PACIFIC HEALTH CARE ORGANIZATION INC – 10-Q – Discussion and analysis of management’s financial statements and results of operations | Business Insurance

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Throughout this quarterly report, unless the context indicates otherwise, the
terms, "we," "us," "our" or the "Company" refer to Pacific Health Care
Organization, Inc., ("PHCO") and our wholly-owned subsidiaries Medex Healthcare,
Inc. ("Medex"), Medex Managed Care, Inc. ("MMC") and Medex Medical Management,
Inc. ("MMM"), and, where applicable, our former subsidiaries Industrial
Resolutions Coalition ("IRC") Medex Legal Support, Inc. ("MLS") and Pacific
Medical Holding Company, Inc. ("PMHC").



All statements other than statements of historical fact included herein and in
the documents incorporated by reference in this quarterly report on Form 10-Q
(this "quarterly report"), if any, including without limitation, statements
regarding our future financial position, business strategy, potential
acquisitions, budgets, projected costs, and plans and objectives of management
for future operations, are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.. In some cases,
forward-looking statements can be identified by terminology such as
"anticipate," "believe," "continue," "could," "estimate," "expect," "forecast,"
"future," "intend," "likely," "may," "might," "objective," "plan," "potential,"
"predict," "project," "should," "strategy," "will," "would," and other similar
expressions and their negatives.



Forward-looking statements are not guarantees of future performance and involve
known and unknown risks and uncertainties, many of which may be beyond our
control. Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date hereof, and actual results could
differ materially as a result of various factors. The following include some but
not all of the factors that could cause actual results or events to differ
materially from anticipated results or events:



? economic conditions in general and in the industry in which we and our

customers are involved, including the effects resulting from the

conflicts and increased domestic inflation;

? the impact on our business of COVID-19, including the reduction of our

the client’s workforce as a result of a variety of causes related to COVID-19,

as well as government mandates and impacts on workers’ compensation

the industry, our clients’ businesses and the economy in general;

PACIFIC HEALTH CARE ORGANIZATION INC – 10-Q – Discussion and analysis of management's financial statements and results of operations | Business Insurance 2022 09 webinar web banner 1

? cost reduction efforts by our current and potential customers;

? competition within our industry, including competition from much larger

      competitors;
   ?  business combinations among our customers or competitors;
   ?  legislative and regulatory requirements or changes which could render our
      services less competitive or obsolete;

? our inability to successfully develop new services and/or products

organically or through acquisition, or to anticipate current or future

customer needs;

? our ability to retain existing customers and attract new customers;

? price increase;

? cybersecurity breaches and software system failures, or the imposition of

laws that impose costly cybersecurity and data protection compliance;

? disruptive technologies that could make our services less competitive or

outdated;

? reductions in worker’s compensation claims or demand for our services,

from any source; Y

? delays, reductions or cancellations of contracts that we have previously entered into.



For more detailed information about particular risk factors related to us and
our business, see Item 1A Risk Factors of our Annual Report on Form 10-K for the
year ended December 31, 2021, filed the Securities and Exchange Commission (the
"Commission") on April 14, 2022 (the "Annual Report").



We operate in a competitive and rapidly changing environment. New risk factors
emerge from time to time, and it is not possible for our management to predict
all risk factors, nor can we assess the impact of all factors on our business or
the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.



You should not place undue reliance on forward-looking statements. The
forward-looking statements are based on the beliefs of management as well as
assumptions made by and information currently available to management and apply
only as of the date of this report or the respective dates of the documents from
which they incorporate by reference. Neither we nor any other person assumes any
responsibility for the accuracy or completeness of forward-looking statements.
Further, except to the extent required by law, we undertake no obligations to
update or revise any forward-looking statements, whether as a result of new
information, future events, a change in events, conditions, circumstances or
assumptions underlying such statements, or otherwise. We may also make
additional forward-looking statements from time to time. All such subsequent
forward-looking statements, whether written or oral, made by us or on our
behalf, are also expressly qualified by these cautionary statements.



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The following discussion should be read in conjunction with our unaudited report
condensed consolidated financial statements and the related notes contained
elsewhere in this report and in our other submissions to the Commission.

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. In February 2001, we acquired Medex, a California
corporation organized in March 1994, in a share for share exchange. Medex is in
the business of managing and administering both Health Care Organizations
("HCOs") and Medical Provider Networks ("MPNs") in the state of California. In
August 2001 we formed IRC, a California corporation, as a wholly owned
subsidiary of PHCO. Prior to closing IRC, IRC oversaw and managed our Workers'
Compensation carve-outs services. In June 2010, we acquired MLS, a Nevada
corporation incorporated in September 2009. Prior to closing MLS, MLS offered
lien representation services and Medicare set-aside services ("MSA"). In
February 2012, we incorporated MMM, a Nevada corporation, as a wholly owned
subsidiary of the Company. MMM is responsible for overseeing and managing
medical case management services. In March 2011, we incorporated MMC, a Nevada
corporation, as a wholly owned subsidiary of the Company. MMC oversees and
manages the Company's utilization review and bill review services. In October
2018, we incorporated PMHC, a Nevada corporation, as a wholly owned subsidiary
of the Company to act as a holding company for future potential acquisitions.



