PACIFIC HEALTH CARE ORGANIZATION INC - Quarter Report: 2009 March (Form 10-Q)
FORM
10-Q
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
For
the Quarterly Period Ended March 31,
2009
|
|
o
|
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
|
(I.R.S.
Employer
|
|
|
incorporation
or organization)
|
Identification
No.)
|
|
|
1201
Dove Street, Suite 585
|
||
|
Newport Beach, California
|
92660
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(949)
721-8272
(Registrant’s
telephone number, including area code)
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 x No
o
Indicate
by check mark whether the registrant is a large accelerated filed, an
accelerated filer, a non-accelerated filer or a smaller public company. See
definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
Accelerated filer o
Non-accelerated
filer (Do not check if a smaller reporting company) o Smaller
reporting company x
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.) Yes o No
x
As of May
6, 2009, the registrant had 802,424 shares of common stock, par value $0.001,
issued and outstanding.
PACIFIC
HEALTH CARE ORGANIZATION, INC.
FORM
10-Q
TABLE
OF CONTENTS
|
Page
|
|||
|
Balance Sheets as of March 31, 2009
and
December 31, 2008
|
3
|
||
|
Statements of Operations for the Three Months
Ended
March
31, 2009 and 2008
|
4
|
||
|
Statements of Cash Flows for the Three Months
Ended
March
31, 2009 and 2008
|
5
|
||
|
6
|
|||
|
and
Results of Operations
|
17
|
||
|
25
|
|||
|
26
|
|||
|
27
|
|||
2
PART I. FINANCIAL INFORMATION
Pacific
Health Care Organization, Inc.
|
ASSETS
|
||||||||
|
March
31, 2009
(unaudited)
|
December
31,
2008
|
|||||||
| Current Assets | ||||||||
|
Cash
|
$ | 539,196 | $ | 624,401 | ||||
|
Accounts
receivable, net of allowance of $20,000
|
269,656 | 177,376 | ||||||
|
Deferred
tax asset
|
15,765 | 15,765 | ||||||
|
Prepaid
expenses
|
47,846 | 50,119 | ||||||
|
Total
current assets
|
872,463 | 867,661 | ||||||
|
Property
and equipment, net (note 4)
|
||||||||
|
Computer
equipment
|
60,922 | 60,922 | ||||||
|
Furniture
& fixtures
|
28,839 | 28,839 | ||||||
|
Total
property & equipment
|
89,761 | 89,761 | ||||||
|
Less:
accumulated depreciation
|
(85,881 | ) | (85,736 | ) | ||||
|
Net
property & equipment
|
3,880 | 4,025 | ||||||
|
Total
assets
|
$ | 876,343 | $ | 871,686 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
Liabilities
|
||||||||
|
Accounts
payable
|
$ | 3,570 | $ | 1,630 | ||||
|
Accrued
expenses (Note 8)
|
212,500 | 178,836 | ||||||
|
Tax
payable
|
4,291 | 34,823 | ||||||
|
Unearned
revenue
|
25,027 | 30,494 | ||||||
|
Total
current liabilities
|
245,388 | 245,783 | ||||||
|
Total
liabilities
|
245,388 | 245,783 | ||||||
|
Commitments
and Contingencies
|
- | - | ||||||
|
Shareholders'
Equity
|
||||||||
|
Preferred
stock; 5,000,000 shares authorized at $0.001 par value;
|
||||||||
|
zero
shares issued and outstanding
|
- | - | ||||||
|
Common
stock; 50,000,000 shares authorized at $0.001 par value;
|
||||||||
|
802,424
shares issued and outstanding
|
802 | 802 | ||||||
|
Additional
paid-in capital
|
623,629 | 623,629 | ||||||
|
Retained
earnings
|
6,524 | 1,472 | ||||||
|
Total
stockholders' equity
|
630,955 | 625,903 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 876,343 | $ | 871,686 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
3
Pacific
Health Care Organization, Inc.
(Unaudited)
|
For
three months ended
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Revenues:
|
||||||||
|
HCO
fees
|
$ | 244,998 | $ | 278,551 | ||||
|
MPN
fees
|
149,560 | 187,392 | ||||||
|
Other
|
126,797 | 127,724 | ||||||
|
Total
revenues
|
521,355 | 593,667 | ||||||
|
Expenses:
|
||||||||
|
Depreciation
|
146 | 831 | ||||||
|
Consulting
fees
|
62,586 | 65,030 | ||||||
|
Salaries
& wages
|
212,451 | 177,072 | ||||||
|
Professional
fees
|
56,595 | 82,381 | ||||||
|
Insurance
|
28,671 | 30,728 | ||||||
|
Employment
enrollment
|
15,000 | 18,000 | ||||||
|
Data
maintenance
|
55,632 | 64,355 | ||||||
|
General
& administrative
|
84,501 | 77,746 | ||||||
|
Total
expenses
|
515,582 | 516,143 | ||||||
|
Income
from operations
|
5,773 | 77,524 | ||||||
|
Other
income:
|
||||||||
|
Interest
income
|
747 | 992 | ||||||
|
Total
other income
|
747 | 992 | ||||||
|
Income
before taxes
|
6,520 | 78,516 | ||||||
|
Income
tax provision
|
1,468 | 33,108 | ||||||
|
Net
income
|
$ | 5,052 | $ | 45,408 | ||||
|
Basic
and fully diluted earnings per share:
|
||||||||
|
Earnings
per share amount
|
$ | .01 | $ | .06 | ||||
|
Weighted
average common shares outstanding
|
802,424 | 802,424 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
4
Pacific
Health Care Organization, Inc.
(Unaudited)
|
Three
Months Ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
income
|
$ | 5,052 | $ | 45,408 | ||||
|
Adjustments
to reconcile net income to net cash:
|
||||||||
|
Depreciation
|
145 | 831 | ||||||
|
Changes
in operating assets & liabilities
|
||||||||
|
(Increase)
decrease in accounts receivable
|
(92,280 | ) | 19,546 | |||||
|
(Increase)
in deferred tax asset
|
- | (964 | ) | |||||
|
(Increase)
in prepaid state income tax
|
- | (600 | ) | |||||
|
Decrease
in prepaid expenses
|
2,273 | 8,684 | ||||||
|
Increase
in accounts payable
|
1,940 | 11,836 | ||||||
|
Increase
in accrued expenses
|
33,664 | 35,481 | ||||||
|
Increase
(decrease) in tax payable
|
(30,532 | ) | 21,998 | |||||
|
(Decrease)
in unearned revenue
|
(5,467 | ) | (65,051 | ) | ||||
|
Net
cash provided by (used in) operating activities
|
(85,205 | ) | 77,169 | |||||
|
Cash
Flows from Investing Activities
|
||||||||
|
Net
cash used by investing activities
|
- | - | ||||||
|
Cash
Flows from Financing Activities
|
||||||||
|
Net
cash used by financing activities
|
- | - | ||||||
|
Increase
(decrease) in cash
|
(85,205 | ) | 77,169 | |||||
|
Cash
at beginning of period
|
624,401 | 419,416 | ||||||
|
Cash
at end of period
|
$ | 539,196 | $ | 496,585 | ||||
|
Supplemental
Cash Flow Information
|
||||||||
|
Cash
paid for:
|
||||||||
|
Interest
|
$ | - | $ | - | ||||
|
Income
taxes
|
$ | 32,000 | $ | 10,051 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
5
Pacific
Health Care Organization, Inc.
