UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2015~~March 31, 2016

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

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for any shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate ~~Web~~web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)

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☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

PA~~CIFIC~~PACIFIC HEALTH CARE ORGANIZATION, INC.

~~Ite~~mItem 1. Financial ~~Statements~~Information

Condensed Consolidated Balance Sheets

Accounts receivable, net of allowance of $67,260 and $40,510

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

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current obligations under capital lease

Deferred rent expense

Total current liabilities

Commitments and Contingencies

Shareholders’ Equity

Preferred stock; 5,000,000 shares authorized at $0.001 par value;

zero shares issued and outstanding

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

September 30, 2015 and December 31, 2014; 802,424 shares issued,

(794,072 outstanding net of treasury shares) and 802,424 shares issued,

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

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

March 31, 2016 and December 31, 2015; 802,424 shares issued,

800,000 outstanding net of treasury shares

Additional paid-in capital

Treasury stock at cost (8,269 shares and 2,028 shares at September 30, 2015 and

December 31, 2014), respectively

Treasury stock at cost (8,269 shares outstanding at March 31, 2016

and December 31, 2015)

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

Condensed Consolidated Statements of Operations

For three months ended
September 30,

For nine months ended
September 30,

2015 2014 2015 2014

Revenues:
UR fees

$
1,027,893

$
1,362,283

$
3,004,023

$
3,063,833

MBR fees

201,903

526,341

855,089

1,444,524

HCO fees

273,089

260,069

920,789

778,869

MPN fees

224,128

285,415

779,941

797,449

NCM fees

216,216

242,376

695,755

753,839

Other

126,352

76,032

444,187

240,882

Total revenues

2,069,581

2,752,516

6,699,784

7,079,396

Expenses:

Depreciation and amortization

16,011

12,642

44,686

35,408

Bad debt provision

9,750

15,851

26,677

24,991

Consulting fees

90,063

76,790

268,588

229,010

Salaries and wages

555,666

699,096

1,874,572

1,878,041

Professional fees

99,418

109,871

315,357

338,403

Insurance

83,283

82,155

256,265

225,035

Outsource service fees

295,507

658,233

963,059

1,324,248

Data maintenance

11,819

12,953

120,413

53,685

General and administrative

139,035

133,449

436,644

396,156

Total expenses

1,300,552

1,801,040

4,306,261

4,504,977

Income from operations

769,029

951,476

2,393,523

2,574,419

Other expense

Interest expense

(6
)
(258
)
(201
)

(956
)
Total other expense

(6
)
(258
)
(201
)

(956
)

Income before taxes

769,023

951,218

2,393,322

2,573,463

Income tax provision

319,992

395,803

996,949

1,070,822

Net income

$
449,031

$
555,415

$
1,396,373

$
1,502,641

Basic and fully diluted earnings per share:

Earnings per share amount

$
.57

$
.69

$
1.76

$
1.87

Weighted average common shares outstanding

794,072

802,424

794,072

802,424

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

Condensed Consolidated Statements of Cash Flows

Nine months ended
September 30,

2015 2014
Cash flows from operating activities:
Net income

$
1,396,373

$
1,502,641

Adjustments to reconcile net income to net cash:

Depreciation and amortization

44,686

35,408

Changes in operating assets and liabilities

Increase (decrease) in bad debt provision

26,750

(327
)
Decrease (increase) in accounts receivable

333,263

(567,614
)
(Increase) in other assets

(18,630
)

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

(237,656
)
6,568

(Increase) in prepaid expenses

(10,900
)

(6,703
)
(Decrease) increase in accounts payable

(106,289
)

225,270

Increase in accrued expenses

20,967

56,170

(Decrease) increase in income tax payable

(4,481
)

153,121

(Decrease) in deferred rent expense

(14,074
)

(5,448
)
Increase in unearned revenue

40,904

-

Net cash provided by operating activities

1,470,913

1,393,542

Cash flows used in investing activities

Purchases of computers, furniture and equipment

(91,135
)

(69,855
)
Net cash used by investing activities

(91,135
)

(69,855
)

Cash flows used in financing activities

Purchase of treasury stock

(177,342
)

-

Issuance of cash dividend

(859,170
)

-

Payment of obligation under capital lease

(8,151
)

(9,787
)
Net cash used in financing activities

(1,044,663
)

(9,787
)
Increase in cash

335,115

1,313,900

Cash at beginning of period

2,946,025

1,265,535

Cash at end of period

$
3,281,140

$
2,579,435

Supplemental Cash Flow Information

Cash paid for:

Interest

$
205

$
959

Income taxes paid

$
1,239,086

$
911,134

Non-cash financing and investing activities:

Dividend payable

$
133,420

$
-

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

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

For the ~~Nine~~Three Months Ended ~~September 30, 2014~~March 31, 2016

NOTE 1 –- BASIS OF FINANCIAL STATEMENT PRESENTATION

Basis of Accounting— The Company uses the accrual method of accounting.

~~NOTE 2 – SHAREHOLDERS’ EQUITY~~

On September 4, 2015, our board of directors declared a special one-time cash dividend of $1.25 per share payable to the record holders of our common stock on September 14, 2015. On September 14, 2015, excluding treasury shares, we had 794,072 shares of common stock issued and outstanding. The payment date of the dividend was September 24, 2015. As of September 30, 2015, the amount paid from the dividend was $859,170 with $133,420 payable. This payable has been accrued and included in dividend payable on the balance sheet.

NOTE ~~3 –~~2 - SUBSEQUENT EVENTS

~~Ite~~mItem 2. Management’s Discussion and Analysis of Financial Statements and Results of Operations

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on our management’s beliefs and assumptions and on information currently available to ~~our management.~~them. For this purpose any statement contained in this report that is not a statement of historical fact may be deemed to be forward-looking, including statements about our revenue, spending, cash flow, products, new customer acquisitions, trends, ~~expectations,~~ actions, intentions, plans, strategies and objectives. Without limiting the foregoing, words such as “may,” “hope,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “project” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainty, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industry in which we and our customers participate; competition within our industry, including competition from much larger competitors; merger and acquisition activities; legislative requirements or changes which could render our services less competitive or obsolete; our failure to successfully develop new customers, 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 condensed consolidated financial statements and the related notes contained elsewhere in this report and in our other filings with the Commission.

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

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 located in the state of California, although we have processed bill reviews in 1331 other states from our ~~customers as well.~~customers. 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 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. As noted above, through our 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”)

HCO + MPN

Workers’ Compensation Carve-Outs

Utilization Review (“UR”)

Medical Bill Review (“MBR”)

Nurse Case Management (“NCM”)

Lien Representation Services

·	Medicare Set Aside (“MSA”)

·	Legal Support 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 the end of December 31, 2014, according to the Workers’ Compensation Insurance Rating Bureau of California, California (with the highest claims costs in the nation per claim) reported costs for workers’ compensation claims ~~are~~that were in excess of 188% above the median for all ~~states, and 33% higher than the number two state, Connecticut.~~states. Medical costs per claim have risen since 2005 by nearly $30,000 per claim. SB 863, which was an attempt to reduce costs in California, has had little demonstrated results. The use of ~~the~~our highly administered ~~Company~~ medical ~~cost~~ control tools listed above can greatly ~~diminishes~~diminish costs for unnecessary and prolonged medical treatment. In addition, our network of specially selected and overseen providers are competent in returning injured workers 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~~approximately 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.

~~Under~~The MPN program substantially allows medical control by the ~~MPN program~~employer client for the life of the claim because the employee must stay within the MPN network for treatment. ~~The~~However, the employer client has full control ~~over~~of only the initial treatment before the employee can treat with anyone in the network. ~~Because~~In addition, the ~~employee must stay within the network, this provides the employer client some control. The~~ MPN statute and regulations ~~does~~ allow the injured ~~workers~~worker to dispute treatment decisions, leading to second and third opinions, and ~~also provides for~~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 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.

We provide UR to self-insured clients, insurance companies and public 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 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.

~~Lien Representation~~Network Access and Repricing Fees

~~We reinstated~~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.

Through MLS we offer our customers comprehensive lien representation services ~~through~~from negotiation to litigation, including filing petitions for reconsideration. Our lien representation services offer high potential savings for our clients.

