The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
NOTE 1 – CORPORATE HISTORY
Pacific Health Care Organization, Inc. (the “Company”) is a specialty workers’ compensation managed care 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 Healthcare, Inc. (“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 (“HCOs”) and Managed Provider Networks (“MPNs”) in the state of California. In August 2001, we formed Industrial Resolutions Coalition, Inc. (“IRC”), a California corporation, as a wholly-owned subsidiary of PHCO. IRC oversees and manages the Company’s Workers’ Compensation carve-outs services. In June 2010, the Company acquired Medex Legal Support, Inc. (“MLS”), a Nevada corporation incorporated in September 2009. MLS offers lien representation services and Medicare Set Aside (“MSA”) services. In February 2012, we incorporated Medex Medical Management, Inc., (“MMM”) in the state of Nevada, as a wholly owned subsidiary of the Company. MMM is responsible for overseeing and managing medical case management services. In March 2011, we incorporated Medex Managed Care, Inc. (“MMC”) in the state of Nevada, as a wholly owned subsidiary of the Company. MMC oversees and manages the Company’s utilization review and managed bill review services. In October 2018, the Company incorporated Pacific Medical Holding Company, Inc. (“PMHC”) to act as a holding company for future potential acquisitions.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Accounting
The Company used the accrual method of accounting in accordance with accounting principles generally accepted in the United States for the periods ended December 31, 2019 and 2018.
B. Revenue Recognition
Revenue Recognition — In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” Either a retrospective or cumulative effect transition method, referred to as the modified retrospective method, is permitted. The Company adopted Topic 606 on January 1, 2018, using the modified retrospective method. The adoption of Topic 606 had no material impact on the Company’s audited financial statements.
The core principle underlying Topic 606 is that the Company will recognize 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 will require 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.
The ASU 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 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 services offered through its HCO and MPN provider networks,
medical bill review, utilization review, medical case management services, lien defense, carve-outs, Medicare set-aside. These services are billed individually as separate components to our customers. These fees include monthly and/or annual HCO and/or MPN administration fees, claim and network access fees, medical bill review fees, legal support fees, Medicare set-aside fees, lien service fees, workers’ compensation carve-outs, utilization review fees, medical case management flat rate fees or hourly fees depending on the agreement with the client.
Pacific Health Care Organization, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
The Company enters into arrangements for bundled managed care which includes various units of accounting such as network solutions and patient management, including managed care. Such elements are considered separate units of accounting due to each element having value to the customer on a stand-alone basis and are billed separately. The selling price for each unit of accounting is determined using the contract price. When the Company’s customers purchase several products the pricing of the products sold is generally the same as if the products were sold on an individual basis. Revenue is recognized as the work is performed in accordance with the Company’s customer contracts. Based upon the nature of the Company’s products, bundled managed care elements are generally delivered in the same accounting period. The Company recognizes revenue for patient management services ratably over the life of the customer contract. Based upon prior experience in managed care, the Company estimates the deferral amount from when the customer’s claim is received to when the customer contract expires. Advance payments from subscribers and billings made in advance are recorded on the balance sheet as deferred revenue.
C. Cash Equivalents
The Company considers all short term, highly liquid investments that are readily convertible, within three months, to known amounts as cash equivalents. As of the date of these consolidated financial statements, the Company has no cash equivalents.
D. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risks consist of cash and cash equivalents. The Company places its cash and cash equivalents at well-known, quality financial institutions. At times, such cash and investments may be in excess of the FDIC insurance limit.
E. 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 the consolidated financial statements. The fully diluted earnings per share includes 16,000 shares of Series A preferred stock, as disclosed in Section L of Note 2.
|
|
For the Years Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Basic Earnings per share:
|
|
|
|
|
|
|
|
|
Income (numerator)
|
|
$
|
1,198,060
|
|
|
$
|
1,359,777
|
|
Shares (denominator)
|
|
|
12,800,000
|
|
|
|
12,800,000
|
|
Per share amount
|
|
$
|
0.09
|
|
|
$
|
0.11
|
|
Fully Diluted Earnings per share:
|
|
|
|
|
|
|
|
|
Income (numerator)
|
|
$
|
1,198,060
|
|
|
$
|
1,359,777
|
|
Shares (denominator)
|
|
|
12,816,000
|
|
|
|
12,816,000
|
|
Per share amount
|
|
$
|
0.09
|
|
|
$
|
0.11
|
|
F. 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 five years for computer equipment, office equipment, and furniture and fixtures.
