Pacific Health Care Q3 profit rises 50% to $335K
Cash and cash equivalents were $2,653,434, and U.S. Treasury bills had an amortized cost basis of $10,328,356 at September 30, 2026.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Pacific Health Care Organization, Inc. (PFHO) reported third-quarter revenue of $1,512,564, down 5% from $1,586,984 a year earlier, while net income rose 50% to $334,610 from $223,002. Other income included $202,657 of employee retention credit refunds; operating income fell 34% to $134,334. The company provides workers’ compensation cost-containment services, principally to California employers and claims administrators.
For the nine months ended September 30, 2026, revenue declined 7% to $4,784,919, net income fell 26% to $855,287, and operating income decreased 18% to $676,415. Customer terminations reduced HCO and MPN revenue, while medical bill review and utilization review revenue rose 17% and 12%. Three major customers accounted for approximately 53% of sales, compared with two customers and 34% in the nine months ended September 30, 2025. ERC refunds totaled $239,970, including $37,313 of interest, and other income, net decreased 33%. Cash from operations was $730,169; management believes cash on hand and anticipated operating cash flows will be sufficient to fund operations for at least the next twelve months.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointThird-quarter net income rose 50% to $334,610.
- Minor pointMedical bill review revenue increased 17% to $354,852 over nine months.
- Minor pointUtilization review revenue increased 12% to $1,796,888 over nine months.
Negative
- Moderate pointNine-month revenue fell 7% to $4,784,919.
- Moderate pointNine-month net income fell 26% to $855,287.
- Moderate pointNine-month operating income fell 18% to $676,415.
Filing Explained
Two customer terminations are expected to materially affect future revenue; received employee retention credit refunds remain subject to IRS challenge.
This quarterly report says notices received from two additional customers in
The filing says the company’s employee retention credit eligibility remains subject to IRS audit for five years from the ERC filing date, and the IRS could challenge its eligibility or calculations.
Key Figures
Key Terms
employee retention credit regulatory
held-to-maturity securities financial
performance obligations financial
unearned revenue financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What were PFHO's revenue and earnings in the third quarter of 2026?
How much did PFHO receive in employee retention credit refunds in 2026?
How concentrated were PFHO's sales in the first nine months of 2026?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the Quarterly Period
Ended
or
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer
Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
| N/A | N/A |
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.
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.)
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.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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 3, 2026, the registrant had
PACIFIC HEALTH CARE ORGANIZATION, INC.
FORM 10-Q
TABLE OF CONTENTS
| Page | ||
| PART I — FINANCIAL INFORMATION | 1 | |
| Item 1. Condensed Consolidated Financial Statements | 1 | |
| Condensed Consolidated Balance Sheets as of September 30, 2026 (Unaudited) and December 31, 2025 | 1 | |
| (Unaudited) Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2026 and 2025 | 2 | |
| (Unaudited) Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2026 and 2025 | 3 | |
| (Unaudited) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2026 and 2025 | 4 | |
| (Unaudited) Notes to Condensed Consolidated Financial Statements | 5 | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk | 21 | |
| Item 4. Controls and Procedures | 21 | |
| PART II — OTHER INFORMATION | 22 | |
| Item 1A. Risk Factors | 22 | |
| Item 5. Other Information | 22 | |
| Item 6. Exhibits | 22 | |
| Signatures | 23 | |
i
Table of contents
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Pacific Health Care Organization, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| (Unaudited) September 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investments | ||||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Income tax receivable | ||||||||
| Total current assets | ||||||||
| Long-term Assets | ||||||||
| Property and equipment, net | ||||||||
| Deferred tax assets | ||||||||
| Other assets | ||||||||
| Total long-term assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Income tax payable | ||||||||
| Unearned revenue | ||||||||
| Total current liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Convertible preferred stock, | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
Table of contents
Pacific Health Care Organization, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenues | ||||||||||||||||
| HCO | $ | $ | $ | $ | ||||||||||||
| MPN | ||||||||||||||||
| Medical bill review | ||||||||||||||||
| Utilization review | ||||||||||||||||
| Medical case management | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Expenses | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Insurance | ||||||||||||||||
| Outsource service fees | ||||||||||||||||
| Data maintenance | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Other income (expense) | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ||||||||||||||
| Total other income, net | ||||||||||||||||
| Income before taxes | ||||||||||||||||
| Income tax provision | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Basic earnings per share: | ||||||||||||||||
| Net Income per share amount | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding, basic | ||||||||||||||||
| Fully diluted earnings per share: | ||||||||||||||||
| Net Income per share amount | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding, diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Table of contents
Pacific Health Care Organization, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| Convertible Preferred Stock | Common Stock | Additional Paid in | Retained | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||||||||
| Balance December 31, 2024 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Balance March 31, 2025 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Balance June 30, 2025 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Balance September 30, 2025 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Balance December 31, 2025 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Balance March 31, 2026 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Balance June 30, 2026 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income | - | - | - | - | - | $ | $ | |||||||||||||||||||||
| Balance September 30, 2026 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Table of contents
Pacific Health Care Organization, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from Operating Activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Loss on disposal of property and equipment | ||||||||
| Provision for credit losses | ( | ) | ||||||
| Noncash interest on investments | ( | ) | ( | ) | ||||
| Deferred taxes | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Income tax receivable | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Income tax payable | ( | ) | ||||||
| Unearned revenue | ( | ) | ||||||
| Net cash provided by operating activities | $ | |||||||
| Cash flows from Investing Activities | ||||||||
| Proceeds from investments | ||||||||
| Purchase of investments | ( | ) | ( | ) | ||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from Financing Activities | ||||||||
| Payment of cash dividends | ( | ) | ||||||
| Payments made on insurance financing agreement | ( | ) | ||||||
| Net cash provided by (used in) financing activities | $ | ( | ) | |||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Table of contents
Pacific Health Care Organization, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – BASIS OF FINANCIAL STATEMENT PRESENTATION AND NATURE OF BUSINESS
The accompanying unaudited condensed consolidated financial statements of Pacific Health Care Organization, Inc. (the “Company” or “PHCO”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and Article 10 of Securities and Exchange Commission (the “SEC”) Regulation S-X. Certain information and footnote disclosures normally included in consolidated financial statements have been condensed or omitted in accordance with SEC rules and regulations. The information furnished in these unaudited condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements.
