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 ~~September 30, 2014~~March 31, 2015

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions 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

As of ~~November 11, 2014~~May 1, 2015, the registrant had ~~802,424~~797,714 shares of common stock, par value $0.001, issued and outstanding.

PACIFIC HEALTH CARE ORGANIZATION, INC.

PART I. FINANCIAL INFORMATION

~~Item~~ Item 1. Financial ~~Statements~~Information

~~Pacific~~Pacific Health Care Organization, Inc.

March 31, 2015

(Unaudited)

Accounts receivable, net of allowance of $15,533 and $15,860

Prepaid income taxes

Total current assets

Property and equipment, net

Furniture and fixtures

Office equipment under capital lease

Total property and equipment

Less: accumulated depreciation and amortization

Net property and equipment

Current obligation under capital lease

Deferred rent expense

Total current liabilities

Long term liabilities

Noncurrent obligation under capital lease

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

Common stock, $0.001 par value 50,000,000 shares authorized at

March 31, 2015 and December 31, 2014; 802,424 shares issued,

(800,136 outstanding net of treasury shares) and 802,424 shares issued,

(800,396 outstanding net of treasury shares), respectively

Additional paid-in capital

Treasury stock at cost (2,288 shares and 2,028 shares at March 31, 2015 and December 31, 2014),

Total stockholders' equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

~~Pacific~~Pacific Health Care Organization, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	For three months ended September 30,						For nine months ended September 30,
	2014			2013			2014			2013			For three months ended March 31,
													2015		2014
Revenues:
HCO fees													$	248,640	$	259,484
MPN fees														308,118		253,429
UR fees	$	1,362,283		$	577,876		$	3,063,833		$	1,347,255			1,014,290		725,855
MBR fees		526,341			345,253			1,444,524			1,060,519			370,414		475,220
HCO fees		260,069			210,039			778,869			689,575
MPN fees		285,415			223,625			797,449			638,841
NCM fees		242,376			309,272			753,839			815,987			244,472		254,129
Other		76,032			37,505			240,882			128,111			183,164		60,552
Total revenues		2,752,516			1,703,570			7,079,396			4,680,288			2,369,098		2,028,669

Expenses:
Depreciation and amortization		12,642			10,918			35,408			32,623
Depreciation														12,786		11,155
Bad debt provision		15,851			10,000			24,991			10,000			8,250		8,253
Consulting fees		76,790			81,871			229,010			267,125			90,190		75,899
Salaries and wages		699,096			517,400			1,878,041			1,547,197			685,811		586,827
Professional fees		109,871			131,157			338,403			324,014			120,346		105,612
Insurance		82,155			68,858			225,035			189,455			84,757		68,648
Outsource service fees		658,233			202,960			1,324,248			511,374			337,747		264,568
Data maintenance		12,953			9,355			53,685			46,178			7,285		19,171
General and administrative		133,449			108,759			396,156			359,985			151,369		123,361
Total expenses		1,801,040			1,141,278			4,504,977			3,287,951			1,498,541		1,263,494

Income from operations		951,476			562,292			2,574,419			1,392,337			870,557		765,175

Other income (expense):
Interest income		-			1			-			460
Interest (expense)		(258	)		(549	)		(956	)		(1,909	)
Total other income (expense)		(258	)		(548	)		(956	)		(1,449	)

Other expense
Interest expense														130		379
Total other expense														130		379

Income before taxes		951,218			561,744			2,573,463			1,390,888			870,427		764,796

Income tax provision		395,803			228,702			1,070,822			565,418			362,186		318,235

Net income	$	555,415		$	333,042		$	1,502,641		$	825,470		$	508,241	$	446,561

Basic and fully diluted earnings per share:
Earnings per share amount	$	.69		$	.42		$	1.87		$	1.03		$	0.64	$	0.56
Weighted average common shares outstanding		802,424			802,424			802,424			802,424			800,136		802,424

~~Pacific~~Pacific Health Care Organization,, Inc.

Nine months ended
September 30,

2014 2013
Cash flows from operating activities:
Net income

$
1,502,641

$
825,470

Adjustments to reconcile net income to net cash:

Depreciation and amortization

35,408

32,623

Changes in operating assets and liabilities

(Decrease) in bad debt provision

(327
)
-

(Increase) in accounts receivable

(567,614
)
(192,665
)
Decrease in receivable – other

-

7,324

(Increase) in other assets

(5,544
) -
(Increase) decrease in prepaid income tax

6,568

(597,922
)
(Increase) in prepaid expenses

(6,703
)
(94,867
)
Increase in accounts payable

225,270

4,193

Increase in accrued expenses

56,170

175,001

Increase in income tax payable

153,121

316,738

(Decrease) in deferred rent expense

(5,448
)
(2,629
)
(Decrease) in unearned revenue

-

(2,443
)
Net cash provided by operating activities

1,393,542

470,823

Cash flows from investing activities

Purchases of furniture and equipment

(69,855
)
(3,050
)
Net cash used by investing activities

(69,855
)
(3,050
)

Cash flows from financing activities

Payment of obligation under capital lease

(9,787
)
(14,338
)
Net cash used in financing activities

(9,787
)
(14,338
)
Increase in cash

1,313,900

453,435

Cash at beginning of period

1,265,535

479,674

Cash at end of period

$
2,579,435

$
933,109

Supplemental Cash Flow Information

Cash paid for:

Interest

$
959

$
2,980

Income taxes paid

$
911,134

$
846,502

Adjustments to reconcile net income to net cash:

Changes in operating assets & liabilities

Increase in bad debt provision

(Increase) in accounts receivable

Decrease in prepaid income tax

(Increase) decrease in prepaid expenses

Decrease (increase) in other assets

(Decrease) in accounts payable

(Decrease) in deferred rent expense

(Decrease) increase in accrued expenses

Increase in income tax payable

Increase in unearned revenue

Net cash provided in operating activities

Cash flows from investing activities:

Purchase of furniture and office equipment

Net cash used in investing activities

Cash flows from financing activities:

Purchase of treasury stock

Payment of obligation under capital lease

Net cash used in financing activities

Cash at beginning of period

Cash at end of period

Supplemental cash flow information

~~Pacific~~ Pacific Health Care Organization, Inc.

NOTE 1 –- BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed financial statements be read in conjunction with the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, ~~2013.~~2014. Operating results for the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2014.~~2015.

Revenue Recognition — In general, the Company recognizes revenue 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) collectability is reasonably assured. Revenues are generated as services are provided to the customer based on the sales price agreed and collected. The Company recognizes revenue as the time is worked or as units of production are completed, which is when the revenue is earned and realized. Labor costs are recognized as the costs are incurred. The Company derives its revenue from the sale of Managed Care Services, Review Services, ~~and~~ Case Management Services and Lien Representation Services. These services may be sold individually or in combination. When a sale combines multiple elements, the Company accounts for multiple-deliverable revenue arrangements in accordance with the guidance included in ASC ~~605-25.~~605-25, the services, however, are typically billed as separate components in accordance with the customer’s service agreement.

These fees include monthly administration fees, claim network fees, flat rate fees or hourly fees depending on the agreement with the client. Such revenue is recognized at the end of each month for which services are performed.

