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

PacificPacific Health Care Organization, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

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

Pacific Health Care Organization, Inc.

Notes to Condensed Consolidated Financial Statements

For the NineThree Months Ended September 30, 2020March 31, 2021

(Unaudited)

NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by the CompanyPacific Health Care Organization, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”) and in accordance with accounting principles generally accepted in the United States (“GAAP”).  Certain information and footnote disclosures normally included in consolidated financial statements have been condensed or omitted in accordance with GAAP rules and regulations.  The information furnished in these interim condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements.  The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect both the recorded values of assets and liabilities at the date of the condensed consolidated financial statements and the revenues recognized and expenses incurred during the reporting period. These estimates and assumptions affect the Company’s recognition of deferred expenses, bad debts, income taxes, the carrying value of its long-lived assets and its provision for certain contingencies. The reasonableness of these estimates and assumptions is evaluated continually based on a combination of historical information and other information that comes to the Company’s attention that may vary its outlook for the future. While management believes the disclosures and information presented are adequate to make the information not misleading, it is recommendedsuggested that these interim condensed consolidated financial statements be read in conjunction with the Company’s audited financial statements and notes thereto included in its annual report on Form 10-K for the year ended December 31, 2019.2020.  Operating results for the ninethree months ended September 30, 2020,March 31, 2021, are not necessarily indicative of the results to be expected for the year ending December 31, 2020.2021.

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

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

Revenue Recognition — The Company follows the guidance of Accounting Standards Codification (ASC) 606,recognizes revenue in accordance with ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle underlying Topic 606 is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer.

The core principle underlying Topic 606 createsis that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer.

The ASU requires the use of a five-step model to recognize revenue which includesfrom customer contracts. The five-step model requires that the Company (i) identifyingidentify the contract with the customer, (ii) identifyingidentify the performance obligations in the contract, (iii) determiningdetermine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocatingallocate the transaction price to the respective performance obligations in the contract, and (v) recognizingrecognize revenue when (or as) the Company satisfies the performance obligation. Revenues are generated as services are provided to the customer based on the sales price agreed and collected. The Company recognizes revenue as the time is worked or as units of production are completed, which is when the revenue is earned and realized. Labor costs are recognized as the costs are incurred.

The Company derives its revenue from the sale of managed care,services offered through its HCOs, MPNs, utilization review, medical bill review, utilization review and medical case management services.services, lien defense, carve-outs, Medicare set-aside. These services are billed individually as separate components to our customers. These fees include monthly and/or annual HCO and/or MPN administration fees, claim and network access fees, medical bill review fees, legal support fees, Medicare set-aside fees, lien service fees, workers’ compensation carve-outs, utilization review fees, medical case management flat rate fees or hourly fees depending on the agreement with the client.customer.

The Company enters into arrangements for bundled managed care, standalone services, or add-on ancillary services which includes various units of accounting such as network solutions and patient management, including managed care. Such elements are considered separate units of accounting due to each element having value to the customer on a stand-alone basis and are billed separately. The selling price for each unit of accounting is determined using the contract price. When the Company’s customers purchase several products the pricing of the products sold is generally the same as if the products were sold on an individual basis. Revenue is recognized as the work is performed in accordance with the Company’s customer contracts. Based upon the nature of the Company’s products, bundled managed care elements are generally delivered in the same accounting period. The Company recognizes revenue for patient management services ratably over the life of the customer contract. Based upon prior experience in managed care, the Company estimates the deferral amount from when the customer’s claim is received to when the customer contract expires. Advance payments from subscribers and billings made in advance are recorded on the balance sheet as deferredunearned revenue.

Pacific Health Care Organization, Inc.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

(Unaudited)

Accounts Receivables and Bad Debt Allowance– In the normal course of business the Company extends credit to its customers on a short-term basis.  Although the credit risk associated with these customers is minimal, the Company routinely reviews its accounts receivable balances and makes provisions for doubtful accounts.  The Company ages its receivables by datedates of invoice.invoices.  Management reviews bad debt reserves quarterly and reserves specific accounts as warranted or sets up a general reserve based on amounts over 90 days past due.  When an account is deemed uncollectible, the Company charges off the receivable against the bad debt reserve.  A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past-due balances, including any billing disputes.  In order to assess the collectability of these receivables, the Company performs ongoing credit evaluations of its customers’ financial condition. Through these evaluations, the Company may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit rating or bankruptcy.  The allowance for doubtful accounts is based on the best information available to the Company and is reevaluated and adjusted as additional information is received.  We evaluate the allowance based on historical write-off experience, the size of the individual customer balances, past-due amounts and the overall national economy.  At September 30, 2020March 31, 2021 and December 31, 2019,2020, bad debt reserves of $17,202$18,441 and $30,525,$19,404, respectively, was a general reserve for certain balances over 90 days past due and for accounts that are potentially uncollectible.