In October 2021, to simplify business procedures, bookkeeping and administrative
structure; and eliminate duplicative functions and reduce costs; we terminated
the existence of IRC, MLS and PMHC and wound up those subsidiaries. The
business, assets, liabilities, and services of those entities have been
transferred to PHCO or its other subsidiaries. Medex now offers our Workers'
Compensation carve-out services previously provided by IRC and Medicare-set
asides previously managed by MLS. MMC oversees the lien representation services
previously offered by MLS.



Business of the Company



We offer an integrated and layered array of complimentary business solutions
that enable our customers to better manage their employee Workers'
Compensation-related healthcare administration costs. We are constantly looking
for ways to expand the suite of services we can provide our customers, either
through strategic acquisitions or organic development.



Our business objective is to deliver value to our customers that reduces their
Workers' Compensation-related medical claims expense in a manner that will
assure 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
services focus on containing medical treatment costs.



We offer our customers access to our health care organizations ("HCOs") and our
medical provider networks ("MPNs"). We also provide medical case management,
field medical case management, network access, utilization review, medical bill
review, Workers' Compensation carve-outs and Medicare set-aside services.
Additionally, we offer lien representation and expert witness testimony,
ancillary to our services. We provide our services as a bundled solution, as
standalone services, or as add-on services.



Our core services focus on reducing medical treatment costs by enabling our
customers to share control over the medical treatment process. This control is
primarily obtained by participation in one of our medical treatment networks. We
hold several government-issued licenses to operate medical treatment networks.
Through Medex we hold two of a total of seven licenses issued by the state of
California to establish and manage HCOs within the state of California. We also
hold approvals issued by the state of California to act as an MPN and currently
administer 26 MPNs. Our HCO and MPN programs provide our customers with provider
networks within which our customers have some ability to direct the
administration of employee claims. This is designed to decrease the incidence of
fraudulent claims and disability awards and ensure injured employees receive the
necessary back-to-work rehabilitation and training they need. Our medical bill
and utilization review services provide oversight of medical billing and
treatment requests, along with medical case management, which keeps medical
treatment claims progressing to a resolution and assures treatment plans are
aligned from a medical perspective.



Our customers include self-administered employers, insurers, third party
administrators, municipalities, and others. Our principal customers are
companies with operations located in the state of California where the cost of
Workers' Compensation insurance is a critical problem for employers, though we
are able to process medical bills nationally. Our provider networks, which are
located only in California, are composed of providers experienced in treating
worker injuries.



Our business generally has a long sales cycle, typically eight months or more.
Once we have established a customer relationship and enrolled employees of our
employer customers, we anticipate our revenue to adjust with the growth or
retraction of our customers' employee headcount. Throughout the year, we expect
new employees and employer customers to be added while others terminate for a
variety of reasons.



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Impact of COVID-19 on our business


In February 2022, California passed another COVID-19 Supplemental Paid Sick
Leave law ("CSPSL"). It provides employees paid leave for COVID-19 related
reasons such as caring for themselves, family members, or for vaccine related
appointments or illnesses caused by COVID-19 or the vaccine from January 1, 2022
through September 30, 2022. The CSPSL allows employees to retroactively request
reimbursement for qualifying leave or to use it towards future requests through
September 30, 2022. Unlike the CA SPSL from 2021, employers whose employees
utilize CSPSL are ineligible for federal tax credits to offset the costs of
providing the CSPSL.



We will continue to offer COVID-19-specific paid leave benefits to our employees
until the expiration of CSPSL. Family, medical, and other types of leave remain
available to employees under existing Company policy. As of June 2022, we have
incurred negligible payroll, benefits, administrative, and liability costs
related to CSPSL. However, we could incur some significant costs if a second
booster shot is recommended or required later in 2022, or if another spike in
COVID-19 results in increased usage of the CSPSL benefit by employees.



Key Trends Affecting Results of Operations


As noted throughout this quarterly report, during the three and six months ended
June 30, 2022 and 2021, COVID-19 has impacted the businesses of our customers,
our business and our results of operations. Most of our customers, and their
employees are located in California. During the three and six months ended June
30, 2021, California had in place COVID-19 restrictions on businesses which
resulted in many of our customers reducing their workforces and caused a
decrease in the number of new workers' compensation claims, as a result of fewer
workers in the labor force. Allowable medical treatment for workers'
compensation claims were also limited to help ease the burden of COVID-19 on
medical facilities.