While management believes the disclosures and information presented are adequate to make the information not misleading, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in its annual report on Form 10-K for the year ended December 31, 2025. Operating results for the three and nine months ended September 30, 2026, are not necessarily indicative of the results to be expected for the year ending December 31, 2026.
PHCO is a workers’ compensation cost containment company providing a range of services principally to California employers and claims administrators. The Company was incorporated under the laws of the state of Utah in April 1970, under the name Clear Air, Inc. The Company changed its name to Pacific Health Care Organization, Inc., in January 2001. In February 2001, the Company acquired Medex, a California corporation organized in March 1994, in a share for share exchange. Medex is a wholly owned subsidiary of the Company. Medex is in the business of managing and administering both Health Care Organizations (“HCO”) and Medical Provider Networks (“MPN”) in the state of California, and providing workers’ compensation carve-out and Medicare set-aside services. In March 2011, the Company 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, the Company incorporated MMM, a Nevada corporation, as a wholly owned subsidiary of the Company. MMM is responsible for overseeing and managing medical case management. The Company discontinued lien representation services in the third quarter of 2023 due to the lack of demand.
On October 19, 2021, the Company completed short-form mergers between PHCO and each of its wholly owned subsidiaries Industrial Resolutions Coalition (“IRC”), Medex Legal Support, Inc. (“MLS”), and Pacific Medical Holding Company (“PMHC”). As a result of the short-form mergers the separate existence of IRC, MLS and PMHC terminated and the business, assets and liabilities of those entities have been transferred to PHCO and to its other subsidiaries. The Company continues to offer the services of IRC and MLS through its other subsidiaries as described in the preceding paragraph.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
| A. | Principles of Consolidation |
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
| B. | Use of Estimates |
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in these unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates include the values assigned to the allowance for credit losses, legal contingencies, and accruals for income taxes.
| C. | Reclassifications |
Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation. These changes had no impact on the Company’s total assets, stockholders’ equity or reported net income.
| D. | Revenue Recognition |
The Company recognizes revenue in accordance with ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle underlying Topic 606 is that the Company recognizes revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer.
ASC 606 requires the use of a five-step model to recognize revenue from customer contracts. The five-step model requires that the Company: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
Revenues are generated as services are provided to the customer based on the agreed upon sales price in accordance with customers’ contracts. Contracts are typically written for an initial annual period with automatic renewals on an annual or monthly basis, cancellable with 30 to 90 days’ notice, except as required by law for the Company’s HCO and MPN services, which require up to 180 days’ notice in some cases. When performing services for a public entity customer, the Company may be required to agree to the contract terms of the customer which are typically aligned with specific laws and regulations governing the customer.
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Table of contents
Pacific Health Care Organization, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company’s customers are typically large, well-established businesses with a significant workforce. The Company determines whether it is probable to collect substantially all of the consideration for services based on the creditworthiness of the customers at the time of commencing services.
The Company offers multiple services under its workers’ compensation cost containment specialty service lines. The Company typically provides a menu of offerings from which the customer may choose to purchase as bundled managed care, standalone services, or add-on ancillary services. The price of each service is separate and distinct and provides a separate and distinct value to the customer. Pricing is generally consistent for each service irrespective of the other services or quantities requested by the customer. Bundled managed care contracts are therefore accounted for as separate performance obligations. Customers are typically invoiced monthly in arrears or annually in advance, depending on the service provided and the customer’s preferences, and payment is due within 30 days. In cases where a customer is invoiced annually prior to services being rendered or remits payment in advance, typically for the Company’s HCO/MPN services, the Company records the cash collected as unearned revenue and recognizes the revenue over the contract term as services are rendered.
Contracts with customers often include promises to transfer multiple products and services to a customer, referred to as distinct performance obligations. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
The Company allocates revenue to each performance obligation based on its stand-alone selling price (SSP). Judgment is required to determine unobservable SSP for each distinct performance obligation as most services provided by the Company are not directly observable. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company determines SSP using a cost-plus margin approach. Discounts and other concessions are rarely awarded, and returns and refunds are not part of the normal course of business.
As of January 1, 2025,the balance of
accounts receivable, net and unearned revenue was $
The Company recognizes revenue as described below for each type of service.
HCO/MPN
An HCO is a network of health care providers specializing in the treatment of workplace injuries and in back-to-work rehabilitation for the Company’s customers’ injured employees. HCOs provide injured employees with a network of health care providers in the event of a workers’ compensation injury, while providing their employer (the Company’s customer) control over medical treatment and costs. Like an HCO, an MPN is a network of health care providers, but health care providers participating in MPNs are not required to have the same level of medical expertise in treating workplace injuries. As a licensed HCO and approved MPN, in addition to offering HCO and MPN programs, the Company is also able to offer its customers a combination of the HCO and MPN programs.
The Company derives its HCO and MPN revenue from fees charged for various aspects of these programs. Monthly and annual HCO/MPN program administration is provided over time and invoiced monthly or annually for a fixed fee, with revenue recognized ratably over the applicable contractual term. HCO/MPN claim network fees are generated at specific points in time throughout the month and invoiced at the end of the month for an agreed upon per item fee. Monthly HCO/MPN custom network fees are provided over time and invoiced monthly for a fixed fee. Revenue is recognized ratably over time. Annual or one-time HCO notification letters are generated and mailed at a point in time during the year, at which time the customer is invoiced for the service for a fixed fee.
For the nine months ended September 30,
2026 and 2025, the Company’s HCO programs generated approximately $
For the nine months ended September 30,
2026 and 2025, the Company’s MPN programs generated approximately $
Medical Bill Review
Medical bills are one of the biggest expenses that an employer’s workers’ compensation insurance company must pay for. To curtail these expenses, the Company’s customers utilize our medical bill review services to review medical bills for services rendered to an injured employee. The Company provides professional analysis of medical provider services and equipment billing to ascertain proper reimbursement.
The Company derives its medical bill review revenue from fees generated and delivered at a point in time and invoiced upon completion of the services. These services are invoiced at a fixed fee with certain items also invoiced for a percentage of savings produced for the customer.
Utilization Review
Utilization review, also known as utilization management, is required by law in all states for workers’ compensation claims. Utilization review evaluates the medical necessity of proposed treatment by comparing medical treatment requests against accepted medical guidelines. Its purpose is to serve as a safeguard against payor liability for medical costs that are not medically appropriate or approved by the relevant medical and legal authorities.