The percentages of the amounts due from major customers to total accounts receivable as of September 30, 2020March 31, 2021 and December 31, 2019,2020, are as follows:

Significant Customers - We provide–The Company provides services to insurers, third party administrators, self-administered employers, municipalities and other industries.  We areThe Company is able to provide ourthe full range of services to virtually any size employer in the state of California.  We areThe Company is also able to provide utilization review, medical bill review and medical case management services outside the state of California. 

During the periodperiods ended September 30,March 31, 2021 and 2020, and 2019, we had threetwo customers, that accounted for more than 10% of our total sales and three customers during the same time period in 2019.sales.  The following table sets forth details regarding the percentage of total sales attributable to our significant customers induring the past two years:three months ended March 31, 2021 and 2020:

Leases - Effective January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. The adoption of ASC 842 on January 1, 2019 resulted in the recognition of operating lease right-of-use assets of $719,861, lease liabilities for operating leases of $719,861, and a zero cumulative-effect adjustment to accumulated deficit. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less (“short-term leases”), as allowed by certain provisions of ASC 842.. Lease expense is recognized on a straight-line basis over the lease term. If a Company lease does not provide an implicit rate, the Company develops an estimated incremental borrowing rate at the commencement date based on the estimated rate at which it would borrow, in the current economic environment, an amount equal to the lease payments over a similar term on a collateralized basis which is used to determine the present value of lease payments. See Note 2 for further information regarding the impact of the adoption of ASC 842 on the Company’s financial statements.

Pacific Health Care Organization, Inc.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

(Unaudited)

NOTE 2 - OPERATING LEASES

In July 2015, the Company entered a 79-month lease to lease approximately 9,439 square feet of office space that commenced in September 2015. This office space serves as the Company’s principal executive offices, as well as the principal offices of ourthe Company’s operating subsidiaries. In March 2017, the Company entered a 39-month operating lease for an office copy machine with scanner with monthly payment at $1,723, that expired in June 2020.

Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives.

The components of lease expense and supplemental cash flow information related to leases for the period are as follows:

The supplemental balance sheet information related to leases for the period is as follows:

Maturities of the Company’s lease liabilities are as follows:

Lease expenses were $72,946 and $70,582 during the three months ended March 31, 2021 and 2020, respectively.

Pacific Health Care Organization, Inc.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

(Unaudited)

Lease expenses were $72,687 and $73,825 during the three months ended September 30, 2020 and 2019, respectively and $225,903 and $212,723 during the nine months ended September 30, 2020 and 2019, respectively.

NOTE 3 - PAYCHECK PAYCHECK PROTECTION PROGRAM LOANS

In April and May 2020 Pacific Health Care Organization, Inc. (“PHCO”), Medex Managed Care, Inc. (“MMC”) and Medex Medical Management, Inc. (“MMM”) received loans pursuant to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act Paycheck Protection Program.

PHCO received a loan in the amount of $133,400 (the “PHCO PPP Loan”) from Pacific Western Bank. The PHCO PPP Loan is in the form of a Note dated April 21, 2020, issued by PHCO,Bank which matureswas scheduled to mature on April 21, 2022. The PHCO PPP Loan bears interest at a rate ofwas 1% per annum with the full loan amount and is payable monthly commencing on November 21, 2020. The monthly principal paymentinterest eligible for forgiveness if forgiveness was applied for within the PHCO PPP Loan will be $7,507.specified time.

MMM and MMC received loans of $267,700 and $59,600 respectively, from First Citizens Bank, (collectively the “Medex Companies PPP Loans”). The Medex Companies PPP Loans are also in the form of Notes dated April 30, 2020 and May 11, 2020, issued by MMM and MMC respectively, andwere scheduled to mature on April 30, 2022 and May 11, 2022, respectively. The Medex Companies PPP Loans bear interest at a rate of 1.0%rates were 1% per annum with the full loan amount and are payable monthly commencinginterest eligible for forgiveness if forgiveness was applied for within the specified time.