During the three and six months ended June 30, 2022, California businesses were
able to operate without COVID-19 restrictions. Our customers had an increase in
COVID-19 related workers' compensation claims during the first quarter of 2022
but saw a decline in the second quarter of 2022. Revenue generated from COVID-19
workers' compensation claims may become seasonal and as the frequency of
contracting COVID-19 increases and the severity of cases decreases, it is
possible that in the future COVID-19 will no longer be classified as a workers'
compensation illness. If the change of classification for COVID-19 related
claims no longer subjects the employer to report it as a workers' compensation
injury, there would be a decrease in our revenues.



As employers begin hiring, some of our customers' industries have been impacted
by the recent national trend of workforce resignations and difficulties in
hiring. If our customers cannot attract new workers, it is possible that some
jobs will be replaced with technology. If technology replaces workers, and/or
workplace injuries continue at lower rates because there are more employees
working from home and fewer employees suffering injuries in the workplace, the
increases in revenues we are beginning to see could flatten or decline.



Our revenues for medical case management were also impacted because there was a
smaller labor pool which resulted in fewer new workers' compensation claims. We
believe this trend will be temporary, as the economy recovers from the effects
of COVID-19, but if the trend to smaller labor pools continues, medical case
management reviews could continue to remain lower in the future.



Revenue


We derive revenue primarily from fees charged for access to our provider
networks, enrollment of customer employees in the HCO or MPN program,
utilization reviews, medical bill reviews, and medical case management services.

HCO



HCO revenue is generated largely from fees charged to our employer customers for
claim network fees to access our HCO networks, employee enrollment into our HCO
program, program administration, custom network fees, annual and new hire
notifications and fees for other ancillary services they may select.



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MPN



Like HCO revenue, MPN revenue is generated largely from fees charged to our
employer customers for claim network fees to access our MPN networks, custom
network fees, employee enrollment into our MPN program, program administration,
and fees for other services our MPN customers may select. Unlike the HCO, MPNs
do not require annual and new hire notifications, MPNs are only required to
provide a notice to an injured worker at the time the employer is notified by
the injured worker that an injury occurred.



Utilization review



Utilization review is the review of medical treatment requests by providers to
provide a safeguard for employers and injured workers against unnecessary and
inappropriate medical treatment from the perspective of medical necessity,
quality of care, appropriateness of decision-making, and timeliness of
treatment. Its purpose is to reduce employer liability for medical costs that
are not medically appropriate or approved by the relevant medical and legal
authorities and the payor.



Medical bill review



California and many other states have established fee schedules for the maximum
allowable fees payable under workers' compensation for a variety of procedures
performed by medical providers. Many procedures, however, are not covered under
the fee schedules, such as hospital bills, which still require review and
negotiation. 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 savings
for our customers.



The following table sets forth, for the quarters ended June 30, 2022 and 2021,
the percentage each revenue item identified in our unaudited condensed
consolidated financial statements contributed to total revenue during the
respective period.



                          2022      2021
HCO                          19 %      27 %
MPN                          10 %       9 %
Utilization review           30 %      20 %
Medical bill review           8 %       6 %
Medical case management      30 %      34 %
Other                         3 %       4 %




Expense



Consulting fees


Consulting fees include fees we pay to third parties for IT, marketing, and
Internal legal advice on the different services we offer.

Salaries and wages


Wages and salaries reflect the employment-related compensation we pay our employees.
employees, payroll processing, payroll taxes and fees.

Professional fees


Professional fees include fees we pay to third parties to provide medical services.
consulting, medical case management and board of directors fees for the board
meetings, as well as legal and accounting fees.

Insurance


Insurance expenses are made up primarily of health insurance benefits offered to
our civil liability insurance for employees, directors and officers,
Compensation coverage and commercial liability coverage.

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Outsource service fees



Outsource service fees consist of costs incurred by our subsidiaries in
partially outsourcing utilization review, medical bill review, administrative
services for medical case management and Medicare set-aside services and
typically tend to increase and decrease in correlation with the demand for those
services.



Data maintenance fees



Data maintenance fees includes fees we pay to a third party to process HCO and
MPN employee enrollment. These fees fluctuate throughout the year because of the
varied timing of customer enrollment into our HCO or MPN programs and the number
of employees our customers have in their workforce.



General and administrative



General and administrative expenses consist primarily of office rent,
advertising, dues and subscriptions, equipment/repairs, IT enhancement, licenses
and permits, telephone, office supplies, parking, postage, printing and
reproduction, rent expense for equipment, miscellaneous expenses, shareholders'
expense, charity - cash contribution, auto expenses, bank charges, education,
travel and entertainment, and vacation expense.



The following table sets forth, for the quarters ended June 30, 2022 and 2021,
the percentage each expense item identified in our unaudited consolidated
financial statements contributed to total expense during the respective period.