The Company derives its utilization review revenue from fees generated and delivered at a point in time and invoiced upon completion of the services. These services are invoiced at a fixed fee with certain items also invoiced for a percentage of savings produced for the customer.
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Table of contents
Pacific Health Care Organization, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Medical Case Management
Medical case management oversees injured employees’ medical treatment to ensure that it progresses to a resolution and ensures treatment plans are aligned from a medical perspective. Medical case management is a collaborative process that assesses, evaluates, coordinates, implements and monitors medical treatment plans and the options and services required for occupational injuries.
The Company derives its medical case management revenue from services performed and delivered over time and invoiced monthly for those services at a fixed hourly rate. The types of services offered include both telephonic and field case management as well as employee advocate services.
Other Revenues
Other revenues consist of services performed for Medicare set-aside requests, network access fees charged for network access for preferred provider organizations, ancillary legal support services, and workers’ compensation carve-out services. Medicare set-aside services for workers’ compensation claims is a financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the workplace injury, illness, or disease. The purpose of the set-aside arrangement is to provide funds to the injured party to pay for future medical expenses that would not be covered by Medicare. Network access for preferred provider organizations gives customers access to provider groups that include a specialized network of medical providers related to workers’ compensation and the lower fees associated with the Company’s affiliation to those groups.
These services are performed at a point in time and invoiced upon completion of the service. Medicare set-aside requests are invoiced at a fixed fee or hourly rate, depending on the request type. Network access fees are invoiced at a percentage of savings produced for the customer. Ancillary legal services are invoiced at a fixed fee or hourly rate, depending on the service performed. Workers’ compensation carve-out services are invoiced at a fixed fee or hourly rate, depending on the service performed.
| E. | Cash and Cash Equivalents |
The Company considers all highly liquid investments that are readily convertible to known amounts of cash and that have an original maturity of three months or less at the date of purchase to be cash equivalents. As of September 30, 2026 and December 31, 2025, the Company had no cash equivalents.
| F. | Investments |
The Company maintains its investments in U.S. treasury bills and has classified them as held-to-maturity at the time of purchase. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold until maturity. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums and discounts. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security using a straight-line method.
The amortized cost basis, gross unrealized gains and losses, and fair value of the Company’s held-to-maturity securities at September 30, 2026 and December 31, 2025 are shown below.
| Held-to-maturity securities | ||||||||||||||||
| Amortized Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| September 30, 2026 | ||||||||||||||||
| U.S. Treasury Bills | $ | $ | $ | $ | ||||||||||||
| Totals | $ | $ | $ | $ | ||||||||||||
| December 31, 2025 | ||||||||||||||||
| U.S. Treasury Bills | $ | $ | $ | $ | ||||||||||||
| Totals | $ | $ | $ | $ | ||||||||||||
The amortized cost basis and fair value of the Company’s securities at September 30, 2026, by contractual maturity, are shown below.
| Amortized Cost | Fair Value | |||||||
| September 30, 2026 | ||||||||
| Held-to-maturity securities | ||||||||
| Due in one year or less | $ | $ | ||||||
| $ | $ | |||||||
The fair value of the Company’s held-to-maturity debt securities is determined based upon inputs, other than the quoted prices in active markets, that are observable either directly or indirectly and are classified as level 2 fair value investments.
| G. | Fair Value of Financial Instruments |
The Company applies ASC 820, “Fair Value Measurements.” This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
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Table of contents
Pacific Health Care Organization, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement. |
The carrying amounts reported in the balance sheets for cash and cash equivalents, receivables and current assets and liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
| H. | Accounts Receivable and Allowance for Credit |
In the normal course of business, the
Company extends credit to its customers on a short-term basis. Although the credit risk associated with these
customers is minimal, the Company routinely reviews its accounts receivable balances and makes provisions for
credit losses. The Company ages its receivables by date of invoice. The Company has adopted the practical
expedient to assume that the current conditions as of the balance sheet date will remain unchanged for the
remaining life of the asset when developing a reasonable and supportable forecast as part of estimating the
expected credit losses on these assets. Management reviews the allowance for credit loss quarterly and
evaluates the balance of accounts receivable based on historical experience, current conditions, and
reasonable and supportable forecasts that affect the collectability of the reported amount. When a specific
account is deemed uncollectible, the Company charges off the receivable against the allowance for credit loss.
A considerable amount of judgment is required in assessing the realization of these receivables including the
current creditworthiness of each customer and related aging of the past-due balances, including any billing
disputes. To assess the collectability of these receivables, the Company performs ongoing credit evaluations
of its customers’ financial condition. Through these evaluations, the Company may become aware of a
situation where a customer may not be able to meet its financial obligations due to deterioration of its
financial viability, credit ratings or bankruptcy. The allowance for credit losses is based on the best
information available to the Company and is reevaluated and adjusted as additional information is received.
The Company evaluates the allowance based on historical write-off experience, the size of the individual
customer balances, and past-due amounts. At September 30, 2026 and December 31, 2025, the Company had an
allowance for credit losses of $
A roll-forward of the Company’s allowance for credit losses for the nine-month periods ended is as follows:
| September 30, 2026 | September 30, 2025 | |||||||
| Allowance for credit losses, beginning of period | $ | $ | ||||||
| Current period provision | ( | ) | ||||||
| Write-off | ( | ) | ||||||
| Recovery | ||||||||
| Allowance for credit losses, end of period | $ | $ | ||||||
| I. | Concentrations of Risk |
Cash and Cash Equivalents
Financial instruments that potentially
subject the Company to concentrations of credit risks are comprised of cash deposits in excess of federally
insured limits. The Company places its cash and cash equivalents at one well-known, quality financial
institution. At times, such cash and investments may be in excess of the $
Major Customers
During the nine months ended September
30, 2026,
| September
30, 2026 | September
30, 2025 | |||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
| Customer C | % | % | ||||||
During the
| September
30, 2026 | September
30, 2025 | |||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
| Customer C | % | % | ||||||
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Pacific Health Care Organization, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The percentages of the amounts due from
customers who represented
| September 30, 2026 | December 31, 2025 | |||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
| Customer C | % | % | ||||||
| Customer D | % | % | ||||||
| J. | Leases |
On April 1, 2022, the Company moved office locations from 1201 Dove Street, Suite 300 in Newport Beach, California to 19800 MacArthur Boulevard, Suites 306 and 307, in Irvine, California. The Company’s current lease was set to expire as of March 31, 2026, but was renewed on December 10, 2025 for an additional 12-month lease, with a new expiration of March 31, 2027, and no extension options.
