UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

or

Commission File Number 000-50009

(949) 721-8272

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for any shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒

As of November 1, 2024, the registrant had 12,800,000 shares of common stock, par value $0.001, issued and outstanding.

PACIFIC HEALTH CARE ORGANIZATION, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Information

Pacific Health Care Organization, Inc.

Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Pacific Health Care Organization, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Pacific Health Care Organization, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Pacific Health Care Organization, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Pacific Health Care Organization, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Throughout 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 its wholly owned subsidiaries Medex Healthcare (“Medex”), Medex Managed Care, Inc. (“MMC”) and Medex Medical Management, Inc. (“MMM”).

All statements other than statements of historical fact included herein and in the documents incorporated by reference in this quarterly report on Form 10-Q (this “quarterly report”), if any, including without limitation, statements regarding our future financial position or results of operations, business strategy, potential acquisitions, budgets, projected costs, 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 or events to differ materially from anticipated results or events:

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 on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the “Commission”) on April 16, 2024 (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 from which 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 obligations 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. We may also make additional forward-looking statements from time to time. Any subsequent forward-looking statements, whether written or oral, made by us or on our behalf, are also expressly qualified by these cautionary statements.

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes contained elsewhere in this quarterly report and in our other filings with the Commission.

Overview

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 assure that injured employees receive high quality healthcare that allows them to recover from an injury and return 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 solution, as standalone services, or as add-on 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 the total of four 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 22 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 retraction 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.

Trends affecting our business and recent highlights

The employee enrollment numbers in our HCO and MPN programs typically correlate with general economic conditions and the size and activities of our customers’ workforce. For example, during the nine-month period ended September 30, 2024, we saw an increase in MPN revenue that was partly attributable to an increase in monthly program administration fees generated from our customers’ additional employee enrollments in the MPN program. In contrast, our HCO revenue growth was offset during the same period by a decrease in annual notifications revenue from one of our customers that experienced a reduced employee headcount. 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, in which case we would expect a decline in the number of employees enrolled in our HCO and MPN programs in future periods and in related revenues.

We have expanded our employee advocate services to six states outside of California, which continues to bolster our medical case management revenues. For example, during the nine-month period ended September 30, 2024, revenue from our employee advocate services increased 201% when compared to the same period of 2023, which drove an 11% increase in MCM revenue. We plan to continue to expand employee advocate services to other states during the remainder of the year and 2025 but cannot guarantee that we will be successful in further growing this service.

Though we continue our efforts to increase our customer base and reduce customer concentration across all service lines, the addition or loss of a single customer can materially impact our results of operations. For example, in October 2024 we received notice of termination from one of our significant customers, which we anticipate may materially impact future operating revenues. We anticipate phasing out the associated services for that customer during the fourth fiscal quarter of 2024. The customer termination was not due to a contract dispute or issues related to our performance of services, and we remain in good standing with the customer. We expect to continue to be susceptible to risks associated with customer concentration, which could continue to materially affect our results of operations into the foreseeable future.

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

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

Utilization review

Utilization review is the review of medical treatment requests by providers to provide 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 assures 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, 2024 and 2023, respectively, the percentage each revenue item identified in our unaudited condensed consolidated financial statements contributed to total revenues during the respective period.

Expense

Consulting fees

Consulting fees include fees we pay to third parties for IT, financial, marketing, lobbying, and in-house legal services related to the various services we offer.

Salaries and wages

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

Professional fees

Professional fees include fees we pay to third parties to provide medical 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, 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 enrollments and notifications. HCO employee enrollment and notification fees fluctuate throughout the year because of the varied timing of customer enrollment into 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 dues and subscriptions, IT enhancement, meals, travel, and entertainment, office rent, telephone, vacation expense, licenses and permits, miscellaneous, advertising and marketing, auto expenses, bank charges and fees, education, parking, postage and delivery, shareholders’ expense, equipment repairs and office supplies.

The following table sets forth, for the below indicated periods ended September 30, 2024 and 2023, respectively, the percentage each expense item identified in our unaudited condensed consolidated financial statements contributed to total expenses during the respective period.

Results of Operations

Comparison of the three months ended September 30, 2024 and 2023

The following represents selected components of our consolidated results of operations for the three-month periods ended September 30, 2024 and 2023, respectively, together with changes from period-to-period:

Revenue

HCO

During the three-month period ended September 30, 2024, HCO revenue decreased 26%, compared to the same period in the prior year. The decrease in HCO revenue was attributable to the misaligned timing of when we recognized revenues from annual notifications and monthly program fees for some of our customers during each year. We expect similar future fluctuations for HCO revenues when the timing of recognizing HCO revenue for customers does not align between comparable periods. The decreases in HCO revenues were partially offset by an increase in reported injuries from other customers.