Notes
to Financial Statements
For
the Three Months Ended March 31, 2009
Pacific
Health Care Organization, Inc. was incorporated under the laws of the State of
Utah, on April 17, 1970 under the name Clear Air, Inc. The Company
changed its name to Pacific Health Care Organization, Inc., on January 31,
2001. On February 26, 2001, we acquired Medex Healthcare, Inc., a
California corporation organized March 4, 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
Health Care Organizations (“HCOs”) and Medical Provider Network (“MPNs”) in the
state of California. On August 14, 2001, we formed Workers
Compensation Assistance, Inc. as a wholly-owned subsidiary of
PHCO. In January 2008, Workers Compensation Assistance, Inc. changed
its name to Industrial Resolutions Coalition, Inc. Industrial
Resolutions Coalition, Inc. is actively working towards participation in the
business of creating legal agreements for the implementation of Workers’
Compensation Carve-Outs for California employers with collective bargaining
units.
Medex Healthcare,
Inc.
HCOs are
networks of medical providers established to serve the workers’ compensation
industry. In the original legislation establishing HCOs, the
California legislature mandated that if an employer contracts services from an
HCO, the injured workers must be given a choice between at least two HCOs. To be
competitive, our wholly owned subsidiary, Medex, recognized early on that it was
necessary to have two HCO certifications. Instead of aligning with a competitor,
Medex elected to go through the lengthy applications process with the California
Department of Industrial Relations (“DIR”) twice to obtain licensure for and to
operate two separate HCOs. While there is no longer a statutory
requirement to offer two HCOs to employers, Medex continues to retain its two
certifications. As such, employer clients have the option of offering one or two
HCOs to their employees. Medex believes its ability to offer two HCOs
gives potential clients greater choice, which is favored by a number of
employers, especially those with certified bargaining units.
Through
the two licensed HCOs Medex offers injured workers a choice. One is to enroll in
an HCO with a network managed by primary care providers requiring a referral to
specialists. Or the second choice is to enroll in an HCO where injured workers
do not need any prior authorization to be seen and treated by
specialists.
The two
HCO certifications that Medex currently holds cover the entire state of
California, where medical and indemnity costs associated with Workers’
Compensation in the state California are in the billions of dollars
annually. Our two HCOs utilize a network of over 3,200 contracted
providers and clinics, as well as, hospitals, pharmacies, rehabilitation centers
and other ancillary services making our HCOs capable of providing comprehensive
medical services throughout this region. We are continually
developing the network based upon the nominations of new clients and the
approvals of their claims’ administrators. Provider credentialing is
performed by Medex.
Medex, by
virtue of its continued certification as an HCO, is statutorily deemed to be
qualified as an approved MPN. A significant number of employer
clients have availed themselves of the MPN. Others utilize the
provisions of the HCO program, while others will use both in conjunction with
each other.
6
Pacific
Health Care Organization, Inc.
Notes
to Financial Statements
For
the Three Months Ended March 31, 2009
NOTE
1 - CORPORATE HISTORY – (Continued)
The
Company maintains ongoing discussions with insurance brokers, carriers, third
party administrators, managed care organizations and representatives of
self-insured employers, both as partners and potential clients. Based
on potential cost savings to employers and the approximately fourteen million
workers eligible for our services, the Company expects that employers will
continue to sign contracts with the Company to retain the Company’s services.
The amounts the Company charges employers per enrollee may vary based upon
factors such as employer history and exposure to risk; for instance, a
construction company would likely pay more than a payroll service
company. In addition, employers who have thousands of enrollees are
more likely to get a discount than employers with fewer employees.
Because
the Company contracts with medical providers, who own their own medical
equipment such as x-ray machines, the Company does not typically incur large
capital expenditures. The Company does, however, incur fixed costs
such as liability insurance and other usual costs of running a
business.
Industrial
Resolutions Coalition, Inc.
In 2001
we incorporated Workers Compensation Assistance, Inc., (now known as Industrial
Resolutions Coalition, Inc., as a wholly-owned subsidiary, with the intent of
pursuing other opportunities in the workers’ compensation
field. Toward the end of 2007 we identified a business opportunity
within the workers’ compensation field that we have begun to
pursue. Through IRC, we will be in the business of creating legal
agreements for the implementation of Workers’ Compensation Carve-Outs for
California employers with collective bargaining units, and the administration of
such programs within the statutory and regulatory requirements.
Because
we already have established health care networks, we considered pursuing this
market directly through Medex. Workers’ unions, however, have
historically been opposed to HCO programs, including Medex. Medex has
been largely unable to place its services into employers with union
participation in both the private and public sectors. The reason for
this has been the requirement in the HCO statute (LC 4600.3) that the unions
authorize the use of the HCO program. Unions have been opposed to
authorizing the use of HCO programs because the HCO program is selected by the
employer with no input whatsoever from labor participants. The major
unions, especially those involved in schools and governmental entities
(municipalities, etc.), have historically refused to allow employers to
implement the HCO. All the unions in the California Labor Federation
have also refused to participate in HCO programs. The same objections have been
raised regarding the use of the MPN, i.e., no input from labor
representatives.
7
Pacific
Health Care Organization, Inc.
Notes
to Financial Statements
For
the Three Months Ended March 31, 2009
NOTE
2 - Significant Accounting Policies
A. Basis of
Accounting
The
Company uses the accrual method of accounting.
B. Revenue
Recognition
The
Company applies the provisions of SEC Staff Accounting Bulletin No. 104, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS (“SAB 104”), which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. SAB 104 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosure related to revenue
recognition policies. In general, the Company recognizes revenue related to
monthly contracted amounts for services provided when (i) persuasive evidence of
an arrangement exists, (ii) delivery has occurred or services have been
rendered, (iii) the fee is fixed or determinable and (iv) collectibility is
reasonably assured.