The Company follows the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for all leases. As of September 30, 2026 and December 31, 2025, there were no operating lease right-of-use assets or liabilities. The Company elected to not apply the requirements of ASC 842 for short-term leases. Short-term leases are defined as leases that, at the commencement date, have a lease term of 12 months or less. Lease expense is recognized on a straight-line basis over the lease term. If a lease does not provide an implicit rate, the Company develops an estimated incremental borrowing rate at the commencement date based on the estimated rate at which it would borrow, in the current economic environment, an amount equal to the lease payments over a similar term on a collateralized basis which is used to determine the present value of lease payments. The Company had no finance leases at September 30, 2026 and December 31, 2025.
| K. | Depreciation |
The cost of property and equipment is
depreciated over the estimated useful lives of the related assets. The cost of leasehold improvements is
depreciated over the lesser of the length of the lease of the related assets or the estimated lives of the
assets. Depreciation is computed on the straight-line method, which is
| L. | General and Administrative Expenses |
General and administrative expenses include fees for advertising, charity, depreciation, bad debt and recoveries, rent expense for office, shareholders’ expense, auto expenses, bank charges, dues and subscriptions, education, equipment/repairs, IT enhancement and internet expenses, licenses and permits, office supplies, parking, postage and delivery, printing and reproduction, rent expense for equipment, telephone and travel expenses, and entertainment costs.
| M. | Income Taxes |
The Company accounts for income taxes by following the asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, operating loss, and tax credit carry forwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of the tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted. Management believes that any write-off not allowed will not have a material impact on the Company’s financial position.
The Company is subject to taxation in United States federal and state jurisdictions. Based on its evaluation, the Company believes that it has no significant unrecognized tax positions. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The years 2022, 2023, 2024, and 2025 are still open for examination. The Company is not currently under audit by the Internal Revenue Service or any other tax authority.
The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to its financial results. In accordance with current guidance, the Company classifies interest and penalties as income tax expense as incurred.
| N. | Share Based Compensation |
The Company follows the fair value method of accounting for stock-based employee and non-employee compensation in accordance with statement of ASC Topic 718, “Compensation – Stock Compensation” which requires that equity-based payments (to the extent they are compensatory) be recognized in these unaudited condensed consolidated statements of operations as compensation expense over the requisite service (vesting) period, based on the award’s fair value at grant date. No awards or grants have been awarded or granted under the Company’s current equity incentive plan. See “Note 9 – EQUITY INCENTIVE AWARDS” of this Part I, Item 1 Notes to Condensed Consolidated Financial Statements (Unaudited) for more information about the Company’s current equity incentive plan.
| O. | Legal Contingencies |
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with the loss contingencies are expensed as incurred.
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Pacific Health Care Organization, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 3 – SEGMENT INFORMATION
The Company conducts its business activities and reports financial results as a single reportable segment, the workers’ compensation cost containment specialists segment, based on the nature of its business and accounting policies. The Chief Operating Decision Maker (“CODM”) is its executive team. The CODM makes decisions about allocating resources and assessing performance in a manner consistent with the way the Company operates its business and presents its financial results, using the same net income that is also reported on the consolidated statements of operations as net income. There are no reconciling items to the consolidated statements of operations. The measurement of segment assets is reported on the consolidated balance sheet as total assets. The CODM uses net income to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits into the workers’ compensation cost containment specialists segment or into other parts of the entity. All of the Company’s customers are based in the United States.
NOTE 4 – PROPERTY AND EQUIPMENT
Scheduled below are the assets, costs, and accumulated depreciation at September 30, 2026 and December 31, 2025.
| September 30, 2026 | December 31, 2025 | |||||||
| Computer equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Totals | $ | $ | ||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total Property and Equipment, net | $ | $ | ||||||
Depreciation expense for the nine
months ended September 30, 2026 and 2025, totaled $
NOTE 5 – LEASES
The Company rents office space at 19800
MacArthur Boulevard, Suites 306 & 307, in Irvine, California. This lease was to expire as of March 31,
2026, but was renewed on December 10, 2025 for an additional 12 months, with a new expiration of March 31,
2027, and no extension options. The lease provides
Rent expenses were $
NOTE 6 – ACCRUED EXPENSES
As of September 30, 2026 and December 31, 2025, accrued expenses consisted of the following:
| September
30, 2026 | December 31,
2025 | |||||||
| Salaries and wages | $ | $ | ||||||
| Compensated absences | ||||||||
| Accounting fees | ||||||||
| Sales commissions | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
NOTE 7 – INCOME TAXES
For the three months ended September 30,
2026, the Company recognized expense from income taxes of $
NOTE 8 – BENEFITS AND OTHER COMPENSATION
The Company offers a 401(k)-profit sharing plan for employees who meet the eligibility requirements. Pursuant to the plan, the Company may make discretionary matching contributions and/or discretionary profit-sharing contributions to the plan. All such contributions must comply with federal pension laws, non-discrimination requirements and the terms of the plan. In determining whether to make a discretionary contribution, the board of directors would evaluate current and prospective costs of such awards to the Company and management’s desire to reward and retain employees and attract new employees. To date, the Company has never made matching contributions and/or discretionary profit-sharing contributions to the plan.
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Pacific Health Care Organization, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 9 – EQUITY INCENTIVE AWARDS
2018 Plan
The Pacific Health Care Organization
2018 Equity Incentive Plan (the “2018 Plan”) became effective on April 6, 2018. The 2018 Plan
permits the granting of
NOTE 10 – STOCKHOLDERS’ EQUITY
On January 6, 2020, the Company effected
a
The Company has two classes of stock.
The Company had
The Company purchased no shares of treasury stock during the nine-month periods ended September 30, 2026 and 2025. The Company does not have a plan to repurchase outstanding shares of common stock.
