UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended |
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the |
Commission File Number 000-50009
PACIFIC HEALTH CARE ORGANIZATION, INC. | |
(Exact name of registrant as specified in its charter) | |
Utah | 87-0285238 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
19800 MacArthur Boulevard, Suites 306 & 307 | |
Irvine, California | 92612 |
(Address of principal executive offices) | (Zip Code) |
(949) 721-8272
(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 | ||
None | 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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.) Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer | Smaller reporting company ☒ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not 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 10, 2017,May 18, 2023, the registrant had 800,00012,800,000 shares of common stock, par value $0.001, issued and outstanding.
PACIFIC HEALTH CARE ORGANIZATION, INC.
FORM 10-Q
TABLE OF CONTENTS
Page | ||
PART I — FINANCIAL INFORMATION | ||
3 | ||
3 | ||
4 | ||
5 | ||
6 | ||
7 | ||
11 | ||
23 | ||
23 | ||
PART II — OTHER INFORMATION | ||
24 | ||
24 | ||
25 | ||
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
Pacific Health Care Organization, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, | December 31, | |||||||||||||||
2023 | 2022 | |||||||||||||||
| ASSETS | ||||||||||||||||
September 30, 2017 | December 31, 2016 | |||||||||||||||
| Current Assets | ||||||||||||||||
| Cash | $ | 5,613,412 | $ | 5,005,617 | $ | 1,994,841 | $ | 2,036,432 | ||||||||
| Accounts receivable, net of allowance of $60,150 and $64,150 | 985,787 | 849,648 | ||||||||||||||
| Deferred tax asset | 11,661 | 11,661 | ||||||||||||||
Investments | 8,848,251 | 8,748,435 | ||||||||||||||
Accounts receivable, net of allowance of $8,037 and $7,807 | 997,731 | 934,990 | ||||||||||||||
Receivable – other | 3,000 | 3,000 | ||||||||||||||
| Prepaid expenses | 142,950 | 136,862 | 170,198 | 175,355 | ||||||||||||
| Total current assets | 6,753,810 | 6,003,788 | 12,014,021 | 11,898,212 | ||||||||||||
| Property and Equipment, net | ||||||||||||||||
| Computer equipment | 363,402 | 349,955 | 256,709 | 256,500 | ||||||||||||
| Furniture and fixtures | 212,823 | 206,785 | 20,328 | 20,328 | ||||||||||||
| Office equipment | 9,556 | 15,595 | ||||||||||||||
| Total property and equipment | 585,781 | 572,335 | 277,037 | 276,828 | ||||||||||||
| Less: accumulated depreciation | (405,154 | ) | (346,295 | ) | ||||||||||||
Less: accumulated depreciation and amortization | (188,802 | ) | (179,423 | ) | ||||||||||||
| Net property and equipment | 180,627 | 226,040 | 88,235 | 97,405 | ||||||||||||
| Other Assets | 26,788 | 26,788 | ||||||||||||||
| Total assets | $ | 6,961,225 | $ | 6,256,616 | ||||||||||||
Operating lease right-of-use assets, net | 41,198 | 50,137 | ||||||||||||||
Other assets | 7,110 | 6,602 | ||||||||||||||
Total Assets | $ | 12,150,564 | $ | 12,052,356 | ||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current Liabilities | ||||||||||||||||
| Accounts payable | $ | 62,924 | $ | 101,294 | $ | 227,322 | $ | 263,022 | ||||||||
| Accrued expenses | 278,903 | 253,367 | 287,563 | 332,551 | ||||||||||||
| Deferred rent expense | 39,358 | 17,485 | ||||||||||||||
| Income tax payable | 21,115 | 31,226 | 54,295 | 3,132 | ||||||||||||
| Dividend payable | 56,923 | 56,923 | 37,000 | 37,000 | ||||||||||||
Operating lease liabilities, current portion | 30,681 | 39,620 | ||||||||||||||
| Unearned revenue | 37,763 | 38,748 | 39,107 | 33,544 | ||||||||||||
| Total current liabilities | 496,986 | 499,043 | 675,968 | 708,869 | ||||||||||||
| Total liabilities | 496,986 | 499,043 | ||||||||||||||
Long Term Liabilities | ||||||||||||||||
Operating lease liabilities, long term portion | 10,517 | 10,517 | ||||||||||||||
Deferred tax liabilities | 15,679 | 15,679 | ||||||||||||||
Total Liabilities | $ | 702,164 | $ | 735,065 | ||||||||||||
| Commitments and Contingencies | - | - | - | - | ||||||||||||
| Stockholders’ Equity | ||||||||||||||||
Preferred stock, 5,000,000 shares authorized at $0.001 par value of which 10,000 shares designated as Series A preferred and 1,000 shares issued and outstanding at September 30, 2017 and December 31, 2016 | 1 | 1 | ||||||||||||||
Common stock, $0.001 par value: 50,000,000 shares authorized; 800,000 shares issued and outstanding at September 30, 2017 and December 31, 2016 | 800 | 800 | ||||||||||||||
Convertible preferred stock, $0.001 par value, 5,000,000 shares authorized of which 40,000 shares designated as Series A preferred and 16,000 shares issued and outstanding | 16 | 16 | ||||||||||||||
Common stock, $0.001 par value, 800,000,000 shares authorized, 12,800,000 shares issued and outstanding | 12,800 | 12,800 | ||||||||||||||
| Additional paid-in capital | 428,072 | 428,072 | 416,057 | 416,057 | ||||||||||||
| Retained earnings | 6,035,366 | 5,328,700 | 11,019,527 | 10,888,418 | ||||||||||||
| Total stockholders’ equity | 6,464,239 | 5,757,573 | 11,448,400 | 11,317,291 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 6,961,225 | $ | 6,256,616 | ||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 12,150,564 | $ | 12,052,356 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statementsstatements.
Pacific Health Care Organization, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
For three months ended September 30, | For nine months ended September 30, | For three months ended March 31, | ||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2023 | 2022 | |||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| HCO fees | $ | 377,923 | $ | 276,951 | $ | 1,041,328 | $ | 965,768 | ||||||||||||||||
| MPN fees | 142,257 | 146,836 | 427,228 | 436,893 | ||||||||||||||||||||
| UR fees | 277,886 | 221,176 | 788,229 | 596,205 | ||||||||||||||||||||
| MBR fees | 147,094 | 187,829 | 481,352 | 517,893 | ||||||||||||||||||||
| NCM fees | 582,544 | 499,118 | 1,824,121 | 1,176,447 | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
HCO | $ | 278,322 | $ | 360,968 | ||||||||||||||||||||
MPN | 129,094 | 148,611 | ||||||||||||||||||||||
Medical bill review | 89,785 | 120,337 | ||||||||||||||||||||||
Utilization review | 445,712 | 354,956 | ||||||||||||||||||||||
Medical case management | 332,373 | 418,762 | ||||||||||||||||||||||
| Other | 73,203 | 111,686 | 255,542 | 309,260 | 37,357 | 23,749 | ||||||||||||||||||
| Total revenues | 1,600,907 | 1,443,596 | 4,817,800 | 4,002,466 | 1,312,643 | 1,427,383 | ||||||||||||||||||
| Expenses | ||||||||||||||||||||||||
| Depreciation and amortization | 19,462 | 20,925 | 58,859 | 63,247 | ||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||
Depreciation | 9,379 | 4,195 | ||||||||||||||||||||||
| Bad debt provision | 15,750 | 4,500 | 30,500 | 13,500 | 230 | 4,783 | ||||||||||||||||||
| Consulting fees | 90,079 | 75,228 | 246,073 | 265,296 | 56,254 | 53,955 | ||||||||||||||||||
| Salaries and wages | 547,963 | 574,100 | 1,734,321 | 1,717,148 | 662,224 | 633,372 | ||||||||||||||||||
| Professional fees | 109,064 | 82,105 | 308,295 | 224,368 | 73,102 | 66,864 | ||||||||||||||||||
| Insurance | 79,489 | 81,452 | 257,495 | 243,307 | 83,481 | 83,666 | ||||||||||||||||||
| Outsource service fees | 146,287 | 113,017 | 404,538 | 288,225 | �� | 177,759 | 143,778 | |||||||||||||||||
| Data maintenance | 12,160 | 30,160 | 71,261 | 113,175 | 34,002 | 10,189 | ||||||||||||||||||
| General and administrative | 162,164 | 157,894 | 495,474 | 475,230 | 133,756 | 164,472 | ||||||||||||||||||
| Total expenses | 1,182,418 | 1,139,381 | 3,606,816 | 3,403,496 | 1,230,187 | 1,165,274 | ||||||||||||||||||
| Income from operations | 418,489 | 304,215 | 1,210,984 | 598,970 | 82,456 | 262,109 | ||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest income | 99,816 | - | ||||||||||||||||||||||
Total other income (expense) | 99,816 | - | ||||||||||||||||||||||
| Income before taxes | 418,489 | 304,215 | 1,210,984 | 598,970 | 182,272 | 262,109 | ||||||||||||||||||
| Income tax provision | 174,560 | 126,882 | 504,318 | 249,529 | (51,163 | ) | (73,574 | ) | ||||||||||||||||
| Net income | $ | 243,929 | $ | 177,333 | $ | 706,666 | $ | 349,441 | $ | 131,109 | $ | 188,535 | ||||||||||||
| Basic and fully diluted earnings per share: | ||||||||||||||||||||||||
Basic earnings per share: | ||||||||||||||||||||||||
| Earnings per share amount | $ | .30 | $ | .22 | $ | .88 | $ | .44 | $ | 0.01 | $ | 0.01 | ||||||||||||
| Weighted average common shares outstanding | 800,000 | 800,000 | 800,000 | 800,000 | ||||||||||||||||||||
Basic common shares outstanding | 12,800,000 | 12,800,000 | ||||||||||||||||||||||
Fully diluted earnings per share: | ||||||||||||||||||||||||
Earnings per share amount | $ | 0.01 | $ | 0.01 | ||||||||||||||||||||
Fully diluted common shares outstanding | 12,816,000 | 12,816,000 | ||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Pacific Health Care Organization, Inc.
