, 2025, we realized a 6% increase in total revenues, along with a 2% increase in total expenses, an $8,562 decrease in other income, net, and a 4% 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 $223,002, a 28% increase in net income during the three-month period ended September 30, 2025 compared to the same period in the prior year.

Comparison of the nine months ended September 30, 2025 and 2024

The following represents selected components of our unaudited condensed consolidated results of operations for the nine-month periods ended September 30, 2025 and 2024, respectively, together with changes from period-to-period:

		For nine months ended September 30,								Amount
		2025				2024				Change				% Change
Revenues
HCO		$	1,020,309			$	961,929			$	58,380				6	%
MPN			500,699				459,185				41,514				9	%
Medical bill review			302,388				312,105				(9,717	)			(3	%)
Utilization review			1,606,624				1,518,170				88,454				6	%
Medical case management			1,669,369				1,088,254				581,115				53	%
Other			32,950				100,112				(67,162	)			(67	%)
Total revenues			5,132,339				4,439,755				692,584				16	%
Expenses
Salaries and wages			2,102,731				2,048,216				54,515				3	%
Professional fees			613,791				479,110				134,681				28	%
Insurance			262,671				248,223				14,448				6	%
Outsource service fees			550,025				522,901				27,124				5	%
Data maintenance			200,522				75,285				125,237				166	%
General and administrative			579,582				547,257				32,325				6	%
Total expenses			4,309,322				3,920,992				388,330				10	%
Income from operations			823,017				518,763				304,254				59	%
Other income (expense)
Other income			421,669				-				421,669				N/A
Interest income			369,261				319,883				49,378				15	%
Interest expense			(1,522	)			-				(1,522	)			N/A
Total other income, net			789,408				319,883				469,525				147	%
Income before taxes			1,612,425				838,646				773,778				92	%
Income tax provision			459,853				250,824				209,029				83	%
Net income		$	1,152,572			$	587,822			$	564,750				96	%

Revenue

HCO

During the nine-month period ended September 30, 2025, HCO revenue increased 6% compared to the same period in the prior year. The increase in HCO revenue was attributable primarily to the timing of when we completed the final annual notifications during each year for the significant customer that is completing a phase out of our services during fiscal year 2025.

MPN

MPN revenue for the nine-month period ended September 30, 2025, increased by 9% compared to the same period in the prior year. The increase in MPN revenue was largely due to an increase in monthly MPN program administration fees and custom network fees resulting from the addition of a new customer, and an increase in our existing customers' reported injuries.

Utilization review

During the nine-month period ended September 30, 2025, utilization review revenue increased 6%, compared to the same period in the prior year. The increase in utilization review revenue was due to increased referrals for requests for authorization from existing customers.

Medical case management

During the nine-month period ended September 30, 2025, medical case management revenue increased 53% compared to the same period in the prior year. The increase was attributable to an increase in managed claims by existing customers, an increase in employee advocate services revenue due to the continued growth of the program, an increase in billing rates for one of our customers, and increased accuracy and efficiency in our related billing processes.

Other

Other revenue for the nine-month period ended September 30, 2025, decreased 67% compared to the same period in the prior year, primarily due to the discontinuance of network access fee-related services for the significant customer that is completing a phase out of our services during fiscal year 2025.

Expenses

Professional fees

During the nine-month period ended September 30, 2025, professional fees increased 28% compared to the nine months ended September 30, 2024. The increase in professional fees was primarily the result of increases in accounting and legal services during the first quarter of fiscal year 2025 associated with the transition to a new auditing firm and the retention of a consultant to serve as interim Assistant Controller.

Insurance

During the nine-month period ended September 30, 2025, insurance expenses increased 6% compared to the same period in the prior year due to increases in business insurance rates and health insurance costs for employees.

Outsource service fees

During the nine-month period ended September 30, 2025, outsource service fees increased 5% compared to the nine months ended September 30, 2024. The increase is primarily due to an increase in demand for utilization review services which resulted in the Company incurring more costs.

Data maintenance

During the nine-month period ended September 30, 2025, data maintenance fees increased 166% compared to the nine months ended September 30, 2024. The increase in data maintenance fees was primarily due to the timing of when we completed annual and termination letters and related billing during the first quarter of 2025 for the significant customer that is completing a phase out of our services during 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.