Legal Support Services

In February 2016, MLS ~~during~~began recording legal support service revenues consisting of fees charged to our customers for our legal representation at the ~~fourth quarter~~Workers Compensation Appeals Board (“WCAB”). The fees include reimbursement of ~~2014. There were two reasons~~attorneys’ fees, travel and lodging expenses.

In December 2015, MLS commenced offering Medicare Set Aside services for ~~this decision: 1) in 2014 lien activation fees were declared unconstitutional by California courts, as~~Workers’ Compensation claims which is a ~~result~~financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the ~~number~~worker related injury, illness, or disease. The purpose of ~~significant lien filings are increasing; 2) in November 2014 we were retained by a public sector employer~~the MSA arrangement is to provide ~~lien representation services. We retained a lien defense unit manager~~funds to the injured party to pay for future medical expenses that would otherwise be covered by Medicare. This program affords our clients an effective way to overcome complications after settlement and ~~a hearing representative in January 2015 with plans~~avoids unnecessary costs attached to expand our lien representation operations during 2015. During September 2015, our lien defense unit manager and lien defense administrator resigned. The vacant positions were filled in October 2015 by two existing personnel within the ~~Company.~~claim. .

Results of Operations

Comparison of the three months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~

~~During~~Total revenues during the three-month period ended ~~September 30, 2015 total revenues~~March 31, 2016, decreased ~~25%~~45% to ~~$2,069,581~~$1,309,161 compared to ~~$2,752,516 for the three-month period ended September 30, 2014. For~~ the three-month period ended ~~September 30, 2015 UR, MBR, MPN and NCM~~March 31, 2015. Total revenues decreased by ~~25%, 61%, 21%,~~45% and ~~11%~~the total number of employee enrollees decreased by 48% during the three-month period ended March 31, 2016, ~~respectively,~~ when compared to the same period in ~~2014 while HCO and Other revenues were higher by 5% and 66%, respectively.~~

2015. As of ~~September 30, 2015~~March 31, 2016 we had approximately ~~453,000~~352,000 total ~~enrollees in our HCO and MPN programs.~~enrollees. Enrollment consisted of approximately ~~142,000~~169,000 HCO enrollees and ~~311,000~~183,000 MPN enrollees. By comparison as of ~~September 30, 2014~~March 31, 2015, we had approximately ~~638,000~~674,000 total enrollees, including approximately ~~85,000~~82,000 HCO enrollees and ~~553,000~~592,000 MPN enrollees. ~~Many of our HCO and MPN clients also use the other services we offer, but we also have customers that don’t use our HCO or MPN services.~~

The net increase during 2016 in HCO employee enrollment of approximately 87,000 when compared to the previous year was primarily the result of several existing HCO customers increasing their enrollment and the addition of one new HCO customer. MPN employee enrollment decreased by approximately 409,000 enrollees, approximately 69%, resulting primarily from the loss of a major MPN customer.

Compared to the same period in 2015, HCO and NCM revenues increased by 59% and 18%, respectively while MPN, UR, MBR, and other revenues decreased 54%, 84%, 45% and 39%, respectively. While we realized a 45% decrease in our total revenue during the three-month period ended March 31, 2016, the loss of revenue during 2015 resulting from the termination of Amtrust North America (“Amtrust”), Companion Property and Casualty Insurance Co. (“Companion”) and a major MPN customer will continue to have significant negative impact on our revenue during 2016 and until we are able to replace the revenue generated from these customers. Unless we are able to attract additional new customers during 2016, we anticipate revenues will be considerably lower throughout 2016 compared to 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.

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 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 is always a challenge to justify our fees to our ~~customers.~~ customers. 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~~have experienced and expect to continue to experience ~~some~~ client turnover in the form of existing employer clients seeking to terminate or renegotiate the scope and terms of existing services. We also anticipate our market may shrink as some employers seek to reduce their costs by managing their workers’ compensation care services in-house.

During the ~~three-month~~three-month periods ended March 31, 2016 and 2015, HCO fee revenues were $395,081 and $248,640, respectively. While HCO enrollment increased 106% during the three-month period ended ~~September 30,~~March 31, 2016, we realized an increase of 59% in revenue from HCO fees. The increase in HCO revenue of $146,441 was primarily attributable to revenues derived from initial notification fees and mailing fees from a new HCO customer.

MPN fee revenues for the three-month periods ended March 31, 2016 and 2015 were $141,358 and $308,118, respectively, a decrease of 54%. During the same period, employee enrollment decreased by 69%. The reduction in revenues and employee enrollment resulted primarily from the termination of a major MPN customer which was partially offset by the addition of four new customers in the third quarter of 2015.

During the three-month period ended March 31, 2016, UR revenues decreased ~~by $334,390~~$847,324 to ~~$1,027,893~~$166,966 when compared to the same period a year earlier. Commencing in March 2014 we began providing overflow utilization review services to a third-party partner to assist them in reducing their backlog. This third-party partner contributed $1,184,270 towards our overall UR revenuesAs discussed above, during the ~~2014 fiscal year. On February 28,~~fourth quarter 2015, AmTrust, our largest customer, terminated the services 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.providing to them. During the three-month period ended ~~September 30, 2014~~March 31, 2016, we recorded ~~$632,130~~zero revenues from our former customers, AmTrust, Prime, and Companion, compared to $686,950, $55,955 and $33,675, respectively, during the same period in 2015. Also contributing to the lower UR revenues was the reduction in the number of ~~this overflow revenue. We recorded $0 overflow revenue from this third-party partner~~bills submitted for review by one of our existing customers during the three-month period ended ~~September 30,~~2016 when compared to the same period in 2015. ~~Currently~~We anticipate the lower levels of bills from this customer to continue, however we ~~have no way~~expect billings from other existing customers 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.~~

~~Excluding UR fees generated from our third-party partner,~~increase during the ~~three months ended September 30, 2015 and 2014 we generated $1,027,893 and $730,153~~remainder of UR fee revenue, respectively. This increase of $297,740 was a result of AmTrust increasing its UR volume, which was partially offset by fewer numbers of UR bills submitted by several of our other customers.

~~As discussed in~~2016. We foresee the ~~notes to our condensed consolidated financial statements, in a letter dated~~ ~~October 23, 2015, AmTrust, our largest customer, notified us that it will be terminating the services we provide them effective 60 days from the date of the letter. The~~ loss of ~~this customer~~AmTrust, Prime and ~~our third-party partner~~Companion will have a significant negative impact on ~~our~~UR fees, revenue, profitability and liquidity during 2016, and until such time as we are able to replace the revenue generated from these customers. With the impending loss of AmTrust business in December 2015, we anticipate UR fees and total revenues will be significantly impacted as early as our fourth fiscal quarter of 2015 and throughout 2016. During the three-month periods ended September 30, 2015 and 2014 UR fees generated from AmTrust were approximately $794,235 and $440,225, respectively.

~~For~~During the three ~~months~~-month period ended ~~September 30, 2015~~March 31, 2016, MBR revenues decreased ~~by $324,438~~$165,442 to ~~$201,903~~$204,972 when compared to the same period a year earlier. As previously reported, in 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 announcedThis was largely the completion of this acquisition on January 27, 2015. We anticipated Enstar would take in-house all of the business Companion had been outsourcing to MMC. Effective June 1, 2015, Companion ceased using our MBR services. As a result of this transaction, we had no MBR fee revenues from Companion during the three-month period ended September 30, 2015. For the same period in 2014 we recorded MBR revenues totaling $311,249 from Companion. As a result of the loss of Companion as a customer in June 2015, partially offset by increases from existing customers. With the loss of Companion, we anticipate MBR fees will be significantly lower throughout 2016. We recorded no revenues from Companion during the ~~remainder of fiscal 2015~~three-month period ended March 31, 2016, compared to ~~fiscal 2014. While the loss~~revenues of Companion will have a significant negative impact on total MBR fee revenue in 2015, setting aside the loss of Companion as a customer, MBR fees from our other MBR customers have decreased by approximately 6%$214,319 during ~~the three months ended September 30, 2015 when compared to~~ the same period in ~~2014.~~2015. We have and will continue ~~our efforts to expand sales to existing MBR customers and to attract new MBR customer in~~ our efforts to, at least partially, replace the lost MBR revenue from Companion.