Condensed Consolidated Statements of Cash FlowsStockholders' Equity
(Unaudited)
Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 706,666 | $ | 349,441 | ||||
| Adjustments to reconcile net income to net cash from operations: | ||||||||
| Depreciation and amortization | 58,859 | 63,247 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Decrease) increase in bad debt provision | (4,000 | ) | 12,260 | |||||
| (Increase) decrease in accounts receivable | (132,139 | ) | 303,051 | |||||
| (Increase) in prepaid expenses | (6,088 | ) | (58,530 | ) | ||||
| Decrease in prepaid income tax | - | 238,805 | ||||||
| (Decrease) in accounts payable | (38,370 | ) | (22,914 | ) | ||||
| Increase in deferred rent expense | 21,873 | 10,131 | ||||||
| Increase in accrued expenses | 25,536 | 111,343 | ||||||
| (Decrease) increase in income tax payable | (10,111 | ) | 10,424 | |||||
| (Decrease) in unearned revenue | (985 | ) | (4,692 | ) | ||||
| Decrease in deferred compensation | - | 37,124 | ||||||
| Net cash provided from operating activities | 621,241 | 1,049,690 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of computer equipment, furniture and office equipment | (13,446 | ) | (33,556 | ) | ||||
| Net cash used in investing activities | (13,446 | ) | (33,556 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Issuance of cash dividend | - | (2,063 | ) | |||||
| Net cash used in financing activities | - | (2,063 | ) | |||||
| Increase in cash | 607,795 | 1,014,071 | ||||||
| Cash at beginning of period | 5,005,617 | 3,834,924 | ||||||
| Cash at end of period | $ | 5,613,412 | $ | 4,848,995 | ||||
| Supplemental cash flow information | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Income taxes paid | $ | 514,429 | $ | 300 | ||||
Convertible Preferred Stock | Common Stock | Paid in | Retained | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||||||||
Balance December 31, 2021 | 16,000 | $ | 16 | 12,800,000 | $ | 12,800 | $ | 416,057 | $ | 10,395,532 | $ | 10,824,405 | ||||||||||||||||
Net income | - | - | - | - | - | 188,535 | 188,535 | |||||||||||||||||||||
Balance March 31, 2022 | 16,000 | $ | 16 | 12,800,000 | $ | 12,800 | $ | 416,057 | $ | 10,584,067 | $ | 11,012,940 | ||||||||||||||||
Balance December 31, 2022 | 16,000 | $ | 16 | 12,800,000 | $ | 12,800 | $ | 416,057 | $ | 10,888,418 | $ | 11,317,291 | ||||||||||||||||
Net income | - | - | - | - | - | 131,109 | 131,109 | |||||||||||||||||||||
Balance March 31, 2023 | 16,000 | $ | 16 | 12,800,000 | $ | 12,800 | $ | 416,057 | $ | 11,019,527 | $ | 11,448,400 | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Pacific Health Care Organization, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 131,109 | $ | 188,535 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation | 9,379 | 4,195 | ||||||
Bad debt provision | 230 | 4,783 | ||||||
Noncash interest on investments | (99,816 | ) | - | |||||
Changes in operating assets and liabilities: | ||||||||
(Increase) decrease in accounts receivable | (62,971 | ) | 120,930 | |||||
Increase in deferred rent assets | - | (14,298 | ) | |||||
Decrease in prepaid expenses | 5,157 | 14,997 | ||||||
Increase in taxes receivable | - | (35,620 | ) | |||||
Increase in other assets | (508 | ) | (6,602 | ) | ||||
(Decrease) increase in accounts payable | (35,700 | ) | 16,938 | |||||
(Decrease) increase in accrued expenses | (44,988 | ) | 51,076 | |||||
Increase in unearned revenue | 5,563 | 5,243 | ||||||
Increase in income tax payable | 51,163 | 109,193 | ||||||
Net cash provided by (used in) operating activities | (41,382 | ) | 459,370 | |||||
Cash flows from investing activities: | ||||||||
Purchase of furniture and office equipment | (209 | ) | (6,133 | ) | ||||
Net cash used in investing activities | (209 | ) | (6,133 | ) | ||||
Cash flows from financing activities: | ||||||||
Net cash provided by financing activities | - | - | ||||||
Net increase (decrease) in cash | (41,591 | ) | 453,237 | |||||
Cash at beginning of period | 2,036,432 | 10,085,372 | ||||||
Cash at end of period | $ | 1,994,841 | $ | 10,538,609 | ||||
Supplemental cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | - | $ | - | ||||
Income taxes | $ | - | $ | 63,000 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Pacific Health Care Organization, Inc.
Notes to the Condensed Consolidated Financial Statements
For the NineThree Months Ended September 30, 2017March 31, 2023
(Unaudited)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”) and in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain information and footnote disclosures normally included in consolidated financial statements have been condensed or omitted in accordance with GAAP rules and regulations. The information furnished in these interimunaudited 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. The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect both the recorded values of assets and liabilities at the date of the condensed consolidated financial statements and the revenues recognized and expenses incurred during the reporting period. These estimates and assumptions affect the Company’s recognition of deferred expenses, bad debts, income taxes, the carrying value of its long-lived assets and its provision for certain contingencies. The reasonableness of these estimates and assumptions is evaluated continually based on a combination of historical information and other information that comes to the Company’s attention that may vary its outlook for the future. While management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested thatthe Company recommends these interimunaudited condensed consolidated financial statements be read in conjunction with the Company’sits audited financial statements and notes thereto included in its annual report on Form 10-K for the year ended December 31, 2016.2022. Operating results for the ninethree months ended September 30, 2017,March 31, 2023, are not necessarily indicative of the results to be expected for the year ending December 31, 2017.2023.
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.Basis of Accounting
— The Company uses the accrual method ofRevenue Recognition
—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) persuasive evidence of an arrangement exists,identify the contract with the customer, (ii) delivery has occurred or services have been rendered,identify the performance obligations in the contract, (iii) determine the feetransaction price, including variable consideration to the extent that it is fixed or determinableprobable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (iv) collectability is reasonably assured.(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 sales price agreed and collected. The Company recognizes revenue as the time is worked or as units of production are completed, which is when the revenue is earned and realized. Labor costs are recognized as the costs are incurred.