                             2022      2021
Depreciation                     1 %       1 %
Bad debt provision               - %       - %
Consulting fees                  5 %       5 %
Salaries and wages              56 %      58 %
Professional fees                6 %       7 %
Insurance                        6 %       6 %
Outsource service fees           4 %       4 %
Data maintenance fees           11 %       7 %
General and administrative      11 %      12 %




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Results of Operations


Comparison of the three months ended June 30, 2022 and 2021

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The following represents selected components of our consolidated results of
operations for the three-month periods ended June 30, 2022 and 2021,
respectively, together with the changes from one period to another:

                               For three months ended
                                      June 30,
                                2022            2021          Amount Change       % Change
Revenues:
HCO                          $   269,311     $   356,011     $       (86,700 )          (24 %)
MPN                              145,319         126,785              18,534             15 %
Utilization review               422,936         273,072             149,864             55 %
Medical bill review              113,555          78,093              35,462             45 %
Medical case management          414,658         458,423             (43,765 )          (10 %)
Other                             34,672          51,067             (16,395 )          (32 %)
Total revenues                 1,400,451       1,343,451              57,000              4 %

Expense:
Depreciation                       9,297          10,688              (1,391 )          (13 %)
Bad debt provision                     -             494                (494 )         (100 %)
Consulting fees                   56,206          58,399              (2,193 )           (4 %)
Salaries and wages               686,240         698,985             (12,745 )           (2 %)
Professional fees                 79,774          80,127                (353 )            - %
Insurance                         75,211          69,111               6,100              9 %
Outsource service fees           132,820          92,355              40,465             44 %
Data maintenance                  46,313          50,080              (3,767 )           (8 %)
General and administrative       141,472         151,540             (10,068 )           (7 %)
Total expenses                 1,227,333       1,211,779              15,554              1 %

Income from operations           173,118         131,672              41,446             31 %

Income before taxes              173,118         131,672              41,466             31 %
Income tax provision              48,594          36,961              11,633             31 %

Net income                   $   124,524     $    94,711     $        29,813             31 %




Revenue



HCO



During the three-month period ended June 30, 2022, HCO revenue decreased 24%,
compared to the same period in the prior year. The decrease in HCO revenue was
attributable to a decrease in the number of claims, which resulted in a decrease
in HCO claim network fees, as well as a decrease in new employees enrolled in
the HCO and lower annual HCO renewals of employees into the program.



MPN



During the three-month period ended June 30, 2022, MPN revenue increased 15%,
compared to the same period in the prior year. The increase in MPN revenue was
attributable to an increase in the number of claims reported by existing
customers which led to an increase of MPN claim network fees.



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Utilization review



During the three-month period ended June 30, 2022, utilization review revenue
increased 55%, compared to the same period in the prior year. The increase in
utilization review revenue was due to the addition of a new customer in the
fourth quarter of 2021, and increases in utilization reviews referrals for
existing customers, partially offset by the loss of a customer in 2021.



Medical bill review



During the three-month period ended June 30, 2022, medical bill review revenue
increased by 45%, compared to the same period in the prior year. The increase
was due to processing more medical and hospital bills from existing customers,
partially offset by the loss of a customer in 2021.



Medical case management



During the three-month period ended June 30, 2022, revenue from medical case
management decreased 10%, compared to the same period in the prior year. The
decrease was due to fewer new claims from existing customers.



Other



Other fees consist of revenue from network access fees derived from out of
network referrals to our network of physicians, claims fees, expert witness
testimony, lien representation, legal support services, Medicare set-aside, and
workers' compensation carve-out services. Other fee revenue for the three-month
period ended June 30, 2022, decreased 32% when compared to the same period a
year earlier. The decrease was the result of fewer Medicare set-aside claims and
the loss of a customer which reduced our claims fees for accessing our network.
Due to the loss of this customer, we  discontinued this service in 2021. The
claims fees generated by this type of service is no longer offered in the
current marketplace.



Expenses



Depreciation



During the three-month period ended June 30, 2022, depreciation decreased 13%
compared to the three-month period ended June 30, 2021. The decrease was
primarily attributable to certain furniture, fixtures, and computer equipment
being fully depreciated.



Insurance


During the three-month period ended June 30, 2022insurance expense increased
by 9% compared to the same period in 2021. The increase was due to
premium increases when our commercial insurance was renewed.

Outsource service fees



Outsource service fees increased 44% during the three-month period ended June
30, 2022. The increase was primarily the result of increases in the number of
utilization review referrals and medical bill reviews, partially offset by
decreases in medical case management administrative services and referrals sent
out for Medicare set-aside arrangements. We anticipate our outsource service
fees will continue to move in correspondence with the level of utilization
review, medical bill review, certain medical case management services and
Medicare set-aside services we provide in the future.



Data maintenance


During the three-month period ended June 30, 2022data maintenance fees
decreased 8% mainly as a result of a decrease in the number of clients
employees enrolled in our HCO program.

General and administrative



During the three-month period ended June 30, 2022, general and administrative
expense decreased by 7% when compared to the same period in 2021. The decreases
were due to decreases in auto expenses, bank charges, licenses and permits,
office supplies, postage and delivery, rent expense - equipment, rent,
telephone, and vacation expense, partially offset by increases in advertising,
dues and subscriptions, IT enhancement, education, meals and travel,
miscellaneous, and parking.