Management reviews each agreement in accordance with the provision of the revenue recognition topic ASC 605 that addresses multiple-deliverable revenue arrangements. The multiple-deliverable arrangements entered into consist of bundled managed care which ~~included~~includes various units of accounting such as network solutions and patient management which includes managed care. Such elements are considered separate units of accounting due to each element having value to the customer on a stand-alone basis. The selling price for each unit of accounting is determined using ~~the~~ contract price. When the Company’s customers purchase several products the pricing of the products sold is generally the same as if the products were sold on an individual basis. Revenue is recognized as the work is performed in accordance with the Company’s customer contracts. Based upon the nature of the Company’s products, bundled managed care elements are generally delivered in the same accounting period. The Company recognizes revenue for patient management services ratably over the life of the customer contract. Based ~~upon~~on prior experience in managed care, the Company estimates the deferral amount from when the customer’s claim is received to when the customer contract expires. Advance payments from subscribers and billings made in advance are recorded on the balance sheet as deferred revenue.

Accounts Receivables and Bad Debt Allowance – In the normal course of business the Company extends credit to its customers on a short-term basis. Although the credit risk associated with these customers is minimal, the Company routinely reviews its accounts receivable balances and makes provisions for doubtful accounts. The Company ages its receivables by date of invoice. Management reviews bad debt reserves quarterly and reserves specific accounts as warranted or sets up a general reserve based on amounts over 90 days past due. When an account is deemed uncollectible, the Company charges off the receivable against the bad debt reserve. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past-due balances, including any billing disputes. In order to assess the collectability of these receivables, the Company performs ongoing credit evaluations of its customers’ financial condition. Through these evaluations, the Company may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The allowance for doubtful accounts is based on the best information available to the Company and is reevaluated and adjusted as additional information is received. The Company evaluates the allowance based on historical write-off experience, the size of the individual customer balances, past-due amounts and the overall national economy. At March 31, 2015 and December 31, 2014, our bad debt reserve of $48,833 and $40,510, respectively as a general reserve for certain balances over 90 days past due and for accounts that are potentially uncollectible.

The percentages of the amounts due from major customers to total accounts receivable as of March 31, 2015 and 2014 are as follows:

	3/31/15			3/31/14
Customer A		29	%		28	%
Customer B		21	%		24	%

Reclassifications – Certain ~~2013~~2014 quarterly ~~and year-to-date~~ balances have been reclassified to conform to the ~~2014~~2015 presentation. The reclassifications have had no effect on the financial position, operations or cash flows for the ~~three month and nine month periods~~quarter ended ~~September 30, 2014.~~March 31, 2015.

NOTE 2 –- SUBSEQUENT EVENTS

~~During October 2014~~In accordance with ASC 855-10 Company management reviewed all material events through the ~~Company was notified by Companion Property & Casualty Insurance Company, who is a significant customer, that subject~~date of issuance and there are no material subsequent events to certain closing conditions including necessary governmental and regulatory approvals, it will be acquired by Enstar Group Limited (“Enstar”). Upon completion of the acquisition, it is anticipated that Enstar will take in-house all of the business Companion currently outsources to Medex. If the transaction closes and Companion terminates Medex’s services, the Company anticipates MBR fees and total revenues could be impacted beginning with the first fiscal quarter 2015. The loss of this customer could also impact the Company’s profitability and liquidity until such time as the Company is able to replace the revenue generated from this customer. During the nine-month period ended September 30, 2014 MBR fees generated from this customer represented approximately 67% of total MBR fees and 14% of total revenue. During the nine month period ended September 30, 2013 MBR fees generated from this customer represented approximately 58% of total MBR fees and 14% of total revenue.report.

Based on recent statutory changes made by the Division of Workers’ Compensation, the Company has reinstated its lien representation services through Medex Legal Services during the fourth quarter of 2014. There are two reasons for the Company’s decision: 1) Lien activation fees have been declared unconstitutional by California courts, so the number of significant lien filings is again increasing; 2) and in November the Company was engaged by a public sector employer to handle its lien representation services.

~~Item~~ Item 2. Management’s Discussion and Analysis of Financial ~~Condition~~Statements and Results of Operations

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on 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, trends, actions, intentions, plans, strategies and objectives. Without limiting the foregoing, words such as ~~“may,~~“may,” ~~“hope,~~“hope,” ~~“will,~~“will,” ~~“expect,~~“expect,” ~~“believe,~~“believe,” ~~“anticipate,~~“anticipate,” ~~“estimate,~~“estimate,” ~~“project”~~ “project” or ~~“continue”~~“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; merger and acquisition activities; legislative requirements or changes which could render our services less competitive or obsolete; our failure to successfully ~~retain new clients,~~ develop new services and/or products or to anticipate current or prospective customers’ needs; price increases or employee limitations; and completions, 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 Exchange Act) 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 Commission.

Throughout this quarterly report on Form 10-Q, unless the context indicates otherwise, the terms, “we,” “us,” “our” or “the Company” refer to Pacific Health Care Organization, Inc., (“PHCO”) and our wholly-owned subsidiaries Medex Healthcare, Inc. (“Medex”), Industrial Resolutions Coalition, Inc. (“IRC”), Medex Managed Care, Inc. (“MMC”), Medex Medical Management, Inc. (“MMM”) and Medex Legal Support, Inc., (“MLS”).

We are a specialty workers’ compensation managed care company providing a range of services for self-administered employers, insurers, third party administrators, municipalities and others. Our clients are primarily tolocated in the state of California, ~~employers and claims administrators. We~~although we have ~~one customer for whom we currently provide MBR services~~processed bill reviews in ~~thirteen~~13 other states ~~including California.~~from our customers as well. Workers’ compensation costs continue to increase due to rising medical costs, inflation, fraud and other factors. Medical and indemnity costs associated with workers’ compensation in the state of California are billions of dollars annually. Our focus goes beyond the medical cost of claims. Our goal is to reduce the entire cost of the claim, including medical, legal and administrative costs. ~~Through~~As noted above, through our ~~wholly-owned subsidiaries~~subsidiary companies we provide a range of effective workers’ compensation cost containment services, including but not limited to:

Health Care Organizations (“HCOs”)

Medical Provider Networks (“MPNs”)

Workers’ Compensation Carve-Outs

Utilization Review (“UR”)

Medical Bill Review (“MBR”)

Nurse Case Management (“NCM”)

Lien Representation Services

According to recent 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. It is the latter that our services impact.

As of 2014, California (with the highest claims costs in the nation per claim) costs for workers’ compensation claims are 188% above the median for all states, and 33% higher than the number two state, Connecticut. Medical costs per claim have risen since 2005 by $30,000 per claim. The use of the highly administered Company medical control tools listed above greatly diminishes costs for unnecessary and prolonged medical treatment. In addition, our network of specially selected and overseen providers are competent in returning the injured worker back to modified or full duty in the most expeditious manner, thus saving costs for temporary disability payments.

While the goal of services performed by the Company is to deliver the highest quality of timely medical care under state guidelines, we also focus on ensuring that the provision of such care significantly reduces the costs associated with payment for claims.

Health Care Organizations

HCOs are networks of health care professionals specializing in the treatment of workplace injuries and in back-to-work rehabilitation and training. HCOs were created to appeal to employees, while providing substantial savings to the employer clients. In most cases, the HCO program gives the employer client 180 days of medical control in a provider network within which the employer client has the ability to direct the claim. The injured worker may change physicians once, but may not leave the network. The increased length of time during which the employer has control over the claim is designed to decrease the incidence of fraudulent claims and disability awards and is also based upon the notion that if there is more control over medical treatment there will be more control over getting injured workers back on the job and therefore, more control over the cost of claims and workers’ compensation premiums.