G. 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 the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates include the values assigned to the allowance for doubtful accounts and accruals for income taxes.
Pacific Health Care Organization, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
H. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
I. 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.
|
|
•
|
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 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.
J. General and Administrative Expenses
General and administrative expenses include fees for advertising, charity, rent expense for office, shareholders’ expense, auto expenses, bank charges, dues and subscriptions, education, employment agency fees, equipment/repairs, IT enhancement and internet expenses, licenses and permits, office supplies, parking, postage and delivery, printing and reproduction, tax penalty, reference material, rent expense for equipment, telephone, compensated absences, travel expenses and entertainment costs.
K. Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are provided based on the difference between the financial statements and tax basis of assets and liabilities measured by the currently enacted tax rates in effect for the years in which these differences are expected to reverse. Deferred tax expense or benefit is the result of changes in deferred tax assets and liabilities.
L. Capital Structure
On January 6, 2020, the Company effected a four-shares-for-one-share (4:1) forward stock split (“Forward Split”) of its common stock and its Series A preferred stock. Unless otherwise noted, impacted amounts, share and per share information included in the financial statements and notes thereto have been retroactively adjusted for the Forward Split as if such Forward Split occurred on the first day of the first period presented.
On April 5, 2018, the Company effected a four-shares-for-one-share (4:1) forward stock split (“Forward Split”) of its common stock. Unless otherwise noted, impacted amounts, share and per share information included in the financial statements and notes thereto have been retroactively adjusted for the Forward Split as if such Forward Split occurred on the first day of the first period presented.
Pacific Health Care Organization, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
The Company has two classes of stock. The Articles of Incorporation of the Company, as amended, authorize 5,000,000 shares of $0.001 par value preferred stock, which may be issued in one or more series, with designation, rights and privileges of such preferred stock to be set by the board of directors of the Company from time to time. On November 21, 2016, the board of directors of the Company approved a Certificate of Designation of Rights, Privileges and Preferences of Series A preferred stock and authorized the Company’s officers to file such with the Utah Division of Corporations and Commercial Code to create the Series A preferred stock. The Series A preferred stock has a par value of $0.001 and consists of 40,000 shares. The holders of Series A preferred stock are entitled to vote with the common stockholders on all matters brought for approval of the common stockholders. In connection with any such matter, each outstanding share of Series A preferred stock is entitled to 20,000 votes of common stock of the Company. In the event of a liquidation, dissolution or winding up of the Company, the Series A preferred stock shall rank in parity with the Company’s common stock. Holders of Series A preferred stock are entitled to receive dividends, when, as and if declared by the board of directors. The Series A preferred stock shall rank in parity with the Company’s common stock as to any dividends. As of December 31, 2019, and 2018, 16,000 shares of the Series A preferred stock were outstanding.
The Company also has voting common stock of 800,000,000 shares authorized at December 31, 2019 and 2018, and 12,800,000 and 12,800,000 shares issued and outstanding, respectively. The Company purchased no shares of treasury stock at cost during fiscal 2019 and 2018, respectively. As of December 31, 2019, and 2018, the Company paid dividends declared in September 2015 of $0 and $0, respectively.
M. Share Based Compensation
The Company has adopted the fair value method of accounting for stock-based 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 its consolidated statements of operations based on their fair value.
N. Trade Receivables
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 by date of invoice. Management reviews bad debt reserves quarterly and reserves specific accounts as warranted or sets up a general reserve based on amounts over 90 days past due. When an account is deemed uncollectible, the Company charges off the receivable against the bad debt reserve. 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. In order 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 doubtful accounts 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, past-due amounts and the overall national economy. At fiscal year-end 2019 and 2018, the Company’s bad debt reserve of $30,525 and $28,442, respectively as a general reserve for certain balances over 90 days past due and for accounts that are potentially uncollectible.