Health
care service revenues are recognized in the period in which fees are fixed or
determinable and the related services are provided to the
subscriber.
The
Company’s subscribers pay for their services by check or electronic check
payment, and revenue is then recognized ratably over the period in which the
related services are provided. Advance billings to subscribers are recorded on
the balance sheet as unearned revenue. In circumstances where payment
is not received in advance, revenue is only recognized when earned. An allowance
for uncollectible accounts is established for any customer who is deemed as
possibly uncollectible.
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. The Company currently has no cash
equivalents.
D. Concentrations
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.
8
Pacific
Health Care Organization, Inc.
Notes
to Financial Statements
For
the Three Months Ended March 31, 2009
NOTE
2 - Significant Accounting Policies (continued)
E. Net
Earnings (Loss) Per Share of Common Stock (unaudited)
The computation of earnings (loss) per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements.
|
For
the Three Months Ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Basic
Earnings per share:
|
||||||||
|
Income
(numerator)
|
$ | 5,052 | $ | 45,408 | ||||
|
Shares
(denominator)
|
802,424 | 802,424 | ||||||
|
Per
share amount
|
$ | 0.01 | $ | 0.06 | ||||
|
Fully
Diluted Earnings per share:
|
||||||||
|
Income
(numerator)
|
$ | 5,052 | $ | 45,408 | ||||
|
Shares
(denominator)
|
802,424 | 802,424 | ||||||
|
Per
share amount
|
$ | 0.01 | $ | 0.06 | ||||
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 for the estimated lives
of the assets. Depreciation is computed on the straight line
method.
G. Use of
Estimates
The
preparation of the financial statements in conformity with generally accepted
accounting principles, in the United States of America, requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
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 fair
value of the Company's cash and cash equivalents, receivables, accounts payable
and accrued liabilities approximate carrying value based on their effective
interest rates compared to current market prices.
9
Pacific
Health Care Organization, Inc.
Notes
to Financial Statements
For
the Three Months Ended March 31, 2009
NOTE
2 - Significant Accounting Policies (continued)
J. General
and Administrative Costs
General
and administrative expenses include fees for office space, compensated absences,
travel expenses and entertainment costs.
K. Income
Taxes
The
Company utilizes the liability method of accounting of income taxes. Under the
liability method, deferred income 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
The
Company has two classes of stock. Preferred stock, 5,000,000 shares
authorized, zero issued. Voting rights and liquidation preferences
have not been determined. The Company also has voting common stock of 50,000,000
shares authorized, with 802,424 shares issued and outstanding. No
dividends were paid in the three months ended March 31, 2009 and 2008, nor in
any prior period.
M. Stock-Based
Compensation
The
Company has adopted the fair value method of accounting for stock-based employee
compensation in accordance with statement of Financial Accounting Standards No.
123 (Revised 2004), “Accounting for Stock-Based Compensation” (SFS123[R]). This
standard requires the Company to record compensation expense using the
Black-Scholes pricing model.
N. Trade
Receivables
The
Company, in the normal course of business, 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. At the three months ended March 31, 2009, a $20,000
general reserve for balances over 90 days past due has been
established.
The
percentages of the major customers to total accounts receivable for the three
months ended March 31, 2009 (unaudited) are as follows:
|
Customer
A
|
22%
|
|
Customer
B
|
20%
|
|
Customer
C
|
14%
|
10
Pacific
Health Care Organization, Inc.
Notes
to Financial Statements
For
the Three Months Ended March 31, 2009
NOTE
3 - New Technical Pronouncements
The FASB
has issued Statement of Financial Accounting Standards No. 163, Accounting for
Financial Guarantee Insurance Contracts. SFAS No. 163 clarifies how
SFAS No. 60, Accounting and Reporting by Insurance Enterprises, applies to
financial guarantee insurance contracts issued by insurance enterprises, and
addresses the recognition and measurement of premium revenue and claim
liabilities. It requires expanded disclosures about contracts, and
recognition of claim liability prior to an event of default when there is
evidence that credit deterioration has occurred in an insured financial
obligation. It also requires disclosure about (a) the risk-management
activities used by an insurance enterprise to evaluate credit deterioration in
its insured financial obligations, and (b) the insurance enterprise’s
surveillance or watch list. The Company is currently evaluating the
impact of SFAS No. 163.
In
May 2008, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 162, the Hierarchy of Generally
Accepted Accounting Principles, which will provide framework for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities. With the issuance of SFAS No.
162, the GAAP hierarchy for nongovernmental entities will move from auditing
literature to accounting literature. The Company is currently
assessing the impact of SGAS No. 162 on its financial position and results of
operations.
In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”), which is effective January 1,
2009. SFAS 161 requires enhanced disclosures about derivative
instruments and hedging activities to allow for a better understanding of their
effects on an entity’s financial position, financial performance, and cash
flows. Among other things, SFAS 161 requires disclosures of the fair
values of derivative instruments and associated gains and losses in a tabular
formant. SFAS 161 is not currently applicable to the Company since
the Company does not have derivative instruments or hedging
activity.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This
Statement provides greater consistency in the accounting and financial reporting
of business combinations. It requires the acquiring entity in a business
combination to recognize all assets acquired and liabilities assumed in the
transaction, establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed, and requires the
acquirer to disclose the nature and financial effect of the business
combination. SFAS No. 141(R) is effective for fiscal years beginning after
December 15, 2008. The adoption of SFAS 141 (R) did not have an impact on the
Company’s financial statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”. This Statement amends Accounting Research
Bulletin No. 51, Consolidated Financial Statements, to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008. The adoption of SFAS 160 did not have an
impact on the Company’s financial statements.
11
Pacific
Health Care Organization, Inc.
Notes
to Financial Statements
For
the Three Months Ended March 31, 2009
NOTE
3 – New Technical Pronouncements (continued)
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”, which permits entities to choose to
measure at fair value eligible financial instruments and certain other items
that are not currently required to be measured at fair value. The standard
requires that unrealized gains and losses on items for which the fair value
option has been elected be reported in earnings at each subsequent reporting
date. SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. The adoption of SFAS 159 did not have an impact on the Company’s financial
statements. The Company presently comments on significant accounting policies
(including fair value of financial instruments) in Note 2 to the financial
statements.