Our subsidiary Medex holds two HCO licenses. Through these licenses we cover the entire state of California. We offer injured workers a choice of enrolling in an HCO with a network managed by primary care providers requiring referrals to specialists or a second HCO where injured workers do not need any prior authorization to be seen and treated by specialists.

Our two HCO networks have contracted with over 3,900 individual providers and clinics, as well as hospitals, pharmacies, rehabilitation centers and other ancillary services enabling our HCOs to provide comprehensive medical services throughout California. We are continually developing these networks based upon the nominations of new clients and the approvals of their claims administrators. Provider credentialing is performed by Medex.

HCO guidelines impose certain medical oversight, reporting, information delivery and usage fees upon HCOs. These requirements increase the administrative costs and obligations on HCOs as compared to MPNs, although the obligations and cost differentials are not currently as substantial as they were in the past.

Medical Provider Networks

Like an HCO, an MPN is a network of health care professionals, but MPN networks do not require the same level of medical expertise in treating work place injuries. Under an MPN program the employer client 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. Under the MPN program, however, for as long as the employee seeks treatment for his injury, he can only seek treatment from physicians within the MPN network.

The MPN program substantially allows medical control by the employer client for the life of the claim because the employee must stay within the MPN network for treatment. However, the employer client has full control of only the initial treatment before the employee can treat with anyone in the network. In addition, the MPN statute and regulations allow the injured worker to dispute treatment decisions, leading to second and third opinions, and then a review by an independent medical reviewer, whose decision can result in the employer client losing medical control.

Unlike HCOs, MPNs are not assessed annual fees and have no annual enrollment notice delivery requirements. As a result, there are fewer administrative costs associated with an MPN program, which allows MPNs to market their services at a lower cost than HCOs. For this reason, many clients opt to use the less complicated MPN even though the employer client has less control over employee claims.

As a licensed HCO and MPN, in addition to offering HCO and MPN programs, we are also able to offer our clients a combination of the HCO and MPN programs. Under this plan model an employer can enroll its employees in the HCO program, and then ~~close~~prior to the expiration of the 90-day 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. We believe that we are currently the only entity that offers both programs together in a combination program.

Workers’ Compensation Carve-outs

Through IRC we seek to create 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. The California legislature permits employers and employees to engage in collective bargaining over alternative systems to resolve disputes in the workers’ compensation context. These systems are called carve-outs because the employers and employees covered by such collective bargaining agreements are carved out from the state workers’ compensation system.

Utilization review includes utilization review or utilization management functions that prospectively, retrospectively, or concurrently review and approve, modify, delay, or deny, based in whole or in part on medical necessity to cure and relieve, treatment recommendations by physicians, prior to, retrospectively, or concurrently with the provision of such medical treatment services pursuant to California Workers’ Compensation law, or other jurisdictional statutes. Starting in March 2014, we began providing professional utilization review services for a third-party partner, in order to assist them with their increasing volume. We were able to assist the third-party partner to reduce their backlog. At this time we have no means to predict the quantity of overflow business we will continue to receive from this partner in the remaining months of 2014 and for the year 2015. There are no assurances that the overflow business to us will continue at the same level realized during the nine-month period ended September 30, 2014.

We provide UR to self-insured clients, insurance companies and public ~~entities.~~entities through MMC. UR helps to reduce costs for the ~~payer~~payor and determine if the recommended treatment is appropriate. MMC offers automated review services that can cut the overhead costs of our clients and increase payer savings. Our UR staff is experienced in the workers’ compensation industry and dedicated to providing a high standard of customer service.

Medical bill review refers to professional analysis of medical provider, services, or equipment billing to ascertain the proper reimbursement. Such services include, but are not limited to, coding review and rebundling, customary and reasonableness review, fee schedule analysis, out-of-network bill review, pharmacy review, PPO management, and repricing.

In connection with our MBR services, we provide bill review (cost containment) services to self-insured employers, insurance companies and the public sector to help reduce medical expenses paid by our ~~customers.~~customers through MMC. In providing these services we provide network savings on top of State Fee Schedule savings allowing top provider networks to achieve savings.

We offer our clients quick turnaround, state of the art software and the expertise of our bill review staff. We are committed to service and believe the reputation of our staff sets us apart from our competition.

Nurse Case Management

Nurse case management is a collaborative process that assesses plans, implements, coordinates, monitors and evaluates the options and services required to meet an injured worker’s health needs. Our nurse case managers use communication and available resources to promote quality, cost-effective outcomes with the goal of returning the injured worker to gainful employment and maximum medical improvement as soon as medically appropriate.

Our credentialed registered nurses have expertise in various clinical areas and extensive backgrounds in workers’ compensation. This combination allows our nurses the opportunity to facilitate medical treatment while understanding the nuances of workers’ compensation up to and including litigation. By providing these services through MMM, we contribute to effective delivery of medical treatment assuring the injured worker receives quality treatment in a timely and appropriate manner to return the worker to gainful employment.

We offer our HCO and MPN services through our wholly-owned subsidiary Medex. IRC participates in our Carve-Outs business. MMC oversees and manages our UR and MBR business and MMM oversees our NCM services.

Lien Representation ~~Fees~~

~~MLS~~We commenced offering lien representation services in February 2012, but significantly scaled ~~down its~~back our operations in January 2013 as a result of the ~~potential~~anticipated negative impact of California Senate Bill 863. Signed into law on August 31, 2012, Senate Bill 863 reactivated significant lien filing fees. Any lien filed after January 1, 2013 must be accompanied by an electronic filing fee to the Division of Workers’ Compensation of $150. Liens filed prior to January 1, 2013 must pay a $100 activation fee prior to any conference or trial. In addition, SB 863 createdfees and shortened statutes of ~~limitation~~limitations for ~~liens: three years for services performed prior to July 1, 2013, and 18 months for services subsequent to that date. From 2002 to 2004 the DWC instituted a $100~~ lien ~~filing fee.~~filings. The immediate result of ~~this fee reduced~~Senate Bill 863 was an approximately 40% reduction in the number of liens filed in ~~California by approximately 40%. This coupled with~~ the ~~restriction~~state of the new statutes of limitation, had led us to believe that this was an unprofitable market for us to pursue which resulted in our discontinuance of offering our lien representation services in January 2013.California.

Based on recent changes made by the ~~Division of Workers’ Compensation, MLS~~DWC, we reinstated ~~its~~our lien representation services through MLS during the fourth quarter of 2014. There ~~are~~were two reasons for this decision: 1) ~~Lien~~lien activation fees have been declared unconstitutional by California courts, so the number of significant lien filings is again increasing; 2) Inin November 2014 we were retained by a public sector employer to provide lien representation services. ~~MLS expects to retain~~We retained a lien ~~administrator~~defense unit manager and a hearing representative ~~starting~~ in ~~November 2014~~January 2015 with plans to expand ~~its~~our lien representation operations ~~in this business segment~~ during 2015.

Results of Operations

Comparison of the three months ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~

~~During~~Total revenues during the three-month period ended March 31, 2015 increased 17% to $2,369,098 compared to the three-month period ended March 31, 2014. Although total revenues increased by 17%, the total number of employee enrollees only increased by 13% during the three month period ended September 30, 2014 total revenues increased 62% to $2,752,516 compared to $1,703,570 for the three month period ended September 30, 2013. For the three month period ended September 30, 2014 UR, MBR, HCO, MPN and other revenues increased by 136%, 52%, 24%, 28% and 103%, respectivelyMarch 31, 2015 when compared to the same period in ~~2013 while NCM revenue was lower by 22%.~~

2014. As of ~~September 30, 2014~~March 31, 2015 we had approximately ~~638,000~~674,000 total ~~enrollees in our HCO and MPN programs.~~enrollees. Enrollment consisted of approximately ~~85,000~~82,000 HCO enrollees and ~~553,000~~592,000 MPN enrollees. By comparison as of ~~September 30, 2013~~March 31, 2014 we had approximately ~~548,000~~597,000 total enrollees, including approximately ~~79,000~~78,000 HCO enrollees and ~~469,000~~519,000 MPN enrollees. ~~Many of our~~The net increase during this period in HCO and MPN ~~clients also use~~enrollment of approximately 4,000 and 73,000, respectively, was primarily the ~~other~~result of existing major HCO and MPN customers increasing their enrollment together with the addition of new customers.

