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
September 30,
2020
|
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
For the Transition Period From ________ to _________
|
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 I.D. No.)
|
|
|
1201 Dove Street, Suite 300
|
|
Newport Beach, California
|
92660
|
(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 every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files.) Yes ☒ No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See
definitions of “large accelerated filer,” “accelerated
filer”, “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
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 to not 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 12, 2020, the registrant had 12,800,000 shares of
common stock, par value $0.001, issued and outstanding.
PACIFIC HEALTH CARE ORGANIZATION, INC.
FORM 10-Q
TABLE OF
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial
Information
Pacific Health Care Organization, Inc.
Condensed
Consolidated Balance Sheets
(Unaudited)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
9,212,599 |
|
|
$ |
8,104,164 |
|
Accounts receivable, net of allowance of $17,202 and
$30,525
|
|
|
1,024,249 |
|
|
|
1,114,725 |
|
Deferred tax assets
|
|
|
22,819 |
|
|
|
22,819 |
|
Prepaid income tax
|
|
|
23,530 |
|
|
|
158,641 |
|
Receivable – other
|
|
|
10,446 |
|
|
|
14,900 |
|
Prepaid expenses
|
|
|
76,478 |
|
|
|
128,343 |
|
Total current assets
|
|
|
10,370,121 |
|
|
|
9,543,592 |
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
|
506,828 |
|
|
|
464,388 |
|
Furniture and fixtures
|
|
|
226,323 |
|
|
|
215,960 |
|
Office equipment
|
|
|
9,556 |
|
|
|
9,556 |
|
Total property and equipment
|
|
|
742,707 |
|
|
|
689,904 |
|
Less: accumulated depreciation and amortization
|
|
|
(611,993 |
)
|
|
|
(565,277 |
)
|
Net property and equipment
|
|
|
130,714 |
|
|
|
124,627 |
|
Operating lease right-of-use assets, net
|
|
|
372,591 |
|
|
|
558,945 |
|
Other assets
|
|
|
26,788 |
|
|
|
26,788 |
|
Total Assets
|
|
$ |
10,900,214 |
|
|
$ |
10,253,952 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
47,760 |
|
|
$ |
52,275 |
|
Accrued expenses
|
|
|
293,411 |
|
|
|
249,904 |
|
Deferred rent expense
|
|
|
9,908 |
|
|
|
29,947 |
|
Dividend payable
|
|
|
37,000 |
|
|
|
37,000 |
|
Operating lease liabilities, current portion
|
|
|
247,054 |
|
|
|
266,480 |
|
Paycheck protection program loans, current portion
|
|
|
311,118 |
|
|
|
- |
|
Unearned revenue
|
|
|
32,315 |
|
|
|
46,066 |
|
Total current liabilities
|
|
|
978,566 |
|
|
|
681,672 |
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
|
|
|
|
|
|
Operating lease liabilities, long-term portion
|
|
|
125,537 |
|
|
|
292,465 |
|
Paycheck protection program loans, long-term portion
|
|
|
149,582 |
|
|
|
- |
|
Total long-term liabilities
|
|
|
275,119 |
|
|
|
292,465 |
|
Total Liabilities
|
|
|
1,253,685 |
|
|
|
974,137 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred stock; 5,000,000 shares authorized at $0.001 par value of
which 40,000 shares are 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
|
|
|
416,057 |
|
|
|
416,057 |
|
Retained earnings
|
|
|
9,217,656 |
|
|
|
8,850,942 |
|
Total Stockholders’ Equity
|
|
|
9,646,529 |
|
|
|
9,279,815 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders’ Equity
|
|
$ |
10,900,214 |
|
|
$ |
10,253,952 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Pacific Health Care Organization, Inc.
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HCO fees
|
|
$ |
264,781 |
|
|
$ |
376,170 |
|
|
$ |
916,693 |
|
|
$ |
1,147,352 |
|
MPN fees
|
|
|
124,836 |
|
|
|
131,164 |
|
|
|
363,902 |
|
|
|
382,142 |
|
Utilization review
|
|
|
307,139 |
|
|
|
318,816 |
|
|
|
854,922 |
|
|
|
898,054 |
|
Medical bill review
|
|
|
77,075 |
|
|
|
136,793 |
|
|
|
242,237 |
|
|
|
396,870 |
|
Medical case management
|
|
|
590,784 |
|
|
|
804,004 |
|
|
|
1,855,314 |
|
|
|
2,384,967 |
|
Other
|
|
|
51,139 |
|
|
|
71,758 |
|
|
|
202,101 |
|
|
|
228,077 |
|
Total revenues
|
|
|
1,415,754 |
|
|
|
1,838,705 |
|
|
|
4,435,169 |
|
|
|
5,437,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
14,122 |
|
|
|
18,512 |
|
|
|
46,716 |
|
|
|
55,385 |
|
Bad debt provision
|
|
|
11,000 |
|
|
|
8,000 |
|
|
|
11,101 |
|
|
|
8,000 |
|
Consulting fees
|
|
|
58,621 |
|
|
|
57,945 |
|
|
|
195,978 |
|
|
|
207,587 |
|
Salaries and wages
|
|
|
694,352 |
|
|
|
789,319 |
|
|
|
2,238,079 |
|
|
|
2,324,860 |
|
Professional fees
|
|
|
68,979 |
|
|
|
86,241 |
|
|
|
223,747 |
|
|
|
265,457 |
|
Insurance
|
|
|
91,951 |
|
|
|
81,390 |
|
|
|
274,974 |
|
|
|
241,695 |
|
Outsource service fees
|
|
|
115,803 |
|
|
|
111,567 |
|
|
|
359,596 |
|
|
|
373,047 |
|
Data maintenance
|
|
|
6,603 |
|
|
|
8,726 |
|
|
|
59,415 |
|
|
|
76,345 |
|
General and administrative
|
|
|
163,863 |
|
|
|
187,855 |
|
|
|
515,738 |
|
|
|
612,856 |
|
Total expenses
|
|
|
1,225,294 |
|
|
|
1,349,555 |
|
|
|
3,925,344 |
|
|
|
4,165,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
190,460 |
|
|
|
489,150 |
|
|
|
509,825 |
|
|
|
1,272,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
190,460 |
|
|
|
489,150 |
|
|
|
509,825 |
|
|
|
1,272,230 |
|
Income tax provision
|
|
|
53,463 |
|
|
|
137,401 |
|
|
|
143,111 |
|
|
|
357,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
136,997 |
|
|
$ |
351,749 |
|
|
$ |
366,714 |
|
|
$ |
915,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share amount
|
|
$ |
0.01 |
|
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.07 |
|
Weighted average common shares outstanding
|
|
|
12,800,000 |
|
|
|
12,800,000 |
|
|
|
12,800,000 |
|
|
|
12,800,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share amount
|
|
$ |
0.01 |
|
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.07 |
|
Weighted average common shares outstanding
|
|
|
12,816,000 |
|
|
|
12,816,000 |
|
|
|
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 Stockholders' Equity
(Unaudited)
|
|
Preferred stock
|
|
|
Common Stock
|
|
|
Additional paid-in
|
|
|
Retained
|
|
|
Total stockholder’s
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
earnings
|
|
|
equity
|
|
Balances at December 31, 2018
|
|
|
16,000 |
|
|
$ |
16 |
|
|
|
12,800,000 |
|
|
$ |
12,800 |
|
|
$ |
416,057 |
|
|
$ |
7,652,882 |
|
|
$ |
8,081,755 |
|
Net Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
314,563 |
|
|
|
314,563 |
|
Balances at March 31, 2019
|
|
|
16,000 |
|
|
$ |
16 |
|
|
|
12,800,000 |
|
|
$ |
12,800 |
|
|
$ |
416,057 |
|
|
$ |
7,967,445 |
|
|
$ |
8,396,318 |
|
Net Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
248,704 |
|
|
|
248,704 |
|
Balances at June 30, 2019
|
|
|
16,000 |
|
|
$ |
16 |
|
|
|
12,800,000 |
|
|
$ |
12,800 |
|
|
$ |
416,057 |
|
|
$ |
8,216,149 |
|
|
$ |
8,645,022 |
|
Net Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
351,749 |
|
|
|
351,749 |
|
Balances at September 30, 2019
|
|
|
16,000 |
|
|
$ |
16 |
|
|
|
12,800,000 |
|
|
$ |
12,800 |
|
|
$ |
416,057 |
|
|
$ |