~~HCO employee enrollment was 67% higher during~~During the three months ended ~~September 30,~~March 31, 2016 and 2015, ~~compared~~NCM revenues were $288,736 and $244,472, respectively. The increase in NCM revenues of $44,264 was primarily attributed to ~~the same period 2014, while HCO~~adding three new customers and increases from existing customer resulting in increases in NCM fees ~~increased 5%~~of $32,869 and $11,395, respectively. We expect NCM fees to ~~$273,089. HCO employee enrollment fluctuates throughout the year. As new employees are enrolled or existing employees are renewed, we generate HCO annual notification fees. During~~moderately increase in the second quarter 2015, one existing customer increased its employee enrollment by approximately 71%, which is the principal reason for the higher HCO employee enrollment during the three months ended September 30, 2015. The annual notification fees were earned in second fiscal quarter 2015. Therefore, increases and decreases in HCO employee enrollment may not directly correspond to increases and total HCO fee revenue.

MPN fee revenue for the three months ended September 30, 2015 was $224,128 compared to $285,415 for the three months ended September 30, 2014, a decrease of $61,287. The decline in MPN revenues of 22% resulted mainly from the loss of one of our major MPN customer in July 2015. The loss of this customer impacted our MPN revenues by approximately $132,978 during our 2015 third quarter when compared to the same quarter in 2014. This decrease of $132,978 was partially offset by increases of approximately $71,691 in MPN revenues from new and existing customers which resulted in the net decrease of $61,287. Correspondingly, for the three months ended September 30, 20152016, when compared to the same period in ~~2014, MPN enrollment decreased by approximately 242,000 to 311,000,~~2015, resulting ~~primarily~~ from the ~~loss~~addition of ~~this customer.~~new customers and increased volume from existing customers.

~~As discussed in this report,~~ AmTrust, will cease using our MPN services in December 2015. During the three months ended September 30, 2015 and 2014 AmTrust contributed $30,345 and $17,400 in MPN fee revenues, respectively. MPN enrollment will be negatively impacted by approximately 106,000 enrollees with the pending loss of AmTrust. With the loss of AmTrust, we expect MPN revenues to be lower beginning as early as the fourth quarter of fiscal 2015 and throughout 2016 unless we are able to add new customers.

During the three-month periods ended September 30, 2015 and 2014, NCM revenues were $216,216 and $242,376, respectively. The decrease in revenue of $26,160 was primarily the result of fewer numbers of claims filed by our customers’ enrollees which reduced the number of cases we processed during the three-month period ended September 30, 2015. During the three-month period ended September 30, 2015 and 2014 NCM fees generated from AmTrust were minimal, so we do not anticipate the loss of the AmTrust business to have a significant impact on NCM fee revenue in future periods.

Other fees consist of revenues derived from ~~lien service and~~ network access and claims repricing, ~~services. Revenues~~legal support services, lien representation services, MSA services and worker’s compensation carve-outs provided by Medex, MLS and IRC. Other fee revenues for the ~~three-month~~three-month periods ended ~~September 30,~~March 31, 2016 and 2015 were $112,048 and ~~2014 were $126,352 and $76,032~~$183,164, respectively. The decrease of $71,116 was primarily the result of decreased network access fees from one customer having lower savings realized from using our PPO network. We expect this downward trend to continue for the remainder of 2016.

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~~three month periods ended ~~September 30,~~March 31, 2016 and 2015 network access fee revenues generated were $87,060 and ~~2014 were $119,474 and $76,032~~$158,105, respectively. ~~The increase~~This decrease of ~~$43,442~~$71,044 was primarily the result of one customer ~~having higher savings realized from using~~phasing out the use of our PPO network. As mentioned above we expect this downward trend to continue for the remaining months of 2016.

Legal Support Services

In February 2016, MLS began recording legal support service revenues consisting of fees charged to our customers for representation at the Workers Compensation Appeals Board (“WCAB”). The fees include reimbursement of expert witness fees, travel, lodging and other miscellaneous expenses incurred in behalf of our customers. During the three-month period ended March 31, 2016, legal support service revenues were $3,403.

Lien Representation Fees

During the ~~quarter~~three-month period ended ~~September 30, 2015~~March 31, 2016, we recorded lien representation fees totaling ~~$6,878~~$3,155 compared to ~~none~~$25,059 during the same period a year earlier. MLS ~~commenced offering~~hired a lien ~~representation services in February 2012, but scaled back its operations~~defense manager and a lien defense administrator in January 2013 as a result of the potential negative impact of Senate Bill 863. Based on changes made by the DWC, MLS reinstated its lien representation services during the fourth quarter 2014. There were 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. At this time there is no assurance that lien representation fees will continue to grow at rates currently being realized.2015. The lien manager and lien administrative assistant resigned in September 2015, and were replaced by transferring personnel from MMC. The decrease of $21,904 was primarily the result of the reduction of active lien cases from one major customer. We do not anticipate the lien representation fees to increase during the remaining months of 2016 unless we are able to acquire new customers and our existing customers increase their volume of new lien cases.

In December 2015, MLS commenced offering Medicare Set Aside services for workers’ compensation claims which is a financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the worker related injury, illness, or disease. The purpose of the MSA arrangement is to provide funds to the injured party to pay for future medical expenses that would otherwise be covered by Medicare. This program affords our clients an effective way to overcome complications after settlement and avoids unnecessary costs attached to the claim. During the three months ended March 31, 2016, we recorded MSA revenues totaling $11,800. We recorded no MSA revenue during the first fiscal quarter 2015. Unless we are able to attract new customers during the remaining months of 2016 we expect revenues to remain constant for the rest of fiscal 2016.

Workers’ Compensation Carve-outs

In November 2015, through IRC we commenced creating legal agreements for the implementation of Workers’ Compensation Carve-Outs for California employers with collective bargaining units and the administration of such programs within the statutory and regulatory requirements. 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. During the three months ended March 31, 2016 we recorded in IRC carve-outs revenues totaling $6,630. We recorded no IRC Carve-outs revenue during the three months ended March 31, 2015. Until we are able to complete future negotiations with our targeted unions and add additional personnel and resources, we do not expect carve-outs revenues to increase over the remaining months of fiscal 2016.

Total expenses for the three months ended ~~September 30,~~March 31, 2016 and 2015, were $1,144,534 and ~~2014 were $1,300,552 and $1,801,040,~~$1,498,541, respectively. The decrease of ~~$500,488~~$354,007 was the result of decreases in bad debt, ~~provision,~~ salaries and wages, professional fees, insurance, outsource service fees and ~~data maintenance~~general and administrative expense, partially offset by increases in depreciation, consulting fees ~~insurance~~ and ~~general and administrative.~~data maintenance expense.

Bad Debt ~~Provision~~

During the three-month periods ended March 31, 2016 and 2015, we recorded bad debt provisions of $4,500 and $8,250, respectively, to cover potential uncollectible account receivables. At March 31, 2016 and December 31, 2015, our allowances for bad debt balances were $59,500 and $55,000, respectively.

During the three months ended ~~September 30, 2015 and 2014 we recorded bad debt expense of $9,750 and $15,851, respectively. The decrease of $6,101 in bad debt expense was the result of lower uncollectible receivables.~~

March 31, 2016~~Table of Contents~~,

~~During the three months ended September 30, 2015~~ consulting fees increased to ~~$90,063~~$101,532 from ~~$76,790~~$90,190 during the three months ended ~~September 30, 2014.~~March 31, 2015. This increase of ~~$13,273~~$11,342 was primarily the result of ~~increased IT fees and increases~~hiring a consultant with the title of director of healthcare in ~~other consulting fees.~~December 2015. In March 2016, this position was changed from a consultant to an employee. Currently, we have no plans to hire additional consultants for the remaining months in 2016.

Salaries and wages decreased ~~$143,430~~$110,700 or ~~21%~~16% to ~~$555,666~~$575,111 during the ~~quarter~~three months ended ~~September 30, 2015~~March 31, 2016, compared to ~~$699,096~~$685,811 during the ~~quarter~~three months ended ~~September 30, 2014.~~March 31, 2015. The decrease in salaries and wages was due to terminations partially offset by new hires and salary increases. In June 2015, the director of managed care and workers compensation of MMC resigned. Medex hired a vice president of operations in August 2015. ~~In June 2015 the operational manager of MMC resigned. We~~Medex terminated an HCO manager and a marketing coordinator in August 2015. ~~During the second half of 2014, to handle the spike in demand for utilization review services, MMC hired 14 new employees, of those 14, 2 remain with MMC as of the date of this report.~~ Additionally, MLS terminated two employees in September ~~2015.~~2015, and these vacant positions were filled in October 2015, by two existing personnel within the Company. The Company employed 3536 and 4840 full-time ~~employee~~employees as of ~~September 30,~~March 31, 2016 and 2015, ~~and 2014.~~respectively.