MPN, UR and Other revenues increased by 22%, 40% and 202%, respectively while HCO, MBR and NCM revenues decreased 4%, 22% and 4%, respectively during the first three months of fiscal 2015. Other revenues consisted of revenues derived primarily from network access and claims repricing services and lien representation fees. While we ~~offer, but~~realized growth in our total revenue during the three-month period ended March 31, 2015, for reasons discussed in this report there is no assurance that we ~~also have customers that don’t use our HCO or MPN services.~~will continue to realize comparable growth rates during the remainder of 2015.

Our business generally has a long sales cycle, typically in excess of one year. Once we have established a customer relationship, our revenue ~~particularly our HCO and MPN revenues~~ adjusts with the growth or retraction of our customers’ managed headcount volume. New customers are added throughout the year and other customers terminate from the program for a variety of reasons.

~~Businesses~~In the current economic environment, we anticipate businesses will continue to seek ways to further reduce their workers’ compensation program costs. Even though the HCO and MPN programs ~~and cost containment measures like UR, MBR and NCM services~~ have been shown to create a favorable return on investment for employers, (as our services are a significant component of the employers’ loss prevention programs), it ~~can be~~is always a challenge to justify our fees to our ~~customers.~~customers, especially in this economy. In order to convince employers that the fees they pay us are well-spent, we must continue to provide a framework for expeditiously returning employees back to work at the lowest cost. As a result, we may experience some client turnover in the form of existing employer clients seeking to terminate or renegotiate the scope and terms of existing services. ~~Our~~We also anticipate our market may ~~also~~ shrink as some employers seek to reduce their costs by managing their workers’ compensation care services in-house.

During the ~~past several years~~three months ended March 31, 2015 and 2014 HCO fee revenues were $248,640 and $259,484, respectively. While HCO enrollment increased 5% during the three-month period ended March 31, 2015, we ~~have seen~~realized a ~~trend~~decrease of ~~smaller businesses being acquired~~4% in revenue from HCO fees. The decrease in HCO revenue of $10,844 was the result of lower levels of HCO claims network fees and re-notification costs, partially offset by ~~larger companies that have their own managed medical care operations. In many cases this eliminates~~ the ~~need~~addition of three new customers.

MPN fee revenues for ~~outsourcing medical management services~~the three months ended March 31, 2015 and ~~results~~2014 were $308,118 and $253,429, respectively, an increase of 22%. During the same period MPN enrollment increased 14%. Revenue growth outpaced enrollment growth principally as a result of an increase in ~~reductions in~~revenues by one customer and the ~~size~~addition of ~~the market for our services.~~three new MPN customers.

During the three-month period ended ~~September 30, 2014~~March 31, 2015 UR revenues increased ~~by $784,408~~$288,435 to ~~$1,362,283~~$1,014,290 when compared to the same period a year earlier. ~~UR service revenue growth of 136% was the result of increased volume from existing customers coupled with an increase in overflow services on behalf of our third-party partner.~~ Starting in March 2014 we began providing overflow utilization review services to a ~~third party partner.~~third-party partner to assist them in reducing their backlog. During the three-month period ended ~~September 30,~~March 31, 2015 and 2014 ~~revenue from~~ these overflow ~~services~~revenue fees contributed ~~$632,136, or 81%, toward~~$55,955 and $3,040 respectively. This third party partner contributed $1,184,270 towards our overall UR revenues during the year 2014. As of February 28, 2015 we were notified by our third-party partner that their backlog overflow business was caught up. While they have not terminated their service agreement with us, we have received no overflow business from this third-party partner since that time. Currently we have no way to predict whether the third-party partner will build up a backlog in the future, and if it does, whether it will again retain us to help it work through any such backlog. During the first fiscal quarter 2015 existing customers, other than our third-party partner, accounted for $235,520 of the $288,435 total increase in UR revenues. ~~We were~~Unless we are able to ~~assist the third-party partner to reduce their backlog. At this time we have no means to predict the quantity of overflow business we will continue to receive from this customer in~~attract additional new customers over the remaining months of ~~2014 and for~~2015, or our third-party partner requires additional overflow services, we can give no assurance that UR revenues in 2015 will exceed the ~~year 2015. There are no assurances that the overflow business to us will continue at the same level~~levels realized during ~~the three-month period ended September 30,~~ 2014. Subsequent to the quarter end we were successful in signing up a new customer that we believe may help to at least partially offset a potential decrease in the overflow business from our third-party partner.

For the three month period ended September 30, 2014 MBR revenues increased by $181,088 to $526,341when compared to the same period a year earlier. MBR service revenues grew largely from the increase in demand from existing customers during the three month period ended September 30, 2014, including an increase in the number of hospital bills processed which typically has a higher average revenue value per bill.

As discussed in the Notes to our condensed consolidated financial statements, during October 2014 we were notified by Companion Property and Casualty Insurance (“Companion”), which is a significant customer, that subject to certain closing conditions including necessary governmental and regulatory approvals, it will be acquired by Enstar . Upon completion of the acquisition, it is anticipated that Enstar will take in-house all of the business Companion currently outsources to Medex. If the transaction closes and Companion terminates our services, we anticipate MBR fees and total revenues will be impacted beginning with the first fiscal quarter 2015. During the three-month period ended September 30, 2014 MBR fees generated from this customer were approximately $311,000, or 59% of MBR revenue.

During the quarter ended March 31, 2015 MBR revenues decreased $104,806 to $370,414 when compared to the same period a year earlier. During October 2014 Companion Property and Casualty Insurance Company (“Companion”), one of our significant customers, notified us that subject to certain closing conditions, including necessary governmental and regulatory approvals, it would be acquired by Enstar Group Limited (“Enstar”). Enstar announced the completion of this acquisition on January 27, 2015. We anticipate Enstar will take in-house all of the business Companion has been outsourcing to MMC. As a result of this transaction, we anticipate MBR fees and total revenues will be impacted beginning with the second quarter of 2015. During the three-month period ended March 31, 2015 and 2014 MBR fees generated from Companion were 57% and 71%, of total MBR revenues, respectively.

During the three months ended ~~September 30,~~March 31, 2015 and 2014 and 2013 HCO fee revenues were $260,069 and $210,039, respectively. HCO enrollment increased 8% during the quarter ended September 30, 2014 compared to a 24% increase in revenue from HCO fees when compared to the same period last year. The percentage increase in revenues outpaced the percentage increase in HCO enrollment by 16%, resulting primarily from an increase in the number of claim network fees received from existing customers and increases in enrollment and mailing costs billed to new customers.

MPN fee revenues for the three months ended September 30, 2014 were $285,415 compared to $223,625 for the three months ended September 30, 2013. During the quarter ended September 30, 2014 we realized an 18% increase in MPN enrollment from approximately 469,000 enrollees to approximately 553,000 enrollees while MPN revenues increased 28%, when compared to the three month period ended September 30, 2013. The higher MPN revenues were the result of increases in the numbers of claim administration fees processed from existing customers during the three months ended September 30, 2014 compared to the same period a year earlier.