In February 2021 the principal and interest on November 30, 2020 for the MMM loanPHCO PPP Loan and December 11, 2020 for the MMC loan. The combined monthly principal payments for the Medex Companies PPP Loans will be $18,419.were forgiven in full. The total amount of the loan and interest forgiven for PHCO was $133,400 and $1,067, respectively. The total amount of the principal and interest forgiven for MMM was $267,700 and $2,142, respectively. The total amount of the principal and interest forgiven for MMC was $59,600 and $477, respectively.

Funds from these loans may be used for payroll, rent, utilities and costs incurred to continue group health insurance benefits. The terms of the loans provide that certain amounts may be forgiven if the funds arewere used for qualifying expenses as described in the CARES Act.Act, namely payroll, rent, utilities and group health insurance benefits.

NOTE 4 - SUBSEQUENT EVENTS

NOTE Economic Aid Act4 - SUBSEQUENT EVENTS

On April 1, 2021, our subsidiary Medex Medical Management, Inc. (“MMM”) received a loan pursuant to section 311 of the Economic Aid Act Paycheck Protection Program Second Draw Loans in the amount of $218,900 (the “Second Draw PPP Loan”). The Second Draw PPP Loan bears an interest rate of 1.0% per annum and is payable monthly commencing on February 28, 2022, if loan forgiveness is not requested by that date. The loan funds are eligible for full forgiveness if used for qualifying expenses, such as payroll, group health benefits, rent and utilities.

In accordance with ASC 855-10 Company management reviewed all material events through the date of issuance of this report and, other than the Second Draw PPP Loan, there are no material subsequent events to report.

Item 2.Management’ Management’ss Discussion and Analysis of Financial Statements and Results of Operations

This quarterly report on Form 10-Q (“quarterly report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), that are based on management’s beliefs and assumptions and on information currently available to them.management. For this purpose any statement contained in this annual report that is not a statement of historical fact may be deemed to be forward-looking, including, but not limited to statements about future demand for the products and services we offer, changes in the composition of the products and services we offer, the impact of the loss of one or more major customers, our revenue, spending,ability to add new customers to replace the loss of current customers, the regulatory environment in which we operate, future revenues, expenses, results of operations, liquidity, capital resources or cash flow, products, new customer acquisitions, trends,flows, or our actions, intentions, plans, strategies and objectives.objectives and other risks and uncertainties detailed elsewhere in this annual report. Without limiting the foregoing, words such as “may,” “hope,” “will,“believe,” “expect,” “believe,” “anticipate,” “estimate,” “project,” “intend,” “budget,“estimate,” “plan,” “objective,” “future,” “forecast,” “predict,” “may,” “will,” “likely,” “could,” “should,” or “continue”“anticipate” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial riskknown and uncertainty,unknown risks, uncertainties, and other factors that may cause our actual results, may differperformance or achievements or the industry to be materially depending on a variety of factors, many of which are not within our control. Thesedifferent from any future results, performance or achievements or industry outcomes expressed or implied by such forward-looking statements. Such factors include, but are not limited to economic conditions generally and in the industry in which we and our customers participate; the impacts of the COVID-19 pandemic and our ability to react to those impacts; cost reduction efforts by our existing and prospective customers; competition within our industry, including competition from much larger competitors; business combinations; legislative requirements or changes which could render our services less competitive or obsolete; our failure to successfully develop new services, and/or products or to anticipate current or prospective customers’ needs; our ability to retain existing customers and to attract new customers; price increases; employee limitations;to:

For more detailed information about particular risk factors related to us and our business, see Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020, filed the Securities and Exchange Commission (the “Commission”) on March 31, 2021 (the “Annual Report”).

Forward-looking statements are predictions and not guarantees of future performance or events. Forward-looking statements are based on current industry, financial and economic information, which we havemanagement has assessed but which by its nature, is dynamic and subject to rapid and possibly abrupt changes.change. 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.statements. We hereby qualify all our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of their datesthe date of this quarterly report, unless otherwise indicated, and should not be unduly relied upon.upon in making investment or voting decisions. We undertake no obligation to publicly update or revise any forward-looking statementsstatement whether as a result of new information, future events or otherwise (other than pursuant to reporting obligations imposed on registrants pursuant to the Exchange Act) to reflect subsequent events or circumstances.