For the three months ended ~~September 30, 2015~~March 31, 2016, we incurred professional fees of ~~$99,418~~$70,492, compared to ~~$109,871~~$120,346 during the three months ended ~~September 30, 2014. This 10%~~March 31, 2015. The $49,854 decrease in professional fees was primarily the result of lower ~~professional~~ fees paid by MMM for field case management services ~~which was~~resulting from reduced levels of field cases, partially offset by higher legal fees. We expect professional fees to remain at the current levels for the remainder of fiscal 2016.

During the three months ended ~~September 30, 2015~~March 31, 2016, we incurred insurance expenses of ~~$83,283,~~$78,304 a ~~$1,128 increase~~$6,453 decrease over the prior year three-month ~~period ended September 30, 2014.~~period. The ~~increase~~decrease in insurance expense was ~~the result of increased~~primarily caused by lower group health ~~vision~~insurance premiums resulting from the decrease in salaries and ~~dental~~wages when compared to the same period a year earlier. We are currently reviewing our entire company insurance ~~costs. We~~policies and do not expect a material increase or decrease 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 ~~$295,507~~$86,228 and ~~$658,233~~$337,747 in outsource service fees during the three ~~months~~-month periods ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014,~~ respectively. The decrease of $362,726 was mainly the result of the decrease in outsourced UR work from the overflow business from our third-party partner and the loss of Companion in June 2015. We anticipate an additional significant decrease in outsource service fees in 2016 as a result of the loss of AmTrust business starting in December 2015.

~~Data Maintenance~~

During the three-month periods ended September 30, 2015 and 2014 data maintenance fees were $11,819 and $12,953 respectively. The decrease in data maintenance fees was primarily attributable to decreased levels of renewals from existing customers during the quarter ended September 30, 2015 when compared to the same period a year earlier.

~~General and Administrative~~

General and administrative expenses increased 4% to $139,035 during the three-month period ended September 30, 2015. This increase of $5,586,was primarily attributable to increases in advertising, dues and subscriptions, IT enhancement, moving expense, shareholders’ expense and miscellaneous general and administrative expenses, partially offset by decreases in equipment rent expense, office rent, travel and entertainment and vacation expense.

~~Income from Operations~~

As a result of the $682,935 decrease in total revenue during the three-month period ending September 30, 2015, which was partially offset by the $500,488 decrease in total expenses during the same period, our income from operations decreased $182,447 or 19% during the three-month period ended September 30, 2015 when compared to the same period in 2014.

~~Income Tax Provision~~

We realized income before taxes of $769,023 during the three-month period ended September 30, 2015 compared to $951,218 during the three-month period September 30, 2014. As a result, we realized a $75,811, or 19%, decrease in our income tax provision.

Net income for the three-month periods ended September 30, 2015 and 2014 was $449,031 and $555,415, respectively. Based on current information, we expect the trend of lower revenues for the remaining quarter of 2015 to continue when compared to the same periods in 2014 which will also impact our net income. As discussed throughout this report, with the loss of our third-party UR partner in February 2015, Companion, our major MBR customer, in June 2015, one major MPN customer in July 2015 and the anticipated loss of AmTrust in December 2015 we expect the trend of lower revenues to continue throughout 2016.. Although the loss of these customers will substantially impact our net income during the balance of fiscal 2015 and in 2016, the addition of a new MPN customer in April 2015, two significant HCO customers in June 2015, and three MPN customers starting the third quarter 2015 will partially offset the recent customer losses discussed above. Generally, new customers are added throughout the year and other customers terminate from the program for a variety of reasons. We have no assurances that we will continue to add new customers or lose existing customers.

~~Comparison of the nine months ended September 30, 2015 and 2014~~

Total revenues decreased 5% to $6,669,784 during the nine-month period ended September 30, 2015 from $7,079,396 for the same period a year earlier. Compared to the nine months ended September 30, 2014, HCO and Other revenues for the nine months ended September 30, 2014 increased by 18% and 84%, respectively, while UR, MBR, MPN and NCM revenues were lower by 2%, 41%, 2% and 8%, respectively.

During the nine-month period ended September 30, 2015, UR revenues decreased $59,810 to $3,004,023 when compared to the same period a year earlier. During the nine-month periods ended September 30, 2015 and 2014 we recorded $13,355 and $884,925 in overflow revenues, respectively, from our third-party partner, who, as discussed above, resolved its backlog as of the end of February 2015. During the nine months ended September 30, 2015 and 2014 UR fees from our other UR customers increased $811,760. This increase was a result of our largest UR customer, AmTrust, increasing its UR volume partially offset by fewer numbers of UR bills submitted by several of our other customers.

As discussed elsewhere in this report, our largest customer, AmTrust, will be terminating our services on, or about, December 22, 2015. The loss of this customer will have a significant negative impact the Company’s revenue, profitability and liquidity until such time as the Company is able to replace the revenues generated from AmTrust. We anticipate UR fees and total revenues will be significantly impacted beginning as early as the fourth quarter of 2015 and throughout 2016. During the nine-month period ended September 30, 2015 and 2014, UR revenue fees generated from AmTrust were $2,223,965 and $1,426,760, respectively. Unless we are able to attract additional new customers over the remaining months of fiscal 2015 and during 2016, UR revenues will be considerably lower in those periods compared to the comparable prior year periods.

For the nine-month period ended September 30, 2015 MBR revenues decreased by $589,435 to $855,089 when compared to the same period a year earlier. As a result of the loss of Companion as a customer in June 2015, we anticipate MBR fees will be significantly lower throughout the remainder of fiscal 2015 and into 2016. MBR fee revenue from Companion during the nine-month periods ended September 30, 2015 and 2014 were $328,689 and $948,506 or 38% and 66%, of total MBR revenues, respectively. While the loss of Companion has significantly negatively impacted total MBR fee revenue in 2015, MBR fee revenue from our other customers has increased approximately 6% during the first nine months of 2015 when compared to the same period in 2014. We have and will continue our efforts to, at least partially, replace the lost revenue from Companion.

During the nine months ended September 30, 2015 and 2014 HCO fee revenues were $920,789 and $778,869, respectively. During the nine months ended September 30, 2015 HCO revenues increased 18% and HCO employee enrollment increased 67% when compared to the same period a year earlier. The increase in HCO fee revenues of $141,920 was primarily attributable to revenues derived from billing an existing customer for its annual HCO enrollment notification fee resulting from the expansion of its HCO program during June 2015.

MPN fee revenues for the nine months ended September 30, 2015 and 2014 were $779,941 and $797,449, respectively, a decrease of 2%. As mentioned above, in July 2015 we substantially ceased doing all business with a major MPN customer. This customer contributed approximately $542,000 in MPN revenues during the 12 month-period ended December 31, 2014. During the nine months ended September 30, 2015 and 2014, this customer contributed MPN fee revenues of $298,222 and $393,037, respectively. MPN enrollment decreased 44% during the first three quarters of 2015 primarily as a result of the loss of this customer.

During the nine months ended September 30, 2015 and 2014 AmTrust contributed $58,140 and $40,205 in MPN fee revenues, respectively. With the loss of AmTrust, we anticipate we will lose approximately 106,000 MPN enrollees in December 2015 resulting from the loss of this customer. Unless we have a significant influx of new MPN enrollees, we expect MPN fee revenue to be lower for the duration of fiscal 2015 and in 2016.

During the nine months ended September 30, 2014 and 2013 NCM revenues were $695,755 and $753,839, respectively. This decrease of $58,084 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, 2015. During the nine-month periods ended September 30, 2015 and 2014 NCM fee revenues generated from AmTrust were minimal.

Other fees during the nine-month periods ended September 30, 2015 and 2014 consisted of revenues derived primarily from network access and claims repricing services and lien representation fees. Other fee revenues for these periods were $444,187 and $240,882, respectively.

~~Network Access and Repricing Fees~~

During the nine month periods ended September 30, 2015 and 2014 network access and claims repricing fee revenues generated were $391,892 and $240,882, respectively. This increase of $151,010 or 63% was primarily the result of one customer realizing higher savings by using our network. There is no assurance that the current rate of increase will continue over the remaining months of 2015.