MPN

MPN revenue for the three-month period ended September 30, 2024, increased by 26%, compared to the same period in the prior year. The increase was attributable to an increase in claim network fees activity for one of our customers due to increases in reported injuries. The increase was further driven by catch-up submissions from a customer who had not been submitting their reports of injury properly during the second quarter of fiscal year 2024, which was remedied during the third quarter of fiscal year 2024.

Medical bill review

During the three-month period ended September 30, 2024, medical bill review revenue increased by 22%, compared to the same period in the prior year. The increase was due to an increase in bill review revenue from existing customers, along with the addition of a new customer. The increase was partially offset by slightly reduced revenue during the first three quarters of 2024 stemming from the loss of a customer in the third quarter of fiscal year 2023.

Utilization review

During the three-month period ended September 30, 2024, utilization review revenue increased 18%, 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, 2024, medical case management revenue increased 31%, compared to the same period in the prior year. The increase was attributable to an increase in employee advocate revenue due to the expansion of the program from California to locations in six other states, and increased accuracy and efficiency in our related billing processes.

Other

Other revenue for the three-month period ended September 30, 2024, decreased 10%, compared to the same period in the prior year due to a decrease in Medicare set-aside referrals, and a decrease in network access revenue from decreased customer usage of our network.

Expenses

Total expenses for the three-month period ended September 30, 2024, increased 9%, compared to the same period in the prior year. The increase was attributable to increases in data maintenance, salaries and wages, general and administrative, professional fees, and insurance expenses. The increases were partially offset by a decrease in outsource service fees and bad debt provision (recovery).

Bad debt provision (recovery)

During the three-month period ended September 30, 2024, bad debt provision (recovery) expenses decreased 186%, compared to the same period in the prior year, as a result of collecting aged receivables from our customers.

Salaries and wages

During the three-month period ended September 30, 2024, salaries and wages increased 12%, compared to the same period in the prior year. The increase was due to a discretionary bonus and the addition of one employee.

Professional fees

During the three-month period ended September 30, 2024, professional fees increased 11%, compared to the same period in the prior year. The increase in professional fees was primarily the result of increases in accounting and other professional services.

Insurance

During the three-month period ended September 30, 2024, insurance expenses increased 11%, compared to the same period in the prior year, due to increases in cyber liability insurance premiums and health insurance costs for employees.

Outsource service fees

During the three-month period ended September 30, 2024, outsource service fees decreased 3%, compared to the same period in the prior year. The decrease in outsource service fees was primarily attributable to decreases in outsource services used to provide our utilization review program and Medicare set-aside services. Utilization review outsource service fees decreased due to our transition to a new vendor that charges lower rates for physician and specialty reviews. Medicare set-asides outsource service fees decreased due to decreased referral activity. We anticipate that our outsourcing and related fees will continue to correspond with the level of medical bill review, utilization review, certain medical case management services, and Medicare set-aside services we provide in the future.

Data maintenance

During the three-month period ended September 30, 2024, data maintenance fees increased 94%, compared to the same period in the prior year. This increase is largely attributable to the misaligned timing of when we incurred these expenses during each year when comparing the quarterly periods. We expect similar future fluctuations of data maintenance fees for comparable periods when the timing of incurring this expense does not align between such periods.

General and administrative

General and administrative expenses increased by 15% during the three-month period ended September 30, 2024, compared to the same period of the prior year. The increase was primarily due to increases in advertising and marketing, dues and subscriptions, licenses and permits, and vacation expense. The increases were partially offset by decreases in IT enhancement and miscellaneous expenses.

Income from Operations

During the three-month period ended September 30, 2024, we recognized a 9% increase in total revenue and a 9% increase in total expenses compared to the same period of 2023. As a result, our income from operations increased $4,572, or 3%, when compared to the three-month period ended September 30, 2023.

Other Income

Other income increased 11% during the three-month period ended September 30, 2024, compared to the same period in 2023, due to an increase in non-cash interest income from our investment in U.S. Treasury bills. During the three-month period ended September 30, 2024, we had non-cash interest income of $113,634 from our investment of $8,053,936 in U.S. Treasury bills which will mature on November 29, 2024, whereas, during the same period of 2023, we had non-cash interest income of $102,017 from our $7,642,981 investment in U.S. Treasury bills which matured on December 7, 2023.

Income Tax Provision

We realized a $20,447 or 29% increase in our income tax provision during the three-month period ended September 30, 2024, compared to the same period of 2023, primarily because of the increase in our interest income.