NOTE
4 - Fixed Assets
The
Company capitalizes the purchase of equipment and fixtures for major purchases
in excess of $1,000 per item. Capitalized amounts are depreciated over the
useful life of the assets using the straight line method of depreciation which
is three and seven years for office equipment, and furniture and fixtures,
respectively. Scheduled below are the assets, costs and accumulated depreciation
at March 31, 2009 (unaudited) and December 31, 2008.
|
Cost
|
Depreciation
Expense
|
Accumulated
Depreciation
|
||||||||||||||||||||||
|
For
the Three Months Ended
|
For
the
Year
Ended
|
For
the Three Months Ended
|
For
the
Year
Ended
|
For
the Three Months Ended
|
For
the
Year
Ended
|
|||||||||||||||||||
|
March
31,
2009
|
December
31,
2008
|
March
31,
2009
|
December
31,
2008
|
March
31,
2009
|
December
31,
2008
|
|||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||
|
Computer
Equipment
|
$ | 60,922 | $ | 60,922 | $ | - | $ | - | $ | 60,922 | $ | 60,922 | ||||||||||||
|
Furniture
& Fixtures
|
28,839 | 28,839 | 145 | 831 | 24,959 | 24,814 | ||||||||||||||||||
|
Totals
|
$ | 89,761 | $ | 89,761 | $ | 145 | $ | 831 | $ | 85,881 | $ | 85,736 | ||||||||||||
NOTE
5 - Income Taxes
The
Company accounts for corporate income taxes in accordance with Statement of
Accounting Standards Number 109 (“SFAS No. 109”) “Accounting for Income
Taxes.” SFAS No. 109 requires an asset and liability approach for
financial accounting and reporting for income tax purposes.
The tax
provision (benefit) for the three months ended March 31, 2009 and the year ended
December 31, 2008 consisted of the following:
12
Pacific
Health Care Organization, Inc.
Notes
to Financial Statements
For
the Three Months Ended March 31, 2009
NOTE
5 - Income Taxes (continued)
|
2009
|
2008
|
|||||||
|
(unaudited)
|
||||||||
|
Current:
|
||||||||
|
Federal
|
$ | 892 | $ | 81,703 | ||||
|
State
|
576 | 35,323 | ||||||
|
Deferred:
|
||||||||
|
Federal
|
- | (996 | ) | |||||
|
State
|
- | (259 | ) | |||||
|
Total
tax (benefit)
|
$ | 1,468 | $ | 115,771 | ||||
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 March 31, 2009 (unaudited) and December 31, 2008 are as
follows:
|
2009
|
2008
|
|||||||
|
Depreciation
|
||||||||
|
Federal
|
$ | (889 | ) | $ | (888 | ) | ||
|
State
|
(232 | ) | (330 | ) | ||||
|
Reserve
for bad debts
|
||||||||
|
Federal
|
6,770 | 6,770 | ||||||
|
State
|
1,030 | 1,030 | ||||||
|
Vacation
accrual
|
||||||||
|
Federal
|
7,734 | 7,734 | ||||||
|
State
|
1,449 | 1,449 | ||||||
|
Deferred
tax asset
|
$ | 15,862 | $ | 15,765 | ||||
The
reconciliation of income tax computed at statutory rates of income tax benefits
at March 31, 2009 (unaudited) and December 31, 2008 is as follows:
|
2009
|
2008
|
|||||||
|
Expense
at federal statutory rate
|
$ | 978 | $ | 70,085 | ||||
|
State
tax effects
|
490 | 35,064 | ||||||
|
Non
deductible expenses
|
- | 10,622 | ||||||
|
Taxable
temporary differences
|
- | 2,764 | ||||||
|
Deductible
temporary differences
|
- | (1,768 | ) | |||||
|
Deferred
tax asset valuation increase
|
- | (996 | ) | |||||
|
Income
tax (benefit)
|
$ | 1,468 | $ | 115,771 | ||||
13
Pacific
Health Care Organization, Inc.
Notes
to Financial Statements
For
the Three Months Ended March 31, 2009
NOTE
5 - Income Taxes (continued)
The
Financial Accounting Standards Board (FASB) has issued Financial Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes – An interpretation of FASB
Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FASB Statement No. 109, “Accounting for Income
Taxes”. FIN 48 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 FIN 48, the Company performed a review of its
material tax positions in accordance with recognition and measurement standards
established by FIN 48.
At the
adoption date of January 1, 2007, the Company had no unrecognized tax benefit
which would affect the effective tax rate if recognized.
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 March 31, 2009 and December 31, 2008, the Company had no
accrued interest or penalties.
NOTE
6 - Operating Leases (unaudited)
Our
principal executive offices are located at 1201 Dove Street, Suite 585, in
Newport Beach, California, where we currently lease approximately 950 square
feet of office space. We moved to this location in March 2009 under a
one-year lease. Our monthly rent for this space is approximately
$2,000 per month. The principal offices of our operating
subsidiaries, Medex and IRC are located in Long Beach,
California. Medex leases approximately 3,504 square feet of office
space in Long Beach, California. The monthly lease payment during the
quarter ended March 31, 2009 was approximately $7,400. The term
of this lease is through February 2011. Medex currently makes some
office space available to IRC. Medex also has an equipment lease for an office
copier with monthly payments of $436 expiring in May 2011. We anticipate the
facilities we currently lease will be suitable and adequate for our
needs.
|
Total
Lease Commitments
|
Year
|
Office
Lease
Amount
|
Equipment
Lease
Amount
|
Total
Amount
|
|||||||||
|
2009
|
$ | 86,976 | $ | 3,924 | $ | 90,900 | |||||||
|
2010
|
98,208 | 5,232 | $ | 103,440 | |||||||||
|
Thereafter
|
15,776 | 2,180 | $ | 17,956 | |||||||||
|
Total
|
$ | 200,960 | $ | 11,336 | $ | 212,296 | |||||||
Rent
expense for the office space for the three months ended March 31, 2009 and March
31, 2008 was $26,674 and $25,575, respectively. Equipment rent
expense for the three months ended March 31, 2009 was $1,308.
14
Pacific
Health Care Organization, Inc.