~~Lien Representation Fees~~

During the nine months ended September 30, 2015 we recorded lien representation fees totaling $52,295 compared to none during the same period a year earlier. At this time there is no assurance that lien representation fees will continue to grow at rates currently being realized.

Total expenses for the nine months ended September 30, 2015 and 2014 were $4,306,261 and $4,504,977, respectively. The decrease of $198,716 was the result of decreases in salaries and wages, professional fees and outsource service fees, partially offset by increases in depreciation, bad debt provision, consulting fees, insurance, data maintenance expense and general and administrative expense.

~~Bad Debt Provision~~

During the nine-month periods ending September 30, 2015 and 2014 we recorded a bad debt provision of $26,677 and $24,991, respectively, as a result of potential uncollectible account receivables. At September 30, 2015 and December 31, 2014 our allowances for bad debt balances were $67,260 and $40,510, respectively.

During the nine months ended September 30, 2015 consulting fees increased to $268,588 from $229,010 during the nine months ended September 30, 2014. This increase of $39,578 was primarily the result of increased IT consultant fees, the 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 consultants in January 2015.

~~Salaries and Wages~~

Salaries and wages were $1,874,572 and $1,878,041 for the nine months ended September 30, 2015 and 2014, respectively. The decrease in salaries and wages of $3,469 was primarily due to a net decrease in employees as detailed above.

~~Professional Fees~~

For the nine months ended September 30, 2015 we incurred professional fees of $315,357 compared to $338,403 during the nine months ended September 30, 2014. This 7% decrease in fees was primarily the result of decreased NCM fees partially offset by higher medical consulting fees, legal fees and board of directors’ fees.

During the nine months ended September 30, 2015 we incurred insurance expenses of $256,265, an increase of $31,230 over the same nine-month period of 2014. The increase was mostly the result of increased group health, vision and dental insurance costs resulting from the hiring of new employees in PHCO, Medex, MMC and MMM and increases in our workers’ compensation and network security liability insurance. We do not expect a material increase during the remainder of the 2015 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 $963,059 and $1,324,248 in outsource service fees during the nine-month periods ended September 30, 2015 and 2014, respectively. The decrease of $361,189$251,519 was largely the result of the ~~decreased number~~lower numbers of UR and MBR reviews conducted by our outsource service providers, resulting primarily from ~~loss~~lost business ~~for our third-party UR partner~~from AmTrust and Companion as ~~discussed above.~~previously mentioned. 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. ~~As discussed above,~~Therefore, we anticipate ~~significant reduction~~substantial reductions in outsource service fees ~~as a result~~over the remaining months of ~~the expected loss of AmTrust business starting in December 2015.~~

~~Data Maintenance~~

For the nine months ended September 30, 2015 and 2014 we incurred data maintenance expense of $120,413 and $53,685, respectively or an increase of 124%. During the nine months ended September 30, 2015 we experienced an HCO employee enrollment increase of 67%fiscal 2016 when compared to the same ~~period a year earlier. This~~periods in 2015 if we are unable to attract significant new customers.

During the three months ended March 31, 2016 and 2015, data maintenance fees were $56,496 and $7,285, respectively. The increase of $49,211 was a primarily the result of notification fees associated with the addition of a new HCO customer in February 2016.

General and Administrative

During the three months ended March 31, 2016, general and administrative expenses decreased $1,261 from $151,369 when compared to the three-month period ended March 31, 2015. This decrease of $1,261 was primarily attributable to ~~data maintenance fees incurred for an existing customer’s annual HCO enrollment requirements resulting from the expansion of its HCO program locations during June 2015.~~

~~General and Administrative~~

General and administrative expenses increased 10% to $436,644 during the nine months ended September 30, 2015 when compared to the same period of 2014. The increase in general and administrative expense was primarily attributable to increasesdecreases in advertising, auto ~~expense,~~expenses, dues and ~~subscription, employment agency fees,~~subscriptions, equipment repairs, ~~IT enhancement expense, license and permits, moving expense,~~ printing and reproduction, travel, entertainment and vacation expense ~~equipment~~partially offset by increases in office supplies, postage expense, telephone expense, office rent, shareholders’ expense, and ~~travel and entertainment, partially offset by decreases in office supplies, postage and delivery, telephone expense, office rent, vacation expense and~~ miscellaneous general ~~and administrative~~administration expense. We do not expect current levels of general and administrative expenses to ~~marginally~~materially increase during the ~~remainder~~remaining months of ~~this fiscal year.~~ 2016.

Income from Operations

~~The 5%~~As a result of the 45% decrease in total revenue during the ~~nine-month~~three-month period ended ~~September 30, 2015 outpaced~~March 31, 2016, which was partially offset by the 4%24% decrease in total expenses, ~~during the nine-month period ended September 30, 2015 to result in a 7% decrease in~~our income from operations decreased by 81% during the ~~nine-month~~three-month period ended ~~September 30,~~March 31, 2016. We expect income from operations for the remaining quarters of fiscal 2016 to be significantly lower when compared to the same quarters in 2015 unless we are able to increase revenues from existing customers and add new customers.

Income Tax Provision

Because we realized income before taxes of $164,627 during the three-month period ended March 31, 2016, compared to $870,427 during the three-month period March 31, 2015, we realized a $293,685, or 81%, decrease in our income tax provision. We expect this trend to continue until our income before taxes increases.

During the three months ended March 31, 2016, total revenues of $1,309,161 was lower by $1,059,937 when compared to the same period in ~~2014.~~

~~Income Tax Provision~~

As a result of realizing income before taxes, we made provision for our income tax obligations for the nine months ended September 30, 2015 and 2014. Our income tax provision for the nine months ended September 30, 2015 was 7% lower than during the comparable period 2014 to reflect the 7% decrease in income before taxes realized during the nine months ended September 30, 2015. ~~The effective tax rate resulting from the income tax provision of 41.61% has remained the same for the comparable periods in 2015 and 2014.~~

~~During the nine months ended September 30, 2015 total revenues of $6,699,784 were lower by $379,612 when compared to the same period in 2014.~~ This decrease in total revenues was partially offset by decreases in total expenses of ~~$198,716~~$354,007 resulting in income from operations of ~~$2,393,523 compared~~$164,627compared to income from operations of ~~$2,574,419~~$870,557 during ~~the nine~~three months ended ~~September 30, 2014. We~~March 31, 2015. Correspondingly, we realized net income of ~~$1,396,373~~$96,126 for the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, compared to net income of ~~$1,502,641,~~$508,241, during the ~~nine~~three months ended ~~September 30, 2014. We anticipate~~March 31, 2015. For reasons discussed throughout this report, unless we are able to add some significant new customers, we expect revenue and net income ~~through the remainder of fiscal 2015 will~~to be significantly lower compared to fiscal 2014, due to the loss of three major clients during the first nine months of 2015. As discussed in this report, the loss of our third-party UR partner in February 2015, Companion, our major MBR customer, in June 2015, one major MPN customer in July 2015 and the expected loss of AmTrust in December 2015 are the primary reasons we expect our current trend of lower revenues to continue during the remaining quarter of fiscal 2015 and throughout 2016 when compared to ~~the comparable prior year periods. Although the loss of these customers will substantially impact our net income going forward, the addition of a new MPN customer in April~~ 2015 two significant HCO customers in June 2015, and three MPN customers starting the third quarter of 2015 should help to partially offset the recent customer losses. We have no assurances that we will continue to add new customers during the remaining months of 2015..

Liquidity and Capital Resources

As of ~~September 30, 2015~~March 31, 2016, we had cash on hand of ~~$3,281,140~~$4,427,185 compared to ~~$2,946,025~~$3,834,924 at December 31, ~~2014.~~2015. The ~~$335,115~~$592,261 increase in cash on hand iswas primarily the result of net cash provided by our operating activities partially offset by cash used in investing activities and cash used in financing activities. Net cash provided by our operating activities was the result of ourrealizing net income, ~~decreases in accounts receivable and~~coupled with increases in ~~depreciation,~~ bad debt provision, accrued expenses, ~~dividend payable~~ and ~~unearned revenues,~~deferred rent expense, with decreases in accounts receivables, prepaid income tax and deferred compensation. These changes were partially offset by an increase in prepaid expense and decreases in accounts payable ~~income tax payable~~ and ~~deferred rent expense and increases in prepaid income tax, prepaid expenses and other assets. The $21,280 increase in cash~~unearned revenues.