The percentages of the amounts due from major customers to total accounts receivable as of December 31, 2019 and 2018, are as follows:
|
|
12/31/19
|
|
|
12/31/18
|
|
Customer A
|
|
|
18
|
%
|
|
|
27
|
%
|
Customer B
|
|
|
7
|
%
|
|
|
9
|
%
|
Customer C
|
|
|
8
|
%
|
|
|
8
|
%
|
Pacific Health Care Organization, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
O. Major Customers
The Company provides services to insurers, third party administrators, self-administered employers, municipalities and other industries. The Company can provide a full range of services to virtually any size employer in the state of California. The Company is also able to provide utilization review, medical bill review and medical case management services both inside and outside the state of California.
During 2019, Preferred Operator Group, LLC (POG) and Hilton Worldwide accounted for approximately 26% and 14% respectively, of our total sales.
P. Leases
Prior to January 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases.” Effective January 1, 2019, the Company adopted 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 adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on January 1, 2019 resulted in the recognition of operating lease right-of-use assets of $719,861, lease liabilities for operating leases of $719,861, and a zero cumulative-effect adjustment to accumulated deficit. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less (“short-term leases”). 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, 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, 2019.
Q. Subsequent Events
In accordance with ASC 855-10 Company management reviewed all material events through the date of issuance and except as follows, there are no material subsequent events to report. As of the date of issuance of the financial statements, it is difficult to determine the impact the COVID-19 outbreak will have on the Company. The extent of its impact will depend upon future developments that are highly uncertain and cannot currently be predicted with any level of confidence. As discussed elsewhere in this report, the Company has begun to implement measures to allow it to continue essential business operations remotely, if and as needed. The Company continues to monitor the situation. No impairments were recorded as of the balance sheet date as no triggering events or changes in circumstances had occurred as of year-end; however, due to significant uncertainty surrounding the situation, management's judgment regarding this could change in the future. In addition, while the Company’s results of operations, cash flows and financial condition could be negatively impacted, the extent of the impact cannot be reasonably estimated at this time.
NOTE 3 – RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial statements.
Pacific Health Care Organization, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
NOTE 4 – FIXED ASSETS
The Company capitalizes the purchase of equipment and fixtures for major purchases more than $1,000 per item. Capitalized amounts are depreciated over the useful life of the assets using the straight-line method of depreciation which is five years for computer equipment, office equipment, and furniture and fixtures. Scheduled below are the assets, costs and accumulated depreciation at December 31, 2019 and 2018.
|
|
Cost
|
|
|
Accumulated Depreciation
and Amortization
|
|
Assets
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2019(1)
|
|
|
December 31, 2018
|
|
Computer equipment
|
|
$
|
464,388
|
|
|
$
|
405,219
|
|
|
$
|
369,700
|
|
|
$
|
317,513
|
|
Furniture and fixtures
|
|
|
215,960
|
|
|
|
215,960
|
|
|
|
187,108
|
|
|
|
157,013
|
|
Office equipment
|
|
|
9,556
|
|
|
|
9,556
|
|
|
|
8,469
|
|
|
|
14,582
|
|
Totals
|
|
$
|
689,904
|
|
|
$
|
630,735
|
|
|
$
|
565,277
|
|
|
$
|
489,108
|
|
|
(1)
|
Depreciation and amortization expense for the years ended December 31, 2019 and 2018, totaled $76,168 and $67,084, respectively.
|
NOTE 5 – INCOME TAXES
The Company accounts for corporate income taxes in accordance with FASB ASC 740-10 “Income Taxes.” FASB ASC 740-10 requires an asset and liability approach for financial accounting and reporting for income tax purposes.