~~During the three-month periods ended September 30, 2014 and 2013,~~ NCM revenues were ~~$242,376~~$244,472 and ~~309,272,~~$254,129 respectively. ~~The~~This decrease ~~in revenue~~ of ~~$66,896~~$9,657 was ~~primarily the~~a result of fewer ~~numbers of~~ claims filed by our ~~customers’ enrollees which reduced~~existing customers reducing the number of cases we processed during the ~~three-month period~~quarter ended ~~September 30, 2014 when compared~~March 31, 2015. We hope to reverse this downward trend over the ~~third quarter~~remaining months of ~~2013.~~2015 primarily by acquiring new customers and increased referrals from existing customers.

Other fees consist of revenues derived from ~~lien service and~~ network access and claims repricing ~~services. Revenues~~services provided by Medex and lien representation services provided by MLS. Other fee revenues for the three-month periods ended ~~September 30,~~March 31, 2015 and 2014 were $183,164 and ~~2013 were $76,032 and $37,505~~$60,552, respectively.

Network Access and Repricing Fees

Our network access and claims repricing fees are generated from ~~various~~certain customers who have access to our network and split with Medex the cost savings generated from their PPO. ~~Revenues for~~During the ~~three-month periods~~three months ended ~~September 30,~~March 31, 2015 and 2014 network access fee revenues generated were $158,105 and ~~2013 were $76,032 and $37,505~~$60,552, respectively. ~~The~~This increase of ~~$38,527~~$97,553 was primarily the result of one customer having higher savings realized from using our network. While we anticipate revenue from our network access and claims repricing services will grow in the future, at this time, we cannot accurately predict the rate at which this revenue stream might increase.

Lien Representation Fees

~~As discussed above,~~During the quarter ended March 31, 2015 we recorded lien representation fees totaling $25,059 compared to none during the same period a year earlier. MLS commenced offering lien representation services in February 2012, but scaled ~~down~~back its operations in January 2013 as a result of the potential negative impact of Senate Bill 863. Based on recent changes made by the ~~Division of Workers’ Compensation,~~DWC, MLS reinstated ~~the offering of~~ its lien representation services during the fourth quarter of 2014. There ~~are~~were two reasons for our decision: 1) ~~Lien~~lien activation fees have been declared unconstitutional by the California courts, so the number of significant lien filings is ~~again~~ increasing; 2) Inin November 2014 a public sector employer retained MLS to provide it lien representation services. MLS ~~expects to retain~~hired a lien ~~administrator~~defense manager and a ~~hearing representative starting~~lien defense administrator in ~~November 2014~~January 2015 with plans to further expand its lien representation service operations during remaining months of 2015. We anticipate revenue from our lien representation services will grow moderately in future periods.

Total expenses for the three months ended ~~September 30,~~March 31, 2015 and 2014 were $1,498,541 and ~~2013 were $1,801,040 and $1,141,278,~~$1,263,494 respectively. The increase of ~~$659,762~~$235,047 was the result of increases in depreciation, ~~bad debt provision,~~consulting fees, salaries and wages, professional fees, insurance, outsource service fees ~~data maintenance,~~ and general and administrative expense, partially offset by decreases in ~~consulting fees~~bad debt and ~~professional fees.~~data maintenance expense.

Bad Debt ~~Provision~~

During the three-month periods ending March 31, 2015 and 2014 we recorded a bad debt provision of $8,250 and $8,253, respectively, to cover potential uncollectible account receivables. At March 31, 2015 and December 31, 2014 our allowances for bad debt balances were $48,833 and $40,510, respectively.

During the three months ended ~~September 30, 2014 and 2013 we recorded bad debt expense of $15,851 and $10,000, respectively. The~~March 31, 2015 consulting fees increased to $90,190 from $75,899 during the three months ended March 31, 2014. This increase of ~~$5,851 in bad debt expense~~$14,291 was primarily ~~to cover potential uncollectible receivables from~~the result of increased IT consultant fees, an addition of a temporary administrative consultant in January 2015 who was terminated after one month of service and annual increases in consulting fees for two ~~customers who are no longer conducting business.~~consultants in January 2015.

During the three months ended September 30, 2014 consulting fees decreased to $76,790 from $81,871 during the three months ended September 30, 2013. This decrease of $5,081 was mainly due to the termination of an administrative consultant at the end of September 2013. ~~We expect increases in consulting fees starting the first quarter of 2015.~~

Salaries and wages increased ~~$181,696~~$98,984 or ~~35%~~17% to ~~$699,096~~$685,811 during the quarter ended March 31, 2015 compared to $586,827 during the three months ended ~~September 30, 2014 compared to $517,400 during the three months ended September 30, 2013.~~March 31, 2014. The increase in salaries and wages was ~~primarily~~ due to ~~hiring~~new hires and annual salary increases offset by terminations of employees. Since the end of the first fiscal quarter 2014 Medex has added three new employees ~~as follows:~~

~~Medex added, as new positions,~~and PHCO’s total employees increased by a ~~senior account executive~~net total of 2. To handle the spike in July 2013 and a client liaison administrator in January 2014. PHCO added an accounting clerk in May 2013, a controller in February 2014 who replaced the accounting manager and a quality assurance auditor in June 2014. MMC hired a director of workers’ compensation and managed care in August of 2013, an account manager in November 2013 and ademand for utilization review ~~administrator in March 2014. During April~~services, during the second half of 2014, MMC hired ~~four utilization review administrators, and in June 2014 hired seven temporary utilization review administrators and a senior bill review specialist partially offset by termination~~14 new employees, of those 14, six remain with MMC as of the ~~UR manager in May 2014~~date of this report. MMM replaced an employee and ~~an account manager in June 2014. The UR manager who was terminated in May 2014 was replaced June 2014.~~

MLS hired two new employees.

Professional Fees

For the three months ended ~~September 30, 2014~~March 31, 2015 we incurred professional fees of ~~$109,871~~$120,346, compared to ~~$131,157~~$105,612 during the three months ended ~~September 30, 2013.~~March 31, 2014. This ~~16% decrease~~14% increase in fees was primarily the result of ~~lower~~increased professional fees paid for field case management services and ~~directors’ fees partially offset by higher accounting and legal fees.~~an increase in the monthly retainer fee paid to our medical director.

During the ~~three months~~three-month period ended ~~September 30, 2014~~March 31, 2015 we incurred insurance expenses of ~~$82,155,~~$84,757, a ~~$13,297~~$16,109 increase over the prior year three-month period. The increase ~~in 2014~~ was ~~primarily due to premium increases for our employee~~mostly the result of increased group health, ~~medical coverage~~vision and dental insurance costs resulting from ~~the increase~~hiring new employees at PHCO, Medex, MMC and MMM and increases in our ~~total number of employees, together with premium increases primarily for our directors’ and officers’ liability and~~ workers’ compensation and network security liability insurance. We are currently reviewing our entire company insurance policies and do not expect a material increase ~~in insurance expenses~~ during the remainder of this fiscal year.