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

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

Overview

We incorporated under the laws of the state of Utah in April 1970 under the name Clear Air, Inc.  We changed our name to Pacific Health Care Organization, Inc., in January 2001.  We have six wholly owned subsidiaries. In February 2001 we acquired Medex Healthcare, Inc. (“Medex”), a California corporation organized in March 1994, in a share for share exchange.  Medex is in the business of managing and administering both Health Care Organizations (“HCOs”) and ManagedMedical Provider Networks (“MPNs”) in the state of California.  In August 2001 we formed Industrial Resolutions Coalition, Inc. (“IRC”), a California corporation.corporation, as a wholly owned subsidiary of PHCO.  IRC oversees and manages the Company’sour Workers’ Compensation Carve-Outscarve-outs services. In June 2010 we acquired Medex Legal Support, Inc. (“MLS”), a Nevada corporation incorporated in September 2009.  MLS offers lien representation services and Medicare Set-AsideSet-aside services (“MSA”).  In February 2012 we incorporated Medex Medical Management, Inc., (“MMM”) in the state of Nevada, as a wholly owned subsidiary of the Company.  MMM is responsible for overseeing and managing medical case management services. In March 2011 we incorporated Medex Managed Care, Inc. (“MMC”) in the state of Nevada.Nevada, as a wholly owned subsidiary of the Company.  MMC oversees and manages the Company’s utilization review and managed bill review services. In February 2012, we incorporated Medex Medical Management, Inc., (“MMM”) in the state of Nevada. MMM is responsible for overseeing and managing medical case management services. In October 2018 we incorporated Pacific Medical Holding Company, Inc. (“PMHC”) in the state of Nevada to act as a holding company for future potential acquisitions.

Business of the Company

We offer an integrated and layered array of complimentary business solutions that enable our customers to better manage their employee workers’ compensation-related healthcare administration costs. We are workers’ compensation cost containment specialists providing a rangeconstantly looking for ways to expand the suite of services principally to California employers and claims administrators. we can provide our customers, either through strategic acquisitions or organic development.

Our business objective is to deliver value to our clientscustomers that reduces their workers’ compensation relatedcompensation-related medical claims expense in a manner that will assure that injured employees receive high quality healthcare that allows them to recover from injury and return to gainful employment without undue delay. According to studies conducted by auditing bodies on behalf of the California Division of Workers’ Compensation, (“DWC”) the two most significant cost drivers for workers’ compensation are claims frequency and medical treatment costs. Our services focus on containing medical treatment costs.

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

Our clientscore services focus on reducing medical treatment costs by enabling our customers to share control over the medical treatment process. This control is primarily obtained by participation in one of our medical treatment networks. We hold several valuable government-issued licenses to operate medical treatment networks. Through Medex we hold two of the total of seven licenses issued by the state of California to establish and manage HCOs within the state of California. We also hold approvals issued by the state of California to act as an MPN and currently administer 30 MPNs. Our HCO and MPN programs provide our customers with provider networks within which the customer has some ability to direct the administration of the claim. This is designed to decrease the incidence of fraudulent claims and disability awards and ensure injured employees receive the necessary back-to-work rehabilitation and training they need. Our medical bill and utilization review services provide oversight of medical billing and treatment requests, along with medical case management, which keeps medical treatment claims progressing to a resolution and assures treatment plans are aligned from a medical perspective.

Our customers include self-administered employers, insurers, third party administrators, municipalities, and others. Our principal clientscustomers are companies with operations located in the state of California where the high cost of workers’ compensation insurance is a critical problem for employers. We processemployers, though we have processed medical bill reviews in 2517 states. Our provider networks, which are located only in California, are composed of expertsproviders experienced in treating worker injuries.

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

Impact of COVID-19 on our Business

In late 2019 the novel coronavirus, COVID-19, was identified. By February 2020, the virus had spread to many countries around the world, including the United States. By late February, authorities in the United States began advising American businesses to prepare for the effects of the outbreak. On March 19, 2020, the governor of California issued a stay-at-home order except for essential services, such as grocery stores, gas stations and banks. In mid-March 2020 we implemented our disaster recovery and business plan addressing how our business operations would be performed by our employees working remotely. As a result, since that time, nearly 100% of our employees have been working remotely and performing approximately 95% of our typical business functions, with the primary exceptions being certain manual, non-critical functions.

Even thoughTo date, we have been able to transitionadapt our business operations to a primarily remote workforce, with no material interruptions in service, data breaches, technology failures, or ability to complete mission-critical functions. So far, we have been able to effectively maintain contact with employees, partners, clients, and other related parties using technological solutions such as virtual meetings, enhanced collaboration programs, and have developed policies and protocols to ensure department and employee performance quality is maintained despite the change in work forcesetting. This has resulted in costs associated with maintaining a remote workforce, including reimbursing employees for internet, phone, and work flowoffice supply expenses; costs of sanitizing and cleaning the office after potential COVID-19 exposure events; costs of cleaning and PPE supplies; additional computer hardware costs; and some administrative burdens in complying with California laws and regulations related to address the restrictions designed to “flatten the curve” of the COVID-19 pandemic, the extent of the long-term adverse effect of the COVID-19 pandemic on the economy, our industry, our results of operations and financial condition is unknown and largely dependent on future developments, most of which, including the severity and duration of this pandemic, are beyond our control.safety.