The Company derives its revenue from the sale of Managed Care Services, Review Services and Case Management Services.services offered through its HCOs, MPNs, utilization review, medical bill review, medical case management services, lien representation, carve-outs, Medicare set-aside. These services are billed individually as separate components to our customers.
Pacific Health Care Organization, Inc.
Notes to the end of each monthCondensed Consolidated Financial Statements
For the Three Months Ended March 31, 2023
(Unaudited)
The Company enters arrangements for which services are performed.
Accounts Receivables and Bad Debt Allowance
– 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 doubtful accounts. The Company ages its receivables byThe percentages of the amounts due from major customers to total accounts receivable as of September 30, 2017March 31, 2023 and September 30, 2016,December 31, 2022, are as follows:
| 9/30/2017 | 9/30/2016 | |||||||
| Customer A | 9 | % | 18 | % | ||||
| Customer B | 3 | % | 10 | % | ||||
| Customer C | - | % | 12 | % | ||||
| Customer D | 1 | % | 10 | % | ||||
| Customer E | 14 | % | 11 | % | ||||
| Customer F | 32 | % | - | % | ||||
3/31/2023 | 12/31/2022 | |||||||
Customer A | 46 | % | 18 | % | ||||
Customer B | - | % | 24 | % | ||||
Significant Customers - We provideThe Company provides services to insurers, third party administrators, self-administered employers, municipalities, and other industries. We areThe Company is able to provide ourits full range of services to virtually any size employer in the state of California. We are alsoOutside the state of California, the Company is able to provide UR, MBRutilization review, medical bill review and NCM services outside the state of California. medical case management services.
During the periodperiods ended September 30, 2017March 31, 2023 and 2016, we2022, the Company had three and fourtwo customers, respectively, that individually accounted for more than 10% of ourits total sales. The following table sets forth details regarding the percentagepercentages of total sales attributable to ourthe Company’s significant customers in the past two years:
| 9/30/2017 | 9/30/2016 | |||||||
| Customer A | 20 | % | 0 | % | ||||
| Customer B | 13 | % | 15 | % | ||||
| Customer C | 11 | % | 10 | % | ||||
| Customer D | 7 | % | 13 | % | ||||
| Customer E | 7 | % | 10 | % | ||||
3/31/2023 | 3/31/2022 | |||||||
Customer A | 24 | % | 22 | % | ||||
Customer B | 10 | % | 10 | % | ||||
Leases - 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 virtually all leases. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less. Lease expense is recognized on a straight-line basis over the lease term. See Note 2 for further information regarding the Company’s leases.
Pacific Health Care Organization, Inc.
Notes to the Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2023
(Unaudited)
NOTE 2 - OPERATING LEASES
On April 1, 2022, the Company moved office locations from 1201 Dove Street, Suite 300 in Newport Beach, California to 19800 MacArthur Boulevard, Suite 300, in Irvine, California. This lease expires as of March 31, 2023, but was renewed on December 10, 2022, for an additional 12-month lease, with a new expiration of March 31, 2024. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less. Lease expense is recognized on a straight-line basis over the lease term. If a Company 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, in 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 December 31, 2022 and 2021.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU assets include any lease payments made and exclude lease incentives.
The components of lease expense and supplemental cash flow information related to leases for the period are as follows:
Three Months Ended March 31, 2023 | ||||
Lease Cost | ||||
Operating lease cost (included in general and administrative in the Company’s consolidated statement of operations) | $ | 42,660 | ||
Other Information | ||||
Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2023 | $ | 9,903 | ||
Weighted average remaining lease term – operating leases (in years) | 1 year | |||
Average discount rate – operating leases | 5.75 | % | ||
The supplemental balance sheet information related to leases for the period is as follows:
At March 31, 2023 | At December 31, 2022 | |||||||
Operating leases | ||||||||
Remaining right-of-use assets | $ | 41,198 | $ | 50,137 | ||||
Short-term operating lease liabilities | $ | 30,681 | $ | 39,620 | ||||
Long-term operating lease liabilities | 10,517 | 10,517 | ||||||
Total operating lease liabilities | $ | 41,198 | $ | 50,137 | ||||
Maturities of the Company’s undiscounted lease liabilities are as follows:
Year Ending | Operating Leases | |||
2023 | $ | 30,681 | ||
2024 | 10,517 | |||
Total lease payments | 41,198 | |||
Less: Imputed interest/present value discount | 1,462 | |||
Present value of lease liabilities | $ | 39,736 | ||
Lease expenses were $9,963 and $75,584 during the three months ended March 31, 2023 and 2022, respectively.
Pacific Health Care Organization, Inc.
Notes to the Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2023
(Unaudited)
NOTE 23 - SUBSEQUENT EVENTS
In accordance with ASC 855-10 Company management reviewed all material events through the date of issuance and has determined that there are no material subsequent events to report.
Item 2. Management’sManagement’s Discussion and Analysis of Financial Statements and Results of Operations
Throughout this quarterly report, unless the context indicates otherwise, the terms, “we,” “us,” “our” or the “Company” refer to Pacific Health Care Organization, Inc., (“PHCO”) and our wholly-owned subsidiaries Medex Healthcare, Inc. (“Medex”), Medex Managed Care, Inc. (“MMC”) and Medex Medical Management, Inc. (“MMM”), and, where applicable, our former subsidiaries Industrial Resolutions Coalition (“IRC”), Medex Legal Support, Inc. (“MLS”) and Pacific Medical Holding Company, Inc. (“PMHC”).
All statements other than statements of historical fact included herein and in the documents incorporated by reference in this quarterly report on Form 10-Q contains(this “quarterly report”), if any, including without limitation, statements regarding our future financial position or results of operations, business strategy, potential acquisitions, budgets, projected costs, and plans and objectives of management for future operations, are forward-looking statements within the meaning of Section 27Athe 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 Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on our management’s beliefs and assumptions and on information currently available to them. For this purpose any statement contained in this report that is not a statement of historical fact may be deemed to be forward-looking, including statements about our revenue, spending, cash flow, products, new customer acquisitions, trends, actions, intentions, plans, strategies and objectives. Without limiting the foregoing, words such as “may,” “hope,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “project,” “intend,” “budget,” “plan,” “forecast,” “predict,” “could,” “should,” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risk and uncertainty,date hereof, and actual results maycould differ materially dependingas a result of various factors. The following include some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events:
● the impacts on our business of COVID-19, including the reduction of our customers’ workforces as a result of a variety of factors, manyCOVID-19-related causes, as well as government mandates and impacts on the workers’ compensation industry, the businesses of which are not within our control. These factors include but are not limited tocustomers and on the economy generally;
● economic and labor market conditions generally and in the industry in which we and our customers participate;participate, including the effects resulting from economic recessions, financial sector turmoil, international conflicts, and rising domestic inflation and related economic policy responses;
● the loss, ineffective management, malfunction (including those resulting from cybersecurity breaches), or increased costs of third-party-provided technologies and services on which our operations rely;
● cybersecurity incidences and breaches, and other software system failures, and the imposition of laws imposing costly cybersecurity and data protection compliance;
● reductions in worker’s compensation claims or the demand for our services, from whatever source;
● cost reduction efforts by our existing and prospective customers;
● price increases to the technologies and other services we rely on for our business;
● business combinations among our customers or competitors;
● the loss of or inability to obtain adequate insurance coverage;
● competition within our industry, including competition from much larger competitors; business combinations;
● our ability to retain existing customers and to attract new customers;
● delays, reductions, or cancellations of contracts we have previously entered;
● legislative and regulatory requirements or changes which could render our services less competitive or obsolete; and
● our failure to successfully develop new services and/or products either organically or through acquisition, or to anticipate current or prospective customers’ needs;needs.
For more detailed information about particular risk factors related to us and our abilitybusiness, see Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “Commission”) on March 31, 2023 (the “Annual Report”).
We operate in a competitive and rapidly changing environment. New risk factors emerge from time to retain existing customerstime, and it is not possible for our management to attract new customers; price increases; employee limitations; and delays, reductions,predict all risk factors, nor can we assess the impact of all factors on our business or cancellationsthe extent to which any factor, or combination of contracts we have previously entered.factors, may cause actual results to differ materially from those contained in any forward-looking statements.