Notes
to Financial Statements
For
the Three Months Ended March 31, 2009
NOTE
7 - Major Customers
The
Company had four customers who, accounted for 10 percent, or more of the
Company’s total revenues during the three months ended March 31, 2009 and three
customers in the year ended December 31, 2008. The percentages of
total revenues for the three months ended March 31, 2009 and the year ended
December 31, 2008 are as follows:
|
March
31,
2009
|
December
31,
2008
|
|||||||
|
(unaudited)
|
||||||||
|
Customer
A
|
17 | % | 18 | % | ||||
|
Customer
B
|
17 | % | 15 | % | ||||
|
Customer
C
|
12 | % | 12 | % | ||||
|
Customer
D
|
11 | % | - | |||||
NOTE
8 - Accrued and Other Liabilities
|
March
31, 2009
|
December
31, 2008
|
|||||||
|
(unaudited)
|
||||||||
|
Accrued
liabilities consist of the following:
|
||||||||
|
Employment
Enrollment Fees
|
$ | 90,000 | $ | 75,000 | ||||
|
Compensated
Absences
|
24,662 | 22,735 | ||||||
|
Legal
Fees
|
88,000 | 80,783 | ||||||
|
Other
|
318 | 318 | ||||||
|
Total
|
$ | 212,500 | $ | 178,836 | ||||
NOTE
9 - Options for Purchase of Common Stock
In August
2002, the Company adopted a stock option plan. The Company adopted a
plan which provides for the grant of options to officers, consultants and
employees to acquire shares of the Company’s common stock at a purchase price
equal to or greater than fair market value as of the date of the
grant. Options are exercisable six months after the grant date
and expire five years from the grant date. The exercise price of the
options is $1.00. The fair market value of the options at the date of
grant was determined to be $.70 due to earlier issuances for cash of this
stock. The plan calls for a total of 50,000 shares to be held for grant. No
securities were issued under the plan during the first quarter 2009 or during
the 2008 fiscal year.
2005
Stock Option Plan
On November 18, 2005, at the annual
meeting of Stockholders of the Company, the Company and its shareholders adopted
the Pacific Health Care Organization, Inc., 2005 Stock Option
Plan. The plan provides for the grant of Company securities,
including options, warrants and restricted stock to officers, consultants and
employees to acquire shares of the Company’s common stock at a purchase price
equal to or greater than fair market value as of the date of the
grant. Options are exercisable six months after the grant date and
expire five years from the grant date. The plan permits the granting
of up to 50,000 common shares of the Company. To date, no securities
have been granted under this plan.
15
Pacific
Health Care Organization, Inc.
Notes
to Financial Statements
For
the Three Months Ended March 31, 2009
NOTE
10 – Stockholders’ Equity
The
Company held a Special Meeting of Stockholders on April 11, 2008 at which the
Company’s stockholders voted on the proposal to amend the Company’s Article of
Incorporation to effect a 1 for 50 reverse split of the Company’s common stock,
with a cash-out of all resulting fractional shares followed by a 2.5 for 1
forward split of our common stock. The Company did incur significant legal,
proxy notification and mailing cost in connection with the meeting. The
Shareholders voted 12,365,710 shares in favor, 394,516 shares against and 379
shares abstained from voting on the proposed transaction.
As
permitted under Utah law and as approved by the Company’s stockholders at a
Special Meeting of Stockholders, 12,568 pre-reverse split shares of common stock
were reduced to fractional shares (less than one whole share) by the reverse
split and such fractional shares were not reissued. Rather, the
fractional shares were cancelled and converted into the right to receive a cash
payment for the value of the fractional share. The Company believes
that the transaction will result in significantly reduced shareholder record
keeping and mailing expenses and provided holders of fewer than the 50
pre-reverse split shares with an efficient, cost-effective way to cash-out their
investments. As of March 31, 2009, the Company had paid an aggregate
amount of $1,005 to cashed-out fractional share shareholders.
As a
result of the reverse and forward splits, the Company has restated its
outstanding shares on the balance sheets for March 31, 2009, December 31, 2008
and 2007 and in Note 2(e). Neither the authorized common stock of the Company,
nor the par value of the common stock were affected by the splits. Prior to the
splits, the Company had 15,427,759 shares of common stock
outstanding. Following the splits the outstanding common stock of the
Company was 802,424 shares. For the year end December 31, 2008, $14,626 was
reclassified from common stock to additional paid-in-capital.
NOTE
11 - Unaudited Information
The
financial statements for the three months ended March 31, 2009 and 2008 were
taken from the books and records of the Company without
audit. However, such information reflects all adjustments, which are
in the opinion of management, necessary to properly reflect the results of the
three months ended March 31, 2009 and 2008, and are of a normal, recurring
nature. The information presented is not necessarily indicative of
the results from operations expected for the full fiscal year.
16
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 and Section 21E of the Securities Act of
1934, as amended, that are based on our management’s beliefs and assumptions and
on information currently available to our management. 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, actions, intentions, plans,
strategies and objectives. Without limiting the foregoing, words such
as “may,” “hope,” “will,” “expect,” “believe,” “anticipate,” “estimate” “projected” or “continue” or comparable
terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial
risks 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; competition within our
industry, including competition from much larger competitors; 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; price increases or 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. The
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. We undertake no obligation to amend this report or
revise publicly these forward looking statements (other than pursuant to
reporting obligations imposed on registrants pursuant to the Securities Exchange
Act of 1934) to reflect subsequent events or circumstances.
The following discussion should be read
in conjunction with our financial statements and the related notes contained
elsewhere in this report and in our other filings with the Securities and
Exchange Commission.
Throughout this report, unless the
context indicates otherwise, the terms, “we,” “us,” “our” or “the Company” refer
to Pacific Health Care Organization, Inc., (“PHCO”) and our wholly-owned
subsidiaries Medex Healthcare, Inc. (“Medex”) and Industrial Resolutions
Coalition, Inc. (“IRC”).
Overview
We are in the business of
managing and administering Health Care Organizations (“HCOs”) and Medical
Provider Network (“MPNs”) in the state of California. For
many years, workers’ compensation costs in California have been high. Since
1993, the legislature in California has enacted various laws designed to
introduce alternatives to the traditional model of worker’s compensation aimed
at controlling costs by giving employers greater control over the medical
treatment of injured workers for a longer period of time.
17
Under the traditional model of workers’
compensation insurance coverage, the employer controls the selection of the
medical provider for the first 30 days after the injury is
reported. Thereafter the employee chooses the treating physician and
the employer has no further control over the treatment of the
patient.
In 1993 the California legislature
passed a bill that established Health Care Organizations. An HCO is a
network of health care professionals specializing in the treatment of workplace
injuries and in back-to-work rehabilitation and training. The benefit
of the HCO to an employer is two-fold. First, the employer is able to
control the medical treatment of the injured employee for 90 to 180 days rather
than just during the first 30 days. Second, the HCO provides the
employer a network of trained providers to which it can refer its injured
employees who specialize in treating work place injuries.
Under the HCO guidelines, all HCOs are
required to collect from each enrolled employer certain annual fees which are
passed on to the California Division of Workers’ Compensation
(“DWC”). These fees include an annual fee per employee enrolled in
the HCO at the end of the calendar year. The HCO guidelines also
impose certain data reporting requirements on the HCO and annual enrollment
notice delivery requirements. These requirements increase the
administrative costs of an HCO.