Revenue for our services is derived from our employer customers’ employee counts and workers’ workplace injuries. Several of our employer customers, including some of our largest customers, have had to suspend or significantly modify their operations during the stay-at-home order issued bypandemic. Until the governorimpacts of California.COVID-19 on our customers’ businesses lessen, employees return to more normal workloads and the occurrence of workplace injuries returns to more traditional levels, we anticipate our revenues will continue to be negatively affected.

TheAs of the date of this report, California’s modified state orders have been modified to allow some categories of businesses, to re-open under COVID-19 restrictions, while others, such as bars and restaurants, have been under various orders that have forced closures and re-openings several times. As of November 13, 2020, most clientincluding businesses are allowedoperated by our customers, to operate under COVID-19 restrictions, butsuch as limited capacity. Under the California state orders, the determination of which businesses are continuingaffected will be on a county by county-basis as COVID-19 cases reach certain thresholds. Despite the modified state orders, we anticipate that our affected customers will continue to experience lower-thanlower than normal business volume and employee counts due to the pandemic.

On May 6, 2020, the governor of California issued an executive order declaring that any employee who becomes ill with COVID-19 will be presumed to have contracted the disease in the workplace if the worker worked onsite any time during the fourteen-day period prior to the onset of the illness. The presumption is rebuttable by the employer with sufficient evidence discovered within 30 days, but in many cases this places the burden of medical care for COVID-19 cases on employers. The executive order was valid through July 5, 2020. A new California bill has been passed legislation to address employer liability in Workers’ Compensationworkers’ compensation for COVID-19 cases contracted after the expiration of the Governor’s executive order. The bill includes a requirement that a certain percentage of the employer’s workers be confirmed to have contracted the coronavirus before a rebuttable presumption of industrial origin is applied to individual cases, which may impactcases. At this time, the extent to which Workers’ Compensation isworkers’ compensation will be used to address itsCOVID-19 treatment in California.California is unclear.

On April 1, 2020, the Department of Labor issued regulations to implement the Families First Coronavirus Response Act (“FFCRA”) which provided employees paid leave for COVID-19 related illness for themselves and/or a family member and provided employers with tax credits. The Actuary Committee ofFFRCA expired on December 31, 2020. On March 11, 2021, the American Rescue Plan Act (“ARPA”) was signed into law. The ARPA makes tax credits available to employers with fewer than 500 employees who voluntarily choose to grant employees paid leave under the FFCRA through September 30, 2021, and updates certain FFCRA leave provisions. We voluntarily chose to extend the FFCRA paid leave through September 30, 2021 to employees for qualifying reasons and take the tax credits.

On March 19, 2021, California Workers’ Compensation Insurance Rating Bureau is presently attemptingpassed its own COVID-19 Supplemental Paid Sick Leave law (“CA SPSL”). It provides employees paid leave for COVID-19 related reasons such as caring for themselves, family members, or for vaccine related appointments or illnesses caused by COVID-19 or the vaccine from January 1, 2021 through September 30, 2021. The CA SPSL allows for employees to assess the impact of the COVID-19 pandemic onretroactively request reimbursement for qualifying leave or to use it towards future claims frequency and costs in relation to historically traditional claims frequency during times of severe economic downturn. They are especially focused on post-termination claims, work-at-home arrangements, and the COVID-19 presumption.requests through September 30, 2021.

For the first two and one-half months of the quarter ended March 31, 2020, the COVID-19 outbreak did not have a significant impact on our business. We began to experience some slowdown in claims in the last two weeks of March, which has continued through the third quarter of 2020. At this time, we cannot predict if, how or when our employer customers will be allowed to return to pre-COVID-19 operations/employment levels. We anticipate that reductions in employee counts and workplace injuries will continue to negatively impact our revenues and have an adverse impact on our results of operations and liquidity position.