You should not guarantees of future performance or events.place undue reliance on forward-looking statements. Forward-looking statements are based on current industry, financialthe beliefs of management as well as assumptions made by and economic information which we have assessed but which, by its nature, is dynamiccurrently available to management and subject to rapid and possibly abrupt changes. Our actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with our business. We hereby qualify all our forward-looking statements by these cautionary statements. These forward-looking statements speakapply only as of theirthe date of this report or the respective dates and should not be relied upon. Weof the documents from which it incorporates by reference. Neither we nor any other person assumes any responsibility for the accuracy or completeness of forward-looking statements. Further, except to the extent required by law, we undertake no obligationobligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise (other than pursuanta change in events, conditions, circumstances, or assumptions underlying such statements, or otherwise. We may also make additional forward-looking statements from time to reporting obligations imposedtime. Any subsequent forward-looking statements, whether written or oral, made by us or on registrants pursuant to the Exchange Act) to reflect subsequent events or circumstances.our behalf, are also expressly qualified by these cautionary statements.
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes contained elsewhere in this quarterly report and in our other filings with the Commission.
Overview
We incorporated under the context indicates otherwise,laws of the terms, “we,” “us,” “our” or “the Company” referstate 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 (“PHCO”HCOs”) and Medical Provider Networks (“MPNs”) in the state of California. In August 2001 we formed IRC, a California corporation, as a wholly owned subsidiary of PHCO. Prior to closing IRC, IRC oversaw and managed our wholly-owned subsidiariesWorkers’ Compensation carve-outs services. In June 2010, we acquired MLS, a Nevada corporation incorporated in September 2009. Prior to closing MLS, MLS offered lien representation services and Medicare set-aside services (“MSA”). In February 2012, we incorporated MMM, a Nevada corporation, as a wholly owned subsidiary of the Company. MMM is responsible for overseeing and managing medical case management services. In March 2011, we incorporated MMC, a Nevada corporation, as a wholly owned subsidiary of the Company. MMC oversees and manages the Company’s utilization review and bill review services. In October 2018, we incorporated PMHC, a Nevada corporation, as a wholly owned subsidiary of the Company to act as a holding company for future potential acquisitions.
In October 2021, to simplify business procedures, bookkeeping and administrative structure; and eliminate duplicative functions and reduce costs; we terminated the existence of IRC, MLS and PMHC and wound up those subsidiaries. The business, assets, liabilities, and services of those entities were transferred to PHCO or its other subsidiaries. Medex Healthcare, Inc. (“Medex”), Industrial Resolutions Coalition, Inc. (“IRC”), Medex Managed Care, Inc. (“MMC”), Medex Medical Management, Inc. (“MMM”)now offers our Workers’ Compensation carve-out services previously provided by IRC and Medex Legal Support, Inc. (“MLS”).Medicare-set asides previously managed by MLS. MMC oversees the lien representation services previously offered by MLS.
Business of the Company
We offer an integrated and layered array of complementary business solutions that enable our customers to better manage their employee workers’ compensation-related healthcare administration costs. We are workers’ compensation cost containment specialists. 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 clients that reducescustomers by reducing their workers’ compensation relatedcompensation-related medical claims expense in a manner that will assure that injured employees receive high quality healthcare that allows them to recover from injury and return to gainful employment without undue delay. According to studies conducted by auditing bodies on behalf of the California Division of Workers’ Compensation, (“DWC”) the two most significant cost drivers for workers’ compensation are claims frequency and longer than average treatment duration. Our services focus on ensuring timely medical treatment to reduce the claim duration and medical treatment costs.
Our services include providing customers access to our HCOs and MPNs. We also provide medical case management, medical bill review, utilization review, workers’ compensation carve-outs and Medicare set-aside services. Complementary to these services, we also provide lien representation and expert witness testimony. We offer our services as a bundled solution, as standalone services, or as add-on services.
Our core service focusesservices focus on the reduction ofreducing medical treatment costs by enabling our client/employerscustomers to share thehave control overand oversight of the medical treatment process.of their injured employees to ensure treatment is timely and appropriate. This control is primarily obtained by participation in one of our medical treatmentprovider networks. We hold several valuable government-issued licenses to operate medical treatmentprovider networks. Through Medex, we hold two of the total of ninefour licenses issued by the Statestate of California to establish and manage a Health Care Organization (“HCO”)HCOs within the state of California. We also hold approvals issued by the Statestate of California to act as a Medical Provider Network (“MPN”).an MPN and currently administer 27 MPNs. Our HCO and MPN programs provide our client/employerscustomers with provider networks within which the client/employercustomer 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 the necessary back-to-work rehabilitation and training they need. We also offer a Nurse Case Management program thatOur medical bill and utilization review services provide oversight of medical billing and treatment requests, and our medical case management keeps medical treatmentworkers’ compensation claims progressing to a resolution and assures treatment plans are aligned from a medical perspective. Nurse oversight is a collaborative process that assesses plans, implements, coordinates, monitors and evaluates the options and services required to meet an injured worker’s health needs.
Our clientscustomers include self-administered employers, insurers, third party administrators, municipalities, and others. Our principal clientscustomers are companies with operations located in the Statestate of California where the high cost of workers’ compensation insurance is a critical problem for employers.employers, though we process medical bill reviews, utilization reviews and provide medical case management in several other states. Our provider networks, which are located only in California, are composed of providers experienced in treating worker injuries.
Our business generally has a long sales cycle, typically eight months or more. Once we have contractedestablished a customer relationship and enrolled employees of our employer customers, we anticipate our revenue to adjust with approximately 3,900 individualthe growth or retraction of our customers’ employee headcount. Throughout the year, we also expect to add new customers while others terminate for a variety of reasons. The reasons for termination vary but include when a customer switches to an insurance carrier or third party administrator that uses a different workers’ compensation administration vendor, or when our contract ends with state and local governments.
Impact of COVID-19 on our Business
In February 2022, California passed the COVID-19 Supplemental Paid Sick Leave law (“CSPSL”). It provided employees paid leave for COVID-19 related reasons such as caring for themselves, family members, or for vaccine related appointments or illnesses caused by COVID-19 or the vaccine from January 1, 2022 through September 30, 2022. The CSPSL allowed employees to retroactively request reimbursement for qualifying leave or to use it towards future requests through September 30, 2022. Employers whose employees utilized CSPSL are ineligible for federal tax credits to offset the costs of providing the CSPSL. On September 29, 2022, California passed a bill that extended the CSPSL leave through December 31, 2022, and provides a supplemental paid sick leave relief grant program for employers for reimbursement of CSPSL. As of the date of this report, the CSPSL relief grant program is still in development and unavailable to apply for. When it becomes available, we intend to apply for reimbursement of CSPSL leave.
While the CSPSL leave expired on December 31, 2022, we continue to have family, medical, providers and clinics,other types of leave available to employees under pre-existing Company policy. As of the date of this report, California has not passed additional COVID-19 related sick leave laws.
Unlike much of the U.S. economy, we have maintained relatively steady employee recruitment and retention. Our maintenance of a successful remote environment, including high employee morale and cohesive culture via technology, has also allowed us to seek candidates in a wider range of locations, some of which have lower costs of living and lower wage norms, as well as hospitals, pharmacies, rehabilitation centersincreasing the quantity of qualified applicants. While we cannot predict or control future trends in labor in our industry, we believe that our solid recruitment practices and the opportunities presented by remote work options will help us adapt to a changing workforce environment.
We have opted to keep the majority of our workforce remote and we have taken measures to ensure data security, but there is no guarantee that these measures will be completely effective, that our productivity will not be adversely impacted, or that we will not encounter other risks associated with a remote workforce, such as increased loss of direct control of and reliance on third party information systems required for us to run our business. As discussed in greater detail in Item 1A Risk Factors of our Annual Report, our business has been and could continue to be materially and adversely affected by the interruptions and changes to our business operations resulting from or in response to COVID-19.