In 2004, the California legislature
enacted new laws that created MPNs. Like an HCO, an MPN is a network
of health care professionals, but MPN networks are not required to have the same
level of medical expertise in treating employees’ work place
injuries. Under an MPN program, the employer dictates which physician
the injured employee will see for the initial visit. Thereafter, the
employee can choose to treat with any physician within the MPN
network.
By virtue of our continued
certification as an HCO, we were statutorily deemed to be qualified as an
approved MPN on January 1, 2005. As a licensed HCO and MPN, we are
able to offer our clients an HCO program, an MPN program and a combination of
the HCO and MPN programs. Under this combination model, an employer
can enroll its employees in the HCO program, then prior to the expiration of the
90 or 180 day treatment period under the HCO program, the employer can enroll
the employee into the MPN program. This allows employers to take
advantage of both programs. To our knowledge, we are currently the
only entity that offers both programs together.
Unlike HCOs, MPNs are not assessed the
annual enrollee fee that must be paid to the DWC. MPNs have far fewer
data reporting obligations and no annual enrollment notice delivery
requirements. MPN’s are only required to provide an enrollment notice
at the time the employee first joins the MPN and a second notice at the time the
employee suffers a work place injury. We experienced small increases
in total enrollment during the nine months ended
September
30, 2008.
Liquidity
and Capital Resources
As of March 31, 2009, we had cash on hand of $539,196 compared to $624,401 at
December 31, 2008. The $85,205 decrease in cash on hand is the result
of decreases in tax payable, unearned revenues and increases in accounts
receivable, partially offset by increases in accrued expenses. We
believe that cash on hand and anticipated revenues from operations will be
sufficient to cover our operating costs over the next twelve
months. We do not anticipate needing to find other sources of capital
at this time. However, if our revenues are less than anticipated we may need to
find other sources of capital to continue operations.
18
We do not currently have planned for
the next twelve months any significant capital expenditures that we anticipate
will require us to seek outside sources of funding. We do, however,
from time to time, investigate potential opportunities to expand our business
either through the creation of new business lines or the acquisition of existing
businesses. We have not identified any suitable opportunity at the
current time. An expansion or acquisition of this sort may require
greater capital resources than we possess. Should we need additional
capital resources, we most likely would seek to obtain such through debt and/or
equity financing. We do not currently possess a financial institution
source of financing. Given current credit conditions, there is no
assurance that we could be successful in obtaining additional debt financing on
favorable terms, or at all. Similarly, given current market and
economic conditions there is no guarantee that we could negotiate appropriate
equity financing.
Results
of Operations
Comparison of the three
months ended March 31, 2009 and 2008
Revenue
The total number of employee enrollees
decreased 9% during three months ended March 31, 2009 compared to March 31,
2008. Total revenues decreased 12% to $521,355. As of March 31, 2009,
we had approximately 213,000 total enrollees. Enrollment consisted of
approximately 59,000 HCO enrollees and 154,000 MPN enrollees. By
comparison as of March 31, 2008 we had approximately 234,000 enrollees,
including approximately 73,000 HCO enrollees and approximately 161,000 MPN
enrollees.
We believe the decrease in employee
enrollees and revenue is indicative of the current economy. The
economic slowdown has, and we expect will continue to impact us, as employers
seek to address the effects of the current economic environment on their
individual businesses. As a result of the economic slowdown,
employers are reducing their workforce. However, this may lead to an
increase in workers’ compensation claims.
In the current economic environment, we
anticipate businesses will seek ways to reduce their workers’ compensation
program costs. As a result, we expect to experience client
turnover, in the form of existing employer clients seeking to terminate or
renegotiate the scope and terms of existing services. We also
anticipate our market may shrink as some employers seek to reduce their costs by
managing their workers’ compensation care services in-house. As a
result, the market is currently subject to restructuring in the type and pricing
of services provided in our industry. We expect these factors may
continue to erode HCO Fees, MPN Fees and Other Revenue until economic conditions
improve.
HCO Fees
During the three months ended March 31,
2009 and 2008, HCO fee revenues were $244,998 and $278,551
respectively. The 19% decrease in HCO enrollment during the three
months ended March 31, 2009, resulted in a 12% decrease in revenue from HCO
fees. This was attributable to decreased employee enrollment and
re-notification of existing clients.
19
MPN Fees
MPN Fee revenues for the three months
ended March 31, 2009 were $149,560 compared to $187,392 for the three months
ended March 31, 2008. As of March 31, 2009 we realized a 4% decrease
in MPN enrollment when compared the same period 2007. Along with the
decrease in MPN enrollment and because of differing fee terms, unbundling of
services, price competition and similar factors as compared to 2008, we realized
a 20% decrease in MPN revenues.
Other
Revenue
During the three months ended March 31,
2009, other revenue decreased 1% to $126,797 from $127,724 in the same period a
year earlier. The primary component of other revenue is nurse case
management. We retain nurses on our staff who, at the request of our
customers, will review the medical portion of a claim on behalf of our employer
clients, claims managers and injured workers. We offer nurse case
management services to our customers on an optional basis. We charge
an additional fee for nurse case management services.
Expenses
Total
expenses for the three months ended March 31, 2009 and 2008 were $515,582 and
$516,143. The decrease of $561 was the result in decreases in
consulting fees, professional fees, insurance, employment enrollment and data
maintenance, partially offset by increases in salaries and wages and general and
administrative expenses.
Consulting
Fees
During
the three months ended March 31, 2009, consulting fees decreased to $62,586 from
$65,030 during the three months ended March 31, 2008. This decrease
of $2,444 in consulting fees was primarily due to reduced level of lobbyist
fees. We do not anticipate that consulting fees will increase during
fiscal 2009 unless we see an increased level of services requested from our
customers, especially for nurse case management services which would require us
to engage additional nurse case managers.
Salaries and
Wages
Salaries
and wages increased $35,379 or 20% during the three months ended March 31,
2009. The increase in salaries & wages is primarily due to the
hiring of an additional administrative staff member, a bonus paid to our CEO and
merit increases to certain administrative staff members. Based upon
the current trend in declining revenues, we are contemplating the reduction of
our current salary and wage levels by implementing a companywide salary cut,
including the elimination of annual bonuses paid at the end of the
year.