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Income from Operations



As a result of the $57,000 increase in total revenue during the three-month
period ended June 30, 2022, and the $15,554 increase in total expenses during
the same period, our income from operations increased $41,446, or 31%, during
the three-month period ended June 30, 2022, when compared to the same period in
2021.



Income Tax Provision



We realized a $11,633, or 31%, increase in our income tax provision during the
three-month period ended June 30, 2022, compared to the three-month period ended
June 30, 2021, because of the increase in net income realized in the 2022
period.



Net Income



During the three-month period ended June 30, 2022, we realized a 4% increase in
total revenues, a 1% increase in total expenses and a 31% increase in our
provision for income tax when compared to the same period in 2021. As a result,
we realized a net increase of $29,813, or 31%, in net income during the
three-month period ended June 30, 2022, compared to the three-month period ended
June 30, 2021.


Six Months Ended Comparison June 30, 2022 and 2021

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The following represents selected components of our consolidated results of
operations, for the six-month periods ended June 30, 2022 and 2021,
respectively, together with the changes from one period to another:


                                              For six months ended
                                                    June 30,
                                              2022            2021          Amount Change       % Change
Revenues:
HCO                                        $   630,279     $   647,265     $       (16,986 )           (3 %)
MPN                                            293,930         258,663              35,267             14 %
Utilization review                             777,892         538,676             239,216             44 %
Medical bill review                            233,892         174,760              59,132             34 %
Medical case management                        833,420         942,856            (109,436 )          (12 %)
Other                                           58,421         105,593             (47,172 )          (45 %)
Total revenues                               2,827,834       2,667,813             160,021              6 %

Expense:
Depreciation                                    13,492          23,307              (9,815 )          (42 %)
Bad debt provision                               4,783             494               4,289            868 %
Consulting fees                                110,161         115,522              (5,361 )           (5 %)
Salaries and wages                           1,319,612       1,393,603             (73,991 )           (5 %)
Professional fees                              146,638         145,956                 682              - %
Insurance                                      158,877         155,807               3,070              2 %
Outsource service fees                         276,598         194,158              82,440             42 %
Data maintenance                                56,502          63,376              (6,874 )          (11 %)
General and administrative                     305,944         323,325             (17,381 )           (5 %)
Total expenses                               2,392,607       2,415,548             (22,941 )           (1 %)

Income from operations                         435,227         252,265             182,962             73 %

Other income (expense)
Paycheck protection program loan
forgiveness income                                   -         464,386            (464,386 )         (100 %)
Paycheck protection program loan
interest expense                                     -          (3,686 )             3,686           (100 %)
Total other income (expense)                         -         460,700            (460,700 )         (100 %)

Income before taxes                            435,227         712,965            (277,738 )          (39 %)
Income tax provision                          (122,168 )      (110,969 )           (11,199 )           10 %

Net income                                 $   313,059     $   601,996     $      (288,937 )          (48 %)




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The following table sets forth, for the six months ended June 30, 2022 and 2021,
the percentage each revenue item identified in our unaudited condensed
consolidated financial statements contributed to total revenue during the
respective period.



                          2022      2021
HCO                          22 %      24 %
MPN                          10 %      10 %
Utilization review           28 %      20 %
Medical bill review           8 %       7 %
Medical case management      30 %      35 %
Other                         2 %       4 %




HCO



During the six-month period ended June 30, 2022, HCO revenue decreased 3%,
compared to the same period in the prior year. The decrease in HCO revenue was
attributable to decreases in new employees enrolled in the HCO and lower annual
HCO renewals of employees into the program partially offset by increases in the
number of claims, which resulted in an increase in HCO claim network fees.



MPN


During the six-month period ended June 30, 2022MPN revenue increased 14%,
compared to the same period of the previous year. The increase in MPN revenue was
attributable to an increase in the number of claims reported by
customers, leading to an increase in MPN claims network fees.

Utilization review


During the six-month period ended June 30, 2022utilization review revenue
increased 44%, compared to the same period of the previous year. The increase in
Utilization review revenue was due to the addition of a new customer in the
Q4 2021 and increases in utilization review benchmarks for
existing customers, partially offset by the loss of a customer in 2021.

Medical bill review



During the six-month period ended June 30, 2022, medical bill review revenue
increased by 34%, compared to the same period in the prior year. The increase
was due to processing more medical and hospital bills from existing customers,
partially offset by the loss of a customer in 2021.



Medical case management


During the six-month period ended June 30, 2022income per medical case
management decreased by 12%, compared to the same period of the previous year. the
The decrease was due to fewer new claims from existing customers.

Other



Other fee revenue for the six-month period ended June 30, 2022, decreased 45%
when compared to the same period a year earlier. The decrease was the result of
fewer Medicare set-aside claims and the loss of a customer which reduced our
claims fees for accessing our network. Due to the loss of this customer, we
discontinued this service in 2021. The claims fees generated by this type of
service is no longer offered in the current marketplace.