Key trends affecting results of operations
During the three months ended March 31, 2023 and 2022, COVID-19 continued to impact the businesses of our customers and our results of operations. During the three months ended March 31, 2022, our customers had an increase in COVID-19 related workers’ compensation claims as the economy opened back up and people returned to their offices, but as immunity and use of vaccines increased, COVID-19 related workers’ compensation claims has decreased through the first quarter of 2023. The decline in COVID-19 related workers’ compensation claims since the end of the first quarter of 2022 through the first quarter of 2023 has adversely affected the revenues generated from claim network fees when a claim is opened, as well as fees generated when a medical case manager is assigned to the claim.
During the first quarter of 2023, we saw a slight increase in the number of employees enrolled in our HCO and MPN programs; however, given the current economic outlook we could see declines in enrollees for future periods. The enrollment numbers in our HCO and MPN programs generally correlate with general economic conditions and the size and activities of our customers’ workforce. If economic conditions continue to be challenging, including from the effects of inflationary pressures, elevated interest rates, and challenging labor market conditions, our customers may reduce their workforce, in which case we would expect a decline in the number of employees enrolled in our HCO and MPN programs in future periods and in related revenues.
During the fourth quarter of 2022 and through the first quarter of 2023, we experienced difficulties when transitioning between new software vendors for our utilization review and medical case management services. Throughout these software transitions, our automated processes had to be performed manually, which caused delays in providing services and invoicing our customers, reduced productivity and resulted in additional outsourcing costs. Our revenues continued to be adversely impacted in the first quarter of 2023 as a result of the interruptions and costs associated with these software transition difficulties. While the new software is now nearly functional, certain functionalities are still being developed. As of the date of this report, we believe the delayed invoicing problems have been addressed and we expect that the outstanding accounts receivable will decrease, and utilization review and medical case management productivity will increase.
As previously disclosed in our Annual Report, Fortra, LLC, the third-party vendor that provides the GoAnywhere managed file transfer as a service system (MFTaaS), experienced a data security incident that affected many of Fortra’s customers, including the Company. As of the date of this report, this incident has not caused a material interruption of our business operations. Our investigation into the details of this incident is ongoing, but to the extent we discover further details of the data accessed, we will provide the appropriate notifications to any individuals affected by the incident, as well as to government and regulatory agencies as required by federal and state law. We have incurred expenses, and may incur in the future expenses and losses, related to this incident, some of which may not be covered by cyber liability insurance. Further, because of the ongoing nature of our investigation into this incident and current unknowns, an estimate of the impacts on our business, results of operations and other ancillary services enabling our networks to provide comprehensive medical services throughout California. Our provider networks are composed of experts in treating worker injuries. potential liabilities cannot be made.
Revenue
We derive revenue primarily from fees charged for access to our HCO and MPN clients a number of claims-relatedprovider networks, claim network fees, HCO/MPN network administration, medical bill review, utilization review, medical case management services, that bring efficienciesMedicare set-asides, and network access.
HCO
HCO revenue is generated from fees charged to our employer customers for claim processingnetwork fees to access our HCO networks, employee enrollment into our HCO program, program administration, custom network fees, annual and management that further reduce the overall burden of workers’ compensation claims resolution. Thesenew hire notifications, and fees for other ancillary services include various back office type functions that assure cost efficiency and accuracy inthey may select.
MPN
Like HCO revenue, MPN revenue is generated from fees charged to our employer customers for claim processing, claim reimbursement and claim dispute resolution.
| For three months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Amount Change | % Change | |||||||||||||
| Revenues: | ||||||||||||||||
| HCO fees | $ | 377,923 | $ | 276,951 | $ | 100,972 | 36 | % | ||||||||
| MPN fees | 142,257 | 146,836 | (4,579 | ) | (3 | %) | ||||||||||
| NCM fees | 582,544 | 499,118 | 83,426 | 17 | % | |||||||||||
| UR fees | 277,886 | 221,176 | 56,710 | 26 | % | |||||||||||
| MBR fees | 147,094 | 187,829 | (40,735 | ) | (22 | %) | ||||||||||
| Other | 73,203 | 111,686 | (38,483 | ) | (34 | %) | ||||||||||
| Total revenues | 1,600,907 | 1,443,596 | 157,311 | 11 | % | |||||||||||
| Expense: | ||||||||||||||||
| Depreciation and amortization | 19,462 | 20,925 | (1,463 | ) | (7 | %) | ||||||||||
| Bad debt provision | 15,750 | 4,500 | 11,250 | 250 | % | |||||||||||
| Consulting fees | 90,079 | 75,228 | 14,851 | 20 | % | |||||||||||
| Salaries and wages | 547,963 | 574,100 | (26,137 | ) | (5 | %) | ||||||||||
| Professional fees | 109,064 | 82,105 | 26,959 | 33 | % | |||||||||||
| Insurance | 79,489 | 81,452 | (1,963 | ) | (2 | %) | ||||||||||
| Outsource service fees | 146,287 | 113,017 | 33,270 | 29 | % | |||||||||||
| Data maintenance | 12,160 | 30,160 | (18,000 | ) | (60 | %) | ||||||||||
| General and administrative | 162,164 | 157,894 | 4,270 | 3 | % | |||||||||||
| Total expenses | 1,182,418 | 1,139,381 | 43,037 | 4 | % | |||||||||||
| Income from operations | 418,489 | 304,215 | 114,274 | 38 | % | |||||||||||
| Income before taxes | 418,489 | 304,215 | 114,274 | 38 | % | |||||||||||
| Income tax provision | 174,560 | 126,882 | 47,678 | 38 | % | |||||||||||
| Net income | $ | 243,929 | $ | 177,333 | $ | 66,596 | 38 | % | ||||||||
Medical bill review involves analyzing
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 provider services and equipment billing to ascertain proper reimbursement. Such services include, butproviders. Many procedures, however, are not limited to, codingcovered under the fee schedules, such as hospital bills, which still require review and rebundling, confirming that the services are customary and reasonable, fee schedule compliance, out-of-network bill review, pharmacy review, and preferred provider organization repricing arrangements. These services can result in significant network savings.
| For nine months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Amount Change | % Change | |||||||||||||
| Revenues: | ||||||||||||||||
| HCO fees | $ | 1,041,328 | $ | 965,768 | $ | 75,560 | 8 | % | ||||||||
| MPN fees | 427,228 | 436,893 | (9,665 | ) | (2 | %) | ||||||||||
| NCM fees | 1,824,121 | 1,176,447 | 647,674 | 55 | % | |||||||||||
| UR fees | 788,229 | 596,205 | 192,024 | 32 | % | |||||||||||
| MBR fees | 481,352 | 517,893 | (36,541 | ) | (7 | %) | ||||||||||
| Other | 255,542 | 309,260 | (53,718 | ) | (17 | %) | ||||||||||
| Total revenues | 4,817,800 | 4,002,466 | 815,334 | 20 | % | |||||||||||
| Expense: | ||||||||||||||||
| Depreciation and amortization | 58,859 | 63,247 | (4,388 | ) | (7 | %) | ||||||||||
| Bad debt provision | 30,500 | 13,500 | 17,000 | 126 | % | |||||||||||
| Consulting fees | 246,073 | 265,296 | (19,223 | ) | (7 | %) | ||||||||||
| Salaries and wages | 1,734,321 | 1,717,148 | 17,173 | 1 | % | |||||||||||
| Professional fees | 308,295 | 224,368 | 83,927 | 37 | % | |||||||||||
| Insurance | 257,495 | 243,307 | 14,188 | 6 | % | |||||||||||
| Outsource service fees | 404,538 | 288,225 | 116,313 | 40 | % | |||||||||||
| Data maintenance | 71,261 | 113,175 | (41,914 | ) | (37 | %) | ||||||||||
| General and administrative | 495,474 | 475,230 | 20,244 | 4 | % | |||||||||||
| Total expenses | 3,606,816 | 3,403,496 | 203,320 | 6 | % | |||||||||||
| Income from operations | 1,210,984 | 598,970 | 612,014 | 102 | % | |||||||||||
| Income before taxes | 1,210,984 | 598,970 | 612,014 | 102 | % | |||||||||||
| Income tax provision | 504,318 | 249,529 | 254,789 | 102 | % | |||||||||||
| Net income | $ | 706,666 | $ | 349,441 | $ | 357,225 | 102 | % | ||||||||
Utilization review
Utilization review is the review of medical treatment requests by providers to provide a safeguard for employers and injured employees against unnecessary and 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 request for authorization of treatment from a claims adjuster. We bill by the number of treatment requests or by referral and the level of reviewer required to approve, modify, or deny the request.