Cash used in investing activities of $3,535 was primarily the result of ~~purchases~~purchasing new computers to replace older computers to increase efficiency.

On September 4, 2015, our board of ~~computers, furniture and equipment. Cash~~directors declared a special one-time cash dividend of $1.25 per share payable to the record holders of our common stock on September 14, 2015. At December 31, 2015, we had a balance of $58,985 recorded in our balance sheet as dividends payable. During the quarter ended March 31, 2016, cash used in in financing activities increased ~~$1,034,876 as~~by $1,228 from the payment of dividends resulting in a ~~result~~balance of $57,757 in dividends payable at the ~~issuance~~end of a special one-time dividend and the purchase of treasury stock. Barring a significant downturn in the economy or the continued loss of major customers, we believe that cash on hand and anticipated revenues from operations will be sufficient to cover our operating costs over the next twelve months.March 31, 2016.

We currently have planned certain capital expenditures during ~~the remainder of~~ fiscal ~~2015 resulting from our office expansion in September 2015.~~2016 to support potential new customers’ software requirements. We do not expect these software expenditures to be material. We do not anticipate this will require us to seek outside sources of funding. We do, however, from time to time, investigate potential opportunities to expand our business either through the creation of new business lines or the acquisition of existing businesses. We have not identified any suitable opportunity at the current time. We could use cash or stock of our Company or some combination of both in any such expansion or acquisition. An expansion or acquisition of this sort may require greater capital resources than we possess. Should we need additional capital resources, we most likely would seek to obtain such through debt and/or equity financing. We do not currently possess an institutional source of financing. There is no assurance that we could be successful in obtaining equity or debt financing on favorable terms, or at all.

On September 1, 2015, based upon the recommendation of management, the board of directors of the Company announced the termination of the Company’s stock repurchase program. Our stock repurchase program was scheduled to expire on November 30, 2015. The board of directors had allocated up to $500,000 for the repurchase of currently issued and outstanding common stock of the Company. As of September 30, 2015, we had repurchased 8,269 shares for approximately $254,057.

1715

Table of Contents

Cash Flow

During the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016, cash was primarily used to ~~pay dividends, purchase treasury stock, and~~ fund operations. We had a net increase in cash of ~~$335,115~~$592,261 during the ~~nine~~three months ended ~~September 30, 2015.~~March 31, 2016. See below for additional ~~discussion and analysis of cash flow.~~information.

	For the three months ended March 31,
	2016 (unaudited)				2015 (unaudited)

Net cash provided by operating activities		$	597,024			$	297,687
Net cash used in investing activities			(3,535	)			(12,139	)
Net cash used in financing activities			(1,228	)			(14,746	)

Net increase in cash		$	592,261			$	270,802

For the nine months ended
September 30,

2015
(unaudited)

2014
(unaudited)

Net cash provided by operating activities

$
1,470,913

$
1,393,542

Net cash used in investing activities

(91,135
)

(69,855
)
Net cash used in financing activities

(1,044,663
)

(9,787
)

Net increase in cash

$
335,115

$
1,313,900

During the ~~nine~~three months ended ~~September 30,~~March 31, 2016 and 2015, net cash provided by operating activities ~~was $1,470,913 compared to net cash provided by operating activities of $1,393,542 during the nine months ended September 30, 2014.~~were $597,024 and $297,687, respectively. As discussed herein, we realized net income of ~~$1,396,373~~$96,126 during the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016, compared to net income of ~~$1,502,641~~$508,241 during the ~~nine~~three months ended ~~September 30, 2014.~~ March 31, 2015.

Summary of Material Contractual Commitments

The following is a summary of our material contractual commitments as of ~~September 30, 2015:~~

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)

$
22,122

$
18,415

$
3,707

$
-

$
-

Office Leases (2)

1,659,474

231,542

481,672

516,408

429,852

Total Operating Leases

$
1,681,596

$
249,957

$
485,379

$
516,408

$
429,852

March 31, 2016.

	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⁾		$	14,835		$	12,915		$	1,920		$	-		$	-
Office Leases⁽²⁾			1,547,524			181,040			486,203			520,938			359,343
Total Operating Leases		$	1,562,359		$	193,955		$	488,123		$	520,938		$	359,343

⁽¹⁾

In October 2013, we entered into a 36 month operating lease for an office copy machine with monthly payments ~~at $160.93.~~of $161. In December 2013, we leased two document scanners with monthly operating lease payments of ~~$206.93~~$207 each for 36 months. In February 2014, we entered into a 36 month operating lease for an office copy machine with monthly payments at $960.

⁽²⁾

On July 23, 2015, we entered into a ~~new~~ 79 month lease ~~(the “New Office Lease”) with our current landlord with the commencement date being September 28, 2015. Prior~~ to ~~July 23, 2015, we leased~~lease approximately ~~5,159 and 1,640 rentable~~9,439 square feet ~~(the “Prior Premises”) located in suites 300 and 375, respectively, consisting~~ of ~~a total of 6,799 rentable square feet. The lease for the Prior Premises was terminated~~office space that commenced on September 28, 2015. Upon commencement of the New Lease, our lease obligation for suite 375 consisting of 1,640 rentable square feet terminated and is no longer in effect. To replace suite 375, we leased suite 350 consisting of 4,280 rentable square feet (the “Expansion Premises”). Under the terms of the New Office Lease, we now lease suite 300 and the Expansion Premises, for a total of 9,439 rentable square feet (the “Combined Premises”). The Combined Premises will serveThis office space serves as our principal executive offices, as well as, the principal offices of our operating subsidiaries, Medex, IRC, MLS, MMM and MMC.

~~(3)~~

In August 2012 we entered into a capital lease arrangement whereby we leased office server equipment for $38,380. The asset was recorded on our balance sheet under office equipment under capital lease and our liability incurred under the lease was recorded as current and noncurrent obligations under capital lease. The lease arrangement is for a term of 36 months at level rents with capital interest rate at 7.5%. The term of this capital lease arrangement expired in July 2015.

In January 2010, we entered into a capital lease arrangement whereby we leased an office copy machine for $25,543. The asset was recorded on our balance sheet under office equipment under capital lease and our liability incurred under the lease was recorded as current and noncurrent obligations under capital lease. The lease arrangement was for a term of 48 months at level rents with capital interest rate at 7%. During January 2015, the office copy machine under this capital lease arrangement was retired.

In August 2012, we entered into a capital lease arrangement whereby we leased office server equipment for $38,380. The asset was recorded on our balance sheet under office equipment under capital lease and our liability incurred under the lease was recorded as current and noncurrent obligations under capital lease. The lease arrangement was for a term of 36 months at level rents with capital interest rate at 7.5%. The term of this capital lease arrangement expired in July 2015.

1816

Table of Contents

~~Following is the base annual rent payment schedule for the Combined Premises under the New Office Lease:~~

Rent Period Annual Rent Payment
Oct.1 to Dec. 31, 2015

$
55,277

Jan. 1 to Dec. 31, 2016

237,713

Jan. 1 to Dec. 31, 2017

228,330

Jan. 1 to Dec. 31, 2018

257,874

Jan. 1 to Dec. 31, 2019

244,942

Jan. 1 to Dec. 31, 2020

275,996

Jan. 1 to Dec. 31, 2021

261,932

Jan. 1 to Mar. 31, 2022

97.410

Total

$
1,659,474

Off-Balance Sheet Financing Arrangements

As of ~~September 30, 2014~~March 31, 2016, we had no off-balance sheet financing arrangements.

Inflation

We experience pricing pressures in the form of competitive prices. We are also impacted by rising costs for certain inflation-sensitive operating expenses such as labor and employee benefits and facility leases. However, we generally do not believe these impacts are material to our revenues or net income.

Critical Accounting Policies and Estimates

~~The preparation of financial statements in accordance with accounting standards generally accepted in the United States requires management~~See Note 1 to make estimates and assumptions that affect both the recorded values of assets and liabilities at the date of the financial statements and the revenues recognized and expenses incurred during the reporting period. Our estimates and assumptions affect our recognition of deferred expenses, bad debts, income taxes, the carrying value of its long-lived assets and its provision for certain contingencies. We evaluate the reasonableness of these estimates and assumptions continually based on a combination of historical information and other information that comes to its attention that may vary its outlook for the future. Actual results may differ from these estimates under different assumptions.