8,567,898 |
|
|
$ |
8,996,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2019
|
|
|
16,000 |
|
|
$ |
16 |
|
|
|
12,800,000 |
|
|
$ |
12,800 |
|
|
$ |
416,057 |
|
|
$ |
8,850,942 |
|
|
$ |
9,279,815 |
|
Net Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
123,128 |
|
|
|
123,128 |
|
Balances at March 31, 2020
|
|
|
16,000 |
|
|
$ |
16 |
|
|
|
12,800,000 |
|
|
$ |
12,800 |
|
|
$ |
416,057 |
|
|
$ |
8,974,070 |
|
|
$ |
9,402,943 |
|
Net Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
106,589 |
|
|
|
106,589 |
|
Balances at June 30, 2020
|
|
|
16,000 |
|
|
$ |
16 |
|
|
|
12,800,000 |
|
|
$ |
12,800 |
|
|
$ |
416,057 |
|
|
$ |
9,080,659 |
|
|
$ |
9,509,532 |
|
Net Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
136,997 |
|
|
|
136,997 |
|
Balances at September 30, 2020
|
|
|
16,000 |
|
|
$ |
16 |
|
|
|
12,800,000 |
|
|
$ |
12,800 |
|
|
$ |
416,057 |
|
|
$ |
9,217,656 |
|
|
$ |
9,646,529 |
|
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)
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows provided from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
366,714 |
|
|
$ |
915,016 |
|
Adjustments to reconcile net income to net cash provided from
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
46,716 |
|
|
|
55,385 |
|
Bad debt provision
|
|
|
11,101 |
|
|
|
7,997 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
79,375 |
|
|
|
(31,168 |
)
|
Decrease (increase) in prepaid income tax
|
|
|
135,111 |
|
|
|
(20,997 |
)
|
Decrease in prepaid expenses
|
|
|
51,865 |
|
|
|
43,291 |
|
Decrease in receivables other
|
|
|
4,454 |
|
|
|
6,126 |
|
(Decrease) increase in accounts payable
|
|
|
(4,515 |
)
|
|
|
32,632 |
|
(Decrease) increase in deferred rent expense
|
|
|
(20,039 |
)
|
|
|
8,750 |
|
Increase in accrued expenses
|
|
|
43,507 |
|
|
|
56,339 |
|
(Decrease) increase in unearned revenue
|
|
|
(13,751 |
)
|
|
|
1,896 |
|
Net cash provided from operating activities
|
|
|
700,538 |
|
|
|
1,075,267 |
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing
activities:
|
|
|
|
|
|
|
|
|
Purchase of furniture and office equipment
|
|
|
(52,803 |
)
|
|
|
(46,653 |
)
|
Net cash used in investing activities
|
|
|
(52,803 |
)
|
|
|
(46,653 |
)
|
|
|
|
|
|
|
|
|
|
Cash flows provided from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from paycheck protection program loans
|
|
|
460,700 |
|
|
|
- |
|
Net cash provided from financing activities
|
|
|
460,700 |
|
|
|
- |
|
Increase in cash
|
|
|
1,108,435 |
|
|
|
1,028,614 |
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
8,104,164 |
|
|
|
7,072,507 |
|
Cash at end of period
|
|
$ |
9,212,599 |
|
|
$ |
8,101,121 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
- |
|
|
$ |
- |
|
Income taxes
|
|
$ |
- |
|
|
$ |
378,211 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Initial recognition of operating lease right-of-use assets and
operating lease liabilities
|
|
$ |
- |
|
|
$ |
719,861 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Pacific Health Care Organization, Inc.
Notes to
Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2020
(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 interim 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 recommended
that these interim condensed consolidated financial statements be
read in conjunction with the Company’s audited financial statements
and notes thereto included in its annual report on Form 10-K for
the year ended December 31, 2019. Operating results for the nine
months ended September 30, 2020, are not necessarily indicative of
the results to be expected for the year ending December 31,
2020.
Principles of Consolidation — The accompanying
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 of accounting.
Revenue Recognition — The Company follows the
guidance of Accounting Standards Codification (ASC) 606, “Revenue
from Contracts with Customers (Topic 606).”
Topic 606 creates a five-step model to recognize revenue which
includes (i) identifying the contract with the customer, (ii)
identifying the performance obligations in the contract, (iii)
determining the transaction price, including variable consideration
to the extent that it is probable that a significant future
reversal will not occur, (iv) allocating the transaction price to
the respective performance obligations in the contract, and (v)
recognizing revenue when (or as) the Company satisfies the
performance obligation.
The Company derives its revenue from the sale of managed care, bill
review, utilization review and medical case management services.
These services are billed individually as separate components to
our customers. These fees include monthly administration fees,
claim network fees, legal support fees, Medicare set-aside fees,
lien service fees, workers’ compensation carve-outs, flat rate fees
or hourly fees depending on the agreement with the client.
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.
Pacific Health Care Organization, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2020
(Unaudited)
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 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 rating 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. We evaluate the allowance based on historical
write-off experience, the size of the individual customer balances,
past-due amounts and the overall national economy. At September 30,
2020 and December 31, 2019, bad debt reserves of $17,202 and
$30,525, respectively, was 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 September 30, 2020 and December 31, 2019,
are as follows:
|
|
9/30/2020
|
|
|
12/31/2019
|
|
Customer A
|
|
|
16 |
% |
|
|
18 |
% |
Customer B
|
|
|
12 |
% |
|
|
8 |
% |
Customer C
|
|
|
12 |
% |
|
|
7 |
% |
Significant Customers - We provide services to
insurers, third party administrators, self-administered employers,
municipalities and other industries. We are able to provide our
full range of services to virtually any size employer in the state
of California. We are also able to provide utilization review,
medical bill review and medical case management services outside
the state of California.
During the period ended September 30, 2020 and 2019, we had three
customers that accounted for more than 10% of our total sales and
three customers during the same time period in 2019. The
following table sets forth details regarding the percentage of
total sales attributable to our significant customers in the past
two years:
|
|
9/30/2020
|
|
|
9/30/2019
|
|
Customer A
|
|
|
21 |
% |
|
|
26 |
% |
Customer B
|
|
|
12 |
% |
|
|
13 |
% |
Customer C
|
|
|
10 |
% |
|
|
9 |
% |
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. 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”), as
allowed by certain provisions of ASC 842. Lease expense is
recognized on a straight-line basis over the lease term. See Note 2
for further information regarding the impact of the adoption of ASC
842 on the Company’s financial statements.