The tax provision for the years ended December 31, 2019 and 2018, consisted of the following:
|
|
2019
|
|
|
2018
|
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
299,795
|
|
|
$
|
376,637
|
|
State
|
|
|
141,633
|
|
|
|
172,788
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
29,346
|
|
|
|
(14,523
|
)
|
State
|
|
|
11,301
|
|
|
|
(5,272
|
)
|
Total tax provision
|
|
$
|
482,075
|
|
|
$
|
529,630
|
|
Pacific Health Care Organization, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s total deferred tax liabilities, deferred tax assets, and deferred tax asset valuation allowances at December 31, 2019 and December 31, 2018, are as follows:
|
|
2019
|
|
|
2018
|
|
Depreciation
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(26,172
|
)
|
|
$
|
(27,192
|
)
|
State
|
|
|
(8,703
|
)
|
|
|
(12,562
|
)
|
Reserve for bad debts
|
|
|
|
|
|
|
|
|
Federal
|
|
|
5,029
|
|
|
|
4,197
|
|
State
|
|
|
1,672
|
|
|
|
1,939
|
|
|
|
|
|
|
|
|
|
|
Deferred Rent
|
|
|
|
|
|
|
-
|
|
Federal
|
|
|
6,289
|
|
|
|
5,014
|
|
State
|
|
|
2,091
|
|
|
|
2,316
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenues
|
|
|
|
|
|
|
|
|
Federal
|
|
|
9,674
|
|
|
|
8,726
|
|
State
|
|
|
3,217
|
|
|
|
4,031
|
|
|
|
|
|
|
|
|
|
|
State tax deductions
|
|
|
29,722
|
|
|
|
33,156
|
|
Vacation accrual
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
29,987
|
|
State
|
|
|
-
|
|
|
|
13,853
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
22,819
|
|
|
$
|
63,465
|
|
The reconciliation of income tax computed at statutory rates of income tax benefits is as follows:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Expense at federal statutory rate of 21%
|
|
$
|
352,828
|
|
|
$
|
396,775
|
|
State tax effects
|
|
|
120,818
|
|
|
|
132,337
|
|
Non-deductible expenses
|
|
|
9,455
|
|
|
|
9,054
|
|
Effects of rate change
|
|
|
-
|
|
|
|
-
|
|
Other items
|
|
|
(1,026
|
)
|
|
|
(8,536
|
)
|
Income tax provision
|
|
$
|
482,075
|
|
|
$
|
529,630
|
|
The Financial Accounting Standards Board (FASB) has issued ASC 740-10 (Prior authoritative literature: Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN 48)).” ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with prior literature FASB Statement No. 109, Accounting for Income Taxes. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by ASC 740-10.
Pacific Health Care Organization, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
The Company follows the interpretations of the FASB, which establishes a single model to address accounting for uncertain tax positions. The interpretations clarify the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements and provide guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company takes a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon effective settlement. The Company re-evaluates its income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances, changes in or interpretations of tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision. Interest and penalties on unrecognized tax benefits are classified as income tax expense.
The Company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes. As of December 31, 2019, the Company had no accrued interest or penalties. The years 2016, 2017, 2018 are still open for examination by the Internal Revenue Service.
NOTE 6 – LEASES
In April 2017, we entered a 39-month operating lease for an office copy machine with monthly payments at $1,723.
In July 2015, the Company entered a new 79-month office lease that commenced on September 28, 2015. The lease provides for approximately 9,439 square feet of office space. This office space serves as the principal executive offices of the Company, as well as, the principal offices of the Company’s operating subsidiaries, Medex, IRC, MLS, MMM, MMC and PMHC.
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 operating lease ROU asset includes any lease payments made and excludes lease incentives.