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Expenses



The following table sets forth, for the six months ended June 30, 2022 and 2021,
the percentage each expense item identified in our unaudited consolidated
financial statements contributed to total expense during the respective period.



                             2022      2021
Depreciation                     1 %       1 %
Bad debt provision               - %       - %
Consulting fees                  5 %       5 %
Salaries and wages              55 %      58 %
Professional fees                6 %       6 %
Insurance                        6 %       6 %
Outsource service fees          12 %       8 %
Data maintenance fees            2 %       3 %
General and administrative      13 %      13 %




Depreciation


During the six-month period ended June 30, 2022depreciation decreased 42%
compared to the six-month period ended June 30, 2021. The decrease was mainly due
because certain furniture, fixtures, and computer equipment are completely
depreciated

Bad debt



During the six-month period ended June 30, 2022, bad debt provisions increased
by $4,289 compared to the six-month period ended June 30, 2021. At June 30, 2022
and 2021, our allowances for bad debt were $13,217 and $23,083, respectively.
The accrual for bad debt provision was to increase our allowance for bad debt
accounts receivable over 90-days.



Consulting fees



During the six-month period ended June 30, 2022, consulting fees decreased 5%
compared to the six-month period ended June 30, 2021. The decrease was the
result of a reduction in the number of information systems consultants retained
as compared to the six-month period ended June 30, 2021.



Salaries and wages



During the six-month period ended June 30, 2022, salaries and wages decreased by
5% when compared to the same period in 2021. This decrease was the result of the
fewer employees in the six-month period ended June 30, 2022 compared to the same
period in 2021.



Outsource service fees



Outsource service fees increased 42% during the six-month period ended June 30,
2022. The increase was primarily the result of increases in the number of
utilization review referrals and medical bill reviews, partially offset by
decreases in medical case management administrative services and referrals sent
out for Medicare set-aside arrangements. We anticipate our outsource service
fees will continue to move in correspondence with the level of utilization
review, medical bill review, certain medical case management services and
Medicare set-aside services we provide in the future.



Data maintenance



During the six-month period ended June 30, 2022, data maintenance fees decreased
11% primarily as a result of a decrease in the number of customers' employees
enrolled in our HCO program.



General and administrative


During the six-month period ended June 30, 2022, general and administrative
expense decreased by 5% when compared to the same period in 2021. The decreases
were due to decreases in auto expenses, bank charges, licenses and permits,
office supplies, postage and delivery, rent expense - equipment, rent,
telephone, and vacation expense, partially offset by increases in advertising,
dues and subscriptions, education, IT enhancement, meals and travel,
miscellaneous, and parking.



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Income from Operations



Total revenue during the six-month period ended June 30, 2022, increased by
$160,021, to $2,827,834 compared to $2,667,813 in the same period in 2021. Our
total expenses decreased by $22,941 during the six months ended June 30, 2022,
compared to the same period in 2021. This led to an increase in income from
operations of $182,962, or 73%, during the six months ended June 30, 2022,
compared to the six months ended June 30, 2021.



Other Income (Expense)



During the six-month period ended June 30, 2022, we realized no other income
(expense). During the same period in 2021, we realized a total of $460,700 in
other income and expense due to the PPP loans. In February 2021, the principal
and interest on the PPP loans issued to PHCO, MMC and MMM in April and May 2020,
were forgiven in full. As a result, we realized total other income of $464,386
and other expense in the form of interest expense for the PPP loans of $3,686 in
the six months ended June 30, 2021.



Income Tax Provision



We realized an increase of $11,199 or 10%, in our income tax provision during
the six-month period ended June 30, 2022, compared to the six months ended June
30, 2021, as a result of the increase of income from operations.



Net Income



During the six-month period ended June 30, 2022, total revenues increased 6% and
total expense decreased 1%. During the period we also realized a 10% increase in
our provision for income tax and our net income decreased $288,937, or 48%, when
compared to the six months ended June 30, 2021, because we realized income from
PPP loan principal and interest forgiveness in the amount of $460,700 during the
six-month period ended June 30, 2021.



Liquidity and Capital Resources


Liquidity is a measurement of our ability to meet our potential cash
requirements for general business purposes. We consistently monitor our
liquidity and financial position and take actions management believes are in the
best interest of our Company and shareholders to ensure the long-term financial
viability of our Company. Historically, we have realized positive cash flows
from operating activities, which coupled with positive reserves of cash on hand,
have been used to fund our operating expenses and obligations. We have not
historically used, nor do we currently possess a credit facility or other
institutional source of financing.