Pacific Health Care Organization, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2020
(Unaudited)
NOTE 2 - OPERATING LEASES
In July 2015, the Company entered a 79-month lease to lease
approximately 9,439 square feet of office space that commenced in
September 2015. This office space serves as the Company’s principal
executive offices, as well as the principal offices of our
operating subsidiaries. In March 2017, the Company entered a
39-month operating lease for an office copy machine with scanner
with monthly payment at $1,723, that expired in June 2020.
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:
|
|
Three Months Ended
September 30, 2020
|
|
|
Nine Months Ended
September 30, 2020
|
|
Lease Cost
|
|
|
|
|
|
|
|
|
Operating lease cost (included in general and administrative in the
Company’s condensed consolidated statement of operations)
|
|
$ |
72,687 |
|
|
$ |
225,903 |
|
|
|
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease
liabilities for the three and nine months ended September 30,
2020
|
|
$ |
72,687 |
|
|
$ |
225,903 |
|
Weighted average remaining lease term – operating leases (in years)
|
|
1.58 years
|
|
|
1.58 years
|
|
Average discount rate – operating leases
|
|
|
5.75 |
% |
|
|
5.75 |
% |
The supplemental balance sheet information related to leases for
the period is as follows:
|
|
At September 30, 2020
|
|
|
At December 31, 2019
|
|
Operating leases
|
|
|
|
|
|
|
|
|
Long-term right-of-use assets
|
|
$ |
372,591 |
|
|
$ |
558,945 |
|
Short-term operating lease liabilities
|
|
$ |
247,054 |
|
|
$ |
266,480 |
|
Long-term operating lease liabilities
|
|
|
125,537 |
|
|
|
292,465 |
|
Total operating lease liabilities
|
|
$ |
372,591 |
|
|
$ |
558,945 |
|
Maturities of the Company’s lease liabilities are as follows:
Year Ending
|
|
Operating Leases
|
|
2020 (remaining 3 months)
|
|
$ |
68,244 |
|
2021
|
|
|
257,024 |
|
2022
|
|
|
71,359 |
|
Total lease payments
|
|
|
396,627 |
|
Less: Imputed interest/present value discount
|
|
|
(24,036 |
)
|
Present value of lease liabilities
|
|
$ |
372,591 |
|
Pacific Health Care Organization, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2020
(Unaudited)
Lease expenses were $72,687 and $73,825 during the three months
ended September 30, 2020 and 2019, respectively and $225,903 and
$212,723 during the nine months ended September 30, 2020 and 2019,
respectively.
NOTE 3 - PAYCHECK PROTECTION PROGRAM LOANS
In April and May 2020 Pacific Health Care Organization, Inc.
(“PHCO”), Medex Managed Care, Inc. (“MMC”) and Medex Medical
Management, Inc. (“MMM”) received loans pursuant to the Coronavirus
Aid, Relief and Economic Security (“CARES”) Act Paycheck Protection
Program.
PHCO received a loan in the amount of $133,400 (the “PHCO PPP
Loan”) from Pacific Western Bank. The PHCO PPP Loan is in the form
of a Note dated April 21, 2020, issued by PHCO, which matures on
April 21, 2022. The PHCO PPP Loan bears interest at a rate of 1%
per annum and is payable monthly commencing on November 21, 2020.
The monthly principal payment for the PHCO PPP Loan will be
$7,507.
MMM and MMC received loans of $267,700 and $59,600 respectively,
from First Citizens Bank, (collectively the “Medex Companies PPP
Loans”). The Medex Companies PPP Loans are also in the form of
Notes dated April 30, 2020 and May 11, 2020, issued by MMM and MMC
respectively, and mature on April 30, 2022 and May 11, 2022,
respectively. The Medex Companies PPP Loans bear interest at a rate
of 1.0% per annum and are payable monthly commencing on November
30, 2020 for the MMM loan and December 11, 2020 for the MMC loan.
The combined monthly principal payments for the Medex Companies PPP
Loans will be $18,419.
Funds from these loans may be used for payroll, rent, utilities and
costs incurred to continue group health insurance benefits. The
terms of the loans provide that certain amounts may be forgiven if
the funds are used for qualifying expenses as described in the
CARES Act.
NOTE 4 - SUBSEQUENT EVENTS
In accordance with ASC 855-10 Company management reviewed all
material events through the date of issuance and there are no
material subsequent events to report.
Item 2.
Management’s Discussion and Analysis of Financial
Statements and Results of Operations
This quarterly report on Form 10-Q contains forward-looking
statements within the meaning of Section 27A 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 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, and actual results may differ materially depending on
a variety of factors, many of which are not within our control.
These factors include but are not limited to economic conditions
generally and in the industry in which we and our customers
participate; the impacts of the COVID-19 pandemic and our ability
to react to those impacts; cost reduction efforts by our existing
and prospective customers; competition within our industry,
including competition from much larger competitors; business
combinations; legislative requirements or changes which could
render our services less competitive or obsolete; our failure to
successfully develop new services, and/or products or to anticipate
current or prospective customers’ needs; our ability to retain
existing customers and to attract new customers; price increases;
employee limitations; and delays, reductions, or cancellations of
contracts we have previously entered.
Forward-looking statements are predictions and not guarantees of
future performance or events. Forward-looking statements are based
on current industry, financial and economic information, which we
have assessed but which, by its nature, is dynamic 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 speak
only as of their dates and should not be relied upon. We undertake
no obligation to publicly update or revise any forward-looking
statements whether as a result of new information, future events or
otherwise (other than pursuant to reporting obligations imposed on
registrants pursuant to the Exchange Act) to reflect subsequent
events or circumstances.
The following discussion should be read in conjunction with our
unaudited condensed consolidated financial statements and the
related notes contained elsewhere in this report and in our other
filings with the Commission.
Throughout this quarterly report on Form 10-Q, 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”),
Industrial Resolutions Coalition, Inc. (“IRC”), Medex Managed Care,
Inc. (“MMC”), Medex Medical Management, Inc. (“MMM”) and Medex
Legal Support, Inc. (“MLS”) and Pacific Medical Holding Company,
Inc. (“PMHC”).
Overview
We incorporated under the laws of the state of Utah in April 1970,
under the name Clear Air, Inc. We changed our name to Pacific
Health Care Organization, Inc., in January 2001. We have six wholly
owned subsidiaries. In February 2001, we acquired Medex Healthcare,
Inc. (“Medex”), a California corporation organized in March 1994,
in a share for share exchange. Medex is in the business of managing
and administering both Health Care Organizations (“HCOs”) and
Managed Provider Networks (“MPNs”) in the state of California. In
August 2001, we formed Industrial Resolutions Coalition, Inc.
(“IRC”), a California corporation. IRC oversees and manages the
Company’s Workers’ Compensation Carve-Outs services. In June 2010,
we 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 March 2011, we
incorporated Medex Managed Care, Inc. (“MMC”) in the state of
Nevada. MMC oversees and manages the Company’s utilization review
and managed bill review services. In February 2012, we incorporated
Medex Medical Management, Inc., (“MMM”) in the state of Nevada. MMM
is responsible for overseeing and managing medical case management
services. In October 2018, we incorporated Pacific Medical Holding
Company, Inc. (“PMHC”) in the state of Nevada to act as a holding
company for future potential acquisitions.
Business of the Company
We are workers’ compensation cost containment specialists providing
a range of services principally to California employers and claims
administrators. Our business objective is to deliver value to our
clients that reduces their workers’ compensation 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 medical treatment costs.