The components of lease expense and supplemental cash flow information related to leases for the period are as follows:
|
|
Year Ended
December 31, 2019
|
|
Lease Cost
|
|
|
|
|
Operating lease cost (included in general and administrative in the Company’s condensed consolidated statement of operations)
|
|
$
|
610,186
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2019
|
|
$
|
277,844
|
|
Weighted average remaining lease term – operating leases (in years)
|
|
2.30 years
|
|
Average discount rate – operating leases
|
|
|
5.75
|
%
|
Pacific Health Care Organization, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
The supplemental balance sheet information related to leases for the period is as follows:
|
|
At December 31, 2019
|
|
Operating leases
|
|
|
|
|
Long-term right-of-use assets
|
|
$
|
558,945
|
|
Short-term operating lease liabilities
|
|
$
|
266,480
|
|
Long-term operating lease liabilities
|
|
|
292,465
|
|
Total operating lease liabilities
|
|
$
|
558,945
|
|
Maturities of the Company’s undiscounted lease liabilities are as follows:
Year Ending
|
|
Operating Leases
|
|
2020
|
|
$
|
281,803
|
|
2021
|
|
|
257,024
|
|
2022
|
|
|
71,359
|
|
Total lease payments
|
|
|
610,186
|
|
Less: Imputed interest/present value discount
|
|
|
(51,241
|
)
|
Present value of lease liabilities
|
|
$
|
558,945
|
|
Lease expenses were $261,087 and $274,019 during the years ended December 31, 2019 and 2018, respectively.
NOTE 7 – ACCRUED AND OTHER LIABILITIES
Accrued liabilities consist of the following:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
$
|
75,779
|
|
|
$
|
54,579
|
|
Compensated absences
|
|
|
123,027
|
|
|
|
162,169
|
|
Legal fees
|
|
|
9,150
|
|
|
|
2,760
|
|
Accounting fees
|
|
|
25,964
|
|
|
|
11,732
|
|
Sales commissions
|
|
|
14,680
|
|
|
|
14,001
|
|
Other
|
|
|
1,304
|
|
|
|
3,214
|
|
Total
|
|
$
|
249,904
|
|
|
$
|
248,455
|
|
NOTE 8 – 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 8,000,000 shares of Common Stock. No awards or grants have been awarded or granted under the Plan. The 2018 Plan provides for grants of equity incentive compensation to employees and consultants of the Company and such other individuals as the Company reasonably expects to become employees or consultants of the Company. The 2018 Plan allows for awards of (a) incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) restricted awards, and (e) other equity-based awards. The 2018 Plan will terminate automatically on the tenth anniversary of the 2018’s Plan Effective Date. The 2018 Plan is currently administered by the full board of directors.
Pacific Health Care Organization, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
Stock Options
The following table summarizes activity for the Company’s stock options outstanding (all of which are non-vested) during the years ended December 31, 2018 and 2017:
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
per Share
|
|
|
Weighted Average
Grant Date Fair
Value per Share
|
|
Outstanding at December 31, 2017
|
|
|
1,360,000
|
|
|
$
|
0.94
|
|
|
$
|
0.60
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/cancelled*
|
|
|
(1,360,000
|
)
|
|
$
|
0.94
|
|
|
$
|
0.60
|
|
Outstanding at December 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
*
|
These options were granted on August 17, 2017, and were subject one-year vesting conditions. Prior to vesting, the option holders expressed their intent to forfeit their options back to the Company for cancellation. On May 14, 2018, the Company entered into Stock Option Cancellation Agreements (the “Cancellation Agreements”) with each of the option holders and the options were forfeited back to the Company for cancellation. The forfeitures were made without any expectation on the part of the option holders to receive, and without any obligation on the Company to pay or grant, any cash, equity awards or other consideration presently or in the future with respect to the cancelled options.
|
NOTE 9 – LITIGATION
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in such matters may arise from time to time that may harm the Company’s business. To the knowledge of management, there is no material litigation or governmental agency proceeding pending or threatened against the Company or any of its subsidiaries. Further, the Company is not aware of any material proceeding to which any director, member of senior management or owner of record or beneficially of more than five percent of any class of voting securities of the Company or any of its subsidiaries, or any associate of any of them is a party adverse to or has a material interest adverse to the Company or any of its subsidiaries.
NOTE 10 – BENEFITS AND OTHER COMPENSATION
The Company offers a 401(k)-profit sharing plan for employees who meet the eligibility requirements. Pursuant to the plan, we 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 prospects 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 any plan.