As a result of the pandemic subsiding, restrictions being removed and employees
returning to work, coupled with our efforts to transition the Company to be
remote, and reductions in overhead expenses, during the six-month period ended
June 30, 2022 we saw an increase in revenues and a decrease in expenses. We have
continued to realize net income and net cash from operations and have increased
our net cash position. Management currently believes that absent (i) any
unanticipated further COVID-19 impact, (ii) a longer-term downturn in the
general economy as a result of inflation and the sanctions, countermeasures and
other actions in response to the Russia-Ukraine conflict, or (iii) the loss of
several major customers within a condensed period, cash on hand and anticipated
revenues from operations will be sufficient to cover our operating expenses for
at least the next twelve months, as well as for the longer term.



As of June 30, 2022, we had cash on hand of $10,408,658 compared to $10,085,372
as of December 31, 2021. The $323,286 increase was the result of net cash
provided by our operating activities, partially offset by cash used in investing
activities. We had no change in net cash provided by/used in financing
activities during the six-month period ended June 30, 2022.



We took advantage of both the First Draw and Second Draw Paycheck Protection
Programs. Because the funds were used as designated under those programs, we
received full forgiveness of all PPP loans received. In the future we may
further 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.



We currently have planned certain capital expenditures including changing
operational software. We anticipate the costs to change operational software to
be significantly higher than in previous years starting in 2022, but we have
adequate capital on hand to cover these expenses. We do not anticipate these
expenditures will require us to seek outside sources of funding.



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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 COVID-19 pandemic, including accretion of existing business lines or
expansion into new business lines and related industries, including, but not
limited to, the insurance industry. We may also seek growth through organic
development of new lines of business or expansion of existing offerings.
Depending upon the nature of the opportunities we identify, such acquisitions or
expansion could require greater capital resources than we currently possess.
Should we need additional capital resources, we could seek to obtain such
through debt and/or equity financing. We do not currently possess an
institutional source of financing and there is no assurance that we could be
successful in obtaining equity or debt financing when needed on favorable terms,
or at all. We could also use shares of our capital stock as consideration for a
business acquisition transaction, but there is also no assurance that there
would be significant interest in our capital stock by a potential seller or the
market.



As a result of the unique nature of the COVID-19 pandemic and its impacts on our
operations, the operations of our customers and the broader economy, coupled
with uncertainty surrounding the potential impacts of rising inflation, we
cannot provide any assurance that the assumptions management has used to
estimate our liquidity requirements will remain accurate in either the
short-term or the longer-term. The ultimate duration and impact of these events
on our business, results of operations, financial condition and cash flows is
dependent on future developments, which are uncertain, largely beyond our
control and cannot be predicted with any degree of certainty at this time. We
expect that our results of operations, including revenues, in future periods
will be partially impacted by the COVID-19 pandemic due to the possibility that
as COVID-19 becomes more common and less severe that COVID-19 workers'
compensation claims may no longer be classified as a workers' compensation
illness. We expect that with rising inflation profit margins will be impacted
due to locked in pricing for some of our public entity customers and the
increasing costs in salaries and wages as we compete to recruit and retain
employees.



Cash Flow


During the six months that ended June 30, 2022the cash was used primarily to finance
operations. We had a net increase in cash of $323,286 during the six months
term June 30, 2022. See below for additional information.

                                               For the six months ended June 30,
                                                  2022                   2021
                                              (unaudited)            (unaudited)

Net cash provided by operating activities $340,452 $388,713
Net cash used in investing activities

                (17,166 )               (5,434 )
Net cash provided by financing activities                  -                218,900

Net increase in cash                        $        323,286       $        602,179




During the six months ended June 30, 2022 and 2021, net cash provided by
operating activities was $340,452 and $388,713, respectively, a decrease of
$48,261. This decrease was primarily the result of decreases in net income,
deferred rent assets and accrued expenses, partially offset by increases in
allowance for bad debt, accounts receivable, prepaid expenses, taxes receivable,
prepaid income tax, other assets, accounts payable, unearned revenue, and income
tax payable.


Net cash used in investing activities was $17,166 Y $5,434 during the
six-month periods ended June 30, 2022 and 2021, respectively. During these
periods, net cash was used in investing activities to purchase computers and
equipment.


During the six months ended June 30, 2022, the Company did not engage in any
financing activities. Net cash provided by financing activities during the six
months ended June 30, 2021, was $218,900. In April 2021, MMM received a Second
Draw PPP loan in the amount of $218,900, that was fully forgiven with accrued
interest in December of 2021.



Off-balance sheet financing arrangements

From June 30, 2022we had no off-balance sheet financing arrangements.

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Inflation



We experience pricing pressures in the form of competitive pricing. Insurance
carriers and third-party administrators often try to take our customers by
offering bundled claims administration services with their own managed care
services at a lower rate. We are also impacted by rising costs for certain
inflation-sensitive operating expenses such as labor and employee benefits and
facility leases. We believe that these impacts can be material to our revenues
or net income. Some of our customers are public entities which contract with us
at a fixed price for the term of the contract. Increases in labor and employee
benefits can reduce our profit margin over the term of these contracts. See also
"Effects of inflation" of Item 1A Risk Factor of our Annual Report on Form 10-K
filed with the Commission on April 14, 2022.