NOTE 11 – EARNINGS PER SHARE OF COMMON STOCK
The computation of earnings per share of
common stock is based on the weighted average number of shares outstanding at the date of these unaudited
condensed consolidated financial statements. The fully diluted earnings per share includes
| For the Three months Ended September 30, | For the Nine months Ended September 30, | |||||||||||||||
| Basic and Diluted Net Income Per Share calculation | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Net Income to common stockholders | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding, basic | ||||||||||||||||
| Basic Net Income per share | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding, diluted | ||||||||||||||||
| Diluted Net Income per share | $ | $ | $ | $ | ||||||||||||
For the three and nine months ended
September 30, 2026 and 2025, there were common stock equivalents related to convertible preferred stock that
had a dilutive effect of
NOTE 12 – COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
NOTE 13 – RELATED PARTY TRANSACTIONS
The Company defines a related party as an individual or entity that has the ability to exercise significant influence over the Company’s management or operations. Related parties include, among others, the Company’s principal stockholders, directors, executive officers, and members of their immediate families, as well as entities controlled by, or under common control with, such individuals.
The Company retained Donald P. Balzano,
who at the time was a shareholder owning
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Pacific Health Care Organization, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company’s former CFO and board
member, Kristina Kubota, provides financial consulting services for the Company. Kristina Kubota is the
daughter of Tom Kubota, the Company’s CEO, President, Chairman of the board and majority shareholder.
Ms. Kubota’s consulting arrangement commenced upon her resignation from the CFO position with the
Company on March 5, 2024. The fees paid to Ms. Kubota are recorded in Professional Fees on the consolidated
income statement. Fees for services not yet billed are included in Accrued Expenses on the consolidated
balance sheet, totaling $
The Company’s former Vice President, Secretary and board member, Lauren Kubota, resigned from her positions with the Company during the third quarter of 2025. After her resignation, Lauren Kubota provided consulting services for the Company. The consulting arrangement commenced on August 4, 2025 and expired on August 31, 2025. Lauren Kubota is the daughter of Tom Kubota, the Company’s CEO, President, Chairman of the board and majority shareholder. No fees related to these consulting services were included in accrued expenses at September 30, 2026 and December 31, 2025. No fees related to these services were earned during the nine months ended September 30, 2026 and 2025.
NOTE 14 – EMPLOYEE RETENTION CREDIT
The employee retention credit (“ERC”), as originally enacted through the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on March 27, 2020, is a refundable credit against certain employment taxes equal to 50% of the qualified wages an eligible employer paid to employees from March 17, 2020 to December 31, 2020. The Disaster Tax Relief Act, enacted on December 27, 2020, extended the ERC for qualified wages paid from January 1, 2021 to June 30, 2021, and the credit was increased to 70% of qualified wages an eligible employer paid to employees during the extended period. The American Rescue Plan Act of 2021, enacted on March 11, 2021, further extended the ERC through December 31, 2021. Employers are eligible for the credit if they experienced full or partial suspension or modification of operations during any calendar quarter because of governmental orders due to the pandemic or a significant decline in gross receipts based on a comparison of quarterly revenue results for 2020 and/or 2021 with the comparable quarter in 2019.
In 2023, the Company applied for the ERC through external tax consultants after determining that the Company was eligible for the credit. The Company’s ERC application was based on qualified wages paid to employees during periods in 2020 and 2021. The consulting arrangement was structured as a flat fee per employee for which the credit was applied, with payment terms providing that no fees were due until the credit was received from the Internal Revenue Service (“IRS”). Since there are no specific generally accepted accounting principles for for-profit business entities that receive government assistance that is not a loan, an income tax credit, or revenue from a contract with a customer, the Company has elected to apply International Accounting Standard (IAS) 20, “Accounting for Government Grants and Disclosure of Government Assistance,” by analogy in accordance with ASC 105-10-05-3. Under IAS 20, government grants should be recognized when there is reasonable assurance that (1) the entity will comply with the conditions attached to the grant, and (2) the grant will be received. Given the unprecedented nature of the program, the Company determined that reasonable assurance was not achieved until the refund was actually received from the IRS.
During 2025, the Company received ERC refund checks from the IRS
totaling $
NOTE 15 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, Company management reviewed all material events through the date of issuance and there are no material subsequent events to report.
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Item 2. 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, 2025, filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2026 (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; | |
| ● | our inability to renew business accreditations necessary to provide certain lines of business to customers that require those accreditations; | |
| ● | failure to retain or recruit, or changes in, officers and key employees, and uncertainties in our ability to maintain key consultants and advisors; |
| ● | cost reduction efforts by our existing and prospective customers; |
| ● | reductions in workers’ compensation claims or the demand for our services, from whatever source; |
| ● | the loss, ineffective management, malfunction (including those resulting from cybersecurity incidents and breaches), or increased costs of third-party-provided technologies and services on which our operations rely; |
| ● | cybersecurity incidents 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 into; |
| ● | 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, partial or full federal government shutdown, 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.
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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 our 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 our 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 17 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
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. Adverse economic conditions, including inflationary pressures, elevated interest rates, and a difficult labor market, could lead our customers to reduce their workforces or seek lower-cost alternatives to our services. A resulting decline in the number of employees enrolled in our HCO, MPN, and employee advocate programs could materially and adversely affect our related revenues. During the nine months ended September 30, 2026, our operating revenue decreased primarily due to the customer terminations discussed below. We believe these terminations were influenced, at least in part, by challenging economic conditions and the customers’ efforts to seek more price-competitive alternatives to our services.
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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 customers. This termination did not materially impact our operating revenues in 2025, but did materially impact our operating revenues during the first nine months of 2026, and will likely continue to impact our operating revenues in future periods. Further, in January and June 2026, we received notices of termination from two additional customers, which we anticipate will have material impacts on our operating revenues in future periods. However, we also expect these impacts will be partially offset in future periods by increased services and new programs requested by our other customers, as well as internal labor cost reductions made during the third quarter of 2026. We expect to continue to be susceptible to risks associated with customer concentration, and related potential material impacts on our results of operations for the foreseeable future.
Our medical bill review and utilization review programs grew by 17% and 12%, respectively, during the nine months ended September 30, 2026, compared to the same period in 2025, which partially offset the overall decreases in HCO and MPN program revenues. We believe that increased demand for our medical bill review and utilization review services was driven by rising and difficult to control healthcare costs, as these services are an additional means to decrease healthcare costs for our customers. However, these service lines remain sensitive to labor reductions and future labor reductions by our customers could adversely affect the demand for these programs.