Medical case management
Medical case management oversees the injured employees’ medical treatment to ensure that it progresses to a resolution and assures treatment plans are aligned from a medical perspective. Medical oversight is a collaborative process that assesses, evaluates, coordinates, implements and monitors medical treatment plans and the options and services required to meet an injured worker’s health needs. Our medical case management services are performed by nurses who are credentialed 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 claims closures for our customers. 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 fees consistrevenue consists of revenue derived from network access and claims repricing,fees charged for network access for preferred provider organizations, lien representation, legal support services, Medicare set asideset-aside and worker’s compensation carve-outsWorkers’ Compensation carve-out services. Other fee revenue for nine-month periods ended September 30, 2017 and 2016, was $255,542 and $309,260, respectively.
The decrease of $53,718 was mainly the result of decreased network access fees from one customer having realized lower savings from using our PPO network. We expect this downward trend for this customer to continuefollowing table sets forth, for the remainder of 2017.
2023 | 2022 | |||||||
HCO | 21 | % | 25 | % | ||||
MPN | 10 | % | 10 | % | ||||
Medical bill review | 7 | % | 9 | % | ||||
Utilization review | 34 | % | 25 | % | ||||
Medical case management | 25 | % | 29 | % | ||||
Other | 3 | % | 2 | % | ||||
Expense
Consulting fees
Consulting fees include fees we pay to third parties for IT, marketing, and Amortization
Salaries and Wageswages
Salaries and wages increased 1%reflect employment-related compensation we pay to $1,734,321 comparedour employees, payroll processing, payroll taxes and commissions.
Professional fees
Professional fees include fees we pay to $1,717,148 during the same period in 2016. This increase was primarily the result of additional staffing in nursethird parties to provide medical consulting, field medical case management, and higher levelsboard of commissions, partially offset by salary reductionsdirector’s fees for board meetings, as well as legal and accounting fees.
Insurance
Insurance expenses are comprised primarily of 10% by several senior executives in June 2016.
Outsource service fees to increase significantly over the remaining months of 2017.
Outsource service fees consist of costs incurred by our subsidiaries in partially outsourcing utilization review, medical bill review, Medicare set asideadministrative services nursefor medical case management and Medicare set-aside services and typically tendstend to increase and decrease in correspondencecorrelation with increases and decreases incustomer demand for those services.
Data maintenance fees
Data maintenance fees include fees we pay to a third party to process HCO and MPN employee enrollments and host our HCO and MPN provider networks. HCO and MPN employee enrollment fees fluctuate throughout the year because of the varied timing of customer enrollment into our HCO or MPN programs, the number of employees our customers have in their workforce, and the number of new hires throughout the year.
General and administrative
General and administrative expenses consist primarily of office rent, advertising, dues and subscriptions, equipment/repairs, IT enhancement, licenses and permits, telephone, office supplies, parking, postage, printing and reproduction, rent expense for equipment, miscellaneous expenses, shareholders’ expense, charity – cash contribution, auto expenses, bank charges, education, travel and entertainment, and vacation expense.
The following table sets forth, for the quarters ended March 31, 2023 and 2022, the percentage each expense item identified in our unaudited consolidated financial statements contributed to total expense during the respective period.
2023 | 2022 | |||||||
Depreciation | 1 | % | - | % | ||||
Bad debt provision | - | % | 1 | % | ||||
Consulting fees | 4 | % | 5 | % | ||||
Salaries and wages | 54 | % | 54 | % | ||||
Professional fees | 6 | % | 6 | % | ||||
Insurance | 7 | % | 7 | % | ||||
Outsource service fees | 14 | % | 12 | % | ||||
Data maintenance fees | 3 | % | 1 | % | ||||
General and administrative | 11 | % | 14 | % | ||||
Results of Operations
Comparison of the three months ended March 31, 2023 and 2022
The following represents selected components of our consolidated results of operations for the three-month periods ended March 31, 2023 and 2022, respectively, together with changes from period-to-period.
For three months ended March 31, | ||||||||||||||||
2023 | 2022 | Amount Change | % Change | |||||||||||||
Revenues: | ||||||||||||||||
HCO | $ | 278,322 | $ | 360,968 | $ | (82,646 | ) | (23 | %) | |||||||
MPN | 129,094 | 148,611 | (19,517 | ) | (13 | %) | ||||||||||
Medical bill review | 89,785 | 120,337 | (30,552 | ) | (25 | %) | ||||||||||
Utilization review | 445,712 | 354,956 | 90,756 | 26 | % | |||||||||||
Medical case management | 332,373 | 418,762 | (86,389 | ) | (21 | %) | ||||||||||
Other | 37,357 | 23,749 | 13,608 | 57 | % | |||||||||||
Total revenues | 1,312,643 | 1,427,383 | (114,740 | ) | (8 | %) | ||||||||||
Expense: | ||||||||||||||||
Depreciation | 9,379 | 4,195 | 5,184 | 124 | % | |||||||||||
Bad debt provision | 230 | 4,783 | (4,553 | ) | (95 | %) | ||||||||||
Consulting fees | 56,254 | 53,955 | 2,299 | 4 | % | |||||||||||
Salaries and wages | 662,224 | 633,372 | 28,852 | 5 | % | |||||||||||
Professional fees | 73,102 | 66,864 | 6,238 | 9 | % | |||||||||||
Insurance | 83,481 | 83,666 | (185 | ) | - | % | ||||||||||
Outsource service fees | 177,759 | 143,778 | 33,981 | 24 | % | |||||||||||
Data maintenance | 34,002 | 10,189 | 23,813 | 234 | % | |||||||||||
General and administrative | 133,756 | 164,472 | (30,716 | ) | (19 | %) | ||||||||||
Total expenses | 1,230,187 | 1,165,274 | 64,913 | 6 | % | |||||||||||
Income from operations | 82,456 | 262,109 | (179,653 | ) | (69 | %) | ||||||||||
Other income (expense) | ||||||||||||||||
Interest income | 99,816 | - | 99,816 | 100 | % | |||||||||||
Total other income (expense) | 99,816 | - | 99,816 | 100 | % | |||||||||||
Income before taxes | 182,272 | 262,109 | (79,837 | ) | (30 | %) | ||||||||||
Income tax provision | (51,163 | ) | (73,574 | ) | 22,411 | (30 | %) | |||||||||
Net income | $ | 131,109 | $ | 188,535 | $ | (57,426 | ) | (30 | %) | |||||||
Revenue
HCO
During the three-month period ended March 31, 2023, HCO revenue decreased 23%, compared to the same period in the prior year. The decrease in HCO revenue was attributable to a decrease in the number of COVID-19 related workers’ compensation claims. During the first quarter of 2022, there was a spike in the number of reported COVID-19 related claims, which accounted for 30% of that quarter’s revenue for claim network fees. Since then, COVID-19 related claims have been moderately reported, as the severity and frequency of illness has declined, and California Sick Paid Leave “CSPSL” ended paid time off for COVID-19 related illness, which we believe contributes to lower reporting of COVID-19 related illnesses. We incurred $404,538do not expect revenues to be materially affected by any further decline in COVID-19 related claims, as the number of remaining COVID-19 related claims is minimal.
MPN
MPN revenue for the three-month period ended March 31, 2023, decreased by 13%, compared to the same period in the prior year. The decrease in revenue was attributable to a decrease in the number of COVID-19 related workers’ compensation claims from which we generated claim network fee revenue in the first quarter of 2023. In the first quarter of 2022, COVID-19 related claims accounted for 35% of the quarter’s revenues for claim network fees. Since then, COVID-19 related claims have been moderately reported, mainly due to the reasons discussed in HCO revenue above, and $288,225we do not expect revenues to be materially affected by any further decline in COVID-19 related claims, as the number of remaining COVID-19 related claims is minimal. The decrease in MPN revenue was partially offset by increases in the number of enrollees into our monthly MPN program.