On April 21, 2020, PHCO was granted a Paycheck Protection Program (“PPP”) loan for in an amount of $133,400. On April 30, 2020 and May 11, 2020 subsidiaries MMM and MMC were granted PPP loans of $267,700 and $59,600, respectively. In the spirit of the PPP loan program policy of protecting the continued economic stability of employees, we put virtually allthe majority of the PPP loan amounts towardwent towards payroll and employee benefit expenses. We are currentlyIn February 2021 PHCO, MMC, and MMM received full forgiveness of their PPP loans including interest. MMM was eligible for and received a Second Draw PPP Loan in the processamount of seeking$218,900 on April 1, 2021. This Second Draw PPP Loan can qualify for full loan forgiveness ofif the PPP loans viadisbursements meet the federal policies set forth for this purpose. required forgiveness criteria.

In late June 2020, the reduction in volume in some areas of our business became clear as a trend. As a result, and after attempts to cut expenses in other areas, it became necessary to institute a business restructuring that included a reduction in force. After conducting an analysis of departmental demand, departmental function, projected business needs, and personnel, we laid off four employees on July 16, 2020. The reduction in force has not impacted our customers or our revenue generation potential based on our current and projected business volume.

While weWe have taken steps to render our business functions remotely, to deploy these measures effectively, and to do our best to ensure data security in our transition to remote work during the pandemic, but there is no guarantee the measures we have takenthat they will be completely effective, that our productivity will not be adversely impacted, or that we will not encounter some of the common risks associated with a remote workforce, including employees accessing company data and systems remotely. As discussed in greater detail in Item 1A Risk Factors of our annual report on Form 10-K,Annual Report, our business has been and could continue to be materially and adversely affected by the potential interruptions to our business operations arising from the COVID-19 outbreak.

In addressing the risk of COVID-19 cases and Workers’ Compensation claims within the Company, we have also implemented onsite measures recommended by national, state, and local health authorities to reduce the chances of transmission among our employees. These measures include an office reopening plan, phased policy measures based on local and state orders and our own risk assessment, compliance with ventilation and other building-level recommendations as made possible by the building owner, physical barriers and signage, limited onsite presence, pre-shift symptom screening, requiring mask usage and social distancing, strictly limiting the occupancy of the office and each area within it, and other measures that as of the date of this report are recommended to reduce the risk of transmission of COVID-19 in office spaces.

Results of Operations

Comparison of the three months ended September 30, 2020 and 2019

The following represents selected components of our consolidated results of operations, for the three-month periods ended September 30,March 31, 2021 and 2020, and 2019, respectively, together with changes from period-to-period:

Revenue

Total revenues during the three-month period ended September 30, 2020, decreased 23% to $1,415,754 compared to $1,838,705 during the three-month period ended September 30, 2019. During the same period, HCO MPN, utilization review, medical bill review, medical case management and other fees decreased by 30%, 5%, 4%, 44%, 27%, and 29%, respectively.

HCO Fees

During the three-month periods ended September 30,March 31, 2021 and 2020, HCO fee revenues were $291,254 and 2019, HCO revenue was $264,781 and $376,170,$326,665, respectively.  The 30%11% decrease in HCO revenue was primarily attributable primarily to the loss of three HCO customers in the fourth quarter of 2019terminating HCO enrollment and early 2020 and COVID-19 business restrictions which caused employerfewer custom networks fees paid by customers to temporarily or permanently reduce their workforce,maintain custom provider lists. These decreases were partially offset by increasesan increase in claimclaims network fees, associated with COVID-19 related work illness. As a resultfee to access our network for each worker injury claim, resulting from an increase in the number of the COVID-19 business restrictions, fees generated to enroll employees into our HCO networks, monthly HCO program administration fees, and claim network fees for workplace injuries decreased.worker injury claims from a customer. HCO revenue is generated largely from fees charged to our employer customers for access to our HCO networks, per claim fees, notification fees and fees for other ancillary services the employer customers using our HCO networks maycustomers select. HCO notifications are mailed out annually and handed out by the employeremployers for all their new hires during the month. We prepare the mailings no earlier than three months prior to the end of the previous year’s enrollment so that our employers are able to prepare their employee rosters. Delays in the employer providing accurate and timely employee rosters can delay the notification process causing changes to when we record the revenues.

MPN Fees

MPN fee revenue for the three-month periods ended September 30,March 31, 2021 and 2020, was $131,878 and 2019, were $124,836 and $131,164,$120,749, respectively, a decreasean increase of 5%, primarily due to COVID-19 business restrictions which caused employers to temporarily or permanently reduce their workforce which resulted in a decrease9% resulting from an increase in the number of claims and MPN program fees.reported by two customers. Like HCO revenue, MPN revenue is generated largely from fees charged to our employer customers for access to our MPN networks, per claim fees and fees for other ancillary services the employer customers using our MPN networks maycustomers select. Unlike the HCO, MPNs do not require annual notifications, butnotifications. MPNs only require a notice to be given to an injured worker at the time the employer is notified by the injured worker that an injury has occurred.