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, employee advocate services, Medicare set-aside, 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 fixed 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.
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The following table sets forth, for the below indicated periods ended September 30, 2026 and 2025, 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, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| HCO | 13 | % | 12 | % | 14 | % | 20 | % | ||||||||
| MPN | 7 | % | 11 | % | 9 | % | 10 | % | ||||||||
| Medical bill review | 6 | % | 6 | % | 7 | % | 6 | % | ||||||||
| Utilization review | 43 | % | 37 | % | 38 | % | 31 | % | ||||||||
| Medical case management | 31 | % | 34 | % | 32 | % | 32 | % | ||||||||
| Other | - | % | - | % | - | % | 1 | % | ||||||||
Expense
Salaries and wages
Salaries and wages reflect employment-related compensation we pay to our employees, payroll processing, payroll taxes, vacation expenses 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 enrollments and notifications. HCO employee enrollment and notification fees fluctuate throughout the year because of the varied timing of customer enrollment 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, 2026 and 2025, 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, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Salaries and wages | 47 | % | 49 | % | 48 | % | 49 | % | ||||||||
| Professional fees | 11 | % | 17 | % | 13 | % | 14 | % | ||||||||
| Insurance | 7 | % | 7 | % | 6 | % | 6 | % | ||||||||
| Outsource service fees | 19 | % | 14 | % | 17 | % | 13 | % | ||||||||
| Data maintenance fees | 1 | % | - | % | 2 | % | 5 | % | ||||||||
| General and administrative | 15 | % | 13 | % | 14 | % | 13 | % | ||||||||
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Results of Operations
Comparison of the three months ended September 30, 2026 and 2025
The following represents selected components of our unaudited condensed consolidated results of operations for the three-month periods ended September 30, 2026 and 2025, respectively, together with changes from period-to-period:
| For three months ended September 30, | Amount | % | ||||||||||||||
| 2026 | 2025 | Change | Change | |||||||||||||
| Revenues | ||||||||||||||||
| HCO | $ | 189,934 | $ | 205,793 | $ | (15,859 | ) | (8 | )% | |||||||
| MPN | 105,746 | 171,479 | (65,733 | ) | (38 | )% | ||||||||||
| Medical bill review | 95,584 | 89,479 | 6,105 | 7 | % | |||||||||||
| Utilization review | 643,186 | 580,247 | 62,939 | 11 | % | |||||||||||
| Medical case management | 475,914 | 535,486 | (59,572 | ) | (11 | )% | ||||||||||
| Other | 2,200 | 4,500 | (2,300 | ) | (51 | )% | ||||||||||
| Total revenues | 1,512,564 | 1,586,984 | (74,420 | ) | (5 | )% | ||||||||||
| Expenses | ||||||||||||||||
| Salaries and wages | 652,813 | 670,249 | (17,436 | ) | (3 | )% | ||||||||||
| Professional fees | 156,217 | 235,952 | (79,735 | ) | (34 | )% | ||||||||||
| Insurance | 92,702 | 90,379 | 2,323 | 3 | % | |||||||||||
| Outsource service fees | 259,977 | 196,885 | 63,092 | 32 | % | |||||||||||
| Data maintenance | 9,616 | 2,340 | 7,276 | 311 | % | |||||||||||
| General and administrative | 206,905 | 186,142 | 20,763 | 11 | % | |||||||||||
| Total expenses | 1,378,230 | 1,381,947 | (3,717 | ) | - | % | ||||||||||
| Income from operations | 134,334 | 205,037 | (70,703 | ) | (34 | )% | ||||||||||
| Other income (expense) | ||||||||||||||||
| Other income | 202,657 | 1,870 | 200,787 | 10,737 | % | |||||||||||
| Interest income | 134,174 | 103,202 | 30,972 | 30 | % | |||||||||||
| Total other income, net | 336,831 | 105,072 | 231,759 | 221 | % | |||||||||||
| Income before taxes | 471,165 | 310,109 | 161,056 | 52 | % | |||||||||||
| Income tax provision | 136,555 | 87,107 | 49,448 | 57 | % | |||||||||||
| Net income | $ | 334,610 | $ | 223,002 | $ | 111,608 | 50 | % | ||||||||
Revenue
HCO
HCO revenue for the three-month period ended September 30, 2026, decreased by 8% compared to the same period in the prior year. The decrease in HCO revenue was primarily attributable to the loss of a customer.
MPN
MPN revenue for the three-month period ended September 30, 2026, decreased by 38% compared to the same period in the prior year. The decrease in MPN revenue was largely due to the year-to-date loss of three customers, and an existing customer no longer accessing our MPN network.
Medical bill review
During the three-month period ended September 30, 2026, medical bill review revenue increased by 7% compared to the same period in the prior year. The increase was primarily due to a shift in the mix of bill reviews performed from period to period, with a higher proportion of higher-priced hospital bill reviews performed in the third quarter of 2026 compared to a higher proportion of lower-priced bill reviews in the third quarter of 2025.
Utilization review
During the three-month period ended September 30, 2026, utilization review revenue increased 11%, compared to the same period in the prior year. The increase in utilization review revenue was due to increased rates at which we charge customers for this service and the number of referrals for requests for authorization from existing customers.
Medical case management
During the three-month period ended September 30, 2026, medical case management revenue decreased 11% compared to the same period in the prior year. The decrease in medical case management revenue was due to the year-to-date loss of two customers, and one existing customer no longer submitting referrals for case management.
Other
During the three-month period ended September 30, 2026, other revenue decreased 51% compared to the same period in the prior year, primarily due to a decrease in the requests for Medicare set-aside services from existing customers.
Expenses
Professional fees
During the three-month period ended September 30, 2026, professional fees decreased 34% compared to the three months ended September 30, 2025. The decrease in professional fees was primarily due to the completion of the consulting engagement of our former interim Assistant Controller during the fourth quarter of 2025. We expect professional fees to increase in the fourth quarter of 2026 due to the consulting engagement of our new interim Assistant Controller through January 2027.
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Outsource service fees
During the three-month period ended September 30, 2026, outsource service fees increased 32% compared to the three months ended September 30, 2025. The increase in outsource service fees was due to increased rates at which we are charged for this service and demand for our utilization review services, which resulted in us incurring more outsourced costs for that service line.