Medical bill review
During the three-month period ended March 31, 2023, medical bill review revenue decreased by 25%, compared to the same period in the prior year. The decrease was due to a decrease in hospital and non-hospital bills reviewed with existing customers, partially offset by the addition of a new customer in the fourth quarter of 2022.
Utilization review
During the three-month period ended March 31, 2023, utilization review revenue increased 26%, compared to the same period in the prior year. The increase in utilization review revenue was due to the addition of a new customer in the fourth quarter of 2022 and increases in utilization reviews from existing customers. We expect that the growth in utilization review will continue as our new operational software becomes fully functional but will level off once it is fully operational.
Medical case management
During the three-month period ended March 31, 2023, medical case management revenue decreased 21%, compared to the same period in the prior year. The decrease was attributable to a decline in COVID-19 related claims in the first quarter of 2023, fewer medical case management claims from existing customers, and disruptions stemming from difficulties and inefficiencies in transitioning to new operational software. In the first quarter of 2022, as COVID-19 related claims increased, the demand for medical case managers assigned to the claims increased. However, since the end of the first quarter of 2022, there has been a decline in the number of COVID-19 related claims and the correlated decline in assignment of claims to medical case managers, which has adversely impacted our medical case management revenues. Unless a new COVID-19 strain causes another severe outbreak, we expect that revenues from COVID-19 related claims to remain low as fewer COVID-19 related claims are reported and the severity of the illness does not require a medical case manager.
Other
Other revenue for the three-month period ended March 31, 2023, increased 57%, compared to the same period in the prior year. The increase was attributable to increases in the number of referrals for Medicare set-aside and network access fees.
Expenses
Total expenses for the three month period ended March 31, 2023, increased 6%, compared to the same period in the prior year. The increase was attributable to depreciation, consulting fees, salaries and wages, professional fees, outsource service fees, duringand data maintenance fees, partially offset by decreases in bad debt provision, and general and administrative fees.
Depreciation
During the nine-month periodsthree months ended September 2017 and 2016, respectively.March 31, 2023, depreciation expense increased by $5,184, compared to the three months ended March 31, 2022, due to our disposing of fully depreciated fixed assets when we changed operational software systems.
Professional fees
During the three months ended March 31, 2023, professional fees increased 9% compared to the three months ended March 31, 2022. The increase of $116,313in professional fees was primarily the result of fees incurred in providing our field medical case management service, partially offset by decreases in legal fees.
Outsource service fees
During the three months ended March 31, 2023, outsource service fees increased 24% compared to the three months ended March 31, 2022. The increase in outsource service fees was attributable to outsourcing related to outsourcing certain functions that are normally performed by our operational software during the time we experienced problems in transitioning that software to a new vendor, a project in our HCO department, and increases in outsourcethe demand for our services required for our HCO program, Medicare set-asides, utilization review, Medicare set aside fees and fieldmedical case management fees. management. The increase was partially offset by decreases in the outsourced services for medical bill review due to fewer medical bills received.
We anticipate our outsource service fees will decrease once our operational software for utilization review and medical case management is fully operational, as well as when our HCO department project is completed. Our outsourcing and related fees will continue to move in correspondencecorrespond with the level of utilization review, medical bill review, andutilization review, certain nursemedical case management services and Medicare set-aside services we provide in the future.
During the nine-month periodthree months ended September 30, 2017March 31, 2023, salaries and 2016,wages increased 5% compared to the three months ended March 31, 2022. The increase in wages and salaries was related to such increases for our existing employees. Given the current increased wage inflation trends, we expect salaries and wages will increase in future periods from our efforts to attract and retain employees.
Data maintenance
During the three months ended March 31, 2023, data maintenance fees were $71,261increased by $23,813 from $10,189 to $34,002 compared the three months ended March 31, 2022. The increase in data maintenance fees was due to increases in our customers’ employee counts for enrollment into our HCO, which resulted in increases in correlated data maintenance fees.
General and $113,175, respectively.administrative
General and administrative expenses decreased by 19% during the three months ended March 31, 2023, compared to the same period of 2022. The decrease of $41,914 was primarily due to decreases in office rent, telephone, licenses and permits, and miscellaneous expenses relating to moving to a smaller office at the resultend of recording notification fees associated with the addition of a major HCO customer in the first quarter 2016, with a lower level of notificationin 2022. The decrease was partially offset by increases in advertising and marketing, auto expenses, banking fees, recorded for this same customer during the nine-month period ended September 30, 2017.
While we anticipate certain general and administrative expenses increased 4%will remain lower in the long-term, such as office rent, internet and phone, as a result of changes to $495,474 when comparedour business operations in response to the nine-month period ended September 30, 2016. This increase of $20,244 was primarily attributable to increases in dues and subscriptions, employment agency fees, IT enhancement, license and permits, telephone expense, rent expense, travel and entertainment expense and miscellaneous expense, partially offset by decreases in charitable contributions, auto expense, postage expense, office supplies and paid time off expense. We do notCOVID-19, we expect current levels ofother general and administrative expenses, to materially increase during the remaining months of 2017.such as IT enhancements, hardware and other technology-related expenses will remain at higher than historic levels in future periods.
Income from Operations
As a result of the 20% increase8% decrease in total revenue during the nine-monththree-month period ended September 30, 2017, which was partially offset byMarch 31, 2023, and the 6% increase in total expenses during the same period, our income from operations before taxes increased to $1,210,984, a 102% increase compared to the same period in 2016.
Other Income (Expense)
In the first quarter of 2023, we had interest income of $99,816 from our investment in U.S. Treasury bills which mature on June 8, 2023.
Income Tax Provision
We realized a decrease in our income tax provision of $22,411, or 30%, during the three-month period ended March 31, 2023, compared to the same period in the prior year, because of the decrease in income before taxes realized.
Net Income
During the three-month period ended March 31, 2023, we realized an 8% decrease in total revenues, was partially offset by a 6% increase in total expenses, resultingand a 30% decrease in our provision for income tax when compared to the same period in the prior year. As a 102% increase in income from operations. Correspondingly,result, we realized net income of $706,666 for$131,109, a 30% decrease in net income during the nine-monththree-month period ended September 30, 2017, also a 102% increaseMarch 31, 2023, compared to the nine-monthsame period ended September 30, 2016. in the prior year.
Liquidity and Capital Resources
Liquidity is a measurement of September 30, 2017,our ability to meet our potential cash requirements for general business purposes. We consistently monitor our liquidity and financial position and take actions management believes are in the best interest of the Company and its shareholders to ensure the long-term financial viability of the Company. Historically, we hadhave realized positive cash flows from operating activities, which, coupled with positive reserves of cash on hand, have been used to fund our operating expenses and obligations.
We have focused on reducing other operating expenses while maintaining our ability to provide the high-quality services to which our customers are accustomed. In December 2022, we renewed our office lease for an additional 12-month period which will expire March 31, 2024. As a result of $5,613,412relocating to a smaller office and continuing to have our employees work remotely, we have decreased the operating costs for office expenses, but have utilized some of those savings to enhance our IT security as well as other IT enhancements.
We currently have planned certain capital expenditures to replace our laptops due to their age and as part of our ongoing continuity plan. We anticipate investing activities will continue throughout 2023 as we replace aging software, computer equipment, and further enhance our IT security. We anticipate these costs to be significant, but believe we have adequate capital on hand to cover these expenses. We do not anticipate these expenditures will require us to seek outside sources of funding.
During the first quarter of 2023, we realized net income of $131,109, as a result of unrealized interest income from our investment in Treasury bills and income from operations during that period. As of March 31, 2023, we had $1,994,841 cash on hand compared to $5,005,617$2,036,432 at December 31, 2016.2022. The $607,795 increase$41,591 decrease in cash on hand was primarilylargely due to the resulteffects from our difficulties with our operational software transition during the fourth quarter of net2022 and through the first quarter of 2023. Although the decrease in cash provided by our operating activities, partially offset byflow resulted in us using cash used in investing activities. Netreserves to support operations during the first quarter of 2023, we do not expect cash provided by our operating activities was the result of realizing net income with increases in accumulated depreciation, accrued expenses, and deferred rent expense, partially offset by decreases in our bad debt, prepaid expense, accounts payable, income tax payable, unearned revenues and increases in our accounts receivable. We used $13,446 in investing activities for purchases of computers, furniture and equipment. Barring a significantflow issues moving forward. As such, management currently believes that absent (i) any unanticipated further adverse impacts related to COVID-19, (ii) an increased or longer-term downturn in the general economy, (iii) increases in or sustained inflation, (iv) the loss of several major customers we believe thatwithin a condensed period of time or (v) additional software issues, cash on hand and anticipated revenues from operations will be sufficient to cover our operating expenses overfor at least the next twelve months.