Utilization Reviewreview

During the three-month periods ended September 30,March 31, 2021 and 2020, and 2019, utilization review revenue was $307,139$265,604 and $318,816,$296,055, respectively.  The decrease of 4%10% in the 20202021 period was primarily attributable to the loss of twoone customer and decreased activity from several others due to COVID-19. These decreases were partially offset by the addition of a new customer and increased activities from another customer.

Our customers in the third quarter of 2020 and fewer utilization referralsretain us to review proposals for review as a result of COVID-19 restrictions for non-essential medical treatment. Utilization review canis the review of medical treatment requests by providers to provide a safeguard for employers and injured workers against unnecessary and inappropriate medical treatment from the perspective of medical necessity, quality of care, and appropriateness of decision-making. Ourdecision-making, and timeliness of treatment. Its purpose is to reduce employer customers retain us to review proposalsliability for treatment.medical costs that are not medically appropriate or approved by the relevant medical and legal authorities and the payor.

Medical Bill Reviewbill review

During the three-month period ended September 30, 2020,March 31, 2021, medical bill review revenue was $77,075 and $136,793, respectively. Medical bill review revenue decreased by $59,718 when comparedincreased 16% to $96,667 from $83,079 during the same period a year earlier.  This decreaseincrease was primarily caused by processing fewer medical anddue to an increase in volume of hospital bills from existing customers due to COVID-19 restrictions placed onreviewed. The increase was partially offset by the delivery by medical providers for non-essential medical treatment. Manyloss of our existing customers have elected to pay the fee schedule, as opposed to having us review their hospital bills. a customer.

Medical bill review involves analyzing medical provider services and equipment billing to ascertain proper reimbursement.  Such services include, but are not limited to, coding review and re-bundling, confirming that the services are customary and reasonable, fee schedule compliance, out-of-network bill review, pharmacy review, and preferred provider organization repricing arrangements.  Our medical bill review services can result in significant network savings.savings for our customers.

Medical Case Managementcase management

During the three months ended September 30,March 31, 2021 and 2020, and 2019, medical case management revenue was $590,784$484,433 and $804,004,$677,212, respectively. The decrease in medical case management revenue of $213,220 was primarily due to COVID-19 restrictions placed on the deliveryresult of non-essential medical treatment by medical providers and the loss of two customers and a decrease in the third quarternumber and amount of 2020,time spent on claims managed with existing customers. The decrease was partially offset by increases in medical management services on new and existing claims with current customers and the addition of a new customer.

Medical case management keeps medical treatment claims progressing to a resolution and assures treatment plans are aligned from a medical perspective. Medical oversight is a collaborative process that assesses, evaluates, coordinates, implements and monitors medical treatment plans implements, coordinates, monitors and evaluates the options and services required to meet an injured worker’s health needs. A medical case manager acts as a liaison between the injured worker, claims adjuster, medical providers and attorneys to achieve optimal results for injured workers and employer/clients.customers. We work to manage the number of nurses in our program to maintain our ratio of claims per nurse at a level that ensures timely and appropriate medical care is given to the injured worker and facilitates a faster claim closureclaims closures for our customers.

Other

Other fees may consist of revenue derived from network access, fees, lien representation, legal support services, Medicare set-asideMedicare-set-aside and workers’ compensation carve-outcarve-outs services.  Other fee revenue for three-month periods ended September 30,March 31, 2021 and 2020, was $54,526 and 2019, was $51,139 and $71,758,$49,149, respectively. The decrease of $20,619increase was the result ofdue to an increase in Medicare-set-asides processed and fewer customersclaims accessing our network and Medicare set-asides referrals. We recorded no carve-out, lien representation, or legal support services during the three-month period ended September 30, 2020.network.

Expenses

Total expenses for the three months ended September 30,March 31, 2021 and 2020, were $1,203,769 and 2019, were $1,225,294 and $1,349,555,$1,381,728, respectively.  The 13% decrease of $124,261 was the result of increasesprimarily due to decreases in depreciation, bad debt provision, consulting fees, insurance, and outsource service fees, partially offset by depreciation and amortization, salaries and wages, professional fees, insurance, outsource service fees, data maintenance and general and administrative expenses.administrative.