General and administrative
General and administrative expenses increased by 11% during the three-month period ended September 30, 2026, compared to the three months ended September 30, 2025. The increase was primarily due to increases in IT enhancements, meals, travel and entertainment.
Income from Operations
During the three-month period ended September 30, 2026, we recognized a 5% decrease in total revenues and a nominal decrease in total expenses. As a result, our income from operations decreased $70,703, or 34% for the three months ended September 30, 2026, when compared to the three months ended September 30, 2025.
Other Income, net
During the three-month period ended September 30, 2026, other income, net increased 221% compared to the same period in 2025, primarily due to ERC refunds received in 2026 from the Internal Revenue Service in the amount of $202,657.
Income Tax Provision
We realized an increase in our income tax provision of $49,448, or 57%, during the three-month period ended September 30, 2026, compared to the same period in the prior year due to higher pretax income, which is primarily attributable to the receipt of ERC refund checks in the third quarter of 2026.
Net Income
During the three-month period ended September 30, 2026, we realized a 5% decrease in total revenues, and a nominal decrease in total expenses, a $231,759 increase in other income, net, and a 57% 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 $334,610, a 50% increase in net income year over year.
Comparison of the nine months ended September 30, 2026 and 2025
The following represents selected components of our unaudited condensed consolidated results of operations for the nine-month periods ended September 30, 2026 and 2025, respectively, together with changes from period-to-period:
| For nine months ended September 30, | Amount | % | ||||||||||||||
| 2026 | 2025 | Change | Change | |||||||||||||
| Revenues | ||||||||||||||||
| HCO | $ | 678,897 | $ | 1,020,309 | $ | (341,412 | ) | (33 | )% | |||||||
| MPN | 406,720 | 500,699 | (93,979 | ) | (19 | )% | ||||||||||
| Medical bill review | 354,852 | 302,388 | 52,464 | 17 | % | |||||||||||
| Utilization review | 1,796,888 | 1,606,624 | 190,264 | 12 | % | |||||||||||
| Medical case management | 1,539,112 | 1,669,369 | (130,257 | ) | (8 | )% | ||||||||||
| Other | 8,450 | 32,950 | (24,500 | ) | (74 | )% | ||||||||||
| Total revenues | 4,784,919 | 5,132,339 | (347,420 | ) | (7 | )% | ||||||||||
| Expenses | ||||||||||||||||
| Salaries and wages | 1,960,529 | 2,102,731 | (142,202 | ) | (7 | )% | ||||||||||
| Professional fees | 517,095 | 613,791 | (96,696 | ) | (16 | )% | ||||||||||
| Insurance | 255,724 | 262,671 | (6,947 | ) | (3 | )% | ||||||||||
| Outsource service fees | 705,197 | 550,025 | 155,172 | 28 | % | |||||||||||
| Data maintenance | 94,987 | 200,522 | (105,535 | ) | (53 | )% | ||||||||||
| General and administrative | 574,972 | 579,582 | (4,610 | ) | (1 | )% | ||||||||||
| Total expenses | 4,108,504 | 4,309,322 | (200,818 | ) | (5 | )% | ||||||||||
| Income from operations | 676,415 | 823,017 | (146,602 | ) | (18 | )% | ||||||||||
| Other income (expense) | ||||||||||||||||
| Other income | 202,657 | 421,669 | (219,012 | ) | (52 | )% | ||||||||||
| Interest income | 323,589 | 369,261 | (45,672 | ) | (12 | )% | ||||||||||
| Interest expense | - | (1,522 | ) | 1,522 | (100 | )% | ||||||||||
| Total other income, net | 526,246 | 789,408 | (263,162 | ) | (33 | )% | ||||||||||
| Income before taxes | 1,202,661 | 1,612,425 | (409,764 | ) | (25 | )% | ||||||||||
| Income tax provision | 347,374 | 459,853 | (112,479 | ) | (24 | )% | ||||||||||
| Net income | $ | 855,287 | $ | 1,152,572 | $ | (297,285 | ) | (26 | )% | |||||||
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Revenue
HCO
During the nine-month period ended September 30, 2026, HCO revenue decreased 33% compared to the same period in the prior year. The decrease in HCO revenue was attributable to the year-to-date loss of a customer and the loss of a customer during the previous year.
MPN
MPN revenue for the nine-month period ended September 30, 2026, decreased by 19% compared to the same period in the prior year. The decrease in MPN revenue was largely due to the year-to-date loss of three customers, and an existing customer no longer accessing our MPN network.
Medical bill review
During the nine-month period ended September 30, 2026, medical bill review revenue increased by 17% compared to the same period in the prior year. The increase was primarily due to a shift in the mix of bill reviews performed from period to period, with a higher proportion of higher-priced hospital bill reviews performed during the nine-month period ended September 30, 2026 compared to a higher proportion of lower-priced bill reviews in the same period in the prior year.
Utilization review
During the nine-month period ended September 30, 2026, utilization review revenue increased 12%, compared to the same period in the prior year. The increase in utilization review revenue was due to increased rates at which we charge customers for this service and the number of referrals for requests for authorization from existing customers.
Medical case management
During the nine-month period ended September 30, 2026, medical case management revenue decreased 8% compared to the same period in the prior year. The decrease in medical case management revenue was due to the year-to-date loss of two customers, and an existing customer no longer submitting referrals for case management.
Other
Other revenue for the nine-month period ended September 30, 2026 decreased 74% compared to the same period in the prior year, due to a decrease in requests for Medicare set-aside services from current customers and the discontinuance of network access fee-related services for the customer that completed a phase out of our services during fiscal year 2025.
Expenses
Salaries and wages
During the nine-month period ended September 30, 2026, salaries and wages decreased 7% compared to the nine months ended September 30, 2025. The decrease was due primarily to reduced headcount.
Professional fees
During the nine-month period ended September 30, 2026, professional fees decreased 16% compared to the nine months ended September 30, 2025. The decrease in professional fees was primarily the result of a normalization of accounting and legal fees after our transition to a new auditing firm and the completion of the consulting engagement of our former interim Assistant Controller.
Outsource service fees
During the nine-month period ended September 30, 2026, outsource service fees increased 28% compared to the nine months ended September 30, 2025. The increase in outsource service fees was due to increased rates at which we are charged for this service and demand for our utilization review services, which resulted in us incurring more outsourced costs for that service line.