Critical Accounting Policies and Estimates


Our consolidated financial statements are prepared in accordance with GAAP.
Application of these principles requires us to make estimates, assumptions, and
judgments that affect the amounts reported in our consolidated financial
statements and accompanying notes. We continually evaluate our accounting
policies, estimates, and judgments and base our estimates and judgments on
historical experience and various other factors that we believe to be reasonable
under the circumstances. Because of the inherent uncertainty in making estimates
and judgments, actual results could differ from our estimates and judgments. We
consider (i) revenue recognition, (ii) leases, (iii) allowance for uncollectible
accounts, and (iv) income taxes to be the most critical accounting policies
because they relate to accounting areas that require the most subjective or
complex judgments by us, and, as such, could be most subject to revision as new
information becomes available.



Revenue Recognition: We recognize revenue when control of the promised services
is transferred to our customers in an amount that reflects the consideration we
expect to be entitled to in exchange for those services. As we complete our
performance obligations which are identified below, we have an unconditional
right to consideration as outlined in our contracts with our customers.
Generally, our accounts receivables are expected to be collected in 30 days in
accordance with the underlying payment terms.



We offer multiple services under our managed care and network solutions service
lines, which the customer may choose to purchase. These services are billed
individually as separate components to our customers. Revenue is recognized as
the work is performed in accordance with our customer contracts. Based upon the
nature of our products, bundled managed care elements are generally delivered in
the same accounting period. Advance payments from subscribers and billings made
in advance are recorded on the balance sheet as unearned revenue.



Leases: We determine if an arrangement includes a lease at inception.
Right-of-use assets represent our right to use an underlying asset for the lease
term; and lease liabilities represent our obligation to make lease payments
arising from the lease. Right-of-use assets and lease liabilities are recognized
at the commencement date of the lease, renewal date of the lease or significant
remodeling of the lease space based on the present value of the remaining future
minimum lease payments. Leases with a term greater than one year are recognized
on the balance sheet as right-of-use assets and short-term and long-term lease
liabilities, as applicable.



Operating lease liabilities and their corresponding right-of-use assets are
initially recorded based on the present value of lease payments over the
expected remaining lease term. The interest rate implicit in lease contracts is
typically not readily determinable. As a result, we utilize our incremental
borrowing rate to discount lease payments, which reflects the fixed rate at
which we could borrow on a collateralized basis the amount of the lease payments
in the same currency, for a similar term, in a similar economic environment. Our
leases may include options to extend or terminate the lease which are included
in the lease term when it is reasonably certain that we will exercise any such
options. Lease expense for lease payments is recognized on a straight-line basis
over the lease term.



Allowance for Uncollectible Accounts: We determine our allowance for
uncollectible accounts by considering several factors, including the length of
time trade accounts receivables are past due, our previous loss history, the
customers' current ability to pay their obligations to us, and the condition of
the general economy and the industry as a whole. We write off accounts
receivables when they become uncollectible.



We must make significant judgments and estimates in determining contractual and
bad debt allowances in any accounting period. One significant uncertainty
inherent in our analysis is whether our experience will be indicative of future
periods. Although we consider future projections when estimating contractual and
bad debt allowances, we ultimately make our decisions based on the best
information available to us at the time the decision is made. Adverse changes in
general economic conditions or trends in reimbursement amounts for our services
could affect our contractual and bad debt allowance estimates, collection of
accounts receivables, cash flows, and results of operations. Two customers
accounted for 10% or more of accounts receivable at June 30, 2022 and 2021,
respectively.



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Accounting for Income Taxes: We record a tax provision for the anticipated tax
consequences of our reported results of operations. The provision for income
taxes is computed using the asset and liability method, under which deferred tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the financial reporting and tax bases of assets
and liabilities, and for operating losses and tax credit carryforwards. Deferred
tax assets and liabilities are measured using the currently enacted tax rates
that apply to taxable income in effect for the years in which those tax assets
are expected to be realized or settled. We record a valuation allowance, if
necessary, to reduce deferred tax assets to the amount that is believed more
likely than not to be realized.



We recognize tax benefits from uncertain tax positions only if it is more likely
than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such positions are then measured
based on the largest benefit that has a greater than 50% likelihood of being
realized upon ultimate settlement.



Management believes it is more likely than not that forecasted income, including
income that may be generated as a result of certain tax planning strategies,
together with future reversals of existing taxable temporary differences, will
be sufficient to fully recover the deferred tax assets. In the event we
determine all, or part of the net deferred tax assets are not realizable in the
future, we will make an adjustment to the valuation allowance that would be
charged to earnings in the period such determination is made. In addition, the
calculation of tax liabilities involves significant judgment in estimating the
impact of uncertainties in the application of GAAP and complex tax laws.
Resolution of these uncertainties in a manner inconsistent with management's
expectations could have a material impact on our financial condition and
operating results. The significant assumptions and estimates described above are
important contributors to our ultimate effective tax rate in each year.