Net Income

During the three-month period ended September 30, 2024, we realized a 9% increase in total revenues, a 9% increase in total expenses, and a 29% 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 $174,863 during the three-month period ended September 30, 2024, a 2% decrease in net income when compared to the same period in the prior year.

Comparison of the nine months ended September 30, 2024 and 2023

The following represents selected components of our consolidated results of operations for the nine-month periods ended September 30, 2024 and 2023, respectively, together with changes from period-to-period:

Revenue

HCO

During the nine-month period ended September 30, 2024, HCO revenue increased 2%, compared to the same period in the prior year. The increase in HCO revenue was attributable to the misaligned timing of when we recognized revenues from annual notifications and monthly program fees for some of our customers during each year. We expect similar future fluctuations for HCO revenues when the timing of recognizing HCO revenue for customers does not align between comparable periods.

MPN

During the nine-month period ended September 30, 2024, MPN revenue increased by 17%, 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, resulting from the addition of a new customer and an increase in our customers’ employee headcount and reported injuries. The increase in MPN revenue was partially offset by a decrease in reported injuries at other customer locations.

Medical bill review

During the nine-month period ended September 30, 2024, medical bill review revenue increased by 17%, compared to the same period in the prior year. The increase was due to an increase in bill review revenue from existing customers along with the addition of two new customers. The increase was partially offset by the loss of a customer in the third quarter of fiscal year 2023.

Utilization review

During the nine-month period ended September 30, 2024, utilization review revenue increased 12%, compared to the same period in the prior year. The increase in utilization review revenue was due to increased referrals of requests for authorization from existing customers.

Medical case management

During the nine-month period ended September 30, 2024, medical case management revenue increased 18%, compared to the same period in the prior year. The increase was attributable to an increase in employee advocate revenue due to the expansion of the program from California to locations in six other states, and increased accuracy and efficiency in our related billing processes.

Other

Other revenue for the nine-month period ended September 30, 2024 increased 1%, compared to the same period in the prior year, primarily due to an increase in network access revenue from increased customer usage of our network during the first two fiscal quarters of 2024.

Expenses

Total expenses for the nine-month period ended September 30, 2024 increased 8%, compared to the same period in the prior year. The increase was primarily attributable to increases in general and administrative, professional fees, insurance, and salaries and wages. These increases were partially offset by a decrease in bad debt provision (recovery) and outsource service fees.

Bad debt provision (recovery)

During the nine-month period ended September 30, 2024, bad debt provision (recovery) expenses decreased 963%, compared to the same period in the prior year, as a result of collecting aged receivables from our customers.

Salaries and wages

During the nine-month period ended September 30, 2024, salaries and wages increased 6%, compared to the same period in the prior year. The increase was due to a discretionary bonus and the addition of one employee.

Professional fees

During the nine-month period ended September 30, 2024, professional fees increased 15%, compared to the same period in the prior year. The increase in professional fees was primarily the result of increases in accounting and other professional services.

Insurance

During the nine-month period ended September 30, 2024, insurance expenses increased 8%, compared to the same period in the prior year, due to increases in cyber liability insurance premiums and health insurance costs for employees.

General and administrative

General and administrative expenses increased by 39% during the nine-month period ended September 30, 2024, compared to the same period of 2023. The increase was primarily due to increases in advertising and marketing, dues and subscriptions, IT enhancement, meals/travel, and licenses and permits. The increases were primarily offset by decreases in vacation expense and miscellaneous expenses.

Income from Operations

During the nine-month period ended September 30, 2024, we recognized an 11% increase in total revenue and an 8% increase in total expenses compared to the same period of 2023. As a result, our income from operations increased $144,184, or 38%, during the nine-month period ended September 30, 2024, when compared to the same period in the prior year.

Other Income

Other income increased 6% during the nine-month period ended September 30, 2024, compared to the same period in 2023, due to an increase in interest income from our investment in U.S. Treasury bills. During the nine-month period ended September 30, 2024, we had interest income of $319,883, including cash interest income of $176,249 from our investment in U.S. Treasury bills, which matured on June 6, 2024, and non-cash interest income of $143,634 from our reinvestment of $8,053,936 in U.S. Treasury bills, which will mature on November 29, 2024. The total interest earned in U.S. Treasury bills, which matured on June 6, 2024, was $207,611, of which $176,249 was recognized in fiscal year 2024.

During the nine-month period ended September 30, 2023, we had interest income of $301,991, including cash interest income of $175,569 from our investment in U.S. Treasury bills which matured on June 8, 2023, and non-cash interest income of $126,422 from our investments in U.S. Treasury bills, which matured on December 7, 2023. The total interest earned in U.S. Treasury bills, which matured on June 8, 2023, was $202,694, of which $175,569 was recognized in fiscal year 2023. The previously disclosed total interest earned on and amount recognized in fiscal year 2023 from the U.S. Treasury bills, which matured on June 8, 2023, included an additional $27,124 of non-cash interest on the U.S. Treasury bills that matured on December 7, 2023. That inclusion had no effect on the reported interest income and has been deducted in the above presentation.