Outsource Service Fees

Outsource service fees consist of costs incurred in outsourcing UR and MBR services and certain NCM services. We do not, at this time, have enough volume to justify creating our own UR and MBR in-house staff. Instead, we utilize outside vendors to provide specific services for our clients, charging additional fees over and above those paid to our outside vendors for administration and coordination of UR, MBR and NCM services directly to the clients. Typically our outsource service fees increase and decrease in correspondence with the level of MBR and UR services, and some NCM services, we provide to our customers. In times when the level of MBR or UR services rendered increases, we typically experience higher outsource service fees, and when the level of services we render decreases, we typically experience lower outsource service fees. We incurred ~~$658,233~~$337,747 and ~~$202,960~~$264,568 in outsource service fees during the ~~three-months periods~~quarters ended ~~September 30,~~March 31, 2015 and 2014, ~~and 2013,~~ respectively. The increase of ~~$455,273~~$73,179 was largely the result of the increased number of UR outsource service fees resulting from the overflow from our third-party partner, ~~combined with~~and increased NCM outsource service fees, partially offset by lower MBR-related outsource service fees. With the loss of certain customers discussed above, we anticipate outsource service fees will be lower in future periods, although at this time it is difficult to project how much lower.

During the ~~three-month periods~~three months ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~ data maintenance fees were ~~$12,953~~$7,285 and ~~$9,355~~$19,171, respectively. The ~~increase~~decrease of $11,886 in data maintenance fees was primarily attributable to ~~increased levels~~lower data maintenance costs resulting from fewer numbers of ~~renewals from new and~~ existing customers ~~during~~sending out renewal notifications associated with HCO enrollees for the ~~quarter~~period ended ~~September 30, 2014 when compared to the same period a year earlier.~~March 31, 2015.

General and Administrative

General and administrative expenses increased 23% to ~~$133,449~~$151,369 during the three-month period ended ~~September 30, 2014.~~March 31, 2015. This increase of ~~$24,690~~$28,008 was primarily attributable to increases in ~~bad debt, equipment repairs, equipment rent~~charitable contribution expense, auto expense, dues and subscriptions, equipment repairs, IT expense, printing and reproduction, equipment rent, office ~~supplies, postage and delivery,~~ rent, ~~equipment, telephone expense,~~ travel and entertainment, ~~and~~ vacation ~~expense, partially offset by decreases in dues and subscriptions, IT expense, postage and delivery~~ expense and miscellaneous general ~~and administrative expenses.~~

~~Income from Operations~~

As a result of the $1,048,946 increase in total revenue during the three-month period ending September 30, 2014, which was partially offset by the $659,762 increase in total expenses during the three-month period ended September 30, 2014, our income from operations increased $389,184 or 69% during the three-month period ended September 30, 2014 when compared to the same period in 2013.

~~Income Tax Provision~~

Because we realized income before taxes of $951,218 during the three-month period ended September 30, 2014, compared to $561,744 during the three-month period September 30, 2013, we realized a $167,101, or 73%, increase in our income tax provision.

During the three months ended September 30, 2014 total revenues of $2,752,516 were higher by $1,048,946 when compared to the same period in 2013. This increase in total revenues was partially offset by increases in total expenses of $659,762 resulting in income from operations of $951,476 compared to income from operations of $562,292 during three months ended September 30, 2013. Although we realized a 69% increase in net income for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, for the reasons discussed herein, there is no assurance that net income will continue to grow at the same or a similar rate experienced during the third fiscal quarter 2014 for the remainder of fiscal 2014.

~~Comparison of the nine months ended September 30, 2014 and 2013~~

Total revenues increased 51% to $7,079,396 during the nine-month period ended September 30, 2014 from $4,680,288 for the same period a year earlier. Compared to the nine months ended September 30, 2013 UR, MBR, HCO, MPN, and other revenues for the nine months ended September 30, 2014 increased by 127%, 36%, 13%, 25% and 88%, respectively, while NCM revenue was lower by 8%. The net increase of $2,399,108 during the nine months ended September 30, 2014 was primarily the result of increased volume of UR services provided to a third party partner during the six months ended September 30, 2014 to help it eliminate its backlog, MBR fees, and HCO and MPN enrollment increases by existing customers and new customers. While we realized growth in our total revenues during the nine months ended September 30, 2014 for reasons discussed throughout this report there is no assurance that we will continue to realize comparable growth rates during the remainder of fiscal 2014.

During the nine months ended September 30, 2014 UR revenues increased $1,716,578 to $3,063,833 when compared to the same period a year earlier. UR service revenues grew from increased volume from existing customers and the increase in third-party overflow revenues. Starting in March 2014 we began providing overflow utilization review services to a third party partner. During the nine-month period ended September 30, 2014 these overflow revenue fees contributed $884,925, or 52%, toward the increase in UR revenues. We generated no revenue from such third-party partner services during the nine-month period ended September 30, 2013. We were able to assist the third-party partner to reduce their backlog. At this time we have no means to predict the quantity of overflow business we will continue to receive from this partner in the remaining months of 2014 and for the year 2015. There are no assurances that the overflow business to us will continue at the same level realized during the nine-month period ended September 30, 2014. Subsequent to the quarter end we were successful in signing up a new customer that we believe may help to at least partially offset a potential decrease in the overflow business from our third-party partner.

During the nine months ended September 30, 2014 MBR revenues increased by $384,005 to $1,444,524 when compared to the same period a year earlier. The growth in MBR service revenues of 36% resulted primarily from an increase in the number of bills processed from existing customers during the nine-month period ended September 30, 2014. During the nine months ended September 30, 2014, when compared with the comparable period in 2013, we also had an increase in the number of hospital bills processed which provides higher average revenues per bill reviewed.

As discussed in the Notes to our condensed consolidated financial statements, during October 2014 Companion, which is a significant customer, notified us that subject to certain closing conditions, including necessary governmental and regulatory approvals, it will be acquired by Enstar. Upon completion of the acquisition, it is anticipated that Enstar will take in-house all of the business Companion currently outsources to Medex. If the transaction closes and Companion terminates Medex’s services, we anticipate MBR fees and total revenues could be impacted beginning with the first fiscal quarter 2015. During the nine-month period ended September 30, 2014 MBR fees generated from this customer were approximately $948,000, or 66% of MBR revenue during the period.

During the nine-month periods ended September 30, 2014 and 2013 HCO fee revenues were $778,869 and $689,575, respectively. While HCO enrollment increased 8% during the nine months ended September 30, 2014, we realized a 13% increase in revenue from HCO fees. As noted above, the higher growth rate in HCO revenues compared to the growth in employee enrollment was primarily the result of an increase in claim network fees received from existing customers and increases in enrollment and mailing costs billed to new customers.

MPN fee revenues for the nine months ended September 30, 2014 and 2013 were $797,449 and $638,841, respectively, an increase of 25%. During the same period MPN enrollment increased 18%. Revenue growth outpaced enrollment growth principally as a result of increased volume of claims network fees generated from a number of existing clients and higher network administration fees billed to new and existing customers.

During the nine months ended September 30, 2014 and 2013 NCM revenues were $753,839 and $815,987, respectively. This decrease of $62,148 was result of fewer claims filed by our customers’ enrollees which reduced the number of cases we processed during the nine-month period ended September 30, 2014 when compared to the same period a year earlier. We hope to reverse the downward trend starting in the first quarter of 2015 primarily by acquiring new customers and increased referrals from existing customers

Other fees during the nine-month periods ended September 30, 2014 and 2013 consisted of revenues derived primarily from network access and claims repricing services and lien representation fees. Other fee revenues for these periods were $240,882 and $128,111, respectively.