Our clients include self-administered employers, insurers, third
party administrators, municipalities and others. Our principal
clients are located in the state of California where the high cost
of workers’ compensation insurance is a critical problem for
employers. We process medical bill reviews in 25 states. Our
provider networks are composed of experts in treating worker
injuries.
Impact of COVID-19 on our Business
In late 2019 the novel coronavirus, COVID-19, was identified. By
February 2020, the virus had spread to many countries around the
world, including the United States. By late February, authorities
in the United States began advising American businesses to prepare
for the effects of the outbreak. On March 19, 2020, the
governor of California issued a stay-at-home order except for
essential services, such as grocery stores, gas stations and banks.
In mid-March 2020 we implemented our disaster recovery and business
plan addressing how our business operations would be performed by
our employees working remotely. As a result, since that time,
nearly 100% of our employees have been working remotely and
performing approximately 95% of our typical business functions,
with the primary exceptions being certain manual, non-critical
functions.
Even though we have been able to transition our work force and work
flow to address the restrictions designed to “flatten the curve” of
the COVID-19 pandemic, the extent of the long-term adverse effect
of the COVID-19 pandemic on the economy, our industry, our results
of operations and financial condition is unknown and largely
dependent on future developments, most of which, including the
severity and duration of this pandemic, are beyond our control.
Revenue for our services is derived from our employer customers’
employee counts and workers’ workplace injuries. Several of our
employer customers, including some of our largest customers, have
had to suspend or significantly modify their operations during the
stay-at-home order issued by the governor of California.
The state orders have been modified to allow some categories of
businesses to re-open under COVID-19 restrictions, while others,
such as bars and restaurants, have been under various orders that
have forced closures and re-openings several times. As of November
13, 2020, most client businesses are allowed to operate under
COVID-19 restrictions but are continuing to experience lower-than
normal business volume and employee counts due to the pandemic.
On May 6, 2020, the governor of California issued an executive
order declaring that any employee who becomes ill with COVID-19
will be presumed to have contracted the disease in the workplace if
the worker worked onsite any time during the fourteen-day period
prior to the onset of the illness. The presumption is rebuttable by
the employer with sufficient evidence discovered within 30 days,
but in many cases this places the burden of medical care for
COVID-19 cases on employers. The executive order was valid through
July 5, 2020. A new California bill has been passed to address
employer liability in Workers’ Compensation for COVID-19 cases
contracted after the expiration of the Governor’s executive order.
The bill includes a requirement that a certain percentage of the
employer’s workers be confirmed to have contracted the coronavirus
before a rebuttable presumption of industrial origin is applied to
individual cases, which may impact the extent to which Workers’
Compensation is used to address its treatment in California.
The Actuary Committee of the California Workers’ Compensation
Insurance Rating Bureau is presently attempting to assess the
impact of the COVID-19 pandemic on future claims frequency and
costs in relation to historically traditional claims frequency
during times of severe economic downturn. They are especially
focused on post-termination claims, work-at-home arrangements, and
the COVID-19 presumption.
For the first two and one-half months of the quarter ended March
31, 2020, the COVID-19 outbreak did not have a significant impact
on our business. We began to experience some slowdown in claims in
the last two weeks of March, which has continued through the third
quarter of 2020. At this time, we cannot predict if, how or when
our employer customers will be allowed to return to pre-COVID-19
operations/employment levels. We anticipate that reductions in
employee counts and workplace injuries will continue to negatively
impact our revenues and have an adverse impact on our results of
operations and liquidity position.
On April 21, 2020, PHCO was granted a Paycheck Protection Program
(“PPP”) loan for in an amount of $133,400. On April 30, 2020 and
May 11, 2020 subsidiaries MMM and MMC were granted PPP loans of
$267,700 and $59,600, respectively. In the spirit of the PPP loan
program policy of protecting the continued economic stability of
employees, we put virtually all of the PPP loan amounts toward
payroll and employee benefit expenses. We are currently in the
process of seeking forgiveness of the PPP loans via the federal
policies set forth for this purpose.
In late June 2020, the reduction in volume in some areas of our
business became clear as a trend. As a result, and after attempts
to cut expenses in other areas, it became necessary to institute a
business restructuring that included a reduction in force. After
conducting an analysis of departmental demand, departmental
function, projected business needs, and personnel, we laid off four
employees on July 16, 2020. The reduction in force has not impacted
our customers or our revenue generation potential based on our
current and projected business volume.
While we have taken steps to render our business functions
remotely, to deploy these measures effectively, and to do our best
to ensure data security, there is no guarantee the measures we have
taken will be completely effective, that our productivity will not
be adversely impacted, or that we will not encounter some of the
common risks associated with a remote workforce, including
employees accessing company data and systems remotely. As discussed
in greater detail in Item 1A Risk Factors of our annual
report on Form 10-K, our business could be materially and adversely
affected by the potential interruptions to our business operations
arising from the COVID-19 outbreak.
In addressing the risk of COVID-19 cases and Workers’ Compensation
claims within the Company, we have also implemented onsite measures
recommended by national, state, and local health authorities to
reduce the chances of transmission among our employees. These
measures include an office reopening plan, phased policy measures
based on local and state orders and our own risk assessment,
compliance with ventilation and other building-level
recommendations as made possible by the building owner, physical
barriers and signage, limited onsite presence, pre-shift symptom
screening, requiring mask usage and social distancing, strictly
limiting the occupancy of the office and each area within it, and
other measures that as of the date of this report are recommended
to reduce the risk of transmission of COVID-19 in office
spaces.
Results of Operations
Comparison of the three months ended
September 30,
2020 and
2019
The following represents selected components of our consolidated
results of operations, for the three-month periods ended September
30, 2020 and 2019, respectively, together with changes from
period-to-period:
|
|
For three months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Amount Change
|
|
|
% Change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HCO fees
|
|
$ |
264,781 |
|
|
$ |
376,170 |
|
|
$ |
(111,389 |
)
|
|
|
(30 |
%)
|
MPN fees
|
|
|
124,836 |
|
|
|
131,164 |
|
|
|
(6,328 |
)
|
|
|
(5 |
%)
|
Utilization review
|
|
|
307,139 |
|
|
|
318,816 |
|
|
|
(11,677 |
)
|
|
|
(4 |
%)
|
Medical bill review
|
|
|
77,075 |
|
|
|
136,793 |
|
|
|
(59,718 |
)
|
|
|
(44 |
%)
|
Medical case management
|
|
|
590,784 |
|
|
|
804,004 |
|
|
|
(213,220 |
)
|
|
|
(27 |
%)
|
Other
|
|
|
51,139 |
|
|
|
71,758 |
|
|
|
(20,619 |
)
|
|
|
(29 |
%)
|
Total revenues
|
|
|
1,415,754 |
|
|
|
1,838,705 |
|
|
|
(422,951 |
)
|
|
|
(23 |
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
14,122 |
|
|
|
18,512 |
|
|
|
(4,390 |
)
|
|
|
(24 |
%)
|
Bad debt provision
|
|
|
11,000 |
|
|
|
8,000 |
|
|
|
3,000 |
|
|
|
38 |
%
|
Consulting fees
|
|
|
58,621 |
|
|
|
57,945 |
|
|
|
676 |
|
|
|
1 |
%
|
Salaries and wages
|
|
|
694,352 |
|
|
|
789,319 |
|
|
|
(94,967 |
)
|
|
|
(12 |
%)
|
Professional fees
|
|
|
68,979 |
|
|
|
86,241 |
|
|
|
(17,262 |
)
|
|
|
(20 |
%)
|
Insurance
|
|
|
91,951 |
|
|
|
81,390 |
|
|
|
10,561 |
|
|
|
13 |
%
|
Outsource service fees
|
|
|
115,803 |
|
|
|
111,567 |
|
|
|
4,236 |
|
|
|
4 |
%
|
Data maintenance
|
|
|
6,603 |
|
|
|
8,726 |
|
|
|
(2,123 |
)
|
|
|
(24 |
%)
|
General and administrative
|
|
|
163,863 |
|
|
|
187,855 |
|
|
|
(23,992 |
)
|
|
|
(13 |
%)
|
Total expenses
|
|
|
1,225,294 |
|
|
|
1,349,555 |
|
|
|
(124,261 |
)
|
|
|
(9 |
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
190,460 |
|
|
|
489,150 |
|
|
|
(298,690 |
)
|
|
|
(61 |
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
190,460 |
|
|
|
489,150 |
|
|
|
(298,690 |
)
|
|
|
(61 |
%)
|
Income tax provision
|
|
|
53,463 |
|
|
|
137,401 |
|
|
|
(83,938 |
)
|
|
|
(61 |
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
136,997 |
|
|
$ |
351,749 |
|
|
$ |
(214,752 |
)
|
|
|
(61 |
%)
|
Revenue
Total revenues during the three-month period ended September 30,
2020, decreased 23% to $1,415,754 compared to $1,838,705 during the
three-month period ended September 30, 2019. During the same
period, HCO, MPN, utilization review, medical bill review, medical
case management and other fees decreased by 30%, 5%, 4%, 44%, 27%,
and 29%, respectively.