Depreciation and Amortization

During the three-month period ended September 30, 2020,March 31, 2021, we recorded depreciation and amortization expense of $14,122$12,619 compared to $18,512$17,231 during the comparable 20192020 period.  The decrease in depreciation and amortization was primarily attributabledue to certain fixed assets beingequipment that had fully depreciated.depreciated prior to the quarter ended March 31, 2021.

Bad DebtConsulting fees Provision

During the three-month period ended September 30, 2020, bad debt provision increased to $11,000Consulting fees decreased from $8,000 during the three-month period ended September 30, 2019. This increase was primarily the result of an increase of customers with outstanding balances over 90 days during fiscal 2020, which was largely attributable to the impact of COVID-19 on the businesses of our customers.

Consulting Fees

During the three months ended September 30, 2020, consulting fees increased 1% to $58,621 compared to $57,945$75,693 during the three months ended September 30, 2019.March 31, 2020, to $57,123 during the three months ended March 31, 2021. This increasedecrease was the result of an increase in IT consulting fees offset by the termination ofterminating a consultant that was assistingand fewer consultant fees to assist with our insurance company acquisition search.

Salaries and Wageswages

During the three-month period ended September 30, 2020,March 31, 2021, salaries and wages decreased 12%7% to $694,352$694,618 compared to $789,319$745,989 during the same period in 2019. The decrease in salaries2020.  Salaries and wages waswere lower during the result of a reduction in our workforce of fourfirst quarter 2021 because we had fewer full-time employees.

Professional Feesfees

For the three months ended September 30, 2020,March 31, 2021, we incurred professional fees of $68,979$65,829 compared to $86,241$87,226 during the three months ended September 30, 2019.March 31, 2020. The 20% decrease in professional fees was mainly the result of lower legal andfewer fees paid for outsourced medical case management services and lower fees paid to board members as a result of fewer board meetings being held during the three months ended March 31, 2021. These reductions were partially offset by increases inincreased professional fees paid for outsourced accounting fees.services.

Insurance

During the three-month period ended September 30, 2020,March 31, 2021, we incurred insurance expenses of $91,951,$86,696, a 13% increase9% decrease over the same three-month period in 2019. This increase2020.  The decrease in insurance expense was primarily attributable to increasesdecreases in our group health insurance premiums as we had fewer full-time employees in the first quarter of 2021. This decrease was partially offset by the increases in insurance expenses for business, director and officer liability, and workers’ compensation. We expect insurance fees to increase in May and August 2021, when our business insurances and current group health insurance premiums when compared to the same period in 2019.plan are up for renewals, respectively.

Outsource Service Feesservice fees

Outsource service fees consist of costs incurred by our subsidiaries in as a result of partially outsourcing general administrative tasks, utilization review, medical bill review, medical case management and Medicare set-aside services, and field medical case management fees and typically tendstend to increase and decrease in correspondence with increases and decreases in demand for those services. We incurred $115,803$101,803 and $111,567$106,114 in outsource service fees during the three-month periods ended September 30,March 31, 2021 and 2020, and 2019, respectively. The increasedecrease of $4,236$4,311 was the result of decreases in outsourced services fees due to several factors including timing differences on re-enrollment notice deliveries and changes in enrollment. We anticipate our outsource service fees will continue to move correspondingly with the levels of client claims.

Data maintenance

During the three-month period ended March 31, 2021 and 2020, data maintenance fees were $13,296 and $39,728, respectively.  The decrease of 67% was primarily the result of increases in outsource services required for utilization review as we performed fewer utilization reviews in-house and outsourced more reviews duringrecording the third quarter 2020, partially offset by decreases in medical bill review, Medicare set-aside services, and field medical case management. We generally expect outsource service fees to fluctuate in correspondencecosts of notification associated with the level of utilization review, medical bill review and certain field medical case management services we provide.

Data Maintenance

During the three-month periods ended September 30, 2020 and 2019, data maintenance fees were $6,603 and $8,726, respectively. The decrease of $2,123 was the result of a reduction ofcustomer’s annual HCO and MPN notification fees for existing customers due to employer customers reducing their workforce as a result of COVID-19 business restrictionsrenotifications during the three-month period ended September 30, 2020March 31, 2021 when compared to the same period in 2019.2020. Data maintenance fees tend to fluctuate from month to month depending on when new customers are enrolled, when the annual renewal of existing customer notification is due, and how many new employees our customers enroll in our HCO or MPN program.