Data maintenance
During the nine-month period ended September 30, 2026, data maintenance fees decreased 53% compared to the nine months ended September 30, 2025. The decrease in data maintenance fees was primarily due to the timing of when we completed annual and termination letters, and related billing for the customer that completed a phase out of our services during fiscal year 2025.
Income from Operations
During the nine-month period ended September 30, 2026, we recognized a 7% decrease in total revenues and a 5% decrease in total expenses. As a result, our income from operations decreased $146,602, or 18%, for the nine months ended September 30, 2026, when compared to the nine months ended September 30, 2025.
Other Income, net
During the nine-month period ended September 30, 2026, other income, net decreased 33% compared to the same period in the prior year. The decrease was primarily due to higher ERC refunds received in 2025 from the Internal Revenue Service in the amount of $488,655, which includes interest of $68,854, compared to ERC refunds received during the same period of 2026, in the amount of $239,970, which includes interest of $37,313.
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Income Tax Provision
We realized a decrease in our income tax provision of $112,479, or 24%, during the nine-month period ended September 30, 2026, compared to the same period in the prior year due to lower pretax income. The decrease in pretax income was primarily attributable to lower ERC refund checks received during the nine-month period ended September 30, 2026, compared to the higher ERC refund checks received during the same period in 2025.
Net Income
During the nine-month period ended September 30, 2026, we realized a 7% decrease in total revenues, a 5% decrease in total expenses, a decrease in other income, net of $263,162, and a 24% 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 $855,287, a 26% decrease in net income year over year.
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. Our 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 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, 2026, we had a net increase in cash and cash equivalents of $484,626. See below for additional discussion and analysis of cash flow.
| For the nine months ended September 30, | ||||||||
| 2026 (unaudited) | 2025 (unaudited) | |||||||
| Net cash provided by operating activities | $ | 730,169 | $ | 809,710 | ||||
| Net cash (used in) investing activities | (245,543 | ) | (665,443 | ) | ||||
| Net cash (used in) financing activities | - | (36,055 | ) | |||||
| Net increase in cash and cash equivalents | $ | 484,626 | $ | 108,212 | ||||
Net cash provided by operating activities was $730,169 and $809,710 for the nine months ended September 30, 2026 and 2025, respectively. This $79,541 decrease in cash flow from operations during the first nine months of 2026 was the result of lower operating income, lower receipt of ERC refund checks, and changes in working capital balances.
Net cash used in investing activities was $245,543 and $665,443 for the nine months ended September 30, 2026 and 2025, respectively. The $419,900 decrease in net cash used in investing activities was due to an additional cash investment made in the prior period that was not repeated in the current period.
Net cash used in financing activities was $0 and $36,055 for the nine months ended September 30, 2026 and 2025, respectively. The $36,055 decrease in net cash used in financing activities from period to period was the result of our insurance financing agreement maturing during fiscal year 2025.
Off-Balance Sheet Financing Arrangements
As of September 30, 2026, 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.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Smaller reporting companies are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are designed to provide reasonable assurance that information required to be disclosed by a company in the reports 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 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, evaluated 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, 2026, the end of the period covered by this quarterly report, our principal 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 during the quarter ended September 30, 2026, that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.
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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
Insider Trading Arrangements
During the quarter
ended September 30, 2026, none of our directors or executive officers
Item 6. Exhibits
Exhibits. The following exhibits are filed or furnished, as applicable, as part of this quarterly report:
| Exhibit No. | Exhibit Description | |
| 3.1 | Articles of Incorporation and Amendments thereto(1) | |
| 3.2 | Bylaws(1) | |
| 3.3 | Bylaws(2) | |
| 3.4 | Bylaws(3) | |
| 3.5 | Bylaws(4) | |
| 3.6 | Articles of Amendment to Articles of Incorporation to effect 1 share for 50 shares reverse split(5) | |
| 3.7 | Articles of Amendment to Articles of Incorporation to effect 2.5 shares for 1 share forward split(5) | |
| 3.8 | Certificate of Designation of Rights, Privileges and Preferences of Series A Convertible Preferred Stock(6) | |
| 3.9 | Articles of Amendment to Articles of Incorporation to effect four-shares-for-one-share forward split(7) | |
| 3.10 | Articles of Amendment to Articles of Incorporation, dated December 27, 2019, including Amended Certification of Designation of Rights, Privileges and Preferences of Series A Convertible Preferred Stock to affect a four-shares-for-one-share forward stock split(8) | |
| 31.1 | Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 31.2 | Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 32 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
| 101 | Pursuant to Rules 405 and 406 of Regulation S-T, the following information is formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of September 30, 2026 (Unaudited) and December 31, 2025, (ii) the Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2026 and 2025, (iii) the Unaudited Condensed Consolidated Statements of Stockholder’s Equity for the three and nine months ended September 30, 2026 and 2025, (iv) the Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2026 and 2025, and (v) Notes to Condensed Consolidated Financial Statements (Unaudited), and (vi) the cover page* | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * | Filed or furnished herewith, as applicable. |
| (1) | Incorporated by reference to Registrant’s Registration Statement on Form 10-SB as filed with the SEC on September 19, 2002. |
| (2) | Incorporated by reference to Registrant’s Registration Statement on Form 10-SB/A-2 as filed with the SEC on July 13, 2004. |
| (3) | Incorporated by reference to Registrant’s Current Report on Form 8-K as filed with the SEC on February 14, 2018. |
| (4) | Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q as filed with the SEC on July 31, 2025. |
| (5) | Incorporated by reference to Registrant’s Definitive Proxy Statement on Schedule 14A as filed with the SEC on March 13, 2008. |
| (6) | Incorporated by reference to Registrant’s Current Report on Form 8-K as filed with the SEC on November 22, 2016. |
| (7) | Incorporated by reference to Registrant’s Current Report on Form 8-K as filed with the SEC on March 27, 2018. |
| (8) | Incorporated by reference to Registrant’s Current Report on Form 8-K as filed with the SEC on January 2, 2020. |
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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.
| PACIFIC HEALTH CARE ORGANIZATION, INC. | |
| Date: November 3, 2026 | /s/ Tom Kubota |
| Tom Kubota | |
| Chief Executive Officer, | |
| President and Chairman of the Board | |
| (Principal Executive, Financial and Accounting Officer) |
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