Professional
Fees
For the
three months ended March 31, 2009, we incurred professional fees of $56,595
compared to $82,381 during the three months ended March 31,
2008. This 31% decrease in fees is the result of decreased accounting
and legal fees, partially offset by increases in medical consulting fees and NCM
fees. The decrease in accounting fee was the result of terminating the outside
accounting consultant in December 2008. The lower legal expenses
during the first quarter 2009, resulted from the higher expense level in 2008
associated with the reverse and forward splits of our common
stock. Should potential opportunities to expand our business either
through the creation of new business lines or the acquisition of existing
businesses arise, legal expenses may be considerably higher in future
quarters.
20
Insurance
During
the three months ended March 31, 2009, we incurred insurance expenses of
$28,671, a $2,057 decrease over the prior year three months. The
decrease in 2009 was primarily due to minor adjustments made to the health
insurance premiums. We do not expect insurance expense to increase
materially in 2009.
Employment
Enrollment
Employment
enrollment expenses decreased $3,000 to $15,000 during the three months ended
March 31, 2009, compared to the three months ended March 31, 2008. As
an HCO, we are required to pay a fee to the State of California – Division of
Workers’ Compensation (DWC) for each person enrolled at the end of the calendar
year in our HCO program. Because employee enrollment expenses are not
determined until year end, we accrue expense during the year based on our
estimation of what enrollment will be at year end. We anticipate that employee
enrollment will be lower at December 31, 2009 than it was at December 31, 2008
due to less HCO enrolled employees.
Data
Maintenance
Under
regulations applicable to HCOs and MPNs we are required to comply with certain
data reporting and document delivery obligations. We currently
contract out much of these data reporting and document delivery obligations to
third parties. The costs we incur to meet these requirements are
reflected in our financial statements as “data maintenance.”
Data
maintenance costs are impacted by several factors, including the overall mix of
enrollees in our HCO and MPN programs and the number of new enrollees during the
year. HCOs are required to deliver enrollment notices annually to
each HCO enrollee. By comparison, MPNs are required to deliver an
enrollment notice only at the time of initial enrollment and at the time an
enrollee is injured. As a result, after the first year, data
maintenance fees for MPN enrollees are consistently about 50% lower than data
maintenance fees for HCO enrollees. Therefore, depending on the mix
of HCO and MPN enrollees and the number of new MPN enrollees versus ongoing MPN
enrollees, our data maintenance costs may vary significantly from year to year
even in years when our overall enrollment does not change
materially.
Data
maintenance fees may also vary significantly from employment enrollment fees in
any given year. Employment enrollment fees are determined based on
the number of HCO enrollees at the end of the calendar
year. Employment enrollment fees do not take into account
fluctuations in HCO enrollment during the year. By comparison, data
maintenance fees are billed as services are provided. Therefore, we
may have years when HCO enrollment is higher during the year than it is at the
end of the calendar year, resulting in variances in data maintenance fees and
employment enrollment fees in a given year.
Data
maintenance fees are also impacted by the prices we can negotiate with our third
party service providers.
During
the three months ended March 31, 2009 we experienced a 19% decrease in HCO
enrollment and a 4% decrease in MPN enrollment, resulting in an overall
enrollment decrease of 9%. Data maintenance fees decreased 14% to
$55,632 during the three months ended March 31, 2008. The decrease in
data maintenance fees is primarily attributable to lower data maintenance costs
associated with the renewal of MPN enrollees and lower prices negotiated with
third party service providers. We expect data maintenance fees will
be lower throughout 2009 as compared to 2008.
21
General and
Administrative
General and administrative expenses
increased 9% to $84,501 during the three months ended March 31,
2009. This increase in general and administrative expense was
attributable to increases in expenses associated with maintaining a
provider network site, printing and reproduction and miscellaneous expense
partially offset by decreases in advertising expense, equipment repairs and
shareholders’ meeting expense. We expect current general and administrative
expenses to be lower in the remaining months of 2009 as a result of cutting
operating costs in proportion to the anticipated decline in
revenues.
Net
Income
During the three months ended March 31,
2008, total revenues of $521,355 were lower by $73,312 when compared to the same
period in 2008. This decrease in total revenues was slightly
offset by the $521 decrease in total expenses resulting in an income from
operations of $5,773 compared to an income from operations of $77,524 during
three months ended March 31, 2008. Correspondingly, we only realized
a net profit of $5,052 for the three months ended March 31, 2009, compared to a
net income of $45,408, during the three months ended March 31,
2008. As the current recession has had an adverse impact on our gross
revenues during the three month period ending March 31, 2009, we expect this
trend will continue throughout 2009.
Cash
Flow
During
the three months ended March 31, 2009 cash was primarily used to fund
operations. We had a net decrease in cash of $85,205 during the
three months ended March 31, 2009. See below for additional
discussion and analysis of cash flow.
|
For
the three months ended March 31,
|
||||||||
|
2009
(unaudited)
|
2008
(unaudited)
|
|||||||
|
Net
cash provided by (used in) operating activities
|
$ | (85,205 | ) | $ | 77,169 | |||
|
Net
cash used in investing activities
|
- | - | ||||||
|
Net
cash provided by financing activities
|
- | - | ||||||
|
Net
Change in Cash
|
$ | (85,205 | ) | $ | 77,169 | |||
During the three months ended March 31,
2009, net cash used in operating activities was $85,205, compared to net cash
provided by operating activities of $77,169 during the three months ended March
31, 2008. As discussed herein we realized net income from operations
of $5,052 during the three months ended March 31, 2009, compared to a net income
of $45,408 during the three months ended March 31, 2008.
We did not engage in investing or
financing activities during the three months ended March 31, 2009 or
2008.
22
Summary
of Material Contractual Commitments
The following is a summary of our
material contractual commitments as of March 31, 2009:
|
Payments
Due By Period
|
||||||||||||||||||||
|
Contractual
obligations
|
Total
|
Less
than 1 year
|
1-3
years
|
3-5
years
|
More
than
5
years
|
|||||||||||||||
|
Operating
Leases:
|
||||||||||||||||||||
|
Equipment
Leases
|
$ | 11,336 | $ | 5,232 | $ | 6,104 | $ | - | $ | - | ||||||||||
|
Office
Leases
|
200,960 | 114,192 | 86,768 | - | - | |||||||||||||||
|
Total
|
$ | 212,296 | $ | 119,424 | $ | 92,872 | $ | - | $ | - | ||||||||||
Off-Balance
Sheet Financing Arrangements
As of March 31, 2009 we had no
off-balance sheet financing arrangements.