~~Network Access and Repricing Fees~~

Our network access and claims repricing fees are generated from certain customers who have access to our network and who split with Medex the cost savings generated from their PPOs. During the nine month periods ended September 30, 2014 and 2013 network access and claims repricing fee revenues generated were $76,032 and $37,505, respectively. This increase of $38,527 was primarily the result of one customer realizing higher savings by using our network.

~~Lien Representation Fees~~

~~During the nine-month period ended September 30, 2014 MLS had no revenues. During the same period a year earlier MLS recorded $7,894 in lien service revenues.~~

As mentioned above, MLS commenced offering lien representation services in February 2012, but scaled down its operations in January 2013 as a result of the potential negative impact of Senate Bill 863. Based on recent changes made by the Division of Workers’ Compensation, MLS reinstated its lien representation services during the fourth quarter 2014. There are two reasons for our decision: 1) Lien activation fees have been declared unconstitutional by the California courts, so the number of significant lien filings is increasing; 2) In November 2014 a public sector employer retained MLS to provide it lien representation services. MLS expects to retain a lien administrator and a hearing representative starting in November 2014 with plans to further expand its lien representation service operations during 2015. We hope revenue generated from our lien representation services will help to at least partially offset the anticipated reduction in MBR fees.

Total expenses for the nine months ended September 30, 2014 and 2013 were $4,504,977 and $3,287,951, respectively. The increase of $1,217,026 was the result of increases in depreciation, bad debt provision, consulting fees, salaries and wages, professional fees, insurance, outsource service fees, data maintenance and general and administrative expense, partially offset by decreases in consulting fees.

~~Bad Debt Provision~~

During the nine months ended September 30, 2014 we recorded a bad debt provision totaling $24,991 to cover potential uncollectible receivables from several customers who were unable to reconcile their outstanding past due receivables with us and two customers who ceased conducting business. During the nine months ended September 30, 2013 our provision for bad debt was $10,000.

During the nine months ended September 30, 2014 consulting fees decreased to $229,010 from $267,125 during the nine months ended September 30, 2013. The decrease of $38,115 was due mainly to the termination of our lien consultant as of January 31, 2013 and an administrative consultant at the end of September 2013.

~~Salaries and Wages~~

Salaries and wages increased $330,844 or 21% to $1,878,041 during the nine months ended September 30, 2014 compared with the nine months ended September 30, 2013. The increase in salaries and wages was primarily due to hiring new employees as detailed above.

~~Professional Fees~~

For the nine months ended September 30, 2014 we incurred professional fees of $338,403 compared to $324,014 during the nine months ended September 30, 2013. This 4% increase in fees was primarily the result of increased fees paid accounting and legal fees partially offset by lower board of directors’ fees.

During the nine months ended September 30, 2014 we incurred insurance expenses of $225,035, an increase of $35,580 over the same nine-month period of 2013. The increase in 2014 was due to premium increases for our employee group health medical coverage resulting from the increase in our total number of employees and annual premium increases starting in May 2014 averaging 12% for our directors’ and officers’ liability insurance, and professional liability and workers’ compensation insurance. We do not expect a material increase in insurance expenses during the remainder of this fiscal year.

~~Outsource Service Fees~~

As discussed above, outsource service fees consist of costs incurred by our subsidiaries in outsourcing its UR, MBR and NCM services, and typically tend to increase and decrease in correspondence with increases and decreases in UR, MBR and NCM services. We incurred $1,324,248 and $511,374 in outsource service fees during the nine-month periods ended September 30, 2014 and 2013, respectively. The increase of $812,874 was largely the result of the increased number of UR and MBR reviews conducted by our outsource service providers, together with higher unit outsource fees charged by a new UR outsource service provider. We anticipate our outsource service fees will continue to move in correspondence with the level of UR, MBR and NCM services we provide in the future.

~~Data Maintenance~~

During the nine months ended September 30, 2014 we experienced an overall MPN and HCO employee enrollment increase of 17% when compared to the same period a year earlier. Data maintenance fees increased 16%, in line with the increase in employee enrollment, during the nine months ended September 30, 2014. The increase of $7,507 in data maintenance fees was primarily attributable to the increased level of renewals from new and existing customers.

~~General and Administrative~~

General and administrative expenses increased 10% to $396,156 during the nine months ended September 30, 2014 when compared to the same period in 2013. The increase in general and administrative expense was primarily attributable to increases in advertising, dues and subscription, telephone, travel and entertainment and other general and administrative expenses partially offset by decreases in ~~employment agency fees, equipment repairs, IT expense~~advertising, office supplies, postage and ~~license~~delivery and ~~permits.~~shareholder’ expense. Provided we continue to grow at our current rate, we expect current levels of general and administrative expenses to marginally increase during ~~the remainder~~fiscal year 2015.

Income from Operations

As a result of the ~~51%~~17% increase in total revenue during the ~~nine-month~~three-month period ~~ended September 30, 2014,~~ending March 31, 2015, which was only partially offset by ~~a 37%~~the 19% increase in total expenses during the ~~nine-month~~three-month period ended ~~September 30, 2014,~~March 31, 2015, our income from operations increased by ~~85%~~14% during the ~~nine-month~~three-month period ended ~~September 30, 2014~~March 31, 2015.

Income Tax Provision

~~Utah~~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~~(I.R.S. Employer I.D. No.)

1201 Dove Street, Suite 300
Newport Beach, California		92660
(Address of principal executive offices)		(Zip Code)

		Page

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements		3

	Balance Sheets as of ~~September 30, 2014~~March 31, 2015 (Unaudited) and December 31, ~~2013~~2014	3

	(Unaudited) Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~	4

	(Unaudited) Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		7

Item 3. Quantitative and Qualitative Disclosure about Market Risk		1916

Item 4. Controls and Procedures		1916

PART II — OTHER INFORMATION

Item 1A. Risk Factors		2017

Item ~~6. Exhibits~~2. Unregistered Sales of Equity Securities and Use of Proceeds		2017

Item 6. Exhibits		17

Signatures		2118

ASSETS								ASSETS
		September 30, 2014 (Unaudited)			December 31, 2013				March 31, 2015 (Unaudited)			December 31, 2014
ASSETS
Current Assets
Cash		$	2,579,435		$	1,265,535			$	3,216,827		$	2,946,025
Accounts receivable, net of allowance of $15,533 and $15,860			2,086,754			1,518,813
Accounts receivable, net of allowance of $48,833 and $40,510										2,027,750			1,868,181
Prepaid income tax										2,703			2,703
Deferred tax asset			41,513			41,513				77,059			77,059
Prepaid income taxes			-			6,568
Prepaid expenses			75,316			68,613				79,776			77,278
Total current assets			4,783,018			2,901,042				5,404,115			4,971,246

Property and equipment, net
Property and Equipment, net
Computer equipment			191,489			130,717				234,379			222,240
Furniture and fixtures			92,191			83,708				92,191			92,191
Office equipment			27,160			26,560				27,160			27,160
Office equipment under capital lease			63,923			63,923				38,380			63,923
Total property and equipment			374,763			304,908				392,110			405,514
Less: accumulated depreciation and amortization			(212,566	)		(177,158	)
Less: accumulated depreciation										(213,572	)		(226,329	)
Net property and equipment			162,197			127,750				178,538			179,185

Other assets			13,702			8,158
Other Assets										-			8,158
Total assets		$	4,958,917		$	3,036,950			$	5,582,653		$	5,158,589