HCO Fees
During the three-month periods ended September 30, 2020 and 2019,
HCO revenue was $264,781 and $376,170, respectively. The 30%
decrease in HCO revenue was attributable primarily to the loss of
three customers in the fourth quarter of 2019 and early 2020 and
COVID-19 business restrictions which caused employer customers to
temporarily or permanently reduce their workforce, partially offset
by increases in claim network fees associated with COVID-19 related
work illness. As a result of the COVID-19 business restrictions,
fees generated to enroll employees into our HCO networks, monthly
HCO program administration fees, and claim network fees for
workplace injuries decreased. HCO revenue is generated largely from
fees charged to our employer customers for access to our HCO
networks, per claim fees, notification fees and fees for other
ancillary services the employer customers using our HCO networks
may select. HCO notifications are mailed out annually and handed
out by the employer for all new hires during the month. We prepare
the mailings no earlier than three months prior to the end of the
previous year’s enrollment so that our employers are able to
prepare their employee rosters. Delays in the employer providing
accurate and timely employee rosters can delay the notification
process causing changes to when we record the revenues.
MPN Fees
MPN revenue for the three-month periods ended September 30, 2020
and 2019, were $124,836 and $131,164, respectively, a decrease of
5%, primarily due to COVID-19 business restrictions which caused
employers to temporarily or permanently reduce their workforce
which resulted in a decrease in the number of claims and MPN
program fees. Like HCO revenue, MPN revenue is generated largely
from fees charged to our employer customers for access to our MPN
networks, per claim fees and fees for other ancillary services the
employer customers using our MPN networks may select. Unlike the
HCO, MPNs do not require annual notifications, but only require a
notice to be given to an injured worker at the time the employer is
notified by the injured worker that an injury occurred.
Utilization Review
During the three-month periods ended September 30, 2020 and 2019,
utilization review revenue was $307,139 and $318,816, respectively.
The decrease of 4% in the 2020 period was primarily attributable to
the loss of two customers in the third quarter of 2020 and fewer
utilization referrals for review as a result of COVID-19
restrictions for non-essential medical treatment. Utilization
review can provide a safeguard against unnecessary and
inappropriate medical treatment from the perspective of medical
necessity, quality of care, and appropriateness of decision-making.
Our employer customers retain us to review proposals for
treatment.
Medical Bill Review
During the three-month period ended September 30, 2020, medical
bill review revenue was $77,075 and $136,793, respectively. Medical
bill review revenue decreased by $59,718 when compared to the same
period a year earlier. This decrease was primarily caused by
processing fewer medical and hospital bills from existing customers
due to COVID-19 restrictions placed on the delivery by medical
providers for non-essential medical treatment. Many of our existing
customers have elected to pay the fee schedule, as opposed to
having us review their hospital bills. Medical bill review involves
analyzing medical provider services and equipment billing to
ascertain proper reimbursement. Such services include, but are not
limited to, coding review and re-bundling, confirming that the
services are customary and reasonable, fee schedule compliance,
out-of-network bill review, pharmacy review, and preferred provider
organization repricing arrangements. Our medical bill review
services can result in significant network savings.
Medical Case Management
During the three months ended September 30, 2020 and 2019, medical
case management revenue was $590,784 and $804,004, respectively.
The decrease in medical case management revenue of $213,220 was
primarily due to COVID-19 restrictions placed on the delivery of
non-essential medical treatment by medical providers and the loss
of two customers in the third quarter of 2020, partially offset by
increases in medical management services on new and existing claims
with current customers and the addition of a new customer. Medical
case management keeps medical treatment claims progressing to a
resolution and assures treatment plans are aligned from a medical
perspective. Medical 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. A medical case manager acts as a liaison between the injured
worker, claims adjuster, medical providers and attorneys to achieve
optimal results for injured workers and employer/clients. 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 a
faster claim closure for our customers.
Other
Other fees may consist of revenue derived from network access fees,
lien representation, legal support services, Medicare set-aside and
workers’ compensation carve-out services. Other fee revenue for
three-month periods ended September 30, 2020 and 2019, was $51,139
and $71,758, respectively. The decrease of $20,619 was the result
of fewer customers accessing our network and Medicare set-asides
referrals. We recorded no carve-out, lien representation, or legal
support services during the three-month period ended September 30,
2020.
Expenses
Total expenses for the three months ended September 30, 2020 and
2019, were $1,225,294 and $1,349,555, respectively. The decrease of
$124,261 was the result of increases in bad debt provision,
consulting fees, insurance, and outsource service fees, partially
offset by depreciation and amortization, salaries and wages,
professional fees, data maintenance, and general and administrative
expenses.
Depreciation and Amortization
During the three-month period ended September 30, 2020, we recorded
depreciation and amortization expense of $14,122 compared to
$18,512 during the comparable 2019 period. The decrease in
depreciation and amortization was primarily attributable to certain
fixed assets being fully depreciated.
Bad Debt Provision
During the three-month period ended September 30, 2020, bad debt
provision increased to $11,000 from $8,000 during the three-month
period ended September 30, 2019. This increase was primarily the
result of an increase of customers with outstanding balances over
90 days during fiscal 2020, which was largely attributable to the
impact of COVID-19 on the businesses of our customers.
Consulting Fees
During the three months ended September 30, 2020, consulting fees
increased 1% to $58,621 compared to $57,945 during the three months
ended September 30, 2019. This increase was the result of an
increase in IT consulting fees offset by the termination of a
consultant that was assisting with our insurance company
acquisition search.
Salaries and Wages
During the three-month period ended September 30, 2020, salaries
and wages decreased 12% to $694,352 compared to $789,319 during the
same period in 2019. The decrease in salaries and wages was
the result of a reduction in our workforce of four employees.