Income Tax Provision

We realized a $60,911 or 32% increase in our income tax provision during the nine-month period ended September 30, 2024, compared to the same period of 2023, primarily because of the increase in our income from operations.

Net Income

During the nine-month period ended September 30, 2024, we realized an 11% increase in total revenues, an 8% increase in total expenses, and a 32% 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 $587,822, a 21% increase during the nine-month period ended September 30, 2024, when compared to the same period in the prior year.

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet our potential cash requirements for general business purposes. We consistently monitor our liquidity and financial position and take actions management believes are in the best interest of the Company and its shareholders to ensure the long-term financial viability of the Company. Historically, we have realized positive cash flows from operating activities, which, coupled with positive reserves of cash on hand, have been used to fund our operating expenses and obligations. We continue our efforts to keep operating expenses low by maintaining a relatively small office and having a largely remote workforce, though some of those savings are used on our continued need for IT and IT security enhancements.

During the nine-month period ended September 30, 2024, we realized net income of $587,822 primarily as a result of interest income from our investment in U.S. Treasury bills and income from operations during that period. As of September 30, 2024, we had $2,545,913 cash on hand compared to $2,565,992 as of December 31, 2023. The $20,079 decrease in cash on hand was the result of net cash provided by our operating activities fully offset by net cash used in investing and financing activities.

Management currently believes that cash on hand and anticipated revenues from operations will be sufficient to cover our operating expenses for at least the next twelve months. 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 our laptops and ancillary devices due to their age and as part of our ongoing continuity plan. We anticipate investing activities will continue throughout 2024 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-month period ended September 30, 2024, cash was primarily used to fund operations. We had a net decrease in cash of $20,079 during the nine-month period ended September 30, 2024 and a net increase in cash of $323,450, during the same period of 2023. See below for additional discussion and analysis of cash flow.

For the nine-month period ended September 30, 2024, net cash provided by operating activities was $177,720, whereas for the nine months ended September 30, 2023, net cash provided by operating activities was $431,389, a decrease of $253,669. This decrease in cash flow from operations during the current period was the result of realizing an increase in net income, offset primarily by a decrease in accounts receivable, and increases in income tax payable and non-cash interest earned on investments.

Net cash used in investing activities was $183,644 during the nine-month period ended September 30, 2024, compared to net cash provided by investing activities of $1,101,328 during the same period of 2023. The change in net cash provided by (used in) investing activities during the third quarter of 2024 was the result of reinvesting the proceeds of investments that reached maturity during the period. We plan to continue reinvesting the proceeds as our investments reach maturity.

During the nine-month period ended September 30, 2024, net cash used in financing activities was $14,155, which was the amount paid during that quarter of the remaining dividends payable from the Company’s June 2023 one-time cash dividend of $1,281,600. The remaining amount payable for the dividend as of September 30, 2024, was $57,858.

Off-Balance Sheet Financing Arrangements

As of September 30, 2024, 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.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in our consolidated financial statements and accompanying notes. Because of the inherent uncertainty in making estimates and judgments, actual results could differ from our estimates and judgments. For more detailed information about our critical accounting estimates related to us and our business, 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Smaller reporting companies are not required to provide this information.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, which are controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, the end of the period covered by this quarterly report, our Chief Executive Officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2024, that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

Management does not believe there have been any material changes to the risk factors listed under Part I, Item 1A, Risk Factors of our Annual Report.

Item 5. Other Information

During the quarter ended September 30, 2024, none of our directors or executive officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.

Item 6. Exhibits

Exhibits. The following exhibits are filed or furnished, as applicable, as part of this quarterly report:

* Filed or furnished herewith, as applicable.

(1) Incorporated by reference to Registrant’s Registration Statement on Form 10-SB as filed with the Commission on September 19, 2002.

(2) Incorporated by reference to Registrant’s Registration Statement on Form 10-SB/A-2 as filed with the Commission on July 13, 2004.

(3) Incorporated by reference to Registrant’s Definitive Proxy Statement on Schedule 14A as filed with the Commission on March 13, 2008.

(4) Incorporated by reference to Registrant’s Current Report on Form 8-K as filed with the Commission on November 22, 2016.

(5) Incorporated by reference to Registrant’s Current Report on Form 8-K as filed with the Commission on March 27, 2018.

(6) Incorporated by reference to Registrant’s Current Report on Form 8-K as filed with the Commission on January 2, 2020.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.