~~We believe the critical accounting policies that most impact our~~condensed consolidated financial statements ~~are described below.~~

~~Basis of Accounting~~— ~~We use the accrual method of accounting.~~included elsewhere in this report.

~~Revenue Recognition~~ — In general, we recognize 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. We recognize 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. We derive our revenue from the sale of Managed Care Services, Review Services and Case Management Services. These services may be sold individually or combined. When a sale combines multiple elements, we account for multiple-deliverable revenue arrangements in accordance with the guidance included in ASC 605-25.

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 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 a contract price. When our 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 our customer contracts. Based upon the nature of our products, bundled managed care elements are generally delivered in the same accounting period. We recognize revenue for patient management services ratably over the life of the customer contract. We estimate, based upon prior experience in managed care, the deferral amount from when the customers 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. At September 30, 2015 and 2014 we recognized $40,904 and $0, respectively in billings made in advance, requiring deferral of revenue.

~~Table of Contents~~

~~Accounts Receivables and Bad Debt Allowance~~ — In the normal course of business we extend credit to our customers on a short-term basis. Although the credit risk associated with these customers is minimal, we routinely reviews our accounts receivable balances and make provisions for doubtful accounts. We age our 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, we charge 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, we perform ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we 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 us and is reevaluated and adjusted as additional information is received. We evaluate the allowance based on historical write-off experience, the size of the individual customer balances, past-due amounts and the overall national economy. At September 30, 2015 and December 31, 2014, our bad debt reserve of $67,260 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 September 30, 2015 and December 31, 2014 are as follows:~~

6/30/15 12/31/14
Customer A

38
%

25
%
Customer B

20
%

22
%

~~Principles of Consolidation~~ — The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

ItemItem 3. Quantitative and Qualitative Disclosure about Market Risk

This information is not required for smaller reporting companies.

~~As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, and in~~ Item ~~10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.~~

~~Ite~~m 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer,~~principal financial officer, evaluated the effectiveness ~~of the design and operation~~ of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act), as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this quarterly report on Form 10-Q, ourAct.) We maintain disclosure controls and procedures ~~were effective in ensuring~~ that are designed to provide reasonable assurance that the information required by to be disclosed by us in the reports ~~that we file~~filed or ~~submit~~submitted by us to the Commission under the Exchange Act is ~~(i)~~ recorded, processed, summarized and reported within the time periods specified in the ~~SEC’s~~Commission’s rules and forms and ~~(ii)~~that such information is accumulated and communicated to our management, including our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer,~~our principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this report, our principal executive officer and principal financial officer concluded that as of March 31, 2016, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2015~~March 31, 2016, that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

2017

Table of Contents

PART II. OTHER INFORMATION

ItemItem 1A. Risk Factors

~~We believe there~~There have been no material changes to the risk factors ~~disclosed~~listed in Part I, “Item 1A, Risk Factors” in our annual report on Form 10-K for the year ended December 31, ~~2014 filed with the SEC on March 30,~~ 2015. These risk factors should be carefully considered with the information provided elsewhere in this report, which could materially adversely ~~impact~~affect our business, financial condition or results of operations.

It~~em 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~Purchases of Equity Securities by the Issuer and Affiliated Purchasers~~

~~The following table sets forth information about the Company’s stock purchases on a monthly basis for the quarter ended September 30, 2015:~~

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)
July 1, 2015 to July 31, 2015

306

$
32.47

306

$
306,998

August 1, 2015 to August 31, 2015

2,810

$
20.75

2,810

$
246,943

September 1, 2015 to September 30, 2015

-

$
-

-

$
-

Total

3,116

$
21.90

3,116

$
-

~~(1)~~

~~Reflects executed price, exclusive of brokers’ commissions and fees.~~

~~(2)~~

~~On November 26, 2014, we announced that our board of directors adopted a share repurchase program (“Repurchase Program”) that commenced on December 1, 2014.~~

~~(3)~~

On September 1, 2015, based upon the recommendation of management, the board of directors of the Company terminated the Company’s Repurchase Program. Our stock Repurchase Program was scheduled to expire on November 30, 2015. Under the Repurchase Program the board of directors had allocated up to $500,000 for the repurchase of currently issued and outstanding common stock of the Company. As of September 30, 2015, we had repurchased 8,269 shares for approximately $254,057. Effective September 1, 2015, the board of directors of the Company approved the termination of the Repurchase Program.

~~Ite~~mItem 6. Exhibits

Exhibits. The following exhibits are filed or furnished, as applicable, as part of this report:

	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, 2015~~March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, ~~as of September 30, 2015 and December 31, 2014,~~ (ii) the Condensed Consolidated Statements of Operations, ~~for the three and nine months ended September 30, 2015 and 2014,~~ (iii) the Condensed Consolidated Statements of Cash Flows, ~~for the nine months ended September 30, 2015 and 2014,~~ and (iv) Notes to the Condensed Consolidated Financial Statements.

2118

Table of Contents

SI~~GNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		PACIFIC HEALTH CARE ORGANIZATION, INC.


Date:	~~November~~May 12, ~~2015~~2016	/s/ Tom Kubota
		Tom Kubota Chief Executive Officer


Date:	~~November~~May 12, ~~2015~~2016	/s/ Fred Odaka
		Fred Odaka Chief Financial Officer

~~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

	(Unaudited) Balance Sheets as of March 31, 2016 and December 31, 2015	3

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

	(Unaudited) Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	4

	(Unaudited) Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		8

Item 3. Quantitative and Qualitative Disclosure about Market Risk		2017

Item 4. Controls and Procedures		2017

PART II — OTHER INFORMATION

Item 1A. Risk Factors		2118

Item ~~2. Unregistered Sales of Equity Securities and Use of Proceeds~~6. Exhibits		2118

~~Item 6. Exhibits~~Signatures		21

~~Signatures~~		2219

		September 30, 2015			December 31, 2014
ASSETS	ASSETS
								March 31, 2016			December 31, 2015
Current Assets
Cash		$	3,281,140		$	2,946,025		$	4,427,185		$	3,834,924
Accounts receivable, net of allowance of $67,260 and $40,510			1,508,168			1,868,181
Accounts receivable, net of allowance of $59,500 and $55,000									645,833			1,040,357
Prepaid income tax									176,918			245,419
Deferred tax asset			77,059			77,059			35,296			35,296
Prepaid income taxes			240,359			2,703
Prepaid expenses			88,178			77,278			71,586			66,200
Total current assets			5,194,904			4,971,246			5,356,818			5,222,196

Property and Equipment, net
Computer equipment			294,405			222,240			311,801			308,266
Furniture and fixtures			149,541			92,191			212,823			206,784
Office equipment			27,160			27,160			8,761			14,800
Office equipment under capital lease			-			63,923
Total property and equipment			471,106			405,514			533,385			529,850
Less: accumulated depreciation and amortization			(245,472	)		(226,329	)
Less: accumulated depreciation									(283,357	)		(261,594	)
Net property and equipment			225,634			179,185			250,028			268,256

Other Assets			26,788			8,158			26,788			26,788
Total assets		$	5,447,326		$	5,158,589			5,633,634		$	5,517,240

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable		$	133,925		$	240,214		$	55,888		$	63,565
Accrued expenses			282,477			261,510			226,911			212,144
Income tax payable			4,867			9,348
Current obligations under capital lease			-			8,151
Deferred rent expense			258			14,332			12,131			6,891
Dividend payable			133,420			-			57,757			58,985
Unearned revenue			40,904			-			40,120			43,329
Total current liabilities			595,851			533,555			392,807			384,914