Professional Fees
For the three months ended September 30, 2020, we incurred
professional fees of $68,979 compared to $86,241 during the three
months ended September 30, 2019. The 20% decrease in professional
fees was the result of lower legal and medical case management
fees, partially offset by increases in accounting fees.
Insurance
During the three-month period ended September 30, 2020, we incurred
insurance expenses of $91,951, a 13% increase over the same
three-month period in 2019. This increase in insurance expense was
attributable to increases in group health insurance and business
insurance premiums when compared to the same period in 2019.
Outsource Service Fees
Outsource service fees consist of costs incurred by our
subsidiaries in as a result of partially outsourcing utilization
review, medical bill review, Medicare set-aside services and field
medical case management fees and typically tends to increase and
decrease in correspondence with increases and decreases in demand
for those services. We incurred $115,803 and $111,567 in outsource
service fees during the three-month periods ended September 30,
2020 and 2019, respectively. The increase of $4,236 was primarily
the result of increases in outsource services required for
utilization review as we performed fewer utilization reviews
in-house and outsourced more reviews during the third quarter 2020,
partially offset by decreases in medical bill review, Medicare
set-aside services, and field medical case management. We generally
expect outsource service fees to fluctuate in correspondence with
the level of utilization review, medical bill review and certain
field medical case management services we provide.
Data Maintenance
During the three-month periods ended September 30, 2020 and 2019,
data maintenance fees were $6,603 and $8,726, respectively. The
decrease of $2,123 was the result of a reduction of HCO and MPN
notification fees for existing customers due to employer customers
reducing their workforce as a result of COVID-19 business
restrictions during the three-month period ended September 30, 2020
when compared to the same period in 2019. Data maintenance fees
tend to fluctuate from month to month depending on when new
customers are enrolled, when the annual renewal of existing
customer notification is due, and how many new employees our
customers enroll in our HCO or MPN program.
General and Administrative
During the three-month period ended September 30, 2020, general and
administrative expenses decreased 13% to $163,863 when compared to
the three-month period ended September 30, 2019. This decrease was
primarily attributable to decreases in dues and subscriptions,
office supplies, parking, postage, rent-expense equipment, travel
and entertainment and vacation expense, partially offset by
increases in internet/IT enhancement, rent expense, telephone, and
shareholders’ expense. These changes in general and administrative
expenses were largely the result of COVID-19-related changes to how
we have been conducting business during 2020.
Income from Operations
For the reasons described above total revenue during the
three-month period ended September 30, 2020 decreased by $422,951,
which was partially offset by a decrease of $124,261 from
$1,349,555 in total expenses during the same period. Income from
operations decreased by $298,690 or 61% during the three-month
period ended September 30, 2020, when compared to the same period
in 2019.
Income Tax Provision
We realized income before taxes of $190,460 and $489,150 during the
three-month periods ended September 30, 2020 and 2019,
respectively, a decrease of $298,690. We similarly realized a
decrease in our income tax provision of $83,938, or 61%. The
decrease in the provision of income taxes was the result of the
decrease in income before taxes.
Net Income
During the three-month period ended September 30, 2020, total
revenues of $1,415,754 decreased by 23% when compared to the same
period in 2019. This decrease in total revenues was partially
offset by a 9% decrease in total expenses, resulting in a 61%
decrease in income from operations compared to the three months
ended September 30, 2019. Correspondingly, we realized net
income of $136,997 for the three-month period ended September 30,
2020, which reflects an 61% decrease compared to the three-month
period ended September 30, 2019.
Comparison of nine months ended September 30,
2020 and
2019
The following represents selected components of our consolidated
results of operations, for the nine-month periods ended September
30, 2020 and 2019, respectively, together with changes from
period-to-period:
|
|
For nine months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Amount Change
|
|
|
% Change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HCO fees
|
|
$ |
916,693 |
|
|
$ |
1,147,352 |
|
|
$ |
(230,659 |
)
|
|
|
(20 |
%)
|
MPN fees
|
|
|
363,902 |
|
|
|
382,142 |
|
|
|
(18,240 |
)
|
|
|
(5 |
%)
|
Utilization review
|
|
|
854,922 |
|
|
|
898,054 |
|
|
|
(43,132 |
)
|
|
|
(5 |
%)
|
Medical bill review
|
|
|
242,237 |
|
|
|
396,870 |
|
|
|
(154,633 |
)
|
|
|
(39 |
%)
|
Medical case management
|
|
|
1,855,314 |
|
|
|
2,384,967 |
|
|
|
(529,653 |
)
|
|
|
(22 |
%)
|
Other
|
|
|
202,101 |
|
|
|
228,077 |
|
|
|
(25,976 |
)
|
|
|
(11 |
%)
|
Total revenues
|
|
|
4,435,169 |
|
|
|
5,437,462 |
|
|
|
(1,002,293 |
)
|
|
|
(18 |
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
46,716 |
|
|
|
55,385 |
|
|
|
(8,669 |
)
|
|
|
(16 |
%)
|
Bad debt provision
|
|
|
11,101 |
|
|
|
8,000 |
|
|
|
3,101 |
|
|
|
39 |
%
|
Consulting fees
|
|
|
195,978 |
|
|
|
207,587 |
|
|
|
(11,609 |
)
|
|
|
(6 |
%)
|
Salaries and wages
|
|
|
2,238,079 |
|
|
|
2,324,860 |
|
|
|
(86,781 |
)
|
|
|
(4 |
%)
|
Professional fees
|
|
|
223,747 |
|
|
|
265,457 |
|
|
|
(41,710 |
)
|
|
|
(16 |
%)
|
Insurance
|
|
|
274,974 |
|
|
|
241,695 |
|
|
|
33,279 |
|
|
|
14 |
%
|
Outsource service fees
|
|
|
359,596 |
|
|
|
373,047 |
|
|
|
(13,451 |
)
|
|
|
(4 |
%)
|
Data maintenance
|
|
|
59,415 |
|
|
|
76,345 |
|
|
|
(16,930 |
)
|
|
|
(22 |
%)
|
General and administrative
|
|
|
515,738 |
|
|
|
612,856 |
|
|
|
(97,118 |
)
|
|
|
(16 |
%)
|
Total expenses
|
|
|
3,925,344 |
|
|
|
4,165,232 |
|
|
|
(239,888 |
)
|
|
|
(6 |
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
509,825 |
|
|
|
1,272,230 |
|
|
|
(762,405 |
)
|
|
|
(60 |
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
509,825 |
|
|
|
1,272,230 |
|
|
|
(762,405 |
)
|
|
|
(60 |
%)
|
Income tax provision
|
|
|
143,111 |
|
|
|
357,214 |
|
|
|
(214,103 |
)
|
|
|
(60 |
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
366,714 |
|
|
$ |
915,016 |
|
|
$ |
(548,302 |
)
|
|
|
(60 |
%)
|
Revenue
Total revenues during the nine-month period ended September 30,
2020, decreased 18% to $4,435,169 compared to $5,437,462 during the
nine-month period ended September 30, 2019. During the first
nine-months of 2020, HCO, MPN, utilization review, medical bill
review, medical case management and other revenue decreased by 20%,
5%, 5%, 39%, 22%, and 11%, respectively.