As a result of the unique nature of the COVID-19 pandemic and its impacts on our operations, the operations of our customers and the broader economy, coupled with continued challenging economic conditions such as rising inflation, elevated interest rates and challenging labor market conditions, we cannot provide any assurance that the assumptions management has used to estimate our liquidity requirements will remain accurate in either the short-term or the longer-term. The ultimate duration and impact of these events on our business, results of operations, financial condition and cash flows is dependent on future developments, which are uncertain, largely beyond our control and cannot be predicted with any degree of certainty at this time. However, we expect that our results of operations, including revenues, in future periods will continue to be adversely impacted by the COVID-19 pandemic and continued challenging economic conditions, and their negative effects on our business and the businesses of our customers.
Cash Flow
During the ninethree months ended September 30, 2017,March 31, 2023, cash was primarily used to fund operations. We had a net increasedecrease in cash of $607,795$41,591 during the ninethree months ended September 30, 2017.March 31, 2023. See below for additional information.discussion and analysis of cash flow.
| For the nine months ended September | ||||||||
2017 (unaudited) | 2016 (unaudited) | |||||||
| Net cash provided from operating activities | $ | 621,241 | $ | 1,049,690 | ||||
| Net cash used in investing activities | (13,446 | ) | (33,556 | ) | ||||
| Net cash used in financing activities | - | (2,063 | ) | |||||
| Net increase in cash | $ | 607,795 | $ | 1,014,071 | ||||
For the three months ended March 31, | ||||||||
2023 (unaudited) | 2022 (unaudited) | |||||||
Net cash provided by (used in) operating activities | $ | (41,382 | ) | $ | 459,370 | |||
Net cash used in investing activities | (209 | ) | (6,133 | ) | ||||
Net cash provided by financing activities | - | - | ||||||
Net (decrease) increase in cash | $ | (41,591 | ) | $ | 453,237 | |||
For the ninethree months ended September 30, 2017 and 2016,March 31, 2023, net cash used in operating activities was $41,382, whereas for the three months ended March 31, 2022, net cash provided by operating activities was $621,241 and $1,049,690, respectively. As discussed herein, we realized$459,370; a decrease of $494,828. The $494,828 decrease in cash flow from operations during the first quarter of 2023 was the result of realizing lower net income coupled with increases in accounts receivable, other assets, income tax payable and unearned revenue, partially offset by decreases in prepaid expenses, accounts payable, and accrued expenses. A portion of $706,666 during the nine months ended September 30, 2017, comparedincrease in accounts receivable was due to net income of $349,441 during the nine months ended September 30, 2016. delays in invoicing customers stemming from the problems in transitioning our operational software for utilization review and medical case management, a problem we believe has been resolved.
Net cash used in investing activities was $13,446$209 and $33,556$6,133 during the nine-monththree month periods ended September 30, 2017March 31, 2023 and 2016,2022, respectively. During the nine-month periods ended September 30, 2017 and 2016,The increase in net cash used in investing activities was used to purchase computer equipment, furniture and office equipment.
During the three months ended September 30, 2017March 31, 2023 and 2016 was $02022, we did not engage in any financing activities.
Off-Balance Sheet Financing Arrangements
As of March 31, 2023, we had no off-balance sheet financing arrangements.
Inflation
We experience pricing pressures in the form of competitive pricing. Insurance carriers and $2,063, respectively, resultingthird-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” of Item 1A Risk Factor of our Annual Report.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with accounting principle generally accepted in the United States (“GAAP”). Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in our consolidated financial statements and accompanying notes. Because of the inherent uncertainty in making estimates and judgments, actual results could differ from lower cash dividends paid.our estimates and judgments. Our critical accounting policies are disclosed in Note 2, Significant Accounting Policies, of the Notes to Consolidated Financial Statements in our Annual Report and Note 1 and Note 2 to the Notes to the Condensed Consolidated Financial Statements in this report.
We continually evaluate our accounting estimates and judgments and base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Our critical accounting estimates include leases, allowance for uncollectible accounts, and income taxes, and are discussed in more detail below. Such accounting estimates require the most subjective or complex judgments by us, often as a result of the need to make assumptions regarding matters that are inherently uncertain, and actual results could differ materially from these estimates.
Leases: We determine if an arrangement includes a lease at inception. Right-of-use assets represent our right to use an underlying asset for the lease term; and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date of Material Contractual Commitmentsthe lease, renewal date of the lease or significant remodeling of the lease space based on the present value of the remaining future minimum lease payments. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable.
Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. The followinginterest rate implicit in lease contracts is typically not readily determinable. As a summaryresult, we utilize our incremental borrowing rate to discount lease payments, which reflects the fixed rate at which we could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Our leases may include options to extend or terminate the lease which are included in the lease term when it is reasonably certain that we will exercise any such options. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Allowance for Uncollectible Accounts: We determine our allowance for uncollectible accounts by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customers’ current ability to pay its obligation to us, and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible.
We must make significant judgments and estimates in determining contractual and bad debt allowances in any accounting period. One significant uncertainty inherent in our analysis is whether our past experience will be indicative of future periods. Although we consider future projections when estimating contractual and bad debt allowances, we ultimately make our decisions based on the best information available to us at the time the decision is made. Adverse changes in general economic conditions or trends in reimbursement amounts for our services could affect our contractual and bad debt allowance estimates, collection of accounts receivable, cash flows, and results of operations. At March 31, 2023, one customer accounted for 10% or more of accounts receivable compared to two customers at March 31, 2022.
Accounting for Income Taxes: We record a tax provision for the anticipated tax consequences of our reported results of operations. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance, if necessary, to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with future reversals of existing taxable temporary differences, will be sufficient to fully recover the deferred tax assets. In the event we determine all, or part of the net deferred tax assets are not realizable in the future, we will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material contractual commitments asimpact on our financial condition and operating results. The significant assumptions and estimates described above are important contributors to our ultimate effective tax rate each year.
| Payments Due By Period | ||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
| Operating Leases: | ||||||||||||||||||||
| Operating Leases – Equipment | $ | 56,857 | $ | 20,675 | $ | 36,182 | $ | - | $ | - | ||||||||||
| Office Leases | $ | 1,177,515 | 255,608 | 775,791 | 146,116 | - | ||||||||||||||
| Total Operating Leases | $ | 1,234,372 | $ | 276,283 | $ | 811,973 | $ | 146,116 | $ | - | ||||||||||
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Smaller reporting companies are not required for smaller reporting companies.to provide this information.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, which are controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, conducted an evaluation the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on the evaluation of our disclosure controls and procedures as of September 30, 2017,March 31, 2023, the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2017,March 31, 2023, that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. Risk Factors
Management does not believe there have been any material changes to the risk factors listed in Part I, “ItemItem 1A, Risk Factors”Factors in our annual report on Form 10-K for the year ended December 31, 2016. These risk factors should be carefully considered with the information provided elsewhere in this report, which could materially adversely affect our business, financial condition or results of operations.Annual Report.
Item 6. Exhibits
Exhibits. The following exhibits are filed or furnished, as applicable, as part of this report:
Exhibit Number | Title of Document | ||
Exhibit 31.1 | |||
Exhibit 31.2 | |||
Exhibit 32 | |||
Exhibit 101 | Pursuant to Rules 405 and 406 of Regulation S-T, the following | ||
Exhibit 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PACIFIC HEALTH CARE ORGANIZATION, INC. | |||
Date: | |||
May 18, 2023 | /s/ Tom Kubota | ||
Tom Kubota Chief Executive Officer | |||
Date: | May 18, 2023 | /s/ | |
Kristina Kubota Chief Financial Officer | |||