Commitments and Contingencies			-			-			-			-

Shareholders’ Equity
Stockholders’ Equity
Preferred stock; 5,000,000 shares authorized at $0.001 par value; zero shares issued and outstanding			-			-			-			-
Common stock, $0.001 par value 50,000,000 shares authorized at September 30, 2015 and December 31, 2014; 802,424 shares issued, (794,072 outstanding net of treasury shares) and 802,424 shares issued, (800,396 outstanding net of treasury shares), respectively			794			800
Common stock, $0.001 par value: 50,000,000 shares authorized at March 31, 2016 and December 31, 2015; 802,424 shares issued, 800,000 outstanding net of treasury shares									800			800
Additional paid-in capital			623,637			623,631			673,130			673,130
Treasury stock at cost (8,269 shares and 2,028 shares at September 30, 2015 and December 31, 2014), respectively			(254,057	)		(76,715	)
Treasury stock at cost (8,269 shares outstanding at March 31, 2016 and December 31, 2015)									(254,057	)		(254,057	)
Deferred compensation									(37,124	)		(49,499	)
Retained earnings			4,481,101			4,077,318			4,858,078			4,761,952
Total stockholders’ equity			4,851,475			4,625,034
Total stockholders' equity									5,240,827			5,132,326
Total liabilities and stockholders’ equity		$	5,447,326		$	5,158,589		$	5,633,634		$	5,517,240

	For three months ended March 31,
	2016		2015
Revenues:
HCO fees	$	395,081	$	248,640
MPN fees		141,358		308,118
UR fees		166,966		1,014,290
MBR fees		204,972		370,414
NCM fees		288,736		244,472
Other		112,048		183,164
Total revenues		1,309,161		2,369,098

Expenses:
Depreciation		21,763		12,786
Bad debt provision		4,500		8,250
Consulting fees		101,532		90,190
Salaries and wages		575,111		685,811
Professional fees		70,492		120,346
Insurance		78,304		84,757
Outsource service fees		86,228		337,747
Data maintenance		56,496		7,285
General and administrative		150,108		151,369
Total expenses		1,144,534		1,498,541

Income from operations		164,627		870,557

Other expense
Interest expense		-		130
Total other expense		-		130

Income before taxes		164,627		870,427
Income tax provision		68,501		362,186

Net income	$	96,126	$	508,241

Basic and fully diluted earnings per share:
Earnings per share amount	$	0.12	$	0.64
Weighted average common shares outstanding		800,000		800,136

	For three months ended September 30,						For nine months ended September 30,
	2015			2014			2015			2014

Revenues:
UR fees	$	1,027,893		$	1,362,283		$	3,004,023		$	3,063,833
MBR fees		201,903			526,341			855,089			1,444,524
HCO fees		273,089			260,069			920,789			778,869
MPN fees		224,128			285,415			779,941			797,449
NCM fees		216,216			242,376			695,755			753,839
Other		126,352			76,032			444,187			240,882
Total revenues		2,069,581			2,752,516			6,699,784			7,079,396

Expenses:
Depreciation and amortization		16,011			12,642			44,686			35,408
Bad debt provision		9,750			15,851			26,677			24,991
Consulting fees		90,063			76,790			268,588			229,010
Salaries and wages		555,666			699,096			1,874,572			1,878,041
Professional fees		99,418			109,871			315,357			338,403
Insurance		83,283			82,155			256,265			225,035
Outsource service fees		295,507			658,233			963,059			1,324,248
Data maintenance		11,819			12,953			120,413			53,685
General and administrative		139,035			133,449			436,644			396,156
Total expenses		1,300,552			1,801,040			4,306,261			4,504,977

Income from operations		769,029			951,476			2,393,523			2,574,419

Other expense
Interest expense		(6	)		(258	)		(201	)		(956	)
Total other expense		(6	)		(258	)		(201	)		(956	)


Income before taxes		769,023			951,218			2,393,322			2,573,463

Income tax provision		319,992			395,803			996,949			1,070,822

Net income	$	449,031		$	555,415		$	1,396,373		$	1,502,641

Basic and fully diluted earnings per share:
Earnings per share amount	$	.57		$	.69		$	1.76		$	1.87
Weighted average common shares outstanding		794,072			802,424			794,072			802,424

	Three Months Ended March 31,
	2016			2015
Cash flows from operating activities:
Net income	$	96,126		$	508,241
Adjustments to reconcile net income to net cash:
Depreciation		21,763			12,786
Changes in operating assets and liabilities
Increase in bad debt provision		4,500			8,323
Decrease (increase) in accounts receivable		390,024			(167,892	)
(Increase) in prepaid expenses		(5,386	)		(2,498	)
Decrease in prepaid income tax		68,501			-
Decrease in other assets		-			8,158
(Decrease) in accounts payable		(7,677	)		(69,399	)
Increase (decrease) in deferred rent expense		5,240			(2,510	)
Increase (decrease) in accrued expenses		14,767			(39,914	)
Increase in income tax payable		-			2,186
(Decrease) increase in unearned revenue		(3,209	)		40,206
Decrease in deferred compensation		12,375			-
Net cash provided in operating activities		597,024			297,687

Cash flows from investing activities:
Purchase of furniture and office equipment		(3,535	)		(12,139	)
Net cash used in investing activities		(3,535	)		(12,139	)

Cash flows from financing activities:
Purchase of treasury stock		-			(11,296	)
Issuance of cash dividend		(1,228	)		-
Payment of obligation under capital lease		-			(3,450	)
Net cash used in financing activities		(1,228	)		(14,746	)
Increase in cash		592,261			270,802

Cash at beginning of period		3,834,924			2,946,025
Cash at end of period	$	4,427,185		$	3,216,827

Supplemental cash flow information
Cash paid for:
Interest	$	-		$	131
Income taxes paid	$	-		$	360,000
Dividend payable	$	57,757		$	-

	Nine months ended September 30,
	2015			2014
Cash flows from operating activities:
Net income	$	1,396,373		$	1,502,641
Adjustments to reconcile net income to net cash:
Depreciation and amortization		44,686			35,408
Changes in operating assets and liabilities
Increase (decrease) in bad debt provision		26,750			(327	)
Decrease (increase) in accounts receivable		333,263			(567,614	)
(Increase) in other assets		(18,630	)		(5,544	)
(Increase) decrease in prepaid income tax		(237,656	)		6,568
(Increase) in prepaid expenses		(10,900	)		(6,703	)
(Decrease) increase in accounts payable		(106,289	)		225,270
Increase in accrued expenses		20,967			56,170
(Decrease) increase in income tax payable		(4,481	)		153,121
(Decrease) in deferred rent expense		(14,074	)		(5,448	)
Increase in unearned revenue		40,904			-
Net cash provided by operating activities		1,470,913			1,393,542

Cash flows used in investing activities
Purchases of computers, furniture and equipment		(91,135	)		(69,855	)
Net cash used by investing activities		(91,135	)		(69,855	)

Cash flows used in financing activities
Purchase of treasury stock		(177,342	)		-
Issuance of cash dividend		(859,170	)		-
Payment of obligation under capital lease		(8,151	)		(9,787	)
Net cash used in financing activities		(1,044,663	)		(9,787	)
Increase in cash		335,115			1,313,900
Cash at beginning of period		2,946,025			1,265,535
Cash at end of period	$	3,281,140		$	2,579,435
Supplemental Cash Flow Information
Cash paid for:
Interest	$	205		$	959
Income taxes paid	$	1,239,086		$	911,134
Non-cash financing and investing activities:
Dividend payable	$	133,420		$	-

	9/30/15			12/31/14			3/31/16			3/31/15
Customer A		38	%		25	%		-	%		29	%
Customer B		20	%		22	%		11	%		21	%
Customer C								13	%		6	%
Customer D								12	%		4	%

	For the nine months ended September 30,
	2015 (unaudited)			2014 (unaudited)

Net cash provided by operating activities	$	1,470,913		$	1,393,542
Net cash used in investing activities		(91,135	)		(69,855	)
Net cash used in financing activities		(1,044,663	)		(9,787	)

Net increase in cash	$	335,115		$	1,313,900

Rent Period	Annual Rent Payment
Oct.1 to Dec. 31, 2015	$	55,277
Jan. 1 to Dec. 31, 2016		237,713
Jan. 1 to Dec. 31, 2017		228,330
Jan. 1 to Dec. 31, 2018		257,874
Jan. 1 to Dec. 31, 2019		244,942
Jan. 1 to Dec. 31, 2020		275,996
Jan. 1 to Dec. 31, 2021		261,932
Jan. 1 to Mar. 31, 2022		97.410
Total	$	1,659,474

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)
July 1, 2015 to July 31, 2015		306	$	32.47		306	$	306,998
August 1, 2015 to August 31, 2015		2,810	$	20.75		2,810	$	246,943
September 1, 2015 to September 30, 2015		-	$	-		-	$	-
Total		3,116	$	21.90		3,116	$	-