HCO fees
During the nine-month periods ended September 30, 2020 and 2019,
HCO fee revenues were $916,693 and $1,147,352, respectively. The
20% decrease in HCO revenue was primarily attributable to the loss
of three customers and a reduction in employer customers workforce
due to COVID-19 business restrictions. As a result of the COVID-19
business restrictions, fees generated to enroll employees into our
HCO networks, monthly HCO program administration fees, and claim
network fees for workplace injuries decreased. These decreases were
partially offset by an increase in claim network fees associated
with COVID-19 related work injuries, renegotiation of certain
deliverables to an existing customer and the addition of a new
customer.
MPN fees
MPN fee revenue for the nine-month periods ended September 30, 2020
and 2019, was $363,902 and $382,142, respectively. The decrease of
5% in MPN fees was the result of a loss of a customer and COVID-19
business restrictions which caused employers to temporarily or
permanently reduce their workforce which led to a decrease in the
number of claims and MPN program fees. As a result of the COVID-19
business restrictions, fees generated from access to our MPN
networks, monthly MPN program administration fees, and claim
network fees for workplace injuries decreased.
Utilization Review
During the nine-month periods ended September 30, 2020 and 2019,
utilization review revenue was $854,922 and $898,054,
respectively. The decrease of $43,132 in the 2020 period was
attributable to a loss of customers and fewer utilization referrals
for review as a result of COVID-19 business restrictions for
non-essential medical treatment, which was only partially offset by
the addition of two new customers.
Medical Bill Review
During the nine-month period ended September 30, 2020 and 2019,
medical bill review revenue was $242,237 and $396,870,
respectively. This 39% decrease was due to processing fewer
hospital bills and medical bills from existing customers as a
result of COVID-19 business restrictions on non-essential medical
treatment by medical providers and the completion of a project of a
backlog of bills for an existing customer, which did not recur in
the 2020 period. The decreases were partially offset by an existing
customer adding medical bill review services to the existing suite
of services we provide for them.
Medical Case Management
During the nine-months ended September 30, 2020 and 2019,
medical case management revenue was $1,855,314 and $2,384,967,
respectively. The 22% decrease in medical case management revenue
was primarily the result of the loss of two customers in the third
quarter of 2020, a decrease in the number of claims managed with
existing customers, coupled with fewer billable hours because of
temporary closures of medical offices for non-essential services
due to COVID-19; partially offset by increases in medical case
management for existing customers to oversee COVID-19 workplace
illnesses and two existing customers adding medical case management
services.
Other
Other fees may consist of revenue derived from network access fees,
lien representation, legal support services, Medicare set-aside and
workers’ compensation carve-out services. Other fees revenue for
the nine-month periods ended September 30, 2020 and 2019, was
$202,101 and $228,077, respectively. The decrease of $25,976 was
primarily the result of fewer network access fees and Medicare
set-aside referrals processed. We did not record any revenue for
lien representation, legal support services, and workers’
compensation carve-out services.
Expenses
Total expenses for the nine-months ended September 30, 2020 and
2019, were $3,925,344 and $4,165,232, respectively. The decrease of
$239,888 was the result of decreases in depreciation and
amortization, consulting fees, salaries and wages, professional
fees, outsource service fees, data maintenance, and general and
administrative expense partially offset by increases bad debt
provision and insurance.
Depreciation and Amortization
During the nine-month period ended September 30, 2020, we recorded
depreciation and amortization expense of $46,716 compared to
$55,385 during the comparable 2019 period. The decrease in
depreciation and amortization was primarily attributable to certain
fixed assets being fully depreciated, partially offset by the
purchasing of new fixed assets.
Bad Debt Provision
During the nine-month period ended September 30, 2020, bad debt
provision increased by $3,101 compared to the nine-month period
ended September 30, 2019. This increase was primarily the result of
several customers with outstanding balances over 90 days, which was
largely attributable to the impact of COVID-19 on the businesses of
our customers.
Consulting Fees
During the nine-months ended September 30, 2020, consulting fees
decreased to $195,978 from $207,587, when compared the nine months
ended September 30, 2019. This 6% decrease was primarily the
result of terminating a consultant that was assisting us to
identify insurance company acquisition candidates.
Salaries and Wages
During the nine-month period ended September 30, 2020, salaries and
wages decreased 4% to $2,238,079 from $2,324,860 during the same
period in 2019. This decrease was primarily the result of
reducing our workforce due to a decrease in revenues as a result of
COVID-19 business restrictions on our employer customers.
Professional Fees
For the nine-months ended September 30, 2020, we incurred
professional fees of $223,747 compared to $265,457, during the nine
months ended September 30, 2019. The decrease of $41,710 in
professional fees was primarily the result of lower legal and
medical case management fees, partially offset by increases in fees
for accounting.
Insurance
During the nine-month period ended September 30, 2020, we incurred
insurance expenses of $274,974, a 14% increase over the same
nine-month period in 2019. The increase in insurance expense was
primarily attributed to increases in group health and business
insurance premiums during the nine-month period ended September 30,
2020 compared to the same period in 2019.
Outsource Service Fees
Outsource service fees consist of costs incurred by our
subsidiaries in outsourcing utilization review, medical bill
review, Medicare set-aside services, field medical case management
services, and typically tends to fluctuate in correspondence with
demand for those services. We incurred $359,596 and $373,047
in outsource service fees during the nine-month periods ended
September 2020 and 2019, respectively. The decrease of $13,451 was
primarily the result of decreases in outsource services required
for utilization review and field medical case management,
partially offset by increases in medical bill review and Medicare
set-aside services. We generally expect our outsource service fees
will continue to move in correspondence with the level of
utilization review, medical bill review and certain medical case
management services we provide in the future.
Data Maintenance
During the nine-month periods ended September 30, 2020 and 2019,
data maintenance fees were $59,415 and $76,345, respectively. The
decrease of $16,930 was primarily the result of fewer HCO and MPN
notification fees for existing customers due to employers reducing
their workforce as a result of COVID-19 business restrictions
during the nine-month period ended September 30, 2020 when compared
to the same period in 2019.
General and Administrative
During the nine-month period ended September 30, 2020, general and
administrative expense decreased by 16% to $515,738 when compared
to the nine-month period ended September 30, 2019. The decrease of
$97,118 was primarily attributable to decreases in auto expenses,
dues and subscriptions, office supplies, parking, postage,
rent-expense equipment, travel and entertainment and vacation
expense, partially offset by increases in internet/IT enhancement,
rent expense, telephone, and shareholders’ expense. These changes
in general and administrative expenses were largely the result of
COVID-19-related changes to how we have been conducting business
during 2020.
Income from Operations
As a result of the 18% decrease in total revenue during the
nine-month period ended September 30, 2020, coupled with a 6%
decrease in total expenses, our income from operations before taxes
decreased 60% from $1,272,230 to $509,825 compared to the same
period in 2019.
Income Tax Provision
We realized income before taxes of $509,825 and $1,272,230 during
the nine-month periods ended September 30, 2020 and 2019,
respectively. The decrease in income before taxes of $762,405,
correspondingly, resulted in the provision for income taxes of
$143,111 during the nine-month period ending September 30, 2020,
compared to $357,214 for the same period a year earlier.
Net Income
During the nine-month period ended September 30, 2020, total
revenues of $4,435,169 was 18% lower when compared to the same
period in 2019. This decrease in total revenues together with
a decrease of 6% in total expenses resulted in a 60% decrease in
income from operations. Correspondingly, we realized net income of
$366,714 for the nine-month period ended September 30, 2020, a 60%
decrease compared to the nine-month period ended September 30,
2019.