General and administrative

General and administrative expenses increased by 6% during the nine-month period ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase was primarily due to increases in dues and subscriptions, licenses and permits, meals, travel, and entertainment, and bad debt expenses, partially offset by decreases in advertising and marketing, and miscellaneous expenses.

Income from Operations

During the nine-month period ended September 30, 2025, we recognized a 16% increase in total revenue, whereas total expenses increased by 10%. As a result, our income from operations increased $304,254, or 59%, for the nine months ended September 30, 2025, when compared to the nine months ended September 30, 2024.

Other Income, net

During the nine-month period ended September 30, 2025, other income, net increased $469,525, primarily due to ERC refunds received from the Internal Revenue Service in the amount of $488,655, which includes interest of $68,854, combined with interest from our investment in U.S. Treasury Bills of $300,298.

Income Tax Provision

We realized an increase in our income tax provision of $209,029, or 83%, during the nine-month period ended September 30, 2025 compared to the same period in the prior year, which was attributable to the receipt of ERC refund checks and the increase in income from operations during that period, which increased our tax liability.

Net Income

During the nine-month period ended September 30, 2025, we realized a 16% increase in total revenues, a 10% increase in total expenses, an increase in other income, net of $469,525 and an 83% increase in our provision for income tax when compared to the same period in the prior year. As a result, we realized net income of $1,152,572, a 96% increase in net income during the nine-month period ended September 30, 2025.

Liquidity and Capital Resources

Management currently believes that cash on hand and anticipated cash flows from operations will be sufficient to fund our operations for at least the next twelve months. The Company's 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.

We currently have planned certain capital expenditures to replace laptops and ancillary devices due to their age and as part of our ongoing continuity plan. We anticipate investing activities will continue throughout 2025 as we replace aging software, computer equipment, and further enhance our IT security. We anticipate these costs will be significant, but believe we have adequate cash on hand to cover these expenses. We do not anticipate these expenditures will require us to seek outside sources of funding.

We intend to continue to pursue potential acquisition transactions that, if additional cash on hand were needed for such a transaction, we would either need to condition closing upon maturity of our investments, if applicable, or seek alternate financing, or a combination of those approaches. We may also seek growth through organic development of new lines of business or expansion of existing offerings. Depending upon the nature of the opportunities we identify, such acquisitions or expansion could require greater capital resources than we currently possess. Should we need additional capital resources, we could seek to obtain such through debt and/or equity financing. We do not currently possess an institutional source of financing and there is no assurance that we could be successful in obtaining equity or debt financing when needed, on favorable terms, or at all. We could also use shares of our capital stock as consideration for a business acquisition transaction, but there is also no assurance that there would be significant interest in our capital stock from a potential seller or the market.

Cash Flow

During the nine months ended September 30, 2025, we had a net increase in cash and cash equivalents of $108,212. See below for additional discussion and analysis of cash flow.

		For the nine months ended September 30,
		2025 (unaudited)				2024 (unaudited)
Net cash provided by operating activities		$	809,710			$	107,110
Net cash (used in) investing activities			(665,443	)			(183,644	)
Net cash provided by (used in) financing activities			(36,055	)			70,610
Net increase (decrease) in cash and cash equivalents		$	108,212			$	(5,924	)

Net cash provided by operating activities was $809,710 and $107,110 for the nine months ended September 30, 2025 and 2024, respectively. This $702,600 increase in cash flow from operations during the nine months of 2025 was primarily the result of higher net income partially offset by changes in working capital balances.

Net cash used in investing activities was $665,443 and $183,644 for the nine months ended September 30, 2025 and 2024, respectively. The change in net cash used in investing activities was due to increased investment in US Treasury Bills during the first nine months of 2025 compared to the same period in 2024, slightly offset by higher proceeds from the sale of investments.

Net cash used in financing activities was $36,055 for the nine months ended September 30, 2025, whereas net cash provided by financing activities for the nine months ended September 30, 2024 was $70,610. The change in net cash used in financing activities from period to period was primarily due to our insurance financing agreement entered into during fiscal year 2024, which matured early in fiscal year 2025.

Off-Balance Sheet Financing Arrangements

As of September 30, 2025, we had no off-balance sheet financing arrangements.

Inflation

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 "the effects of inflation may have a disproportionate impact on our business" under Part I, Item 1A Risk Factors of our Annual Report.

For more detailed information about our critical accounting estimates, see "Critical Accounting Estimates" under Part II, Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report.