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY							LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable		$	333,766		$	108,496			$	170,815		$	240,214
Accrued expenses			199,153			142,983				221,596			261,510
Income tax payable			155,739			2,618				11,534			9,348
Current obligation under capital lease			11,537			13,173
Current obligations under capital lease										4,701			8,151
Deferred rent expense			16,250			21,698				11,822			14,332
Unearned revenue										40,206			-
Total current liabilities			716,445			288,968				460,674			533,555

Long term liabilities
Noncurrent obligation under capital lease			-			8,151
Total liabilities			716,445			297,119

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
Common stock, $0.001 par value 50,000,000 shares authorized at March 31, 2015 and December 31, 2014; 802,424 shares issued, (800,136 outstanding net of treasury shares) and 802,424 shares issued, (800,396 outstanding net of treasury shares), respectively										800			800
Additional paid-in capital			623,629			623,629				623,631			623,631
Treasury stock at cost (2,288 shares and 2,028 shares at March 31, 2015 and December 31, 2014), respectively										(88,011	)		(76,715	)
Retained earnings			3,618,041			2,115,400				4,585,559			4,077,318
Total stockholders' equity			4,242,472			2,739,831				5,121,979			4,625,034
Total liabilities and stockholders’ equity		$	4,958,917		$	3,036,950			$	5,582,653		$	5,158,589

	For the nine months ended September 30,						For the three months ended March 31,
	2014 (unaudited)			2013 (unaudited)			2015 (unaudited)			2014 (unaudited)

Net cash provided by operating activities	$	1,393,542		$	470,823		$	297,687		$	485,203
Net cash used in investing activities		(69,855	)		(3,050	)		(12,139	)		(16,148	)
Net cash used in financing activities		(9,787	)		(14,338	)		(14,746	)		(3,202	)

Net increase in Cash	$	1,313,900		$	453,435
Net increase in cash							$	270,802		$	465,853

	Payments Due By Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating Leases:
Operating Leases – Equipment (1)	$	34,899	$	13,602	$	21,297	$	-	$	-
Office Leases (2)		209,001		147,126		61,875		-		-
Total Operating Leases	$	243,900	$	160,728	$	83,172	$	-	$	-

	Nine months ended September 30,
	2014			2013
Cash flows from operating activities:
Net income	$	1,502,641		$	825,470
Adjustments to reconcile net income to net cash:
Depreciation and amortization		35,408			32,623
Changes in operating assets and liabilities
(Decrease) in bad debt provision		(327	)		-
(Increase) in accounts receivable		(567,614	)		(192,665	)
Decrease in receivable – other		-			7,324
(Increase) in other assets		(5,544	)		-
(Increase) decrease in prepaid income tax		6,568			(597,922	)
(Increase) in prepaid expenses		(6,703	)		(94,867	)
Increase in accounts payable		225,270			4,193
Increase in accrued expenses		56,170			175,001
Increase in income tax payable		153,121			316,738
(Decrease) in deferred rent expense		(5,448	)		(2,629	)
(Decrease) in unearned revenue		-			(2,443	)
Net cash provided by operating activities		1,393,542			470,823

Cash flows from investing activities
Purchases of furniture and equipment		(69,855	)		(3,050	)
Net cash used by investing activities		(69,855	)		(3,050	)

Cash flows from financing activities
Payment of obligation under capital lease		(9,787	)		(14,338	)
Net cash used in financing activities		(9,787	)		(14,338	)
Increase in cash		1,313,900			453,435
Cash at beginning of period		1,265,535			479,674
Cash at end of period	$	2,579,435		$	933,109
Supplemental Cash Flow Information
Cash paid for:
Interest	$	959		$	2,980
Income taxes paid	$	911,134		$	846,502

	Three Months Ended March 31,
	2015			2014
Cash flows from operating activities:
Net income	$	508,241		$	446,561
Adjustments to reconcile net income to net cash:
Depreciation		12,786			11,155
Changes in operating assets & liabilities
Increase in bad debt provision		8,323			8,253
(Increase) in accounts receivable		(167,892	)		(178,671	)
Decrease in prepaid income tax		-			6,568
(Increase) decrease in prepaid expenses		(2,498	)		10,942
Decrease (increase) in other assets		8,158			(5,545	)
(Decrease) in accounts payable		(69,399	)		(17,715	)
(Decrease) in deferred rent expense		(2,510	)		(1,450	)
(Decrease) increase in accrued expenses		(39,914	)		71,437
Increase in income tax payable		2,186			133,668
Increase in unearned revenue		40,206			-
Net cash provided in operating activities		297,687			485,203

Cash flows from investing activities:
Purchase of furniture and office equipment		(12,139	)		(16,148	)
Net cash used in investing activities		(12,139	)		(16,148	)

Cash flows from financing activities:
Purchase of treasury stock		(11,296	)		-
Payment of obligation under capital lease		(3,450	)		(3,202	)
Net cash used in financing activities		(14,746	)		(3,202	)
Increase in cash		270,802			465,853

Cash at beginning of period		2,946,025			1,265,535
Cash at end of period	$	3,216,827		$	1,731,388

Supplemental cash flow information
Cash paid for:
Interest	$	131		$	383
Income taxes paid	$	360,000		$	178,000

Capitalized Leases:
Capitalized Equipment Leases (3)	$	11,937		$	11,937		$	-		-		-
Total Capitalized Equipment Leases	$	11,937		$	11,937		$	-		-		-
Less amounts representing interest		(400	)		(400	)		-		-		-
Total Principal	$	11,537		$	11,537		$	-	$	-	$	-

Capitalized Equipment Leases (3)	$	4,775		$	4,775		$	-	$	-	$	-
Total Capitalized Equipment Leases		4,775			4,775			-		-		-
Less amounts representing interest		(74	)		(74	)		-		-		-
Total Principal	$	4,701		$	4,701		$	-	$	-	$	-

Rent Period	Annual Rent Payments
Apr. 1 to Dec. 31, 2015	$	112,112
Jan. 1 to Feb. 29, 2016		24,914
Total	$	137,026

Rent Period	Annual Rent Payments
Oct. 1 to Dec. 31, 2014	$	36,301
Jan. 1 to Dec. 31, 2015		147,950
Jan. 1 to Feb. 29, 2016		24,750
Total	$	209,001

For the months	Total number of shares purchased		Average price paid per share(1)		Total number of shares purchased as part of publicly announced plans or programs(2)		Maximum dollar value of shares that may yet be purchased under the plans or programs(3)
January 1, 2015 to January 31, 2015		260	$	37.81		260	$	411,990
February 1, 2015 to February 28, 2015		-	$	-		-	$	-
March 1, 2015 to March 31, 2015		-	$	-		-	$	-
Total		260	$	37.81		260	$	411,990

	Exhibit Number		Title of Document

	Exhibit 31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	Exhibit 31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	Exhibit 32.1		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	Exhibit 101		The following materials from Pacific Health Care Organization, Inc.’s Quarterly Report on Form 10-Q for the period ended ~~September 30, 2014~~March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, ~~as of September 30, 2014 and December 31, 2013,~~ (ii) the Condensed Consolidated Statements of Operations, ~~for the three and nine months ended September 30, 2014 and 2013,~~ (iii) the Condensed Consolidated Statements of Cash Flows, ~~for the nine months ended September 30, 2014 and 2013,~~ and (iv) Notes to the Condensed Consolidated Financial Statements.

		PACIFIC HEALTH CARE ORGANIZATION, INC.


Date:	~~November 12, 2014~~May 13, 2015	/s/ Tom Kubota
		Tom Kubota Chief Executive Officer


Date:	~~November 12, 2014~~May 13, 2015	/s/ Fred Odaka
		Fred Odaka Chief Financial Officer