Liquidity and Capital Resources
As of September 30, 2020, we had cash on hand of $9,212,599
compared to $8,104,164 at December 31, 2019. The $1,108,435
increase was the result of net cash provided from our operating
activities of $700,538 and proceeds from PPP loans of $460,700,
provided from financing activities, partially offset by cash used
in investing activities of $52,803.
As of the date of this report, we have laid off four employees as a
result of COVID-19 related closures of our employer customers. As
noted above, we have taken advantage of and may in the future avail
ourselves of federal, state or local government programs to protect
our workforce as management and our board of directors determine to
be in the best interest of the Company and our shareholders.
Historically, we have generally 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. Management currently believes that absent any
unanticipated COVID-19 impact, including, but not limited to a
significant longer-term downturn in the economy or the loss of
several major customers within a condensed time period, cash on
hand and anticipated revenues from operations will be sufficient to
cover our operating expenses over the next twelve months.
As the impact of the COVID-19 pandemic continues to play out
throughout our industry and the broader economy, we believe our
strong cash position, could allow us to identify and capitalize on
potential opportunities to expand our business either through the
acquisition of existing businesses that may have insufficient
resources to overcome the impacts of the pandemic, including,
expansion into the insurance industry or through the creation of
new lines of business. Depending upon the nature of the
opportunities we identify, such acquisitions or expansion could
require greater capital resources than we currently possess. Should
we need additional capital resources, we could seek to obtain such
through debt and/or equity financing. We do not currently possess
an institutional source of financing and there is no assurance that
we could be successful in obtaining equity or debt financing when
needed on favorable terms, or at all. We could also use shares of
our capital stock as consideration for a business acquisition
transaction, but there is also no assurance that there would be
significant market interest in our capital stock.
Cash Flow
During the nine months ended September 30, 2020, cash was primarily
used to fund operations. We had a net increase in cash of
$1,108,435 during the nine months ended September 30, 2020. See
below for additional information.
|
|
For the nine months ended September
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|
|
|
2020
(unaudited)
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|
|
2019
(unaudited)
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|
|
|
|
|
|
|
|
|
|
Net cash provided from operating activities
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|
$ |
700,538 |
|
|
$ |
1,075,267 |
|
Net cash used in investing activities
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|
|
(52,803 |
)
|
|
|
(46,653 |
)
|
Net cash provided from financing activities
|
|
|
460,700 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
$ |
1,108,435 |
|
|
$ |
1,028,614 |
|
During the nine months ended September 30, 2020 and 2019, net cash
provided from operating activities was $700,538 and $1,075,267,
respectively. As discussed herein, we realized net income of
$366,714 during the nine months ended September 30, 2020, compared
to net income of $915,016 during the nine months ended September
30, 2019. The net cash flow from operating activities of $700,538
was primarily the result of decreases in net income, accounts
payable, deferred rent expense, unearned revenue, accounts
receivable, prepaid income tax, prepaid expenses, receivables –
other, accounts payable, deferred rent expense, and increases in
allowance for depreciation, bad debt provision and accrued
expenses.
Net cash used in investing activities was $52,803 and $46,653
during the nine-month periods ended September 30, 2020 and 2019,
respectively. During the nine-month periods ended September 30,
2020 and 2019, net cash used in investing activities was used to
purchase computer equipment, equipment and software.
Net cash provided from financing activities during the nine-month
periods ended September 30, 2020 and 2019 was $460,700 and $0,
respectively.
Contractual Obligations and Contingencies
Smaller reporting companies are not required to provide this
information.
Off-Balance Sheet Financing Arrangements
As of September 30, 2020, we had no off-balance sheet financing
arrangements.
Inflation
We experience pricing pressures in the form of competitive
prices. Insurance carriers and third-party
administrators often try to take our clients 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 may be
material to our revenues or net income. Some of our clients 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.
Critical Accounting Policies and Estimates
See Note 1 to our condensed consolidated financial statements
included elsewhere in this report.
Item 3.
Quantitative and Qualitative Disclosure about Market
Risk
This information is not required for smaller reporting
companies.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act, which are
controls and other procedures that are designed to provide
reasonable assurance that information required to be disclosed by a
company in the reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the company’s management,
including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required
disclosure.
Our management, under the supervision and with the participation of
our principal executive officer and principal financial officer,
conducted an evaluation of the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this
quarterly report on Form 10-Q. Based on the evaluation of our
disclosure controls and procedures as of September 30, 2020, 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 during the quarter ended September 30, 2020, that
materially affected or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A.
Risk Factors
Other than as described below, and elsewhere in this report,
management does not believe there have been any material changes to
the risk factors listed in Part I, “Item 1A, Risk Factors” in our
annual report on Form 10-K for the year ended December 31, 2019.
The risk factors described in our annual report on Form 10-K and
below 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.
The ongoing COVID-19
pandemic and the responses to its spread have adversely
affected and will continue to adversely
impact our customers, our workforce, our
business, operations,
results of operations and financial
condition.
The global spread of the COVID-19 pandemic has created
significant volatility, uncertainty and economic disruption. The
extent to which the COVID-19 pandemic impacts our business,
operations and financial results continues to depend on numerous
evolving factors that we may not be able to accurately predict or
control, including: the duration and scope of the pandemic;
governmental, business and individuals’ actions that have been and
continue to be taken in response to the pandemic; the impact of the
pandemic and actions taken in response on economic activity; the
effect on our ability to provide services to our employer
customers; and the ability of our employer customers to pay for our
services.
Our revenue is largely dependent upon the number of injured workers
we treat and help return to work. In response to measures
implemented by the United States federal and California State
governments to stem the spread of COVID-19, many of our employer
customers have had to reduce their workforces, this has led to a
decrease among our employer customers in the number of employees
they have working and enrolled with us. It has also led to
reductions in workplace injuries and the number of employee
injuries we treat. During this time, medical providers were
limiting non-essential medical procedures for existing workplace
injuries, thus resulting in a reduction of medical care to oversee
as part of our services. As of September 30, 2020, California State
and local governments have continued to keep in place limitations
of business operations of our employer customers, but medical
providers are opening up to non-essential medical procedures.
Despite the more recent expansion of customer business operations
and medical provider appointments, the length of the slowdown in
economic and healthcare activity has negatively impacted our
business, revenue, financial condition and results of operations
during 2020.
In response to stay-at-home orders and other measures employed by
the State of California, in mid-March 2020, we activated the remote
work functionality of our business continuity plan for all
essential employees and nearly all other employees. Since that
time, all critical business functions have been rendered remotely.
We are continually assessing the situation and take such actions as
we believe appropriate to respond to threats and potential business
impacts, including incurring expenses to maintain remote work
viability, information technology and security. There is no
guarantee the measures we have implemented will be completely
effective or that we will not encounter some of the common risks
associated with a remote workforce, including reductions in
employee productivity and employees accessing company data and
system remotely.
The global outbreak of COVID-19 continues to rapidly evolve. The
ultimate impact of the COVID-19 outbreak on our business, result of
operations, financial condition and liquidity is highly uncertain
and subject to change and cannot be reasonably estimated at this
time.
Item 6.
Exhibits
Exhibits. The following exhibits are filed or furnished, as
applicable, as part of this report:
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.
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PACIFIC HEALTH CARE
ORGANIZATION, INC. |
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Date:
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November 13, 2020
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/s/ Tom Kubota
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Tom Kubota
Chief Executive Officer
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Date:
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November 13, 2020
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/s/ Fred Odaka
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Fred Odaka
Chief Financial Officer
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