Recent
Accounting Pronouncements
The FASB has issued Statement of
Financial Accounting Standards No. 163, Accounting for Financial Guarantee
Insurance Contracts. SFAS No. 163 clarifies how SFAS No. 60,
Accounting and Reporting by Insurance Enterprises, applies to financial
guarantee insurance contracts issued by insurance enterprises, and addresses the
recognition and measurement of premium revenue and claim
liabilities. It requires expanded disclosures about contracts, and
recognition of claim liability prior to an event of default when there is
evidence that credit deterioration has occurred in an insured financial
obligation. It also requires disclosure about (a) the risk-management
activities used by an insurance enterprise to evaluate credit deterioration in
its insured financial obligations, and (b) the insurance enterprise’s
surveillance or watch list. We are currently evaluating the impact of
SFAS No. 163.
In May 2008, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 162, the Hierarchy of Generally Accepted Accounting
Principles, which will provide framework for selecting accounting principles to
be used in preparing financial statements that are presented in conformity with
U.S. generally accepted accounting principles (GAAP) for nongovernmental
entities. With the issuance of SFAS No. 162, the GAAP hierarchy for
nongovernmental entities will move from auditing literature to accounting
literature. We are currently assessing the impact of SGAS No. 162 on
our financial position and results of operations.
In March 2008, the FASB issued
Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities (“SFAS 161”), which is effective January 1, 2009. SFAS 161
requires enhanced
disclosures
about derivative instruments and hedging activities to allow for a better
understanding of their effects on an entity’s financial position, financial
performance, and cash flows. Among other things, SFAS 161 requires
disclosures of the fair values of derivative instruments and associated gains
and losses in a tabular formant. SFAS 161 is not currently applicable
to the Company since we do not have derivative instruments or engage in hedging
activity.
In December 2007, the FASB issued SFAS
No. 141(R), “Business Combinations”. This Statement provides greater consistency
in the accounting and financial reporting of business combinations. It requires
the acquiring entity in a business combination to recognize all assets acquired
and liabilities assumed in the transaction, establishes the acquisition-date
fair value as the measurement objective for all assets acquired and liabilities
assumed, and requires the acquirer to disclose the nature and financial effect
of the business combination. SFAS No. 141(R) is effective for fiscal years
beginning after December 15, 2008. The adoption of SFAS 141 (R) did not have an
impact on the Company’s financial statements.
23
In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. This
Statement amends Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160. is effective for fiscal years beginning after December
15, 2008. The adoption of SFAS 160 did not have an impact on the Company’s
financial statements.
In February 2007, the
FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities”, which permits entities to choose to measure at fair
value eligible financial instruments and certain other items that are not
currently required to be measured at fair value. The standard requires that
unrealized gains and losses on items for which the fair value option has been
elected be reported in earnings at each subsequent reporting date. SFAS No. 159
is effective for fiscal years beginning after November 15, 2007. The adoption of
SFAS 159 did not have an impact on the Company’s financial statements. The
Company presently comments on significant accounting policies (including fair
value of financial instruments) in Note 2 to the financial
statements.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in accordance with accounting standards
generally accepted in the United States requires management to make estimates
and assumptions that affect both the recorded values of assets and liabilities
at the date of the financial statements and the revenues recognized and expenses
incurred during the reporting period. Our estimates and assumptions affect our
recognition of deferred expenses, bad debts, income taxes, the carrying value of
its long-lived assets and its provision for certain contingencies. We evaluate
the reasonableness of these estimates and assumptions continually based on a
combination of historical information and other information that comes to its
attention that may vary its outlook for the future. Actual results may differ
from these estimates under different assumptions.
Management
suggests that our Summary of Significant Accounting Policies, as described in
Note 2 of Notes to Consolidated Financial Statements, be read in conjunction
with this Management’s Discussion and Analysis of Financial Condition and
Results of Operations. We believe the critical accounting policies that most
impact our consolidated financial statements are described below.
Basis of
Accounting — We use the accrual method
of accounting.
Revenue
Recognition — We apply the provisions of SEC Staff Accounting Bulletin
(“SAB”) No. 104, REVENUE RECOGNITION IN FINANCIAL STATEMENTS (“SAB 104”), which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 104 outlines the basic
criteria that must be met to recognize revenue and provides guidance for
disclosure related to revenue recognition policies. In general, we
recognize revenue related to monthly contracted amounts for services provided
when (i) persuasive evidence of an arrangement exists, (ii) delivery has
occurred or services have been rendered, (iii) the fee is fixed or determinable
and (iv) collectibility is reasonably assured.
Health care service revenues are
recognized in the period in which fees are fixed or determinable and the related
services are provided to the subscriber.
24
Our subscribers generally pay in
advance for their services by check payment, and revenue is then recognized
ratably over the period in which the related services are
provided. Advance payments from subscribers are recorded on the
balance sheet as deferred revenue. In circumstance where payment is
not received in advance, revenue is only recognized if collectability is
reasonably assured. An allowance for uncollectible accounts is established for
any customer who is deemed as possibly uncollectible.
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.
Item 4T. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), that are designed to provide reasonable assurance
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required financial
disclosures. Because of inherent limitations, our disclosure controls
and procedures, no matter how well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of such disclosure
controls and procedures are met.
As of the
end of the period covered by this Report we conducted an evaluation, under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15(b) and
15d-15(b). Based on this evaluation, our principal executive officer
and principal financial officer concluded that our disclosure controls and
procedures were effective as of March 31, 2009.
Changes in Internal
Control
There was
no change in our internal control over financial reporting during the three
months ended March 31, 2009, that materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.
25
Exhibits. The
following exhibits are included as part of this Quarterly Report:
|
|
|
Exhibit
Number
|
Title
of Document
|
||
|
Certification
of Principal Executive Officer Pursuant to
|
|||
|
Section
302 of the Sarbanes Oxley Act of 2002
|
|||
|
Certification
of Principal Financial Officer Pursuant to
|
|||
|
Section
302 of the Sarbanes-Oxley Act of 2002
|
|||
|
Certification
Pursuant to Section 906 of the Sarbanes-
|
|||
|
Oxley
Act of 2002.
|
|||
|
Certification
Pursuant to Section 906 of the Sarbanes-
|
|||
|
Oxley
Act of 2002.
|
26
In accordance with Section 12 of the
Securities Exchange Act of 1934, the registrant caused this report to be signed
on its behalf, thereunto duly authorized.
|
PACIFIC
HEALTH CARE ORGANIZATION, INC.
|
|||
|
Date:
May 15, 2009
|
By:
|
/s/ Tom Kubota | |
| Tom Kubota | |||
| Chief Executive Officer | |||
|
Date:
May 15, 2009
|
By:
|
/s/ Fred Odaka | |
| Fred Odaka | |||
| Chief Financial Officer | |||
27